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Total System Services, Inc. : TSYS Reports EPS Growth of 18.6% for the First Quarter

04/24/2012 | 04:05pm US/Eastern
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TSYS today reported results for the first quarter with basic earnings per share at $0.30, an increase of 18.6% over 2011. Total revenues for the quarter were $461.2 million, an increase of 7.4%. Revenues before reimbursable items were $395.2 million, an increase of 9.0% for the quarter.

"Our first quarter results continue to benefit from strong same client transaction growth, which was 14.4% in our card issuer processing business, when compared to last year. POS transactions, excluding deconverted clients in our indirect business, were up 11% and sales volume from our direct merchant business was up 20.9% over same quarter last year. Operating income was $84.8 million, resulting in an increase of 16.2% over last year. Our consolidated organic revenue growth of 7.7% for the quarter was the main driver in our results. This quarter represents the 8th consecutive quarter that we reported positive year-over-year growth in revenues before reimbursable items," said Philip W. Tomlinson, chairman and chief executive officer of TSYS.

During the quarter, TSYS signed new contracts with Huntington Bancshares and Regions to process their credit card portfolios. In addition, a long-term agreement with The Royal Bank of Scotland for its UK, Irish and U.S. consumer credit and commercial businesses was renewed. "We continue to pursue our vision of being the leading global payment solutions provider through acquisitions and by putting people at the center of payments. We continue to believe TSYS will achieve our guidance of double digit growth in earnings per share and a solid top line revenue increase in 2012," said Tomlinson.

Conference Call

TSYS will host its quarterly conference call at 5:00 p.m. ET on Tuesday, April 24. The conference call can be accessed via simultaneous Internet broadcast at tsys.com by clicking on the link under "Webcasts" on the main homepage. The replay will be archived for 12 months and will be available approximately 30 minutes after the completion of the call. A slide presentation to accompany the call will be available by clicking on the link under "Webcasts" on the main homepage of tsys.com.

Non-GAAP Measures

The financial highlights section of this release contains the non-GAAP financial measures of revenues and operating results on a constant currency basis to describe TSYS' performance. Management uses these non-GAAP financial measures to better understand and assess TSYS' operating results and financial performance. TSYS believes these non-GAAP financial measures provide meaningful additional information about TSYS to assist investors in understanding and evaluating its operating results.

Additional information about non-GAAP financial measures and a reconciliation of those measures to the most directly comparable GAAP measures are included on pages 11 and 12 of this release.

About TSYS

At TSYS, (NYSE: TSS), we believe payments should revolve around people -- not the other way around. We call this belief "People-Centered Payments." By putting people at the center of every decision we make, with unmatched customer service and industry insight, TSYS is able to support financial institutions, businesses and governments in more than 80 countries. Offering merchant payment-acceptance solutions as well as services in credit, debit, prepaid, mobile, chip, healthcare and more, we make it possible for those in the global marketplace to conduct safe and secure electronic transactions with trust and convenience.

TSYS' headquarters are located in Columbus, Georgia, with local offices spread across the Americas, EMEA and Asia-Pacific. TSYS provides services to more than half of the top 20 international banks, is a Fortune 1000 company and was named one of the 2012 World's Most Ethical Companies by Ethisphere magazine. For more information, please visit us at www.tsys.com.

Forward-Looking Statements

This press release contains "forward-looking statements" - that is, statements related to future, not past, events. Forward-looking statements often address our expected future business and financial performance and often contain words such as "expect," "anticipate," "intend," "believe," "should," "plan," "will," "could," and similar expressions. These forward-looking statements include, among others, statements regarding TSYS' belief that it will achieve its guidance of double digit growth in earnings per share and a solid top line revenue increase in 2012, and the assumptions underlying such statements. These statements are based on the current beliefs and expectations of TSYS' management, are based on management's assumptions and are subject to significant risks and uncertainties. Actual results may differ materially from those contemplated by the forward-looking statements. A number of important factors could cause actual results to differ materially from those contemplated by our forward-looking statements in this press release. Many of these factors are beyond TSYS' ability to control or predict. These factors include, but are not limited to: continued consolidation and turmoil in the financial services and other industries during 2012, including the merger of TSYS clients with entities that are not TSYS processing clients, the sale of portfolios by TSYS clients to entities that are not TSYS processing clients and the nationalization or seizure by banking regulators of TSYS clients; TSYS is unable to control expenses and increase market share both domestically and internationally; TSYS is unable to manage the impact of slowing economic conditions and consumer spending; the material breach of security of any of TSYS' systems; the impact of potential and completed acquisitions, including the costs associated therewith and their being more difficult to integrate than anticipated; adverse developments with respect to foreign currency exchange rates; expenses are incurred associated with the signing of a significant client; the deconversion of a significant client; the impact of the Dodd-Frank Wall Street Reform and Consumer Protection Act on TSYS and on our clients; changes occur in laws, rules, regulations, credit card association rules or other industry standards affecting TSYS and our clients that may result in costly new compliance burdens on TSYS and our clients and lead to a decrease in the volume and/or number of transactions processed; the costs and effects of litigation, investigations or similar matters or adverse facts and developments relating thereto; adverse developments with respect to the credit card industry in general, including a decline in the use of credit cards as a payment mechanism; and internal growth rates of TSYS' existing clients are lower than anticipated whether as a result of unemployment rates, card delinquencies and charge-off rates or otherwise. Additional risks and other factors that could cause actual results to differ materially from those contemplated in this release can be found in TSYS' filings with the Securities and Exchange Commission, including our most recent Annual Report on Form 10-K. We believe these forward-looking statements are reasonable; however, undue reliance should not be placed on any forward-looking statements, which are based on current expectations. We do not assume any obligation to update any forward-looking statements as a result of new information, future developments or otherwise.

                 
TSYS
Financial Highlights
(unaudited)
(in thousands, except per share data)  
     
Three Months Ended
March 31,
Percent
2012   2011   Change
 
Total revenues $ 461,162 429,430 7.4 %
 
Cost of services 318,258 301,492 5.6
Selling, general and administrative expenses 58,073   54,910   5.8
 
Operating income 84,831 73,028 16.2
 
Nonoperating expenses (405 ) (728 ) 44.4
 
Income before income taxes, noncontrolling interests
and equity in income of equity investments 84,426 72,300 16.8
Income taxes 29,556   25,158   17.5
Income before noncontrolling interests and
equity in income of equity investments 54,870 47,142 16.4
Equity in income of equity investments 2,774   2,270   22.2
Net income 57,644 49,412 16.7
Net income attributable to noncontrolling interests (1,249 ) (622 ) nm
 
Net income attributable to TSYS common shareholders $ 56,395   48,790   15.6 %
 
Basic earnings per share $ 0.30   0.25   18.6 %
 
Diluted earnings per share $ 0.30   0.25   18.2 %
 
 
Dividends declared per share $ 0.10   0.07  
 
nm = not meaningful
 
 
               
TSYS
Consolidated Statements of Comprehensive Income
(unaudited)
(in thousands)
       
 
Three Months Ended
March 31,
 
2012   2011  
 
Net income $ 57,644 49,412
Other comprehensive income, net of tax:
Foreign currency translation adjustments 2,963 10,271
Postretirement healthcare plan adjustments 263   (182 )
Other comprehensive income 3,226   10,089  
Comprehensive income 60,870 59,501
Comprehensive income attributable to
noncontrolling interests (541 ) (721 )
Comprehensive income attributable to
TSYS common shareholders $ 60,329   58,780  
 
 
                   
TSYS
Earnings Per Share
(unaudited)
(in thousands, except per share data)
       
 
Three Months Ended Three Months Ended
March 31, 2012 March 31, 2011
Common Participating Common Participating
Stock Securities Stock Securities
 
Basic Earnings per share:
Net income $ 56,395 48,790
Less income allocated to nonvested awards (196 ) 196 (191 ) 191
Net income allocated to common stock for
EPS calculation ( a ) $ 56,199   196 48,599   191
 
Average common shares outstanding ( b ) 188,052   667 192,851   765
 
Average common shares and participating securities 188,719   193,616  
 
Basic Earnings per share ( a )/( b ) $ 0.30   0.29 0.25   0.25
 
Diluted Earnings per share:
Net income $ 56,395 48,790
Less income allocated to nonvested awards (196 ) 196 (191 ) 191
Net income allocated to common stock for
EPS calculation ( c ) $ 56,199   196 48,599   191
 
Average common shares outstanding 188,052 667 192,851 765
Increase due to assumed issuance of shares related
to common equivalent shares outstanding 1,010     305    
 
Average common and common
equivalent shares outstanding ( d ) 189,062   667 193,156   765
 
Average common and common
equivalent shares and participating securities 189,729   193,921  
 
Diluted Earnings per share ( c )/( d ) $ 0.30   0.29 0.25   0.25
 
 
 
TSYS
Segment Breakdown
(unaudited)
(in thousands)
       
Three Months Ended March 31,
 
Change
2012     2011     $     %  
Revenues before reimbursable items
North America Services 204,050 194,590 9,460 4.9 %
International Services 96,491 87,419 9,072 10.4 %
Merchant Services 98,356 86,519 11,837 13.7 %
Intersegment revenues (3,718 )   (5,885 )   2,167   36.8 %
Revenues before reimbursable items
from external customers 395,179     362,643     32,536   9.0 %
 
Total revenues
North America Services 240,599 230,558 10,041 4.4 %
International Services 100,360 90,710 9,650 10.6 %
Merchant Services 125,518 115,756 9,762 8.4 %
Intersegment revenues (5,315 )   (7,594 )   2,279   30.0 %
Revenues from external customers 461,162     429,430     31,732   7.4 %
 
Depreciation and amortization
North America Services 18,454 19,466 (1,012 ) (5.2 ) %
International Services 12,911 11,708 1,203 10.3 %
Merchant Services 8,786 9,146 (360 ) (3.9 ) %
Corporate Admin 722     748     (26 ) (3.5 ) %
Total depreciation and amortization 40,873     41,068     (195 ) (0.5 ) %
 
Segment operating income
North America Services 68,173 55,200 12,973 23.5 %
International Services 4,113 11,025 (6,912 ) (62.7 ) %
Merchant Services 34,219 26,923 7,296 27.1 %
Corporate Admin (21,674 )   (20,120 )   (1,554 ) (7.7 ) %
Operating income 84,831     73,028     11,803   16.2 %
 
Other:
Reimbursable items:
North America Services 36,549 35,968 581 1.6 %
International Services 3,869 3,291 578 17.6 %
Merchant Services 27,162 29,237 (2,075 ) (7.1 ) %
Intersegment revenues (1,597 )   (1,709 )   112   6.6 %
Reimbursable items 65,983     66,787     (804 ) (1.2 ) %
 
Volumes:
FTEs (full-time equivalents)
North America Services 3,886 4,299 (413 ) (9.6 ) %
International Services 2,697 2,118 579 27.3 %
Merchant Services 1,213 1,134 79 7.0 %
Corporate Admin 407     373     34   9.1 %
FTEs 8,203     7,924     279   3.5 %
 
At   Change
Total assets (in thousands) 3/31/2012     12/31/2011     $     %  
North America Services 1,676,032 1,621,664 54,368 3.4 %
International Services 439,948 433,203 6,745 1.6 %
Merchant Services 498,586 487,858 10,728 2.2 %
Intersegment assets (708,431 )   (684,333 )   (24,098 ) (3.5 ) %
Total assets 1,906,135     1,858,392     47,743   2.6 %
 
 
Three Months Ended March 31,
 
Change
2012     2011     Inc(Dec)   %  
North America Segment:
Accounts on File (AOF) (in millions) 361.8 309.6 52.2 16.9 %
Transactions (in millions) 1,893.0 1,626.8 266.2 16.4 %
 
International Segment:
AOF (in millions) 54.1 47.2 6.9 14.7 %
Transactions (in millions) 383.0 326.0 57.0 17.5 %
 
Merchant Segment:
Point-of-sale Transactions (in millions) 1,219.7 1,206.8 12.9 1.1 %
 
 
         
TSYS
Balance Sheet
(unaudited)
(in thousands)
Mar 31, 2012   Dec 31, 2011
Assets  
Current assets:
Cash and cash equivalents $ 370,955 316,337
Accounts receivable, net 253,732 248,541
Deferred income tax assets 7,695 12,872
Prepaid expenses and other current assets 80,598 72,431
     
Total current assets 712,980 650,181
Property and equipment, net 260,900 266,608
Computer software, net 205,027 215,244
Contract acquisition costs, net 161,464 162,987
Goodwill 356,121 355,498
Equity investments, net 85,891 82,924
Other intangible assets, net 79,440 81,250
Deferred income tax assets, net 4,970 4,069
Other assets 39,342 39,631
     
Total assets $ 1,906,135     1,858,392  
 
Liabilities
Current liabilities:
Current portion of notes payable $ 181,301 181,251
Accrued salaries and employee benefits 13,971 33,004
Accounts payable 35,827 26,095
Current portion of obligations under capital leases 13,201 14,363
Other current liabilities 138,734 125,863
     
Total current liabilities 383,034 380,576
Notes payable, excluding current portion 34,269 39,104
Deferred income tax liabilities 36,064 32,889
Obligations under capital leases, excluding current portion 23,418 24,489
Other long-term liabilities 61,126 60,325
     
Total liabilities 537,911     537,383  
Equity
Shareholders' equity:
Common stock 20,245 20,186
Additional paid-in capital 129,104 125,948
Accumulated other comprehensive income, net 3,489 (445 )
Treasury stock (221,927 ) (225,034 )
Retained earnings 1,418,140     1,380,634  
Total shareholders' equity 1,349,051     1,301,289  
Noncontrolling interests in consolidated subsidiaries 19,173     19,720  
Total equity 1,368,224     1,321,009  
Total liabilities and equity $ 1,906,135     1,858,392  
 
 
       
TSYS
Cash Flow
(unaudited)
(in thousands)
Three Months Ended March 31,
2012   2011  
 
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 57,644 49,412
Adjustments to reconcile net income to net cash
provided by operating activities:
Equity in income of equity investments (2,774 ) (2,270 )
Dividends received from equity investments - 13
Net loss (gain) on currency translation adjustments 504 352
Depreciation and amortization 40,873 41,068
Amortization of debt issuance costs 47 26
Share-based compensation 3,598 4,332
Excess tax expense (benefit) from share-based payment arrangements 510 (103 )
Asset impairments - 773
Provisions for (recoveries of) bad debt expense and billing
adjustments (144 ) 204
Charges for transaction processing provisions 1,063 1,296
Deferred income tax expense (benefit) 6,425 3,874
(Gain) loss on disposal of equipment, net (2 ) (1,497 )
Changes in operating assets and liabilities:
Accounts receivable (5,424 ) 2,971
Prepaid expenses, other current assets and other long-term assets (7,379 ) 14,046
Accounts payable 9,825 (4,635 )
Accrued salaries and employee benefits (19,111 ) (13,800 )
Other current liabilities and other long-term liabilities 12,942   6,109  
Net cash provided by operating activities 98,597   102,171  
 
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment, net (4,648 ) (5,960 )
Additions to licensed computer software from vendors (2,593 ) (1,280 )
Additions to internally developed computer software (4,435 ) (4,478 )
Proceeds from sale of tradename - 4,500
Cash used in acquisitions, net of cash acquired (1,750 ) -
Purchase of private equity investments (499 ) -
Additions to contract acquisition costs (5,099 ) (7,202 )
Net cash used in investing activities (19,024 ) (14,420 )
 
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on long-term debt borrowings and
capital lease obligations (6,505 ) (8,551 )
Proceeds from borrowings of long-term debt - -
Proceeds from exercise of stock options 2,701 1,119
Excess tax expense (benefit) from share-based payment arrangements (510 ) 103
Repurchase of common stock - (35,700 )
Purchase of noncontrolling interests - (174,050 )
Subsidiary dividends paid to noncontrolling shareholders (1,087 ) -
Dividends paid on common stock (18,913 ) (13,556 )
Net cash used in financing activities (24,314 ) (230,635 )
 
CASH AND CASH EQUIVALENTS:
Effect of exchange rate changes on cash and cash equivalents (641 ) 577  
Net increase (decrease) in cash and cash equivalents 54,618 (142,307 )
Cash and cash equivalents at beginning of period 316,337   394,795  
Cash and cash equivalents at end of period $ 370,955   252,488  
 
 
Supplemental Information:      
Accounts on File
Total
(in millions)

March
2012

March
2011

%
Change

Consumer Credit 197.2 183.4 7.5
Government Services 30.5 29.0 5.4
Retail 25.3   24.6   2.7
Total Consumer 253.0 237.0 6.8
Commercial 65.0 51.1 27.2
Other 9.4   6.3   48.4
Subtotal 327.4 294.4 11.2
Prepaid/Stored Value 88.5   62.3   42.0
Total AOF 415.9   356.7   16.6
 
 
 

Growth in Accounts on File (in millions):

March 2011 to
March 2012

March 2010 to
March 2011

Beginning balance 356.7 323.3
Change in accounts on file due to:
Internal growth of existing clients 36.7 23.1
New clients 41.8 32.4
Purges/Sales (18.5 ) (18.4 )
Deconversions (0.8 )     (3.7 )    
Ending balance 415.9       356.7      
 
 
Reconciliation of GAAP to Non-GAAP
                 
Non-GAAP Measures
 

The schedule below provides a reconciliation of revenues and operating results on a constant currency basis to reported revenues and operating income. This non-GAAP measure presents year-to-date 2012 financial results using the previous year's foreign currency exchange rates. On a year-to-date constant currency basis, TSYS' total revenues grew 7.6% as compared to a reported GAAP increase of 7.4%.

 
The non-GAAP financial measures of constant currency and revenues , with respect to year-to-date revenues and basic EPS presented by TSYS, are utilized by management to better understand and assess TSYS' operating results and financial performance. TSYS also uses the non-GAAP financial measures to evaluate and assess TSYS' financial performance against budget, as well as to evaluate financial performance for executive and management compensation purposes.

 

 

TSYS believes that non-GAAP financial measures are important to enable investors to understand and evaluate its ongoing operating results. Accordingly, TSYS includes non-GAAP financial measures when reporting its financial results to shareholders and investors in order to provide them with an additional tool to evaluate TSYS' ongoing business operations. TSYS believes that the non-GAAP financial measures are representative of comparative financial performance that reflects the economic substance of TSYS' current and ongoing business operations.
 
Although non-GAAP financial measures are often used to measure TSYS' operating results and assess its financial performance, they are not necessarily comparable to similarly titled captions of other companies due to potential inconsistencies in the method of calculation.
 
TSYS believes that its use of non-GAAP financial measures provides investors with the same key financial performance indicators that are utilized by management to assess TSYS' operating results, evaluate the business and make operational decisions on a prospective, going-forward basis. Hence, management provides disclosure of non-GAAP financial measures to give shareholders and potential investors an opportunity to see TSYS as viewed by management, to assess TSYS with some of the same tools that management utilizes internally and to be able to compare such information with prior periods. TSYS believes that the presentation of GAAP financial measures alone would not provide its shareholders and potential investors with the ability to appropriately analyze its ongoing operational results, and therefore expected future results. TSYS therefore believes that inclusion of non-GAAP financial measures provides investors with additional information to help them better understand its financial statements just as management utilizes these non-GAAP financial measures to better understand the business, manage budgets and allocate resources.
 
 
Reconciliation of GAAP to Non-GAAP
               
Constant Currency Comparison
(unaudited)
(in thousands)
   
Three Months Ended March 31,
Percent
2012   2011 Change
Consolidated
Constant currency (1) $ 462,251 429,430 7.6 %
Foreign currency (2) (1,089 ) -
Total revenues $ 461,162   429,430 7.4 %
 
Constant currency (1) $ 84,411 73,028 15.6 %
Foreign currency (2) 420   -
Operating income $ 84,831   73,028 16.2 %
 
International Services
Constant currency (1) $ 101,531 90,710 11.9 %
Foreign currency (2) (1,171 ) -
Total revenues $ 100,360   90,710 10.6 %
 
 
(1) Reflects current period results on a non-GAAP basis as if foreign currency rates did not change from the comparable prior year period.
(2) Reflects the impact of calculated changes in foreign currency rates from the comparable period.

TSYS Investor Relations
Shawn Roberts, +1.706.644.6081
shawnroberts@tsys.com


© Business Wire 2012
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