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.
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