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TSYS Reports Fourth Quarter and Full Year Earnings

COLUMBUS, Ga.--(BUSINESS WIRE)--

Provides 2019 Outlook for Revenue and Earnings per Share

TSYS (TSS) today reported results for the fourth quarter and full year of 2018.

“Strong results in the fourth quarter closed out another exceptional year for our company. In 2018, we delivered outstanding financial results, expanded our Merchant capabilities with the acquisition of Cayan and iMobile3, and continued to make strategic long-term investments across the enterprise,” said M. Troy Woods, chairman, president and chief executive officer of TSYS.

Highlights for the fourth quarter of 2018 vs. 2017:

  • Total revenues were $1.02 billion, a decrease of 20.0%. The decrease is the result of adopting ASC 606.(1)
  • Net revenue (non-GAAP), which excludes reimbursable items, interchange and payment network fees, was $959.3 million, an increase of 10.2%.
  • Net income attributable to TSYS common shareholders was $136.4 million, a decrease of 43.7%. The decrease is the result of $135.9 million of tax benefit from the Tax Cuts and Jobs Act in 4Q 2017. Diluted EPS were $0.74, a decrease of 43.4%.
  • Adjusted earnings (non-GAAP) were $197.5 million, an increase of 30.8%. Adjusted diluted EPS (non-GAAP) were $1.08, an increase of 31.5%.
  • Adjusted EBITDA (non-GAAP) was $346.0 million, an increase of 18.0%.

Highlights for the full year of 2018 vs. 2017:

  • Total revenues were $4.03 billion, a decrease of 18.3%. The decrease is the result of adopting ASC 606.(1)
  • Net revenue (non-GAAP), which excludes reimbursable items, interchange and payment network fees, was $3.82 billion, an increase of 12.2%.
  • Net income attributable to TSYS common shareholders was $576.7 million, a decrease of 1.6%. The decrease is the result of $135.9 million of tax benefit from the Tax Cuts and Jobs Act in 4Q 2017. Diluted EPS were $3.14, a decrease of 0.8%.
  • Adjusted earnings (non-GAAP) were $821.3 million, an increase of 31.6%. Adjusted diluted EPS (non-GAAP) were $4.47, an increase of 32.7%.
  • Adjusted EBITDA (non-GAAP) was $1.37 billion, an increase of 14.4%.

(1) On January 1, 2018, TSYS adopted Accounting Standards Codification (ASC) 606 “Revenue from Contracts with Customers” using the modified retrospective transition method. The most significant impact of adopting ASC 606 in 2018 is primarily the result of gross versus net presentation of interchange and payment network fees. In 2018, these fees collected on behalf of the payment networks and card issuers are presented “net” of the amounts paid to them, as opposed to the “gross” presentation for certain of these fees in 2017.

2019 Outlook

TSYS’ 2019 guidance is as follows:

       

2019

Financial Outlook

Range

Percent

Change

(in millions, except per share amounts)        
Revenue:
Total revenues (GAAP) $4,190 to $4,290 4% to 6%
Net revenue (non-GAAP) $3,990 to $4,090 5% to 7%
 
Earnings per share:
Diluted EPS (GAAP) $3.48 to $3.63 11% to 16%
Adjusted diluted EPS attributable to TSYS common shareholders (non-GAAP)

$4.75

to

$4.90

6%

to

10%

 

2019 Segment Reporting Change

TSYS will change its profitability measure for its operating segments to adjusted segment EBITDA. As a result, TSYS has included on page 18 of this release a schedule recasting its 2018 and 2017 quarterly segment results reflecting the change.

Conference Call

TSYS will host its quarterly conference call at 5:00 p.m. ET on Tuesday, January 29. The conference call can be accessed via live webcast on the “Investor Relations” section of TSYS’ website at investors.tsys.com where an accompanying slide presentation will also be available. The replay will be archived for 12 months and will be available approximately 30 minutes after the completion of the call.

Non-GAAP Measures

This press release contains information prepared in conformity with GAAP as well as non-GAAP information. It is management’s intent to provide non-GAAP financial information to enhance understanding of its consolidated financial information as prepared in accordance with GAAP. This non-GAAP information should be considered by the reader in addition to, but not instead of, the financial statements prepared in accordance with GAAP. Each non-GAAP financial measure and the most directly comparable GAAP financial measure are presented so as not to imply that more emphasis should be placed on the non-GAAP measure. The non-GAAP financial information presented may be determined or calculated differently by other companies.

Additional information about non-GAAP financial measures, including, but not limited to, net revenue, adjusted earnings, adjusted EBITDA and adjusted diluted EPS, and a reconciliation of those measures to the most directly comparable GAAP measures is included on pages 12 to 16 in the financial schedules of this release.

About TSYS

TSYS® (TSS) is a leading global payments provider, offering seamless, secure and innovative solutions across the payments spectrum — for issuers, merchants and consumers. We succeed because we put people and their needs at the heart of every decision to help them unlock payment opportunities. It’s an approach we call People-Centered Payments®.

Our headquarters are located in Columbus, Ga., U.S.A., with approximately 13,000 team members and local offices across 13 countries. TSYS generated revenue of $4.0 billion in 2018, while processing more than 32.3 billion transactions. We are a member of The Civic 50 and were named one of the 2018 World's Most Ethical Companies by Ethisphere magazine. TSYS is a member of the S&P 500 and routinely posts all important information on its website. For more, visit 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,” “potential,” “will,” “could,” and similar expressions. These forward-looking statements include, among others, statements regarding TSYS’ earnings guidance for 2019 total revenues, net revenue, diluted EPS and adjusted diluted EPS, 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 or events 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, the material breach of security of any of TSYS’ systems; TSYS’ ability to integrate acquisitions and achieve the anticipated growth opportunities and other benefits of the acquisitions, particularly the recently completed Cayan acquisition; the effect of current domestic and worldwide economic conditions; risks associated with foreign operations, including adverse developments with respect to foreign currency exchange rates, and in particular with respect to the current environment, adverse developments with respect to foreign currency exchange rates as a result of the United Kingdom’s decision to leave the European Union (Brexit); expenses incurred associated with the signing of a significant client; conversions and deconversions of clients’ portfolios do not occur as scheduled; the deconversion of a significant client; changes occur in laws, rules, regulations, credit card association rules, prepaid industry 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 or limit the types and amounts of fees that can be charged to customers, and in particular the CFPB’s new rule regarding prepaid financial products, including its effective date; the potential for our systems and software to contain undetected errors, viruses or defects; the costs and effects of litigation, investigations or similar matters or adverse facts and developments relating thereto; adverse developments with respect to the payment card industry in general, including a decline in the use of cards as a payment mechanism; one or more of the assumptions upon which earnings guidance for 2019 is based is inaccurate; and growth rates of TSYS’ existing clients are lower than anticipated or attrition rates of existing clients are higher than anticipated. Additional risks and other factors that could cause actual results or events 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. TSYS disclaims any obligation to update any forward-looking statements as a result of new information, future developments or otherwise except as required by law.

 
TSYS
Financial Highlights
(unaudited)
(in thousands, except per share data)
                   
Three Months Ended Twelve Months Ended
December 31,   December 31,  
Percent Percent
2018 2017 Change 2018 2017 Change
 
Total revenues $ 1,018,090 1,273,289 (20.0) % $ 4,028,211 4,927,965 (18.3) %
 
Cost of services 636,936 939,106 (32.2) 2,492,482 3,577,320 (30.3)
Selling, general and administrative expenses 171,368 160,262 6.9 712,991 616,601 15.6
Total expenses 808,304 1,099,368 (26.5) 3,205,473 4,193,921 (23.6)
 
Operating income 209,786 173,921 20.6 822,738 734,044 12.1
 
Nonoperating expenses (42,868) (27,702) (54.7) (162,974) (116,482) (39.9)
 

Income before income taxes and equity in income of equity investments

166,918 146,219 14.2 659,764 617,562 6.8
Income tax expense/(benefit) 40,341 (88,039) nm 127,003 65,878 92.8
Income before equity in income of equity investments 126,577 234,258 (46.0) 532,761 551,684 (3.4)
Equity in income of equity investments, net of tax 9,843 9,613 2.4 45,156 40,532 11.4
Net income 136,420 243,871 (44.1) 577,917 592,216 (2.4)
Net income attributable to noncontrolling interests - (1,663) 100.0 (1,261) (6,031) 79.1
 
Net income attributable to TSYS common shareholders $ 136,420 242,208 (43.7) % $ 576,656 586,185 (1.6) %
 
Earnings per share (EPS):
Basic EPS $ 0.75 1.33 (43.4) % $ 3.17 3.19 (0.7) %
 
Diluted EPS $ 0.74 1.31 (43.4) % $ 3.14 3.16 (0.8) %
 
Weighted average shares outstanding:
(includes participating securities)
Basic 181,844 182,661 182,066 183,745
Diluted 183,660 184,639 183,919 185,430
 
Dividends declared per share $ 0.13 0.13 - % $ 0.52 0.46 13.0 %
 

Non-GAAP measures:*

Net revenue $ 959,261 870,613 10.2 % $ 3,815,900 3,400,332 12.2 %
 
Adjusted EBITDA $ 346,022 293,277 18.0 % $ 1,370,453 1,197,673 14.4 %
 
Adjusted earnings $ 197,497 151,036 30.8 % $ 821,292 624,183 31.6 %
 
Adjusted diluted EPS $ 1.08 0.82 31.5 % $ 4.47 3.37 32.7 %

* See reconciliation of non-GAAP measures.

 

nm = not meaningful

 
TSYS
Segment Breakdown
(unaudited)
(in thousands)
               
Three Months Ended December 31, Twelve Months Ended December 31,
Change   Change  
2018   2017  

$

  %   2018   2017   $   %  
Adjusted operating income by segment:
Issuer Solutions (a) $ 151,804 145,671 6,133 4.2 % $ 608,392 574,580 33,812 5.9 %
Merchant Solutions (b) 124,213 94,915 29,298 30.9 484,197 391,466 92,731 23.7
Consumer Solutions (c) 44,384 38,831 5,553 14.3 193,472 182,082 11,390 6.3
Corporate admin and other (33,691) (37,395) 3,704 9.9 (151,167) (148,564) (2,603) (1.8)
Adjusted segment operating income (d) 286,710 242,022 44,688 18.5 1,134,894 999,564 135,330 13.5
Less:
Share-based compensation 15,843 13,946 1,897 13.6 48,758 42,409 6,349 15.0
Cayan and TransFirst M&A and integration expenses 6,714 3,281 3,433 nm 26,550 13,367 13,183 98.6
Litigation, claims, judgments or settlements - 43 (43) (100.0) - 1,947 (1,947) (100.0)
Acquisition intangible amortization 54,367 50,831 3,536 7.0 236,848 207,797 29,051 14.0
Operating income 209,786 173,921 35,865 20.6 822,738 734,044 88,694 12.1
Nonoperating expenses (42,868) (27,702) (15,166) (54.7) (162,974) (116,482) (46,492) (39.9)

Income before income taxes and equity in income of equity investments

$ 166,918 146,219 20,699 14.2 % $ 659,764 617,562 42,202 6.8 %
 
Net revenue by segment:
Issuer Solutions (e) $ 439,255 413,869 25,386 6.1 % $ 1,718,177 1,594,959 123,218 7.7 %
Merchant Solutions (f) 334,617 282,714 51,903 18.4 1,344,718 1,103,682 241,036 21.8
Consumer Solutions (g) 199,839 186,422 13,417 7.2 806,430 746,870 59,560 8.0
Segment net revenue 973,711 883,005 90,706 10.3 3,869,325 3,445,511 423,814 12.3
Less: Intersegment revenues 14,450 12,392 2,058 16.6 53,425 45,179 8,246 18.3
Net revenue (h) 959,261 870,613 88,648 10.2 3,815,900 3,400,332 415,568 12.2

Add: reimbursable items, interchange and payment network fees

58,829 402,676 (343,847) (85.4) 212,311 1,527,633 (1,315,322) (86.1)
Total revenues $ 1,018,090 1,273,289 (255,199) (20.0) % $ 4,028,211 4,927,965 (899,754) (18.3) %
 
 
Adjusted segment operating margin on segment net revenue:
Issuer Solutions (a)/(e) 34.6% 35.2% 35.4% 36.0%
Merchant Solutions (b)/(f) 37.1% 33.6% 36.0% 35.5%
Consumer Solutions (c)/(g) 22.2% 20.8% 24.0% 24.4%
 
Adjusted segment operating margin on net revenue (d)/(h) 29.9% 27.8% 29.7% 29.4%
 
nm = not meaningful

 

                 
 
TSYS
Segment Breakdown
(unaudited)
(in thousands)
 
Three Months Ended December 31,   Twelve Months Ended December 31,
Change   Change
2018   2017   $     %     2018     2017     $     %      
Depreciation and amortization by segment:
Issuer Solutions $ 31,021 38,627 (7,606 ) (19.7 ) % $ 119,402 147,914 (28,512 ) (19.3 ) %
Merchant Solutions 7,351 7,487 (136 ) (1.8 ) 30,713 29,477 1,236 4.2
Consumer Solutions 4,549 3,782 767   20.3 17,424   15,838   1,586   10.0
Depreciation and amortization 42,921 49,896 (6,975 ) (14.0 ) 167,539 193,229 (25,690 ) (13.3 )
Acquisition intangible amortization 54,367 50,831 3,536 7.0 236,848 207,797 29,051 14.0
Corporate admin and other 1,275 1,358 (83 ) (6.1 ) 4,186   4,880   (694 ) (14.2 )
Total depreciation and amortization* $ 98,563 102,085 (3,522 ) (3.5 ) % $ 408,573   405,906   2,667   0.7 %
 
*Client incentive/contract asset amortization and contract cost asset amortization are no longer included in depreciation and amortization due to the adoption of ASC 606 on January 1, 2018
 
 

Segment statistical data:

 

Issuer Solutions

Total transactions (in millions) 6,597.3 5,863.5 733.8 12.5 % 24,350.0 21,575.6 2,774.4 12.9 %
Total Accounts on file (AOF) (in millions) 739.3 797.5 (58.2 ) (7.3 ) %
Total Traditional AOF (in millions) 614.0 571.9 42.1 7.4 %
 

Merchant Solutions

Point-of-sale transactions (in millions) 1,502.6 1,221.8 280.8 23.0 % 5,874.6 4,844.1 1,030.5 21.3 %
Dollar sales volume (in millions) $ 41,103.8 32,439.0 8,664.8 26.7 % $ 159,642.8 124,165.1 35,477.7 28.6 %
Segment net revenue per transaction $ 0.223 0.231 (0.009 ) (3.8 ) % $ 0.229 0.228 0.001 0.5 %
 

Consumer Solutions

Gross dollar volume (in millions) $ 8,381.8 7,579.7 802.1 10.6 % $ 34,465.5 32,034.8 2,430.7 7.6 %
Direct deposit 90-day active cards (in thousands) 2,512.9 2,395.1 117.8 4.9 %
90-day active cards (in thousands) 5,024.2 4,902.9 121.3 2.5 %
% of 90-day active cards with direct deposit 50.0 % 48.9 %
     
 
TSYS
Condensed Balance Sheet
(unaudited)
(in thousands)
 
December 31, 2018 December 31, 2017
Assets
Current assets:
Cash and cash equivalents $ 471,156 450,357
Accounts receivable, net 450,322 412,322
Contract assets 30,950 -
Other current assets 188,355 216,565
Total current assets 1,140,783 1,079,244
Goodwill 4,114,838 3,264,071
Software and other intangible assets, net 1,331,238 1,110,861
Property and equipment, net 383,074 325,218
Contract assets - long-term 47,839 -
Contract cost assets - long-term 145,598 258,665
Other long term assets 305,339 293,630
Total assets $ 7,468,709 6,331,689
 
Liabilities
Current liabilities:
Accounts payable $ 97,956 62,310

Current portion of long-term borrowings, capital leases and license agreements

29,125 565,812
Contract liabilities 47,227 52,913
Other current liabilities 341,293 308,057
Total current liabilities 515,601 989,092

Long-term borrowings, capital leases and license agreements, excluding current portion

3,889,541 2,628,002
Deferred income tax liabilities 380,278 238,317
Contract liabilities - long-term 21,489 48,526
Other long-term liabilities 75,894 71,070
Total liabilities 4,882,803 3,975,007
Redeemable noncontrolling interest - 115,689
Equity 2,585,906 2,240,993
Total liabilities and equity $ 7,468,709 6,331,689
 
       
TSYS
Selected Cash Flow Highlights
(unaudited)
(in thousands)
 
Twelve Months Ended December 31,
2018 2017
Cash flows from operating activities:
Net income $ 577,917 592,216

Adjustments to reconcile net income to net cash provided by operating activities:

Equity in income of equity investments, net of tax (45,156 ) (40,532 )
Dividends received from equity investments 24,921 20,589
Depreciation and amortization 408,573 405,906
Amortization of debt issuance costs 4,982 4,307
Share-based compensation 48,758 42,409
Deferred income tax expense (benefit) 21,400 (172,488 )
Other noncash adjustments 83,586 78,498
Changes in operating assets and liabilities   (83,314 ) (73,856 )
Net cash provided by operating activities   1,041,667   857,049  
 
Purchases of property and equipment (113,266 ) (70,039 )
Additions to licensed computer software from vendors (89,756 ) (25,916 )
Additions to internally developed computer software (39,162 ) (30,265 )
Additions to contract acquisition costs - (69,806 )
Cash used in acquisitions, net of cash acquired (1,051,629 ) -
Proceeds from the sale of acquisition intangibles 3,847 -
Other investing activities   (4,183 ) (2,718 )
Net cash used in investing activities   (1,294,149 ) (198,744 )

 

Principal payments on long-term borrowings, capital lease obligations and license agreements

(2,812,366 ) (421,306 )
Proceeds from long-term borrowings 3,477,000 200,000
Debt issuance costs (16,004 ) -
Purchase of noncontrolling interests (126,000 ) (70,000 )
Dividends paid on common stock (94,557 ) (79,017 )
Proceeds from exercise of stock options 31,177 21,832
Repurchase of common stock (172,966 ) (284,237 )
Other financing activities   (3,777 ) (5,997 )
Net cash provided by (used in) financing activities   282,507   (638,725 )
 
Cash, cash equivalents and restricted cash:

Effect of exchange rate changes on cash, cash equivalents and restricted cash

  (7,116 ) 5,980  
Net increase in cash, cash equivalents and restricted cash 22,909 25,560
Cash, cash equivalents and restricted cash at beginning of period   451,370   425,810  
Cash, cash equivalents and restricted cash at end of period $ 474,279   451,370  
 
Supplemental
Capital expenditures $ 242,184   196,026  
Free cash flow (non-GAAP)* $ 799,483   661,023  
 
* See reconciliation of non-GAAP measures.
Certain prior year amounts have changed due to the adoption of ASU 2016-18 "Statement of Cash Flows (Topic 230):

Restricted Cash," which requires that a statement of cash flows explain the change in the total of cash, cash equivalents, and amounts generally described as restricted cash or restricted cash equivalents.

 
TSYS
Supplemental Information
(unaudited)
       
 
 
 
Other
AOF: Total Accounts on File
(in millions)

At

December 2018

At

December 2017

%

Change

 
Consumer 514.6 481.3 6.9
Commercial 57.8 54.2 6.5
Other 41.6   36.4   14.1
Traditional AOF 614.0 571.9 7.4
Prepaid*/Stored Value 11.8 38.6 (69.2 )
Government Services - 95.0 (100.0 )
Commercial Card Single Use 113.5   92.0   23.3
Total AOF 739.3   797.5   (7.3 )
* Prepaid does not include Consumer Solutions accounts.
 

Growth in Accounts on File (in millions):

December 2017 to

December 2018

December 2016 to

December 2017

Beginning balance 797.5 751.5
Change in accounts on file due to:
Internal growth of existing clients 57.9 53.1
New clients 30.1 29.8
Purges/Sales (29.6 ) (36.4 )
Deconversions (116.6 ) (0.5 )
Ending balance 739.3   797.5  
 
Reconciliation of GAAP to Non-GAAP Financial Measures
Non-GAAP Measures
 
The schedules below provide a reconciliation of revenues and operating results on a constant currency basis to reported revenues and operating income. This non-GAAP measure presents fourth quarter and year-to-date 2018 financial results using the previous year’s foreign currency exchange rates. On a constant currency basis, TSYS’ total year-to-date revenues for the fourth quarter of 2018 were lower 18.5% as compared to a reported GAAP decrease of 18.3%.
 
The schedules below also provide a reconciliation of total revenues to net revenue.
 
The schedules below also provide a reconciliation of diluted EPS to adjusted diluted EPS.
 
The schedules below also provide a reconciliation of net income to adjusted EBITDA.
 
The schedules below also provide a reconciliation of cash flows from operating activities and capital expenditures to free cash flow.
 
The schedules below also provide a reconciliation of 2019 guidance of total revenues to net revenue and diluted EPS to adjusted diluted EPS.
 
The tax rate used in the calculation of adjusted diluted EPS for the quarter and year is equal to an estimate of our annual effective tax rate on GAAP income. This effective rate is estimated annually and may be adjusted during the year to take into account events or trends that materially impact the effective tax rate including, but not limited to, significant changes resulting from tax legislation, material changes in the mix of revenues and expenses by entity and other significant events.
 
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 potential 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 measures of other companies due to potential inconsistencies in the method of calculation.
 
TSYS believes that its provision of non-GAAP financial measures provides investors with important 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 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 December 31, Twelve Months Ended December 31,
Percent Percent
  2018     2017   Change   2018       2017   Change

Consolidated

Total revenues (GAAP) $ 1,018,090 1,273,289 (20.0 ) % $ 4,028,211 4,927,965 (18.3 ) %
Foreign currency impact (1)   4,354   -   (10,325 )   -
Constant currency (2) (non-GAAP) $ 1,022,444   1,273,289 (19.7 ) % $ 4,017,886     4,927,965 (18.5 ) %
 
Net revenue (non-GAAP) $ 959,261 870,613 10.2 % $ 3,815,900 3,400,332 12.2 %
Foreign currency impact (1)   3,987   -   (9,704 )   -
Constant currency (2) (non-GAAP) $ 963,248   870,613 10.6 % $ 3,806,196     3,400,332 11.9 %
 
Operating income (GAAP) $ 209,786 173,921 20.6 % $ 822,738 734,044 12.1 %
Foreign currency impact (1)   494   -   (4,828 )   -
Constant currency (2) (non-GAAP) $ 210,280   173,921 20.9 % $ 817,910     734,044 11.4 %
 

Issuer Solutions

Segment net revenue (GAAP) $ 439,255 413,869 6.1 % $ 1,718,177 1,594,959 7.7 %
Foreign currency impact (1)   4,130   -   (9,446 )   -
Constant currency (2) (non-GAAP) $ 443,385   413,869 7.1 % $ 1,708,731     1,594,959 7.1 %
 
(1) Reflects the impact of calculated changes in foreign currency rates from the comparable period.
(2) Reflects current period results on a non-GAAP basis as if foreign currency rates did not change from the comparable prior year period.
 
Net Revenue
(unaudited)
(in thousands)
 
Three Months Ended December 31, Twelve Months Ended December 31,
Percent Percent
  2018   2017 Change   2018     2017 Change
Total revenues $ 1,018,090 1,273,289 (20.0 ) % $ 4,028,211 4,927,965 (18.3 ) %
Less: reimbursable items, interchange and payment network fees   58,829   402,676 (85.4 )   212,311     1,527,633 (86.1 )
Net revenue $ 959,261   870,613 10.2 % $ 3,815,900     3,400,332 12.2 %
               
Reconciliation of GAAP to Non-GAAP
 
Adjusted Diluted Earnings per Share
(unaudited)
(in thousands, except per share data)
 

Three Months Ended December 31,

Twelve Months Ended December 31,

Percent Percent
  2018     2017     Change   2018     2017     Change

Net income attributable to TSYS common shareholders (GAAP)

$ 136,420 242,208 (43.7 ) % $ 576,656 586,185 (1.6 ) %
Adjust for amounts attributable to TSYS common shareholders:
Add: Acquisition intangible amortization $ 54,334 50,683 7.2 $ 236,707 207,172 14.3
Add: Share-based compensation 15,843 13,944 13.6 48,757 42,399 15.0
Add: Cayan and TransFirst M&A and integration expenses* 6,714 3,281 nm 26,550 13,306 99.5
Add: Litigation, claims, judgments or settlements** - 43 (100.0 ) - 1,947 (100.0 )
Less: Tax impact of adjustments*** (17,091 ) (23,252 ) 26.5 (68,655 ) (90,955 ) 24.5
Add/less: Impact of Tax Cuts and Jobs Act****   1,277   (135,871 ) nm   1,277   (135,871 ) nm
Adjusted earnings (non-GAAP) $ 197,497   151,036   30.8 % $ 821,292   624,183   31.6 %

 

Diluted EPS - Net income attributable to TSYS common shareholders

As reported (GAAP) $ 0.74   1.31   (43.4 ) % $ 3.14   3.16   (0.8 ) %
 
Adjusted diluted EPS (non-GAAP) $ 1.08   0.82   31.5 % $ 4.47   3.37   32.7 %
 
Weighted average diluted shares outstanding   183,660   184,639     183,919   185,430  
 

* Costs associated with the Cayan and TransFirst acquisitions and integrations are included in selling, general and administrative expenses and nonoperating expenses.

** Litigation settlement or settlement discussions and related legal expenses.

*** Certain of these merger and acquisition costs are nondeductible for income tax purposes. Income tax impact includes discrete items as a result of the acquisitions.

****On December 22, 2017, President Trump signed into law the Tax Cuts and Jobs Act (the “Tax Act”). In addition to the reduction in the federal corporate income tax rate, TSYS realized a non-recurring income tax expense/(benefit) of $1.3 million and ($135.9) million for the years ended December 31, 2018 and 2017, respectively due to the reduction of certain deferred tax assets and liabilities and the repatriation of foreign earnings as a result of the Tax Act.

 

 

 

 
nm = not meaningful
           
Reconciliation of GAAP to Non-GAAP
       
Adjusted EBITDA
(unaudited)
(in thousands)
 

Three Months Ended December 31,

Twelve Months Ended December 31,

Percent Percent
  2018     2017     Change   2018     2017    

Change

Net income (GAAP) (a) $ 136,420 243,871 (44.1 ) % $ 577,917 592,216 (2.4 ) %
Adjust for:
Less: Equity in income of equity investments (9,843 ) (9,613 ) (2.4 ) (45,156 ) (40,532 ) (11.4 )
Less: Income tax expense/(benefit) 40,341 (88,039 ) nm 127,003 65,878 92.8
Add: Interest expense, net 40,016 28,217 41.8 158,881 116,028 36.9
Add: Depreciation and amortization* 98,563 102,085 (3.5 ) 408,573 405,906 0.7
Add: Client incentive/contract asset amortization* 7,216 - na 28,105 - na
Add: Contract cost asset amortization* 7,900 - na 35,729 - na
Less: (Gain)/loss on foreign currency translations 186 (343 ) nm (109 ) 907 nm
Less: Other nonoperating (income)/expenses 2,666 (172 ) nm 4,202 (453 ) nm
Add: Share-based compensation 15,843 13,947 13.6 48,758 42,409 15.0
Add: Cayan and TransFirst M&A and integration expenses** 6,714 3,281 nm 26,550 13,367 98.6
Add: Litigation, claims, judgments or settlements   -   43   (100.0 )   -   1,947   (100.0 )
Adjusted EBITDA (non-GAAP) (b) $ 346,022   293,277   18.0 % $ 1,370,453   1,197,673   14.4 %
 
Total revenues (c) $ 1,018,090   1,273,289   $ 4,028,211   4,927,965  
Net income margin on total revenues (GAAP) (a)/(c)   13.4 % 19.2 %   14.3 % 12.0 %
 
Net revenue (d) $ 959,261   870,613   $ 3,815,900   3,400,332  

Adjusted EBITDA margin on net revenue (non-GAAP) (b)/(d)

  36.1 % 33.7 %   35.9 % 35.2 %
 

* Client incentive/contract asset amortization and contract cost asset amortization are no longer included in depreciation and amortization due to the adoption of ASC 606 on January 1, 2018.

 

** Costs associated with the Cayan and TransFirst acquisitions and integrations are included in selling, general and administrative expenses.
 
nm = not meaningful
na = not applicable
           
Reconciliation of GAAP to Non-GAAP
     
Free Cash Flow
(unaudited)
(in thousands)
  Twelve Months Ended
Free cash flow: December 31,
  2018           2017  
 
Net cash provided by operating activities (GAAP) $ 1,041,667 857,049
Capital expenditures   (242,184 )   (196,026 )
Free cash flow (non-GAAP) $ 799,483     661,023  
 
   
Guidance Summary
(unaudited)
(in millions, except per share data)
 
 
Revenue: 2019 % Change
 
Total revenues (GAAP) $ 4,190 to $ 4,290 4 % to 6 %
Less: reimbursable items, interchange and
payment network fees   200   to   200  
Net revenue (non-GAAP) $ 3,990 to $ 4,090 5 % to 7 %
 
 
Earnings per share (EPS):
 
Diluted EPS (GAAP) $ 3.48 to $ 3.63 11 % to 16 %

Acquisition intangible amortization, share-based compensation, litigation, claims, judgments or settlements and Cayan and TransFirst M&A and integration expenses, less the tax impact of adjustments

  1.27   to   1.27  

Adjusted diluted EPS attributable to TSYS common shareholders* (non-GAAP)

$ 4.75 to $ 4.90 6 % to 10 %
                 
 
TSYS
Impact of New Revenue Guidance on Financial Statement Line items
(unaudited)
(in thousands, except per share data)
 
Three Months Ended Twelve Months Ended
December 31, 2018       December 31, 2018
Balances Effect of Balances Effect of
As Without Adoption Change As Without Adoption Change
Reported of Topic 606 Higher/(Lower) Reported of Topic 606 Higher/(Lower)
 
Total revenues $ 1,018,090 1,464,172 (446,082 ) 4,028,211 5,716,741 (1,688,530 )
Total expenses   808,304 1,255,287 (446,983 ) 3,205,473 4,887,026 (1,681,553 )
Operating income $ 209,786 208,885 901   822,738 829,715 (6,977 )
Income taxes $ 40,341 40,123 218   127,003 128,585 (1,582 )
Net income $ 136,420 135,739 681   577,917 583,314 (5,397 )
Net income attributable to TSYS common shareholders $ 136,420 135,739 681   576,656 582,053 (5,397 )
Earnings per share (EPS):
Basic EPS* $ 0.75 0.75 0.00   3.17 3.20 (0.03 )
Diluted EPS* $ 0.74 0.74 0.00   3.14 3.16 (0.03 )
 
* EPS amounts may not total due to rounding.
           
 
TSYS
Adjusted Segment EBITDA Historical Breakdown
(unaudited)
(in thousands)
 
 
1st Qtr 2nd Qtr 3rd Qtr 4th Qtr YTD
  2018     2018     2018     2018     2018  
Adjusted EBITDA by segment:
Issuer Solutions $ 195,764 195,275 199,204 196,718 786,961
Merchant Solutions 118,940 133,418 134,375 132,789 519,522
Consumer Solutions 53,667 54,545 53,806 48,934 210,952
Corporate admin and other   (37,449 ) (38,217 ) (38,897 ) (32,419 ) (146,982 )
Total 330,922 345,021 348,488 346,022 1,370,453
Less:
Share-based compensation 6,295 14,229 12,391 15,843 48,758
Cayan and TransFirst M&A and integration expenses 14,368 2,581 2,887 6,714 26,550
Litigation, claims, judgments or settlements - - - - -
Depreciation and amortization 104,388 104,290 101,332 98,563 408,573
Client incentive/contract asset amortization 6,874 6,712 7,303 7,216 28,105
Contract cost asset amortization   10,726   8,511   8,592   7,900   35,729  
Operating income 188,271 208,698 215,983 209,786 822,738
Nonoperating expenses   (37,642 ) (41,170 ) (41,294 ) (42,868 ) (162,974 )

Income before income taxes and equity in income of equity investments

$ 150,629   167,528   174,689   166,918   659,764  
 
 
1st Qtr 2nd Qtr 3rd Qtr 4th Qtr YTD
  2017     2017     2017     2017     2017  
Adjusted EBITDA by segment:
Issuer Solutions $ 170,726 183,012 184,457 184,298 722,493
Merchant Solutions 98,301 109,376 110,863 102,402 420,942
Consumer Solutions 52,740 50,224 52,345 42,613 197,922
Corporate admin and other   (34,530 ) (34,914 ) (38,204 ) (36,036 ) (143,684 )
Total 287,237 307,698 309,461 293,277 1,197,673
Less:
Share-based compensation 9,047 11,008 8,407 13,947 42,409
Cayan and TransFirst M&A and integration expenses 4,868 4,166 1,052 3,281 13,367
Litigation, claims, judgments or settlements 1,961 (83 ) 26 43 1,947
Depreciation and amortization 104,178 99,359 100,284 102,085 405,906
Client incentive/contract asset amortization - - - - -
Contract cost asset amortization   -   -   -   -   -  
Operating income 167,183 193,248 199,692 173,921 734,044
Nonoperating expenses   (29,903 ) (30,042 ) (28,835 ) (27,702 ) (116,482 )

Income before income taxes and equity in income of equity investments

$ 137,280   163,206   170,857   146,219   617,562  

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