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TSYS Reports Third Quarter Earnings and Increases 2018 Outlook

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

TSYS (TSS) today reported results for the third quarter of 2018.

“We were very pleased to continue our momentum and performance for the third quarter as all three of our segments delivered exceptional results. This performance enables us to again raise our guidance for the year while continuing to invest for the long term,” said M. Troy Woods, chairman, president and chief executive officer of TSYS.

Highlights for the third quarter of 2018 vs. 2017:

  • Total revenues were $1,015.4 million, a decrease of 18.6%. The decrease is the result of adopting ASC 606.(1)
  • Net revenue (non-GAAP), which excludes reimbursable items, interchange and payment network fees, was $964.6 million, an increase of 13.1%.
  • Net income attributable to TSYS common shareholders was $156.0 million, an increase of 26.7%. Diluted EPS were $0.85, an increase of 28.0%.
  • Adjusted earnings (non-GAAP) were $212.4 million, an increase of 30.6%. Adjusted diluted EPS (non-GAAP) were $1.16, an increase of 32.0%.
  • Adjusted EBITDA (non-GAAP) was $348.5 million, an increase of 12.6%.

(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.

 

Revised 2018 Outlook

TSYS’ revised 2018 guidance is as follows:

 
       

Revised 2018

Financial Outlook

Range(1)(2)

   

 

Percent

Change

(in millions, except per share amounts)            
Revenue:
Total revenues (GAAP) $ 3,990 to $ 4,040 (19 %) to (18 %)
Net revenue (non-GAAP) $ 3,790 to $ 3,840 11 % to 13 %
 
Earnings per share:
Diluted EPS (GAAP) $ 3.09 to $ 3.15 (2 %) to 0 %
Adjusted diluted EPS attributable to TSYS common shareholders (non-GAAP)

$

4.41

to

$

4.47

31

%

to

33

%

Weighted average diluted shares outstanding 184
 
 

(2)  The estimated impact of the adoption of ASC 606(1) on TSYS’ revised 2018 Outlook is as follows:

 

Total revenues

($1,700

)

to

($1,675

)

Net revenue

 ($69

)

to

($62

)

Diluted EPS

 ($0.04

)

to

($0.03

)

Adjusted diluted EPS

($0.04

)

to

($0.03

)

 
 

Conference Call

TSYS will host its quarterly conference call at 5:00 p.m. ET on Tuesday, October 23. 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 11 to 15 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 $4.9 billion in 2017, while processing more than 27.8 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’ revised earnings guidance for 2018 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 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; 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 Nine Months Ended
September 30, September 30,
Percent Percent
2018 2017 Change 2018 2017 Change
 
Total revenues $ 1,015,371 1,247,576 (18.6 )% $ 3,010,121 3,654,676 (17.6 )%
 
Cost of services 624,363 898,471 (30.5 ) 1,855,546 2,638,214 (29.7 )
Selling, general and administrative expenses 175,025   149,413   17.1 541,623   456,339   18.7
Total expenses 799,388   1,047,884   (23.7 ) 2,397,169   3,094,553   (22.5 )
 
Operating income 215,983 199,692 8.2 612,952 560,123 9.4
 
Nonoperating expenses (41,294 ) (28,835 ) (43.2 ) (120,106 ) (88,780 ) (35.3 )
 

Income before income taxes and equity in income of equity investments

174,689 170,857 2.2 492,846 471,343 4.6
Income tax expense 31,112   54,628   (43.0 ) 86,662   153,917   (43.7 )
Income before equity in income of equity investments 143,577 116,229 23.5 406,184 317,426 28.0
Equity in income of equity investments, net of tax 12,383   8,497   45.7 35,313   30,919   14.2
Net income 155,960 124,726 25.0 441,497 348,345 26.7
Net income attributable to noncontrolling interests -   (1,631 ) 100.0 (1,261 ) (4,368 ) 71.1
 
Net income attributable to TSYS common shareholders $ 155,960   123,095   26.7 % $ 440,236   343,977   28.0 %
 
Earnings per share (EPS):
Basic EPS $ 0.85   0.67   28.0 % $ 2.42   1.87   29.4 %
 
Diluted EPS $ 0.85   0.66   28.0 % $ 2.40   1.85   29.3 %
 
Weighted average shares outstanding:
(includes participating securities)
Basic 182,428   184,272   182,140   184,107  
Diluted 183,846   185,809   183,601   185,472  
 
Dividends declared per share $ 0.13   0.13   - % $ 0.39   0.33   18.2 %
 

Non-GAAP measures:*

Net revenue $ 964,594   852,759   13.1 % $ 2,856,639   2,529,719   12.9 %
 
Adjusted EBITDA $ 348,488   309,461   12.6 % $ 1,024,431   904,396   13.3 %
 
Adjusted earnings $ 212,412   162,667   30.6 % $ 623,795   473,148   31.8 %
 
Adjusted diluted EPS $ 1.16   0.88   32.0 % $ 3.40   2.55   33.2 %
 
* See reconciliation of non-GAAP measures.
 
 
 
 
 
 
 
TSYS
Segment Breakdown
(unaudited)
(in thousands)
                                 
Three Months Ended September 30, Nine Months Ended September 30,
Change Change
2018     2017     $     % 2018     2017     $     %
Adjusted operating income by segment:
Issuer Solutions (a) $ 154,107 147,758 6,349 4.3 % $ 456,588 428,909 27,679 6.5 %
Merchant Solutions (b) 125,153 103,275 21,878 21.2 359,983 296,551 63,432 21.4
Consumer Solutions (c) 49,503 48,560 943 1.9 149,089 143,251 5,838 4.1
Corporate admin and other (39,911 ) (39,560 ) (351 ) (0.9 ) (117,477 ) (111,170 ) (6,307 ) (5.7 )
Adjusted segment operating income (d) 288,852 260,033 28,819 11.1 848,183 757,541 90,642 12.0
Less:
Share-based compensation 12,392 8,407 3,985 47.4 32,916 28,462 4,454 15.6
Cayan and TransFirst M&A and integration expenses 2,887 1,052 1,835 nm 19,836 10,086 9,750 96.7
Litigation, claims, judgments or settlements - 26 (26 ) (100.0 ) - 1,904 (1,904 ) (100.0 )
Acquisition intangible amortization 57,590       50,856       6,734   13.2 182,479       156,966       25,513   16.3
Operating income 215,983 199,692 16,291 8.2 612,952 560,123 52,829 9.4
Nonoperating expenses (41,294 )     (28,835 )     (12,459 ) (43.2 ) (120,106 )     (88,780 )     (31,326 ) (35.3 )

Income before income taxes and equity in income of equity investments

$ 174,689       170,857       3,832   2.2 % $ 492,846       471,343       21,503   4.6 %
 
Net revenue by segment:
Issuer Solutions (e) $ 434,332 401,074 33,258 8.3 % $ 1,278,921 1,181,090 97,831 8.3 %
Merchant Solutions (f) 346,309 281,819 64,490 22.9 1,010,101 820,968 189,133 23.0
Consumer Solutions (g) 195,810       179,918       15,892   8.8 606,591       560,448       46,143   8.2
Segment net revenue 976,451 862,811 113,640 13.2 2,895,613 2,562,506 333,107 13.0
Less: Intersegment revenues 11,857       10,052       1,805   18.0 38,974       32,787       6,187   18.9
Net revenue (h) 964,594 852,759 111,835 13.1 2,856,639 2,529,719 326,920 12.9

Add: reimbursable items, interchange and payment network fees

50,777       394,817       (344,040 ) (87.1 ) 153,482       1,124,957       (971,475 ) (86.4 )
Total revenues $ 1,015,371       1,247,576       (232,205 ) (18.6 )% $ 3,010,121       3,654,676       (644,555 ) (17.6 )%
 
 
Adjusted segment operating margin on segment net revenue:
Issuer Solutions (a)/(e) 35.5 %     36.8 % 35.7 %     36.3 %
Merchant Solutions (b)/(f) 36.1 %     36.6 % 35.6 %     36.1 %
Consumer Solutions (c)/(g) 25.3 %     27.0 % 24.6 %     25.6 %
 
Adjusted segment operating margin on net revenue (d)/(h) 29.9 %     30.5 % 29.7 %     29.9 %
 
nm = not meaningful
 
 
 
 
 
 
TSYS
Segment Breakdown
(unaudited)
(in thousands)
                                 
Three Months Ended September 30, Nine Months Ended September 30,
Change Change
2018     2017     $     % 2018     2017     $     %
Depreciation and amortization by segment:
Issuer Solutions $ 30,411 36,699 (6,288 ) (17.1 )% $ 88,382 109,287 (20,905 ) (19.1 )%
Merchant Solutions 8,014 7,588 426 5.6 23,362 21,990 1,372 6.2
Consumer Solutions 4,303     3,785     518   13.7 12,875       12,057       818   6.8
Depreciation and amortization 42,728 48,072 (5,344 ) (11.1 ) 124,619 143,334 (18,715 ) (13.1 )
Acquisition intangible amortization 57,590 50,856 6,734 13.2 182,479 156,966 25,513 16.3
Corporate admin and other 1,014     1,356     (342 ) (25.2 ) 2,912       3,521       (609 ) (17.3 )
Total depreciation and amortization* $ 101,332     100,284     1,048   1.0 % $ 310,010       303,821       6,189   2.0 %
 
*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) 6,154.7 5,494.9 659.8 12.0 % 17,752.7 15,712.1 2,040.6 13.0 %
Total Accounts on file (AOF) (in millions) 823.7 797.3 26.4 3.3 %
Total Traditional AOF (in millions) 594.4 562.1 32.3 5.8 %
 

Merchant Solutions

Point-of-sale transactions (in millions) 1,533.9 1,260.9 273.0 21.7 % 4,371.9 3,622.2 749.7 20.7 %
Dollar sales volume (in millions) $ 40,910.2 31,478.2 9,432.0 30.0 % $ 118,539.0 91,726.1 26,812.9 29.2 %
Segment net revenue per transaction $ 0.226 0.223 0.002 1.0 % $ 0.231 0.227 0.004 1.9 %
 

Consumer Solutions

Gross dollar volume (in millions) $ 8,053.2 7,242.3 810.9 11.2 % $ 26,083.7 24,455.1 1,628.6 6.7 %
Direct deposit 90-day active cards (in thousands) 2,503.7 2,315.3 188.4 8.1 %
90-day active cards (in thousands) 4,948.3 4,697.2 251.1 5.3 %
% of 90-day active cards with direct deposit 50.6 % 49.3 %
null
 
 
 
 
 
 
TSYS
Condensed Balance Sheet
(unaudited)
(in thousands)
         
September 30, 2018 December 31, 2017
Assets
Current assets:
Cash and cash equivalents $ 484,581 450,357
Accounts receivable, net 485,722 412,322
Contract assets 32,604 -
Other current assets 197,010 216,565
Total current assets 1,199,917 1,079,244
Goodwill 4,113,669 3,264,071
Software and other intangible assets, net 1,296,431 1,110,861
Property and equipment, net 372,900 325,218
Contract assets - long-term 49,956 -
Contract cost assets - long-term 147,732 258,665
Other long term assets 292,439 293,630
Total assets $ 7,473,044 6,331,689
 
Liabilities
Current liabilities:
Accounts payable $ 59,770 62,310

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

21,171 565,812