TSYS Reports EPS Growth Of 26.5% For The Second Quarter

TSYS (NYSE: TSS) today reported results for the second quarter of 2012. For the quarter, basic earnings per share was $0.35, an increase of 26.5% over 2011. Total revenues for the quarter were $462.7 million, an increase of 3.4% over 2011. Revenues before reimbursable items were $398.7 million and operating income was $92.1 million, increases of 4.9% and 17.3%, respectively, as compared to 2011.

“Our second quarter results continued to benefit from increases in the number of transactions processed in our issuer processing and indirect merchant acquiring businesses, increases in the dollar volume of transactions in our direct merchant acquiring business, our ongoing management focus on cost controls, and an expected nonrecurring tax benefit. Same client transaction growth in our card issuer processing business increased 12.7%. POS transactions, excluding deconverted clients in our indirect merchant acquiring business, were up 12.4% and sales volume in our direct merchant business was up 9.7%,” said Philip W. Tomlinson, chairman and chief executive officer of TSYS.

“Our recently announced renewal and expansion of our relationship with Bank of America was a defining accomplishment for TSYS as we have yet again demonstrated that we can deliver for one of the top credit card issuers in the world. The Bank of America signing, when coupled with the signing of a 12-year contract extension with Royal Bank of Scotland confirms my confidence in our outstanding management team and team members to get the job done,” said Tomlinson.

Taking into consideration TSYS’ reported results for the first half of 2012, and reductions in revenues associated with both the client requested delays in conversions previously scheduled for the second half of 2012 and the retention and expansion of the Bank of America issuer processing relationship, TSYS believes it will achieve the high end of its 2012 guidance for net income and EPS.

TSYS also announced that its Board of Directors has approved increasing the number of shares that may be repurchased under its current share repurchase plan from up to 15 million shares to up to 20 million shares. With the increase, TSYS has 10.3 million shares available to be repurchased. In addition, the Board of Directors extended the expiration date of the plan to April 30, 2014. The shares may be repurchased from time to time at prices considered attractive to management. Repurchased shares will be used for general corporate purposes.

Conference Call

TSYS will host its quarterly conference call at 5:00 p.m. ET on Tuesday, July 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 the high-end of its guidance range for net income and EPS for 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 Six Months Ended
June 30, June 30,
Percent Percent
2012   2011   Change 2012   2011   Change
 
Total revenues $ 462,651 447,554 3.4 % $ 923,813 876,985 5.3 %
 
Cost of services 312,669 312,052 0.2 630,927 613,543 2.8
Selling, general and administrative expenses 57,886   56,973   1.6 115,959   111,885   3.6
 
Operating income 92,096 78,529 17.3 176,927 151,557 16.7
 
Nonoperating expenses (1,818 ) (841 ) nm (2,223 ) (1,568 ) (41.8 )
 
Income before income taxes, noncontrolling interests
and equity in income of equity investments 90,278 77,688 16.2 174,704 149,989 16.5
Income taxes 24,553   23,658   3.8 54,108   48,815   10.8
Income before noncontrolling interests and
equity in income of equity investments 65,725 54,030 21.6 120,596 101,174 19.2
Equity in income of equity investments 2,252   617   nm 5,026   2,885   74.2
Net income 67,977 54,647 24.4 125,622 104,059 20.7
Net income attributable to noncontrolling interests (1,267 ) (900 ) (40.8 ) (2,516 ) (1,522 ) (65.3 )
 
Net income attributable to TSYS common shareholders $ 66,710   53,747   24.1 % $ 123,106   102,537   20.1 %
 
Basic earnings per share $ 0.35   0.28   26.5 % $ 0.65   0.53   22.7 %
 
Diluted earnings per share $ 0.35   0.28   25.5 % $ 0.65   0.53   21.8 %
 
 
Dividends declared per share $ 0.10   0.07   $ 0.20   0.14  
 
nm = not meaningful
 

 
                             
TSYS
Consolidated Statements of Comprehensive Income
(unaudited)
(in thousands)
                 
 
Three Months Ended Six Months Ended
June 30,   June 30,
 
2012   2011   2012   2011  
 
Net income $ 67,977 54,647 125,622 104,059
Other comprehensive income (loss), net of tax:
Foreign currency translation adjustments (10,027 ) 1,685 (7,064 ) 11,956
Postretirement healthcare plan adjustments 23   (182 ) 286   (363 )
Other comprehensive income (loss) (10,004 ) 1,503   (6,778 ) 11,593  
Comprehensive income 57,973 56,150 118,844 115,652
Comprehensive income attributable to
noncontrolling interests 1,594   1,475   2,135   2,196  
Comprehensive income attributable to
TSYS common shareholders $ 56,379   54,675   116,709   113,456  
 
 
                                                                       
TSYS
Earnings Per Share
(unaudited)
(in thousands, except per share data)
                                               
 
Three Months Ended Three Months Ended Six Months Ended Six Months Ended
June 30, 2012 June 30, 2011 June 30, 2012 June 30, 2011
Common Participating Common Participating Common Participating Common Participating
Stock Securities Stock Securities Stock Securities Stock Securities
 
Basic Earnings per share:
Net income $ 66,710 53,747 $ 123,106 102,537
Less income allocated to nonvested awards (224 ) 224 (191 ) 191 (421 ) 421 (383 ) 383
Net income allocated to common stock for
EPS calculation ( a ) $ 66,486   224 53,556   191 $ 122,685   421 102,154   383
 
Average common shares outstanding ( b ) 189,070   650 191,935   690 188,894   658 192,390   727
 
Average common shares and participating securities 189,720   192,625   189,552   193,117  
 
Basic Earnings per share ( a )/( b ) $ 0.35   0.35 0.28   0.28 $ 0.65   0.64 0.53   0.53
 
Diluted Earnings per share:
Net income $ 66,710 53,747 $ 123,106 102,537
Less income allocated to nonvested awards (223 ) 223 (190 ) 190 (419 ) 419 (382 ) 382
Net income allocated to common stock for
EPS calculation ( c ) $ 66,487   223 53,557   190 $ 122,687   419 102,155   382
 
Average common shares outstanding 189,070 650 191,935 690 188,894 658 192,390 727
Increase due to assumed issuance of shares related
to common equivalent shares outstanding 1,270     459     1,159     366    
 
Average common and common
equivalent shares outstanding ( d ) 190,340   650 192,394   690 190,053   658 192,756   727
 
Average common and common
equivalent shares and participating securities 190,990   193,084   190,711   193,483  
 
Diluted Earnings per share ( c )/( d ) $ 0.35   0.34 0.28   0.28 $ 0.65   0.64 0.53   0.53
 
 
                               
TSYS
Segment Breakdown
(unaudited)
(in thousands)
       
Three Months Ended June 30,   Six Months Ended June 30,  
 
Change   Change  
2012   2011   $     %   2012   2011   $     %  
Revenues before reimbursable items
North America Services $ 205,565 198,775 6,790 3.4 % 409,614 393,365 16,249 4.1 %
International Services 99,047 93,778 5,269 5.6 % 195,538 181,198 14,340 7.9 %
Merchant Services 97,701 93,041 4,660 5.0 % 196,056 179,560 16,496 9.2 %
Intersegment revenues (3,621 ) (5,384 ) 1,763   32.7 % (7,338 ) (11,269 ) 3,931   34.9 %
Revenues before reimbursable items
from external customers $ 398,692   380,210   18,482   4.9 % 793,870   742,854   51,016   6.9 %
 
Total revenues
North America Services $ 239,557 233,903 5,654 2.4 % 480,156 464,461 15,695 3.4 %
International Services 103,415 97,670 5,745 5.9 % 203,775 188,380 15,395 8.2 %
Merchant Services 124,903 123,084 1,819 1.5 % 250,420 238,840 11,580 4.8 %
Intersegment revenues (5,224 ) (7,103 ) 1,879   26.5 % (10,538 ) (14,696 ) 4,158   28.3 %
Revenues from external customers $ 462,651   447,554   15,097   3.4 % 923,813   876,985   46,828   5.3 %
 
Depreciation and amortization
North America Services $ 18,821 19,926 (1,105 ) (5.5 ) % 37,275 39,392 (2,117 ) (5.4 ) %
International Services 15,006 11,960 3,046 25.5 % 27,917 23,669 4,248 17.9 %
Merchant Services 8,668 9,313 (645 ) (6.9 ) % 17,453 18,460 (1,007 ) (5.5 ) %
Corporate Admin 718   768   (50 ) (6.5 ) % 1,441   1,514   (73 ) (4.8 ) %
Total depreciation and amortization $ 43,213   41,967   1,246   3.0 % 84,086   83,035   1,051   1.3 %
 
Segment operating income
North America Services $ 72,060 64,068 7,992 12.5 % 140,232 119,268 20,964 17.6 %
International Services 9,438 10,122 (684 ) (6.8 ) % 13,552 21,147 (7,595 ) (35.9 ) %
Merchant Services 32,950 25,708 7,242 28.2 % 67,169 52,631 14,538 27.6 %
Corporate Admin (22,352 ) (21,369 ) (983 ) (4.6 ) % (44,026 ) (41,489 ) (2,537 ) (6.1 ) %
Operating income $ 92,096   78,529   13,567   17.3 % 176,927   151,557   25,370   16.7 %
 
Other:
Reimbursable items:
North America Services $ 33,992 35,128 (1,136 ) (3.2 ) % 70,542 71,096 (554 ) (0.8 ) %
International Services 4,368 3,892 476 12.2 % 8,238 7,183 1,055 14.7 %
Merchant Services 27,202 30,043 (2,841 ) (9.5 ) % 54,364 59,280 (4,916 ) (8.3 ) %
Intersegment revenues (1,603 ) (1,719 ) 116   6.7 % (3,201 ) (3,428 ) 227   6.6 %
Reimbursable items $ 63,959   67,344   (3,385 ) (5.0 ) % 129,943   134,131   (4,188 ) (3.1 ) %
 
Volumes:
FTEs (full-time equivalents)
North America Services 3,964 4,327 (363 ) (8.4 ) %
International Services 2,624 2,217 407 18.4 %
Merchant Services 1,242 1,185 57 4.8 %
Corporate Admin 415   380   35   9.2 %
FTEs 8,245   8,109   136   1.7 %
 
At Change
Total assets (in thousands) 6/30/2012   12/31/2011   $     %  
North America Services 1,704,042 1,621,664 82,378 5.1 %
International Services 448,098 433,203 14,895 3.4 %
Merchant Services 486,444 487,858 (1,414 ) (0.3 ) %
Intersegment assets (702,043 ) (684,333 ) (17,710 ) (2.6 ) %
Total assets 1,936,541   1,858,392   78,149   4.2 %
 
 
Three Months Ended June 30,   Six Months Ended June 30,  
 
Change   Change  
2012   2011   Inc(Dec)   %   2012   2011   Inc(Dec)   %  
North America Segment:
Accounts on File (AOF) (in millions) 387.3 328.3 59.0 18.0 %
Transactions (in millions) 2,037.9 1,795.1 242.8 13.5 % 3,930.9 3,421.9 509.0 14.9 %
 
International Segment:
AOF (in millions) 53.1 47.8 5.3 11.1 %
Transactions (in millions) 402.3 340.6 61.7 18.1 % 785.4 666.6 118.7 17.8 %
 
Merchant Segment:
Point-of-sale Transactions (in millions) 1,279.7 1,269.0 10.7 0.8 % 2,499.4 2,475.8 23.6 1.0 %
 
 
           
TSYS
Balance Sheet
(unaudited)
(in thousands)
Jun 30, 2012     Dec 31, 2011
Assets    
Current assets:
Cash and cash equivalents $ 418,643 316,337
Accounts receivable, net 246,335 248,541
Deferred income tax assets 7,846 12,872
Prepaid expenses and other current assets 81,016 72,431
       
Total current assets 753,840 650,181
Goodwill 354,879 355,498
Property and equipment, net 259,160 266,608
Computer software, net 205,862 215,244
Contract acquisition costs, net 160,819 162,987
Equity investments, net 85,843 82,924
Other intangible assets, net 75,702 81,250
Deferred income tax assets, net 5,102 4,069
Other assets 35,334 39,631
       
Total assets $ 1,936,541       1,858,392  
 
Liabilities
Current liabilities:
Current portion of notes payable $ 184,186 181,251
Accounts payable 28,470 26,095
Accrued salaries and employee benefits 14,216 33,004
Current portion of obligations under capital leases 12,991 14,363
Other current liabilities 132,235 125,863
       
Total current liabilities 372,098 380,576
Long-term debt, excluding current portion 37,627 39,104
Deferred income tax liabilities 31,494 32,889
Obligations under capital leases, excluding current portion 22,449 24,489
Other long-term liabilities 59,155 60,325
       
Total liabilities 522,823       537,383  
Equity
Shareholders' equity:
Common stock 20,245 20,186
Additional paid-in capital 132,374 125,948
Accumulated other comprehensive loss, net (6,841 ) (445 )
Treasury stock (218,760 ) (225,034 )
Retained earnings 1,465,933       1,380,634  
Total shareholders' equity 1,392,951       1,301,289  
Noncontrolling interests in consolidated subsidiaries 20,767       19,720  
Total equity 1,413,718       1,321,009  
Total liabilities and equity $ 1,936,541       1,858,392  
 
 
           
TSYS
Cash Flow
(unaudited)
(in thousands)
Six Months Ended June 30,
2012       2011  
   
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 125,622 104,059
Adjustments to reconcile net income to net cash
provided by operating activities:
Equity in income of equity investments (5,026 ) (2,885 )
Dividends received from equity investments 1,098 13
Net loss on foreign currency translation 1,635 574
Depreciation and amortization 84,086 83,035
Amortization of debt issuance costs 94 77
Share-based compensation 8,626 8,644
Excess tax benefit from share-based payment arrangements (653 ) (54 )
Asset impairments - 1,298
Provisions for bad debt expense and billing
adjustments 356 873
Charges for transaction processing provisions 971 2,632
Deferred income tax expense (benefit) 1,746 (9,738 )
(Gain) loss on disposal of equipment, net 29 (1,429 )
Changes in operating assets and liabilities:
Accounts receivable (376 ) 19,410
Prepaid expenses, other current assets and other long-term assets (4,691 ) 4,508
Accounts payable 2,743 (13,239 )
Accrued salaries and employee benefits (18,602 ) (11,489 )
Other current liabilities and other long-term liabilities 5,746       13,005  
Net cash provided by operating activities 203,404       199,294  
 
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment, net (13,810 ) (12,543 )
Additions to licensed computer software from vendors (17,278 ) (5,882 )
Additions to internally developed computer software (10,121 ) (9,242 )
Proceeds from sale of trade name - 4,500
Cash used in acquisitions, net of cash acquired (1,750 ) (45,287 )
Purchase of private equity investments (623 ) -
Additions to contract acquisition costs (16,740 )     (16,007 )
Net cash used in investing activities (60,322 )     (84,461 )
 
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on long-term debt borrowings and
capital lease obligations (13,038 ) (14,494 )
Proceeds from borrowings of long-term debt 8,633 -
Proceeds from exercise of stock options 4,698 1,339
Excess tax benefit from share-based payment arrangements 653 54
Repurchase of common stock (338 ) (35,700 )
Purchase of noncontrolling interests - (174,050 )
Subsidiary dividends paid to noncontrolling shareholders (1,087 ) (448 )
Dividends paid on common stock (37,809 )     (27,129 )
Net cash used in financing activities (38,288 )     (250,428 )
 
CASH AND CASH EQUIVALENTS:
Effect of exchange rate changes on cash and cash equivalents (2,488 )     4,134  
Net increase (decrease) in cash and cash equivalents 102,306 (131,461 )
Cash and cash equivalents at beginning of period 316,337       394,795  
Cash and cash equivalents at end of period $ 418,643       263,334  
 
 
Supplemental Information:
      Accounts on File
Total
(in millions)   June

2012
  June

2011
    %

Change
Consumer Credit 199.4   187.6 6.3
Government Services 30.8 30.0 2.8
Retail 25.2   23.7 6.0
Total Consumer 255.4 241.3 5.8
Commercial 36.1 32.7 10.4
Other 9.6   6.7 42.9
Subtotal 301.1 280.7 7.2
Prepaid/Stored Value 105.4 72.8 44.6
Commercial Card Single Use 34.0   22.5 51.2
Total AOF 440.5   376.0 17.1
 
 
 
Growth in Accounts on File (in millions):

June 2011 toJune 2012

June 2010 toJune 2011
Beginning balance 376.0 332.8
Change in accounts on file due to:
Internal growth of existing clients 33.9 26.3
New clients 51.0 33.0
Purges/Sales (17.6 ) (14.7 )
Deconversions (2.8 ) (1.4 )
Ending balance 440.5   376.0  
 
 
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 5.8% as compared to a reported GAAP increase of 5.3%.
 
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 June 30, Six Months Ended June 30,
Percent Percent
2012   2011 Change 2012   2011 Change
Consolidated
Constant currency (1) $ 465,231 447,554 3.9 % $ 927,482 876,985 5.8 %
Foreign currency (2) (2,580 ) - (3,669 ) -
Total revenues $ 462,651   447,554 3.4 % $ 923,813   876,985 5.3 %
 
Constant currency (1) $ 90,675 78,529 15.5 % $ 175,086 151,557 15.5 %
Foreign currency (2) 1,421   - 1,841   -
Operating income $ 92,096   78,529 17.3 % $ 176,927   151,557 16.7 %
 
International Services
Constant currency (1) $ 106,186 97,670 8.7 % $ 207,717 188,380 10.3 %
Foreign currency (2) (2,771 ) - (3,942 ) -
Total revenues $ 103,415   97,670 5.9 % $ 203,775   188,380 8.2 %
 
 
(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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