COLUMBUS, Ga.--(BUSINESS WIRE)--TSYS (NYSE: TSS) reported results for the third quarter of 2016.
“We were very pleased with this quarter’s financial performance as all four of our operating segments exceeded our expectations. We remain on track with our TransFirst integration activities and continue to be laser-focused on successfully combining our legacy merchant businesses with TransFirst,” said M. Troy Woods, chairman and chief executive officer of TSYS.
Highlights for the third quarter of 2016 include:
- Total revenues were $1.1 billion, an increase of 62.0% over last year’s $707.9 million.
- Net revenue (non-GAAP), which excludes reimbursable items, interchange and assessment expense, was $789.6 million, an increase of 24.1% over last year’s $636.4 million.
- GAAP net income attributable to TSYS common shareholders was $85.4 million, a decrease of 29.2% from last year’s $120.6 million. GAAP basic earnings per share (EPS) were $0.46 per share, a decrease of 29.2% from last year’s $0.66.
- Adjusted EBITDA (non-GAAP) was $269.1 million, an increase of 12.7% over last year’s $238.9 million. Q3 ’15 results included tax benefits of $15.1 million that did not recur in 2016.
- Adjusted earnings (non-GAAP) were $130.7 million, a decrease of 8.8% over last year’s $143.3 million. Q3 ’15 adjusted earnings and adjusted EPS (non-GAAP) included $23.6 million and $0.13, respectively, of tax related benefits that did not recur in 2016. Q3 ’16 adjusted EPS was $0.71, which included $0.06 of headwinds for currency and severance expenses, a decrease of 8.7% over last year’s $0.78.
“Our cash flow from operating activities and free cash flow for the first nine months of the year were both records. This allowed us to reduce our debt by $175 million during the quarter, bringing the total debt reduction to $300 million year to date,” said Woods.
During the third quarter, currencies, including the rapid and steep decline in the British Pound compared to the U. S. Dollar, negatively impacted total revenues and net revenue by $14 million and $13 million, respectively, on a constant currency basis compared to 2015. A similar impact is expected in Q4. This same constant currency comparison negatively impacted EPS by $0.03 in Q3 ‘16 and is expected to have a similar impact in Q4.
The Consumer Financial Protection Bureau released its long-awaited rule on prepaid financial products on October 5, 2016. The new rule is not expected to have a significant financial impact on 2016 results. Additional details on the impact of the new rule will be discussed at today’s quarterly conference call.
Updated 2016 Outlook
As a result of currency headwinds, total and net revenue guidance are being adjusted. EPS guidance remains unchanged. The resulting revised guidance is below.
|
2016 Revised |
Percent Change |
||||||||||||
(in millions, except per share amounts) | ||||||||||||||
Revenue: | ||||||||||||||
Total revenues (GAAP) | $4,150 | to | $4,170 | 49% | to | 50% | ||||||||
Net revenue (non-GAAP) | $3,030 | to | $3,045 | 21% | to | 22% | ||||||||
Earnings per share: | ||||||||||||||
Basic EPS (GAAP) | $1.77 | to | $1.83 | (10%) | to | (7%) | ||||||||
Adjusted EPS attributable to TSYS common shareholders from continuing operations (non-GAAP) |
$2.78 |
to |
$2.85 |
13% |
to |
16% |
||||||||
Average basic weighted shares |
|
183.7 |
||||||||||||
Conference Call
TSYS will host its quarterly conference call at 5:00 p.m. ET on Tuesday, October 25. The conference call can be accessed via simultaneous Internet broadcast 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 EPS, and a reconciliation of those measures to the most directly comparable GAAP measures is included on pages 11 to 15 of this release.
About TSYS
TSYS® (NYSE: TSS) unlocks opportunities in payments for payment providers, businesses and consumers. Our headquarters are in Columbus, Georgia, USA, and we operate in more than 80 countries with local offices across the Americas, EMEA and Asia-Pacific.
We provide seamless, secure and innovative solutions across the payments spectrum — from issuer processing and merchant acquiring to prepaid program management — delivered through partnership and expertise. We succeed because we put people, and their needs, at the heart of every decision. It’s an approach we call ‘People-Centered Payments®’.
Our industry is changing every day — and we’re leading the way toward the payments of tomorrow. We routinely post all important information on our website. For more, visit us at 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’ expectation with respect to the impact of constant currency on revenues and EPS in the fourth quarter of 2016, the expected impact of the Consumer Financial Protection Bureau’s new rule regarding prepaid financial products on TSYS’ 2016 results, TSYS’ earnings guidance for 2016 total revenues, net revenue, basic EPS and adjusted 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 closed TransFirst 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 are incurred associated with the signing of a significant client; TSYS does not convert clients’ portfolios 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; 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 | |||||||||||||||
2016 | 2015 | Change | 2016 | 2015 | Change | |||||||||||
Total revenues | $ | 1,146,888 | 707,890 | 62.0 | % | $ | 3,037,853 | 2,062,698 | 47.3 | % | ||||||
Cost of services | 840,300 | 456,465 | 84.1 | 2,166,731 | 1,366,141 | 58.6 | ||||||||||
Selling, general and administrative expenses | 151,261 | 88,321 | 71.3 | 428,287 | 280,355 | 52.8 | ||||||||||
Total expenses* | 991,561 | 544,786 | 82.0 | 2,595,018 | 1,646,496 | 57.6 | ||||||||||
Operating income | 155,327 | 163,104 | (4.8) | 442,835 | 416,202 | 6.4 | ||||||||||
Nonoperating expenses | (30,005) | (8,564) | nm | (82,506) | (27,982) | nm | ||||||||||
Income before income taxes, noncontrolling interests | ||||||||||||||||
and equity in income of equity investments | 125,322 | 154,540 | (18.9) | 360,329 | 388,220 | (7.2) | ||||||||||
Income taxes | 44,247 | 37,825 | 17.0 | 127,966 | 119,204 | 7.4 | ||||||||||
Income before noncontrolling interests and equity in income of equity investments |
81,075 | 116,715 | (30.5) | 232,363 | 269,016 | (13.6) | ||||||||||
Equity in income of equity investments, net of tax | 6,366 | 5,336 | 19.3 | 19,234 | 15,309 | 25.6 | ||||||||||
Net income | 87,441 | 122,051 | (28.4) | 251,597 | 284,325 | (11.5) | ||||||||||
Net income attributable to noncontrolling interests | (2,089) | (1,429) | (46.2) | (5,909) | (3,109) | (90.1) | ||||||||||
Net income attributable to TSYS common shareholders | $ | 85,352 | 120,622 | (29.2) | % | $ | 245,688 | 281,216 | (12.6) | % | ||||||
Earnings per share (EPS): | ||||||||||||||||
Basic EPS | $ | 0.46 | 0.66 | (29.2) | % | $ | 1.34 | 1.53 | (12.3) | % | ||||||
Diluted EPS | $ | 0.46 | 0.65 | (29.0) | % | $ | 1.33 | 1.52 | (12.1) | % | ||||||
Weighted average shares outstanding: | ||||||||||||||||
(includes participating securities) | ||||||||||||||||
Basic | 183,830 | 183,954 | 183,601 | 184,320 | ||||||||||||
Diluted | 184,642 | 185,281 | 184,430 | 185,534 | ||||||||||||
Dividends declared per share | $ | 0.10 | 0.10 | $ | 0.30 | 0.30 | ||||||||||
Non-GAAP measures: |
||||||||||||||||
Net revenue | $ | 789,588 | 636,386 | 24.1 | % | $ | 2,256,169 | 1,854,254 | 21.7 | % | ||||||
Adjusted EPS | $ | 0.71 | 0.78 | (8.7) | % | $ | 2.11 | 1.89 | 11.5 | % | ||||||
Adjusted EBITDA | $ | 269,142 | 238,898 | 12.7 | % | $ | 774,003 | 638,889 | 21.1 | % | ||||||
* Certain amounts in prior quarters in 2016 have been reclassed between cost of services and selling, general and administrative expenses. | ||||||||||||||||
** See reconciliation of non-GAAP measures. | ||||||||||||||||
nm = not meaningful | ||||||||||||||||
TSYS | ||||||||||||||||||||||||||||
Segment Breakdown | ||||||||||||||||||||||||||||
(unaudited) | ||||||||||||||||||||||||||||
(in thousands) | ||||||||||||||||||||||||||||
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||||||||||||||
Change | Change | |||||||||||||||||||||||||||
2016 | 2015 | $ | % | 2016 | 2015 | $ | % | |||||||||||||||||||||
Operating income (a) | $ | 155,327 | 163,104 | (7,777 | ) | (4.8 | ) | % | $ | 442,835 | 416,202 | 26,633 | 6.4 | % | ||||||||||||||
Share-based compensation | 13,069 | 11,295 | 1,774 | 15.7 | 33,792 | 31,468 | 2,324 | 7.4 | ||||||||||||||||||||
TransFirst M&A expenses | 1,830 | - | 1,830 | na | 25,908 | - | 25,908 | na | ||||||||||||||||||||
Acquisition intangible amortization | 53,341 | 22,883 | 30,458 | nm | 134,748 | 69,601 | 65,147 | 93.6 | ||||||||||||||||||||
Adjusted operating income (b) | $ | 223,567 | 197,282 | 26,285 | 13.3 | % | $ | 637,283 | 517,271 | 120,012 | 23.2 | % | ||||||||||||||||
Adjusted segment operating income: | ||||||||||||||||||||||||||||
North America Services (c) | $ | 113,425 | 113,946 | (521 | ) | (0.5 | ) | % | $ | 350,955 | 324,902 | 26,053 | 8.0 | % | ||||||||||||||
International Services (d) | 15,524 | 18,370 | (2,846 | ) | (15.5 | ) | 41,564 | 38,706 | 2,858 | 7.4 | ||||||||||||||||||
Merchant Services (e) | 90,784 | 42,387 | 48,397 | nm | 219,056 | 117,192 | 101,864 | 86.9 | ||||||||||||||||||||
NetSpend (f) | 40,856 | 37,315 | 3,541 | 9.5 | 125,538 | 109,224 | 16,314 | 14.9 | ||||||||||||||||||||
Corporate admin and other | (37,022 | ) | (14,736 | ) | (22,286 | ) | nm | (99,830 | ) | (72,753 | ) | (27,077 | ) | (37.2 | ) | |||||||||||||
Adjusted segment operating income | $ | 223,567 | 197,282 | 26,285 | 13.3 | % | $ | 637,283 | 517,271 | 120,012 | 23.2 | % | ||||||||||||||||
Total revenues (g) | $ | 1,146,888 | 707,890 | 438,998 | 62.0 | % | $ | 3,037,853 | 2,062,698 | 975,155 | 47.3 | % | ||||||||||||||||
Less: reimbursable items, interchange and assessments expenses |
357,300 | 71,504 | 285,796 | nm | 781,684 | 208,444 | 573,240 | nm | ||||||||||||||||||||
Net revenue (h) | 789,588 | 636,386 | 153,202 | 24.1 | 2,256,169 | 1,854,254 | 401,915 | 21.7 | ||||||||||||||||||||
Intersegment revenues | 8,454 | 7,000 | 1,454 | 20.8 | 29,498 | 25,098 | 4,400 | 17.5 | ||||||||||||||||||||
Segment net revenue | $ | 798,042 | 643,386 | 154,656 | 24.0 | % | $ | 2,285,667 | 1,879,352 | 406,315 | 21.6 | % | ||||||||||||||||
Segment net revenue | ||||||||||||||||||||||||||||
North America Services (i) | $ | 300,754 | 293,571 | 7,183 | 2.4 | % | $ | 901,563 | 846,989 | 54,574 | 6.4 | % | ||||||||||||||||
International Services (j) | 79,445 | 86,446 | (7,001 | ) | (8.1 | ) | 236,570 | 244,033 | (7,463 | ) | (3.1 | ) | ||||||||||||||||
Merchant Services (k) | 262,494 | 123,721 | 138,773 | nm | 644,573 | 351,987 | 292,586 | 83.1 | ||||||||||||||||||||
NetSpend (l) | 155,349 | 139,648 | 15,701 | 11.2 | 502,961 | 436,343 | 66,618 | 15.3 | ||||||||||||||||||||
Segment net revenue | $ | 798,042 | 643,386 | 154,656 | 24.0 | % | $ | 2,285,667 | 1,879,352 | 406,315 | 21.6 | % | ||||||||||||||||
Operating margin (GAAP) (a)/(g) | 13.5 | % | 23.0 | % | 14.6 | % | 20.2 | % | ||||||||||||||||||||
Adjusted operating margin on net revenue (b)/(h) | 28.3 | % | 31.0 | % | 28.3 | % | 27.9 | % | ||||||||||||||||||||
Adjusted segment operating margin on net revenue | ||||||||||||||||||||||||||||
North America Services(c)/(i) | 37.7 | % | 38.8 | % | 38.9 | % | 38.4 | % | ||||||||||||||||||||
International Services (d)/(j) | 19.5 | % | 21.3 | % | 17.6 | % | 15.9 | % | ||||||||||||||||||||
Merchant Services (e)/(k) | 34.6 | % | 34.3 | % | 34.0 | % | 33.3 | % | ||||||||||||||||||||
NetSpend (f)/(l) | 26.3 | % | 26.7 | % | 25.0 | % | 25.0 | % | ||||||||||||||||||||
nm = not meaningful | ||||||||||||||||||||||||||||
na = not applicable | ||||||||||||||||||||||||||||
TSYS |
||||||||||||||||||||||||||
Segment Breakdown | ||||||||||||||||||||||||||
(unaudited) | ||||||||||||||||||||||||||
(in thousands) | ||||||||||||||||||||||||||
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||||||||||||
Change | Change | |||||||||||||||||||||||||
2016 | 2015 | $ | % | 2016 | 2015 | $ | % | |||||||||||||||||||
Depreciation and amortization: | ||||||||||||||||||||||||||
North America Services | $ | 27,540 | 25,300 | 2,240 | 8.9 | % | $ | 82,464 | 72,831 | 9,633 | 13.2 | % | ||||||||||||||
International Services | 7,050 | 8,678 | (1,628 | ) | (18.8 | ) | 23,394 | 26,084 | (2,690 | ) | (10.3 | ) | ||||||||||||||
Merchant Services | 6,846 | 4,670 | 2,176 | 46.6 | 18,702 | 13,394 | 5,308 | 39.6 | ||||||||||||||||||
NetSpend | 3,241 | 2,632 | 609 | 23.1 | 9,466 | 7,547 | 1,919 | 25.4 | ||||||||||||||||||
Segment depreciation and amortization | 44,677 | 41,280 | 3,397 | 8.2 | 134,026 | 119,856 | 14,170 | 11.8 | ||||||||||||||||||
Acquisition intangible amortization | 53,341 | 22,883 | 30,458 | nm | 134,748 | 69,601 | 65,147 | 93.6 | ||||||||||||||||||
Corporate admin and other | 898 | 336 | 562 | nm | 2,694 | 1,762 | 932 | 52.9 | ||||||||||||||||||
Total depreciation and amortization | $ | 98,916 | 64,499 | 34,417 | 53.4 | % | $ | 271,468 | 191,219 | 80,249 | 42.0 | % | ||||||||||||||
Segment statistical data: | ||||||||||||||||||||||||||
Transactions (in millions) | ||||||||||||||||||||||||||
North America Services: | 4,361.5 | 4,156.7 | 204.8 | 4.9 | % | 12,657.7 | 11,509.6 | 1,148.1 | 10.0 | % | ||||||||||||||||
International Services: | 698.8 | 626.1 | 72.7 | 11.6 | 1,975.7 | 1,812.0 | 163.7 | 9.0 | ||||||||||||||||||
Total transactions | 5,060.3 | 4,782.8 | 277.5 | 5.8 | % | 14,633.4 | 13,321.6 | 1,311.8 | 9.8 | % | ||||||||||||||||
Accounts on file (AOF) (in millions) | ||||||||||||||||||||||||||
North America Services: | 652.5 | 685.5 | (33.0 | ) | (4.8 | ) | % | |||||||||||||||||||
International Services: | 86.3 | 74.9 | 11.4 | 15.2 | ||||||||||||||||||||||
Total AOF | 738.8 | 760.4 | (21.6 | ) | (2.8 | ) | % | |||||||||||||||||||
Traditional accounts on file (AOF) (in millions) | ||||||||||||||||||||||||||
North America Services: | 444.6 | 404.6 | 40.0 | 9.9 | % | |||||||||||||||||||||
International Services: | 66.6 | 63.3 | 3.3 | 5.2 | ||||||||||||||||||||||
Total Traditional AOF | 511.2 | 467.9 | 43.3 | 9.2 | % | |||||||||||||||||||||
Merchant Services | ||||||||||||||||||||||||||
Point-of-sale transactions (in millions) | 1,177.1 | 1,117.3 | 59.8 | 5.4 | % | 3,427.6 | 3,191.3 | 236.3 | 7.4 | % | ||||||||||||||||
Dollar sales volume (in millions) | $ | 28,680.7 | 12,055.7 | 16,625.0 | nm | % | $ | 69,024.9 | 35,671.5 | 33,353.4 | 93.5 | % | ||||||||||||||
NetSpend | ||||||||||||||||||||||||||
Gross dollar volume (in millions) | $ | 6,367.0 | 5,391.2 | 975.8 | 18.1 | % | $ | 22,143.3 | 18,582.8 | 3,560.5 | 19.2 | % | ||||||||||||||
Direct deposit 90-day active cards (in thousands) | 2,079.8 | 1,796.0 | 283.8 | 15.8 | % | |||||||||||||||||||||
90-day active cards (in thousands) | 4,162.7 | 3,643.4 | 519.3 | 14.3 | % | |||||||||||||||||||||
% of 90-day active cards with direct deposit | 50.0 | % | 49.3 | % | ||||||||||||||||||||||
TSYS | ||||||
Condensed Balance Sheet | ||||||
(unaudited) | ||||||
(in thousands) | ||||||
September 30, 2016 | December 31, 2015 | |||||
Assets | ||||||
Current assets: | ||||||
Cash and cash equivalents | $ | 446,883 | 389,328 | |||
Accounts receivable, net | 413,867 | 314,705 | ||||
Other current assets | 124,118 | 154,199 | ||||
Total current assets | 984,868 | 858,232 | ||||
Goodwill | 3,254,422 | 1,545,424 | ||||
Other intangible assets, net | 954,821 | 328,320 | ||||
Property, equipment and software, net | 722,749 | 694,968 | ||||
Other long term assets | 458,318 | 450,951 | ||||
Total assets | $ | 6,375,178 | 3,877,895 | |||
Liabilities | ||||||
Current liabilities: | ||||||
Accounts payable | $ | 36,659 | 52,213 | |||
Notes payable and capital leases | 43,244 | 53,546 | ||||
Other current liabilities | 289,572 | 233,173 | ||||
Total current liabilities | 369,475 | 338,932 | ||||
Bonds payable, notes payable and capital leases, excluding current portion | 3,425,147 | 1,377,541 | ||||
Deferred tax liability | 398,083 | 192,445 | ||||
Other long-term liabilities | 91,751 | 96,885 | ||||
Total liabilities | 4,284,456 | 2,005,803 | ||||
Redeemable noncontrolling interest | 25,053 | 23,410 | ||||
Equity | ||||||
Shareholders' equity | 2,065,669 | 1,843,018 | ||||
Noncontrolling interests in consolidated subsidiaries | - | 5,664 | ||||
Total equity | 2,065,669 | 1,848,682 | ||||
Total liabilities and equity | $ | 6,375,178 | 3,877,895 | |||
Note: TSYS adopted Accounting Standards Update (ASU) 2015-03 "Interest - Imputation of Interest (Subtopic 835-30), Simplifying the Presentation of Debt Issuance Cost" on January 1, 2016. This ASU requires TSYS to present debt issuance costs in the balance sheet as a direct deduction from the carrying amount of the corresponding debt liability, consistent with debt discounts. All prior periods presented have been restated for this ASU. | ||||||
TSYS also adopted ASU 2015-17 "Income Taxes (Topic 740), Balance Sheet Classification of Deferred Taxes" on January 1, 2016. This ASU requires the classification of all deferred tax assets and liabilities as noncurrent on the balance sheet instead of separating deferred taxes into current and noncurrent amounts. All prior periods presented have been restated for this ASU. | ||||||
TSYS | ||||||||
Selected Cash Flow Highlights | ||||||||
(unaudited) | ||||||||
(in thousands) | ||||||||
Nine Months Ended September 30, | ||||||||
2016 | 2015 | |||||||
Cash flows from operating activities: | ||||||||
Net income | $ | 251,597 | 284,325 | |||||
Adjustments to reconcile net income to net cash provided by operating activities: |
||||||||
Equity in income of equity investments | (19,234 | ) | (15,309 | ) | ||||
Dividends received from equity investments | 15,246 | 12,092 | ||||||
Depreciation and amortization | 271,468 | 191,219 | ||||||
Amortization of debt issuance costs | 12,499 | 1,378 | ||||||
Share-based compensation | 33,792 | 31,468 | ||||||
Deferred income tax expense(benefit) | 4,110 | (25,960 | ) | |||||
Other noncash adjustments | 35,508 | 29,039 | ||||||
Changes in operating assets and liabilities | (54,026 | ) | (47,698 | ) | ||||
Net cash provided by operating activities | 550,960 | 460,554 | ||||||
Net cash used in investing activities | (2,457,138 | ) | (138,618 | ) | ||||
Net cash provided by (used in) financing activities | 1,969,628 | (158,429 | ) | |||||
Cash and cash equivalents: | ||||||||
Effect of exchange rate changes on cash and cash equivalents | (5,895 | ) | (4,840 | ) | ||||
Net increase in cash and cash equivalents | 57,555 | 158,667 | ||||||
Cash and cash equivalents at beginning of period | 389,328 | 289,183 | ||||||
Cash and cash equivalents at end of period | $ | 446,883 | 447,850 | |||||
TSYS | |||||||||||
Supplemental Information | |||||||||||
(unaudited) | |||||||||||
Other | |||||||||||
AOF: | Total Accounts on File | ||||||||||
(in millions) |
At |
At |
% Change |
||||||||
Consumer | 433.5 | 399.0 | 8.6 | ||||||||
Commercial | 48.0 | 44.1 | 8.9 | ||||||||
Other | 29.7 | 24.8 | 19.5 | ||||||||
Traditional AOF | 511.2 | 467.9 | 9.2 | ||||||||
Prepaid*/Stored Value | 58.9 | 133.8 | (56.0 | ) | |||||||
Government Services | 85.7 | 78.7 | 9.0 | ||||||||
Commercial Card Single Use | 83.0 | 80.0 | 3.8 | ||||||||
Total AOF | 738.8 | 760.4 | (2.8 | ) | |||||||
* Prepaid does not include NetSpend accounts | |||||||||||
Growth in Accounts on File (in millions): | |||||||||||
September 2015 to |
September 2014 to September 2015 |
||||||||||
Beginning balance | 760.4 | 605.5 | |||||||||
Change in accounts on file due to: | |||||||||||
Internal growth of existing clients | 53.8 | 41.0 | |||||||||
New clients | 31.6 | 153.7 | |||||||||
Purges/Sales | (16.7 | ) | (38.3 | ) | |||||||
Deconversions | (90.3 | ) | (1.5 | ) | |||||||
Ending balance | 738.8 | 760.4 | |||||||||
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 third quarter 2016 financial results using the previous year’s foreign currency exchange rates. On a constant currency basis, TSYS’ total revenues grew 48.5% as compared to a reported GAAP increase of 47.3%. |
The schedules below also provide a reconciliation of EPS to adjusted EPS. |
The schedules below also provide a reconciliation of net income to EBITDA and adjusted EBITDA. |
The schedules below also provide a reconciliation of operating margin to adjusted operating margin excluding severance. |
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 2016 guidance of total revenues to net revenue and EPS to adjusted EPS. |
The tax rate used in the calculation of adjusted 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 September 30, | Nine Months Ended September 30, | |||||||||||||||||||||
Percent | Percent | |||||||||||||||||||||
2016 | 2015 | Change | 2016 | 2015 | Change | |||||||||||||||||
Consolidated | ||||||||||||||||||||||
Constant currency (1) | $ | 1,161,181 | 707,890 | 64.0 | % | $ | 3,063,788 | 2,062,698 | 48.5 | % | ||||||||||||
Foreign currency impact (2) | (14,293 | ) | - | (25,935 | ) | - | ||||||||||||||||
Total revenues | $ | 1,146,888 | 707,890 | 62.0 | % | $ | 3,037,853 | 2,062,698 | 47.3 | % | ||||||||||||
Constant currency (1) | $ | 802,958 | 636,386 | 26.2 | % | $ | 2,280,389 | 1,854,254 | 23.0 | % | ||||||||||||
Foreign currency impact (2) | (13,370 | ) | - | (24,220 | ) | - | ||||||||||||||||
Net revenue | $ | 789,588 | 636,386 | 24.1 | % | $ | 2,256,169 | 1,854,254 | 21.7 | % | ||||||||||||
Constant currency (1) | $ | 161,567 | 163,104 | (0.9 | ) | % | $ | 452,196 | 416,202 | 8.6 | % | |||||||||||
Foreign currency impact (2) | (6,240 | ) | - | (9,361 | ) | - | ||||||||||||||||
Operating income | $ | 155,327 | 163,104 | (4.8 | ) | % | $ | 442,835 | 416,202 | 6.4 | % | |||||||||||
International Services | ||||||||||||||||||||||
Constant currency (1) | $ | 99,171 | 92,177 | 7.6 | % | $ | 279,332 | 261,597 | 6.8 | % | ||||||||||||
Foreign currency impact (2) | (14,338 | ) | - | (25,917 | ) | - | ||||||||||||||||
Total revenues | $ | 84,833 | 92,177 | (8.0 | ) | % | $ | 253,415 | 261,597 | (3.1 | ) | % | ||||||||||
Constant currency (1) | $ | 92,861 | 86,446 | 7.4 | % | $ | 260,772 | 244,033 | 6.9 | % | ||||||||||||
Foreign currency impact (2) | (13,416 | ) | - | (24,202 | ) | - | ||||||||||||||||
Net revenue | $ | 79,445 | 86,446 | (8.1 | ) | % | $ | 236,570 | 244,033 | (3.1 | ) | % | ||||||||||
(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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Net Revenue | ||||||||||||||||||||||
(unaudited) | ||||||||||||||||||||||
(in thousands) | ||||||||||||||||||||||
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||||||||
Percent | Percent | |||||||||||||||||||||
2016 | 2015 | Change | 2016 | 2015 | Change | |||||||||||||||||
Total revenues | $ | 1,146,888 | 707,890 | 62.0 | % | $ | 3,037,853 | 2,062,698 | 47.3 | % | ||||||||||||
Less: reimbursable items, interchange and assessments expenses |
357,300 | 71,504 | nm | 781,684 | 208,444 | nm | ||||||||||||||||
Net revenue | $ | 789,588 | 636,386 | 24.1 | % | $ | 2,256,169 | 1,854,254 | 21.7 | % | ||||||||||||
nm = not meaningful | ||||||||||||||||||||||
Reconciliation of GAAP to Non-GAAP | |||||||||||||||||||||||
Adjusted Earnings per Share | |||||||||||||||||||||||
(unaudited) | |||||||||||||||||||||||
(in thousands, except per share data) | |||||||||||||||||||||||
Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
Percent | Percent | ||||||||||||||||||||||
2016 | 2015 | Change | 2016 | 2015 | Change | ||||||||||||||||||
Income attributable to TSYS common shareholders | $ | 85,352 | 120,622 | (29.2 | ) | % | $ | 245,688 | 281,216 | (12.6 | ) | % | |||||||||||
Adjust for amounts attributable to TSYS common shareholders: | |||||||||||||||||||||||
Add: Acquisition intangible amortization | $ | 53,065 | 22,607 | nm | $ | 133,920 | 68,774 | 94.7 | |||||||||||||||
Add: Share-based compensation | 13,059 | 11,291 | 15.7 | 33,766 | 31,459 | 7.3 | |||||||||||||||||
Add: TransFirst M&A expenses* | 1,830 | - | na | 35,689 | - | na | |||||||||||||||||
Less: Tax impact of adjustments** | (22,633 | ) | (11,250 | ) | nm | (62,264 | ) | (33,267 | ) | (87.2 | ) | ||||||||||||
Adjusted earnings | $ | 130,673 | 143,270 | (8.8 | ) | % | $ | 386,799 | 348,182 | 11.1 | % | ||||||||||||
Add: Severance impact | 8,749 | - | na | 8,749 | - | na | |||||||||||||||||
Add: Severance impact - Share-based compensation | 147 | - | na | 147 | - | na | |||||||||||||||||
Add: Currency impact | 6,320 | - | na | 9,564 | - | na | |||||||||||||||||
Less: Federal & state R&D tax credits and related expenses | - | (15,084 | ) | nm | - | (15,084 | ) | nm | |||||||||||||||
Less: Tax impact of adjustments | (4,671 | ) | (8,473 | ) | nm | (5,686 | ) | (8,473 | ) | nm | |||||||||||||
Adjusted earnings excluding impact of severance, currency and tax credits | $ | 141,218 | 119,713 | 18.0 | % | $ | 399,573 | 324,625 | 23.1 | % | |||||||||||||
Basic EPS - Income attributable to TSYS common shareholders | |||||||||||||||||||||||
As reported (GAAP) | $ | 0.46 | 0.66 | (29.2 | ) | % | $ | 1.34 | 1.53 | (12.3 | ) | % | |||||||||||
Adjusted EPS | $ | 0.71 | 0.78 | (8.7 | ) | % | $ | 2.11 | 1.89 | 11.5 | % | ||||||||||||
Add/Less: Impact of severance, currency and tax credits | 0.06 | (0.13 | ) | nm | 0.07 | (0.13 | ) | nm | |||||||||||||||
Adjusted EPS without impact of severance, currency and tax credits | $ | 0.77 | 0.65 | 18.1 | % | $ | 2.18 | 1.76 | 23.6 | % | |||||||||||||
Weighted average shares outstanding | 183,830 | 183,954 | 183,601 | 184,320 | |||||||||||||||||||
* Costs associated with the TransFirst acquisition and integration that are included in selling, general and administrative expenses and nonoperating expenses. | |||||||||||||||||||||||
** Certain of these merger and acquisition costs are nondeductible for income tax purposes. Income tax impact includes a discrete item as a result of the acquisition. | |||||||||||||||||||||||
Adjusted EBITDA | |||||||||||||||||||||||
(unaudited) | |||||||||||||||||||||||
(in thousands) | |||||||||||||||||||||||
Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
Percent | Percent | ||||||||||||||||||||||
2016 | 2015 | Change | 2016 | 2015 | Change | ||||||||||||||||||
Net income | $ | 87,441 | 122,051 | (28.4 | ) | % | $ | 251,597 | 284,325 | (11.5 | ) | % | |||||||||||
Adjust for: | |||||||||||||||||||||||
Less: Equity in income of equity investments | (6,366 | ) | (5,336 | ) | (19.3 | ) | (19,234 | ) | (15,309 | ) | (25.6 | ) | |||||||||||
Add: Income taxes | 44,247 | 37,825 | 17.0 | 127,966 | 119,204 | 7.4 | |||||||||||||||||
Add: Nonoperating expense | 30,005 | 8,564 | nm | 82,506 | 27,982 | nm | |||||||||||||||||
Add: Depreciation and amortization | 98,916 | 64,499 | 53.4 | 271,468 | 191,219 | 42.0 | |||||||||||||||||
EBITDA | $ | 254,243 | 227,603 | 11.7 | % | $ | 714,303 | 607,421 | 17.6 | % | |||||||||||||
Adjust for: | |||||||||||||||||||||||
Add: Share-based compensation | 13,069 | 11,295 | 15.7 | 33,792 | 31,468 | 7.4 | |||||||||||||||||
Add: TransFirst M&A expenses* | 1,830 | - | na | 25,908 | - | na | |||||||||||||||||
Adjusted EBITDA | $ | 269,142 | 238,898 | 12.7 | % | $ | 774,003 | 638,889 | 21.1 | % | |||||||||||||
* Costs associated with the TransFirst acquisition and integration that are included in selling, general and administrative expenses. | |||||||||||||||||||||||
nm = not meaningful | |||||||||||||||||||||||
na = not applicable | |||||||||||||||||||||||
Reconciliation of GAAP to Non-GAAP | |||||||||||||||||
TSYS | |||||||||||||||||
Operating Margins Excluding the Impact of Severance | |||||||||||||||||
(unaudited) | |||||||||||||||||
(in thousands) | |||||||||||||||||
Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||
As reported | Severance | Adjusted | As reported | Severance | Adjusted | ||||||||||||
2016 | 2016 | 2016 | 2016 | ||||||||||||||
Operating income (a) | $ | 155,327 | 8,749 | 164,076 | $ | 442,835 | 8,749 | 451,584 | |||||||||
Share-based compensation | 13,069 | 147 | 13,216 | 33,792 | 147 | 33,939 | |||||||||||
TransFirst M&A expenses | 1,830 | - | 1,830 | 25,908 | - | 25,908 | |||||||||||
Acquisition intangible amortization | 53,341 | - | 53,341 | 134,748 | - | 134,748 | |||||||||||
Adjusted segment operating income (b) | $ | 223,567 | 8,896 | 232,463 | $ | 637,283 | 8,896 | 646,179 | |||||||||
Adjusted segment operating income: | |||||||||||||||||
North America Services (c) | $ | 113,425 | 6,103 | 119,528 | $ | 350,955 | 6,103 | 357,058 | |||||||||
International Services (d) | 15,524 | 1,882 | 17,406 | 41,564 | 1,882 | 43,446 | |||||||||||
Merchant Services (e) | 90,784 | 81 | 90,865 | 219,056 | 81 | 219,137 | |||||||||||
NetSpend (f) | 40,856 | 182 | 41,038 | 125,538 | 182 | 125,720 | |||||||||||
Corporate admin and other | (37,022 | ) | 648 | (36,374 | ) | (99,830 | ) | 648 | (99,182 | ) | |||||||
Adjusted segment operating income (b) | $ | 223,567 | 8,896 | 232,463 | $ | 637,283 | 8,896 | 646,179 | |||||||||
Total revenues (g) | $ | 1,146,888 | 1,146,888 | $ | 3,037,853 | 3,037,853 | |||||||||||
Less: reimbursable items, interchange and | |||||||||||||||||
assessments expenses | 357,300 | 357,300 | 781,684 | 781,684 | |||||||||||||
Net revenue (h) | $ | 789,588 | 789,588 | $ | 2,256,169 | 2,256,169 | |||||||||||
Segment net revenue | |||||||||||||||||
North America Services (i) | $ | 300,754 | 300,754 | $ | 901,563 | 901,563 | |||||||||||
International Services (j) | 79,445 | 79,445 | 236,570 | 236,570 | |||||||||||||
Merchant Services (k) | 262,494 | 262,494 | 644,573 | 644,573 | |||||||||||||
NetSpend (l) | 155,349 | 155,349 | 502,961 | 502,961 | |||||||||||||
Intersegment revenues | (8,454 | ) | (8,454 | ) | (29,498 | ) | (29,498 | ) | |||||||||
Net revenue (h) | $ | 789,588 | 789,588 | $ | 2,256,169 | 2,256,169 | |||||||||||
Operating margin (GAAP) (a)/(g) | 13.5 | % | 14.3 | % | 14.6 | % | 14.9 | % | |||||||||
Adjusted operating margin on net revenue (b)/(h) | 28.3 | % | 29.4 | % | 28.3 | % | 28.6 | % | |||||||||
Adjusted segment operating margin on net revenue | |||||||||||||||||
North America Services(c)/(i) | 37.7 | % | 39.7 | % | 38.9 | % | 39.6 | % | |||||||||
International Services (d)/(j) | 19.5 | % | 21.9 | % | 17.6 | % | 18.4 | % | |||||||||
Merchant Services (e)/(k) | 34.6 | % | 34.6 | % | 34.0 | % | 34.0 | % | |||||||||
NetSpend (f)/(l) | 26.3 | % | 26.4 | % | 25.0 | % | 25.0 | % | |||||||||
Reconciliation of GAAP to Non-GAAP | ||||||||||||||
Free Cash Flow | ||||||||||||||
(unaudited) | ||||||||||||||
(in thousands) | ||||||||||||||
Nine Months Ended | ||||||||||||||
Free cash flow: | September 30, | |||||||||||||
2016 | 2015 | |||||||||||||
Net cash provided by operating activities | $ | 550,960 | 460,554 | |||||||||||
Capital expenditures | (107,335) | (136,183) | ||||||||||||
Free cash flow | $ | 443,625 | 324,371 | |||||||||||
Guidance Summary | ||||||||||||||
(unaudited) | ||||||||||||||
(in thousands, except per share data) | ||||||||||||||
Revenue: | 2016 | % Change | ||||||||||||
Total revenues (GAAP) | $ | 4,150 | to | $ | 4,170 | 49% | to | 50% | ||||||
Less: reimbursable items, interchange and | ||||||||||||||
assessments expenses | 1,120 | to | 1,125 | |||||||||||
Net revenue (non-GAAP) | $ | 3,030 | to | $ | 3,045 | 21% | to | 22% | ||||||
Earnings per share (EPS) | ||||||||||||||
Basic EPS (GAAP) | $ | 1.77 | to | $ | 1.83 | (10%) | to | (7%) | ||||||
Acquisition intangible amortization, share-based | ||||||||||||||
compensation and TransFirst M&A expenses, less | ||||||||||||||
the tax impact of adjustments | 1.01 | to | 1.02 | |||||||||||
Adjusted EPS attributable to TSYS common | $ | 2.78 | to | $ | 2.85 | 13% | to | 16% | ||||||
shareholders from continuing operations* (non-GAAP) | ||||||||||||||
* Average basic weighted shares | 183.7 | |||||||||||||