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TSYS Reports First Quarter Adjusted EPS Grew 41.2%

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TSYS (NYSE:TSS) today reported results for the first quarter.

“Through diligent planning and execution, along with the extraordinary efforts of many to complete the largest credit card portfolio conversion in the history of payments, we delivered exceptional results for the first quarter,” said M. Troy Woods, chairman, president and chief executive officer of TSYS.

Highlights for the first quarter of 2015 include:

  • Adjusted earnings per share (EPS) from continuing operations were $0.54, an increase of 41.2%. On a GAAP basis, basic EPS from continuing operations were $0.42, an increase of 60.4%.
  • Income from continuing operations attributable to TSYS’ shareholders was $77.8 million, an increase of 57.7%.
  • Adjusted EBITDA was $193.5 million, an increase of 29.3%.
  • Total revenues for the quarter were $662.2 million, an increase of 11.7%. Revenues before reimbursable items were $595.8 million, an increase of 11.8%.
  • Adjusted operating margin was 25.9%. GAAP operating margin was 18.5%.

“During the quarter, we repurchased 1.45 million shares of our stock, and including dividends, we returned 73% of available free cash flow to our shareholders. As a result of the great start to the year, we are revising our adjusted EPS guidance to grow between 12-14% from the previous range of 11-13%,” said Woods.

2015 Revised Financial Outlook
Range

(in millions, except per
share amounts)

Percent

Change

Total revenues $2,620 to $2,660 7% to 9%
Revenues before reimbursable items $2,370 to $2,410 8% to 10%
Adjusted EPS attributable to TSYS
common shareholders from

continuing operations* $2.19

to

$2.23 12%

to

14%
* Average Basic Weighted Shares 185

TSYS Reports First Quarter Adjusted EPS Grew 41.2%

In other business, M. Troy Woods has assumed the position of chairman, to succeed Philip W. Tomlinson, who will continue to serve as a director.

Conference Call

TSYS will host its quarterly conference call at 5:00 p.m. ET on Tuesday, April 28. 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

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, adjusted EBITDA and adjusted EPS, and a reconciliation of those measures to the most directly comparable GAAP measures are included on pages 8 to 11 of this release.

About TSYS

At TSYS(R) (NYSE:TSS) , we believe payments should revolve around people, not the other way around. We call this belief People-Centered Payments(R). By putting people at the center of every decision we make, TSYS supports financial institutions, businesses and governments in more than 80 countries. Through NetSpend(R), A TSYS Company, we empower consumers with the convenience, security, and freedom to be self-banked. TSYS offers issuer services and merchant payment acceptance for credit, debit, prepaid, healthcare and business solutions.

TSYS’ headquarters are located in Columbus, Ga., U.S.A., with local offices spread across the Americas, EMEA and Asia-Pacific. TSYS is a member of The Civic 50 and has been named one of the 2015 World’s Most Ethical Companies by Ethisphere magazine. TSYS routinely posts all important information on its website. For more, please visit us at www.tsys.com.

TSYS Reports First Quarter Adjusted EPS Grew 41.2%

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 2015 total revenues, revenues before reimbursable items 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; the effect of current domestic and worldwide economic conditions; risks associated with foreign operations, including adverse developments with respect to foreign currency exchange rates; 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; 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. We do not assume any obligation to update any forward-looking statements as a result of new information, future developments or otherwise.

TSYS
Financial Highlights
(unaudited)
(in thousands, except per share data)
Three Months Ended
March 31,
Percent
2015 2014 Change
Total revenues $ 662,156 592,848 11.7 %
Cost of services 449,705 422,883 6.3
Selling, general and administrative expenses 89,955 89,268 0.8
Total expenses 539,660 512,151 5.4
Operating income 122,496 80,697 51.8
Nonoperating expenses (9,209 ) (9,813 ) 6.2
Income before income taxes, noncontrolling interests
and equity in income of equity investments 113,287 70,884 59.8
Income taxes 39,782 24,335 63.5
Income before noncontrolling interests and
equity in income of equity investments 73,505 46,549 57.9
Equity in income of equity investments, net of tax 5,394 4,096 31.7
Income from continuing operations, net of tax 78,899 50,645 55.8
Gain (Loss) from discontinued operations, net of tax 980 nm
Net income 78,899 51,625 52.8
Net income attributable to noncontrolling interests (1,144 ) (2,322 ) 50.7
Net income attributable to TSYS common shareholders $ 77,755 49,303 57.7 %
Basic earnings per share(EPS):
Income from continuing operations to TSYS
common shareholders* $ 0.42 0.26 60.4 %
Gain (Loss) from discontinued operations to TSYS
common shareholders* (0.00 ) nm
Basic EPS $ 0.42 0.26 60.5 %
Diluted EPS:
Income from continuing operations to TSYS
common shareholders* $ 0.42 0.26 61.8 %
Gain (Loss) from discontinued operations to TSYS
common shareholders* (0.00 ) nm
Diluted EPS $ 0.42 0.26 61.8 %
Weighted average shares outstanding:
Basic 184,481 187,752
Diluted 185,563 190,384
Dividends declared per share $ 0.10 0.10
Amounts attributable to TSYS common shareholders:
Income from continuing operations, net of tax $ 77,755 49,321 57.7 %
Gain (Loss) from discontinued operations, net of tax (18 ) nm
Net income $ 77,755 49,303 57.7 %
Non-GAAP measures:
Adjusted EPS from continuing operations $ 0.54 0.38 41.2 %
Adjusted EBITDA $ 193,454 149,596 29.3 %
nm = not meaningful
* EPS amounts may not total due to rounding.

TSYS
Segment Breakdown
(unaudited)
(in thousands)
Three Months Ended March 31,
Change
2015 2014 $ %
Revenues before reimbursable items:
North America Services $ 266,219 224,368 41,851 18.7 %
International Services 73,730 76,773 (3,043 ) (4.0 )
Merchant Services 110,398 104,625 5,773 5.5
NetSpend 155,074 132,640 22,434 16.9
Intersegment revenues (9,637

)

(5,656 ) (3,981 ) (70.4 )
Revenues before reimbursable items
from external customers $ 595,784 532,750 63,034 11.8 %
Total revenues:
North America Services $ 309,233 262,178 47,055 17.9 %
International Services 79,802 82,378 (2,576 ) (3.1 )
Merchant Services 129,104 122,690 6,414 5.2
NetSpend 155,074 132,640 22,434 16.9
Intersegment revenues (11,057

)

(7,038 ) (4,019 ) (57.1 )
Revenues from external customers $ 662,156 592,848 69,308 11.7 %

Depreciation and amortization:
North America Services $ 23,064 20,276 2,788 13.8 %
International Services 8,778 9,805 (1,027 ) (10.5 )
Merchant Services 4,277 3,400 877 25.8
NetSpend 2,293 1,735 558 32.2
Segment depreciation and amortization 38,412 35,216 3,196 9.1
Acquisition intangible amortization 23,867 24,313 (446 ) (1.8 )
Corporate admin and other 536 506 30 5.9
Total depreciation and amortization $ 62,815 60,035 2,780 4.6 %
Adjusted segment operating income:
North America Services $ 102,570 74,578 27,992 37.5 %
International Services 6,983 4,555 2,428 53.3
Merchant Services 34,115 30,168 3,947 13.1
NetSpend 35,467 28,717 6,750 23.5
Total adjusted segment operating income 179,135 138,018 41,117 29.8
Acquisition intangible amortization (23,867

)

(24,313 ) 446 1.8
NetSpend M&A operating expenses (1,253 ) 1,253 nm
Share-based compensation (8,143

)

(7,611 ) (532 ) (7.0 )
Corporate admin and other (24,629

)

(24,144 ) (485 ) (2.0 )
Operating income $ 122,496 80,697 41,799 51.8 %
Other:
Reimbursable items:
North America Services $ 43,014 37,810 5,204 13.8 %
International Services 6,072 5,605 467 8.3
Merchant Services 18,706 18,065 641 3.5
NetSpend na
Intersegment revenues (1,420

)

(1,382 ) (38 ) (2.7 )
Reimbursable items $ 66,372 60,098 6,274 10.4 %
TSYS
Condensed Balance Sheet
(unaudited)
(in thousands)
Mar 31, 2015 Dec 31, 2014
Assets
Current assets:
Cash and cash equivalents $ 328,112 289,183
Accounts receivable, net 315,524 283,203
Other current assets 117,004 118,167
Total current assets 760,640 690,553
Goodwill 1,546,185 1,547,397
Other intangible assets, net 385,161 404,107
Property, equipment and software, net 650,795 656,733
Other long term assets 434,657 434,791
Total assets $ 3,777,438 3,733,581
Liabilities
Current liabilities:
Accounts payable $ 58,473 48,793
Bonds, notes and capital leases 45,526 50,911
Other current liabilities 240,494 196,809
Total current liabilities 344,493 296,513
Bonds, notes and capital leases, excluding current portion 1,396,044 1,405,106
Other long-term liabilities 299,480 309,826
Total liabilities 2,040,017 2,011,445
Redeemable noncontrolling interest 23,397 22,492
Equity
Shareholders’ equity 1,707,677 1,692,762
Noncontrolling interests in consolidated subsidiaries 6,347 6,882
Total equity 1,714,024 1,699,644
Total liabilities and equity $ 3,777,438 3,733,581
TSYS
Selected Cash Flow Highlights
(unaudited)
(in thousands)
Three Months Ended March 31,
2015 2014
Cash flows from operating activities:
Net income $ 78,899 51,625
Adjustments to reconcile net income to net cash
provided by operating activities:
Equity in income of equity investments (5,394 ) (4,096 )
Depreciation and amortization 62,815 61,432
Other non cash adjustments 16,836 20,350
Changes in operating assets and liabilities: 5,336 19,395
Net cash provided by operating activities 158,492 148,706
Net cash used in investing activities (41,714 ) (48,064 )
Net cash used in financing activities (73,756 ) (72,474 )
Cash and cash equivalents:
Effect of exchange rate changes on cash and cash equivalents (4,093 ) 1,015
Net increase in cash and cash equivalents 38,929 29,183
Cash and cash equivalents at beginning of period 289,183 278,230
Cash and cash equivalents at end of period 328,112 307,413
Less cash and cash equivalents of discontinued
operations at end of period 33,252
Cash and cash equivalents of continuing operations at end of period $ 328,112 274,161
Free cash flow $ 114,938 101,464
TSYS
Supplemental Information
(unaudited)
Other:
Supplemental Information:
Total Accounts on File
(in millions) March 2015 March 2014 %

Change

Consumer Credit 364.5 234.8 55.3
Retail 28.3 27.5 2.6
Total Consumer 392.8 262.3 49.8
Commercial 42.3 40.4 4.8
Other 22.7 19.7 15.2
Subtotal 457.8 322.4 42.0
Prepaid/Stored Value 126.6 120.0 5.5
Government Services 74.5 63.0 18.3
Commercial Card Single Use 64.8 50.8 27.5
Total AOF 723.7 556.2 30.1
Growth in Accounts on File (in millions):
March 2014 to

March 2015

March 2013 to

March 2014

Beginning balance 556.2 478.5
Change in accounts on file due to:
Internal growth of existing clients 39.8 38.6
New clients 172.5 64.6
Purges/Sales (44.2 ) (24.7 )
Deconversions (0.6 ) (0.8 )
Ending balance 723.7 556.2

Three Months Ended March 31,
Change
2015 2014 Inc(Dec) %
North America Segment:
Accounts on file (AOF) (in millions) 653.2 495.5 157.7 31.8 %
Transactions (in millions) 3,310.7 2,327.6 983.1 42.2 %
International Segment:
AOF (in millions) 70.5 60.7 9.8 16.1 %
Transactions (in millions) 572.0 517.9 54.1 10.5 %
Merchant Segment:
Point-of-sale transactions (in millions) 984.6 982.2 2.4 0.2 %
Dollar sales volume (in millions) $ 11,301.6 $ 10,779.7 $ 521.9 4.8 %
NetSpend Segment:
Gross dollar volume (in millions) $ 7,660.7 $ 6,567.2 $ 1,093.5 16.7 %
Direct deposit 90-day active cards (in thousands) 2,403.5 2,070.3 333.2 16.1 %
90-day active cards (in thousands) 4,193.0 3,654.9 538.1 14.7 %
% of 90-day active cards with direct deposit 57.3 % 56.6 %
Reconciliation of GAAP to Non-GAAP Financial Measures
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 first quarter 2015 financial results using the previous year’s foreign currency exchange rates. On a full year constant currency basis, TSYS’ total revenues grew 13.0% as compared to a reported GAAP increase of 11.7%.
The schedule below also provides a reconciliation of basic EPS, adjusted for the after-tax impact of acquisition intangible amortization, share-based compensation and merger and acquisition costs, 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.
The schedule also provides a reconciliation of net income, adjusted for income from discontinued operations, equity in income of equity investments, income taxes, nonoperating expense, depreciation and amortization, share-based compensation, and merger and acquisition expenses, to adjusted EBITDA.
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 captions of other companies due to potential inconsistencies in the method of calculation.
TSYS believes that its use of non-GAAP financial measures provides investors with the same key financial performance indicators that are utilized by management to assess TSYS’ operating results, evaluate the business and make operational decisions on a prospective, going-forward basis. Hence, management provides disclosure of non-GAAP financial measures to give shareholders and potential investors an opportunity to see TSYS as viewed by management, to assess TSYS with some of the same tools that management utilizes internally and to be able to compare such information with prior periods. TSYS believes that the presentation of GAAP financial measures alone would not provide its shareholders and potential investors with the ability to appropriately analyze its ongoing operational results, and therefore expected future results. TSYS therefore believes that inclusion of non-GAAP financial measures provides investors with additional information to help them better understand its financial statements just as management utilizes these non-GAAP financial measures to better understand the business, manage budgets and allocate resources.
Reconciliation of GAAP to Non-GAAP
Constant Currency Comparison
(unaudited)
(in thousands)
Three Months Ended March 31,
Percent
2015 2014 Change
Consolidated
Constant currency (1) $ 669,863 592,848 13.0 %
Foreign currency (2) (7,707 )
Total revenues $ 662,156 592,848 11.7 %
Constant currency (1) $ 602,902 532,750 13.2 %
Foreign currency (2) (7,118 )
Total revenues before reimbursable items $ 595,784 532,750 11.8 %
Constant currency (1) $ 122,337 80,697 51.6 %
Foreign currency (2) 159
Operating income $ 122,496 80,697 51.8 %
International Services
Constant currency (1) $ 87,381 82,378 6.1 %
Foreign currency (2) (7,579 )
Total revenues $ 79,802 82,378 (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.
Revenues Before Reimbursable Items
(unaudited)
(in thousands)
Three Months Ended March 31,
Percent
2015 2014 Change
Total revenues $ 662,156 592,848 11.7 %
Reimbursable items 66,372 60,098 10.4
Revenues before reimbursable items $ 595,784 532,750 11.8 %
Reconciliation of Cash Provided by Operating Activities to Available Free Cash Flow
(unaudited)
(in thousands)
Three Months Ended March 31,
2015 2014
Net cash provided by operating activities $ 158,492 148,706
Capital expenditures (43,554 ) (47,242 )
Free cash flow 114,938 101,464
Principal payments on debt and capital leases (15,085 ) (22,277 )
Available free cash flow $ 99,853 79,187
Reconciliation of GAAP to Non-GAAP
Adjusted Earnings per Share
(unaudited)
(in thousands, except per share data)
Three Months Ended March 31,
Percent
Income from continuing operations attributable to 2015 2014 Change
TSYS common shareholders $ 77,755 49,321 57.7 %
Adjust for amounts attributable to TSYS common shareholders:
Add: Acquisition intangible amortization, net of taxes 15,761 15,813 (0.3 )
Add: Share-based compensation, net of taxes 5,441 5,017 8.4
Add: NetSpend M&A expenses, net of taxes* 1,204 nm
Adjusted earnings $ 98,957 71,355 38.7 %
Basic EPS – Income from continuing operations attributable to
TSYS common shareholders
As reported (GAAP) $ 0.42 0.26 60.4 %
Adjust for amounts attributable to TSYS common shareholders:
Add: Acquisition intangible amortization, net of taxes 0.09 0.08 1.4
Add: Share-based compensation, net of taxes 0.03 0.03 10.5
Add: NetSpend M&A expenses, net of taxes* 0.01 nm
Adjusted EPS ** $ 0.54 0.38 41.2 %
Average common shares and participating securities 184,481 187,752
* Certain merger and acquisition costs are nondeductible for income tax purposes
** Adjusted EPS amounts may not total due to rounding.
Adjusted EBITDA
(unaudited)
(in thousands)
Three Months Ended March 31,
Percent
2015 2014 Change
Net income $ 78,899 51,625 52.8 %
Adjust for:
Deduct: Loss (Income) from discontinued operations (980 ) nm
Deduct: Equity in income of equity investments (5,394 ) (4,096 ) (31.7 )
Add: Income taxes 39,782 24,335 63.5
Add: Nonoperating expense 9,209 9,813 (6.2 )
Add: Depreciation and amortization 62,815 60,035 4.6
EBITDA $ 185,311 140,732 31.7 %
Adjust for:
Add: Share-based compensation 8,143 7,611 7.0
Add: NetSpend M&A operating expenses 1,253 nm
Adjusted EBITDA $ 193,454 149,596 29.3 %

nm = not meaningful

Reconciliation of GAAP to Non-GAAP
Segment Operating Margin and Consolidated Adjusted Operating Margin
(unaudited)
(in thousands)
Three Months Ended March 31, 2015 Three Months Ended March 31, 2014
Adjusted Segment Revenues before Adjusted Adjusted Segment Revenues before Adjusted
Operating Income Reimbursable Items Operating Margin Operating Income Reimbursable Items Operating Margin
North America Services $ 102,570 266,219 38.53 % $ 74,578 224,368 33.24 %
International Services 6,983 73,730 9.47 4,555 76,773 5.93
Merchant Services 34,115 110,398 30.90 30,168 104,625 28.83
NetSpend 35,467 155,074 22.87 28,717 132,640 21.65
Intersegment (9,637 ) (5,656 )
Corporate admin and other (24,629 ) (24,144 )
Adjusted operating margin $ 154,506 595,784 25.93 % $ 113,874 532,750 21.37 %
Acquisition intangible amortization (23,867 ) (24,313 )
NetSpend M&A operating expenses (1,253 )
Share-based compensation (8,143 ) (7,611 )
Operating income and margin* $ 122,496 595,784 20.56 % $ 80,697 532,750 15.15 %
Reimbursable items 66,372 60,098
Operating margin (US GAAP) $ 122,496 662,156 18.50 % $ 80,697 592,848 13.61 %
* Operating margin on revenue before reimbursable items

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