TSS
$83.35
Total System Services
($1.10)
(1.30%)
Earnings Details
3rd Quarter September 2018
Tuesday, October 23, 2018 4:15:00 PM
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Summary

TSYS Raises Earnings Guidance Above Estimates

Total System Services (TSS) reported 3rd Quarter September 2018 earnings of $1.11 per share on revenue of $1.0 billion. The consensus earnings estimate was $1.04 per share on revenue of $947.6 million. Revenue fell 18.6% compared to the same quarter a year ago.

The company said it expects 2018 non-GAAP earnings of $4.41 to $4.47 per share on revenue of $3.79 billion to $3.84 billion. The company's previous guidance was earnings of $4.30 to $4.40 per share on revenue of $3.74 billion to $3.84 billion and the current consensus earnings estimate is $4.39 per share on revenue of $3.81 billion for the year ending December 31, 2018.

Total System Services Inc is a payment solutions provider that provides services to financial & nonfinancial institutions. It services are divided into four operating segments North America Services, Merchant Services, International Services & NetSpend.

Results
Reported Earnings
$1.11
Earnings Whisper
-
Consensus Estimate
$1.04
Reported Revenue
$1.02 Bil
Revenue Estimate
$947.6 Mil
Growth
Earnings Growth
Revenue Growth
Power Rating
Grade
Earnings Release

TSYS Reports Third Quarter Earnings and Increases 2018 Outlook

COLUMBUS, Ga.--(BUSINESS WIRE)-- TSYS (NYSE: 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® (NYSE: 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 %
 
 
 
 
 
 
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
Contract liabilities 50,673 52,913
Other current liabilities 335,557 308,057
Total current liabilities 467,171 989,092

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

3,874,815 2,628,002
Deferred income tax liabilities 394,119 238,317
Contract liabilities - long-term 21,730 48,526
Other long-term liabilities 75,027 71,070
Total liabilities 4,832,862 3,975,007
Redeemable noncontrolling interest - 115,689
Equity 2,640,182 2,240,993
Total liabilities and equity $ 7,473,044 6,331,689
 
 
 
 
 
 
TSYS
Selected Cash Flow Highlights
(unaudited)
(in thousands)
     
Nine Months Ended September 30,
2018 2017
Cash flows from operating activities:
Net income $ 441,497 348,345

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

Equity in income of equity investments, net of tax (35,313 ) (30,919 )
Dividends received from equity investments 24,921 20,589
Depreciation and amortization 310,010 303,821
Amortization of debt issuance costs 3,668 3,247
Share-based compensation 32,916 28,462
Deferred income tax expense (benefit) 21,173 (46,435 )
Other noncash adjustments 63,541 55,764
Changes in operating assets and liabilities (109,905 ) (23,446 )
Net cash provided by operating activities 752,508   659,428  
 
Purchases of property and equipment (77,841 ) (42,572 )
Additions to licensed computer software from vendors (32,496 ) (23,114 )
Additions to internally developed computer software (29,692 ) (22,011 )
Additions to contract acquisition costs - (21,662 )
Cash used in acquisitions, net of cash acquired (1,051,629 ) -
Other investing activities (5,670 ) (1,436 )
Net cash used in investing activities (1,197,328 ) (110,795 )
 

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

(2,807,187 ) (415,788 )
Proceeds from long-term borrowings 3,477,000 -
Debt issuance costs (16,004 ) -
Purchase of noncontrolling interests (126,000 ) (70,000 )
Dividends paid on common stock (70,897 ) (55,151 )
Proceeds from exercise of stock options 31,024 15,499
Repurchase of common stock (443 ) (27,895 )
Other financing activities (3,778 ) (5,216 )
Net cash provided by (used in) financing activities 483,715   (558,551 )
 
Cash, cash equivalents and restricted cash:
Effect of exchange rate changes on cash, cash equivalents and restricted cash (3,639 ) 5,589  
Net increase in cash, cash equivalents and restricted cash 35,256 (4,329 )
Cash, cash equivalents and restricted cash at beginning of period 451,370   425,810  
Cash, cash equivalents and restricted cash at end of period $ 486,626   421,481  
 
Supplemental
Capital expenditures $ 140,029   109,359  
Free cash flow (non-GAAP)* $ 612,479   550,069  
 
* See reconciliation of non-GAAP measures.
Certain prior year amounts have changed due to the adoption of ASU 2016-18 "Statement of Cash Flows (Topic 230): Restricted Cash," which requires that a statement of cash flows explain the change in the total of cash, cash equivalents, and amounts generally described as restricted cash or restricted cash equivalents.
 
 
 
 
 
 
TSYS
Supplemental Information
(unaudited)
                     
 
 
 
Other
AOF: Total Accounts on File
(in millions)

At

September 2018

   

At

September 2017

   

%

Change

Consumer 499.3 474.7 5.2
Commercial 55.6 52.8 5.3
Other 39.5       34.6   14.3
Traditional AOF 594.4 562.1 5.8
Prepaid*/Stored Value 17.1 50.6 (66.3 )
Government Services 98.0 92.1 6.4
Commercial Card Single Use 114.2       92.5   23.4
Total AOF 823.7       797.3   3.3
* Prepaid does not include Netspend accounts.
 

Growth in Accounts on File (in millions):

 

 

September 2017 to

September 2018

   

September 2016 to

September 2017

Beginning balance 797.3 738.8
Change in accounts on file due to:
Internal growth of existing clients 54.1 53.2
New clients 32.3 29.5
Purges/Sales (39.3 ) (23.6 )
Deconversions (20.7 )     (0.6 )
Ending balance 823.7       797.3  
 
 
 
 
 
 
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 2018 and year-to-date financial results using the previous year’s foreign currency exchange rates. On a constant currency basis, TSYS’ total year-to-date revenues for the third quarter of 2018 were lower 18.0% as compared to a reported GAAP decrease of 17.6%.
 
The schedules below also provide a reconciliation of diluted EPS to adjusted diluted EPS.
 
The schedules below also provide a reconciliation of net income to adjusted EBITDA.
 
The schedules below also provide a reconciliation of cash flows from operating activities and capital expenditures to free cash flow.
 
The schedules below also provide a reconciliation of 2018 revised guidance of total revenues to net revenue and diluted EPS to adjusted diluted EPS.
 
The tax rate used in the calculation of adjusted diluted EPS for the quarter and year is equal to an estimate of our annual effective tax rate on GAAP income. This effective rate is estimated annually and may be adjusted during the year to take into account events or trends that materially impact the effective tax rate including, but not limited to, significant changes resulting from tax legislation, material changes in the mix of revenues and expenses by entity and other significant events.
 
TSYS believes that non-GAAP financial measures are important to enable investors to understand and evaluate its ongoing operating results. Accordingly, TSYS includes non-GAAP financial measures when reporting its financial results to shareholders and potential investors in order to provide them with an additional tool to evaluate TSYS’ ongoing business operations. TSYS believes that the non-GAAP financial measures are representative of comparative financial performance that reflects the economic substance of TSYS’ current and ongoing business operations.
 
Although non-GAAP financial measures are often used to measure TSYS’ operating results and assess its financial performance, they are not necessarily comparable to similarly titled measures of other companies due to potential inconsistencies in the method of calculation.
 
TSYS believes that its provision of non-GAAP financial measures provides investors with important key financial performance indicators that are utilized by management to assess TSYS’ operating results, evaluate the business and make operational decisions on a prospective, going-forward basis. Hence, management provides disclosure of non-GAAP financial measures to give shareholders and potential investors an opportunity to see TSYS as viewed by management, to assess TSYS with some of the same tools that management utilizes internally and to be able to compare such information with prior periods. TSYS believes that inclusion of non-GAAP financial measures provides investors with additional information to help them better understand its financial statements just as management utilizes these non-GAAP financial measures to better understand the business, manage budgets and allocate resources.
 
 
 
 
 
 
Reconciliation of GAAP to Non-GAAP
 
Constant Currency Comparison
(unaudited)
(in thousands)
                           
Three Months Ended September 30, Nine Months Ended September 30,
Percent Percent
2018     2017     Change 2018     2017     Change

Consolidated

Constant currency (1) $ 1,017,279 1,247,576 (18.5 )% $ 2,995,442 3,654,676 (18.0 )%
Foreign currency impact (2) (1,908 )     - 14,679     -
Total revenues $ 1,015,371       1,247,576 (18.6 )% $ 3,010,121     3,654,676 (17.6 )%
 
Constant currency (1) $ 966,416 852,759 13.3 % $ 2,842,948 2,529,719 12.4 %
Foreign currency impact (2) (1,822 )     - 13,691     -
Net revenue $ 964,594       852,759 13.1 % $ 2,856,639     2,529,719 12.9 %
 
Constant currency (1) $ 215,968 199,692 8.2 % $ 607,630 560,123 8.5 %
Foreign currency impact (2) 15       - 5,322     -
Operating income $ 215,983       199,692 8.2 % $ 612,952     560,123 9.4 %
 

Issuer Solutions

Constant currency (1) $ 436,263 401,074 8.8 % $ 1,265,346 1,181,090 7.1 %
Foreign currency impact (2) (1,931 )     - 13,575     -
Segment net revenue $ 434,332       401,074 8.3 % $ 1,278,921     1,181,090 8.3 %
 
(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.
 
Net Revenue
(unaudited)
(in thousands)
 
Three Months Ended September 30, Nine Months Ended 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 )%
Less: reimbursable items, interchange and payment network fees 50,777       394,817 (87.1 ) 153,482     1,124,957 (86.4 )
Net revenue $ 964,594       852,759 13.1 % $ 2,856,639     2,529,719 12.9 %
 
 
 
 
 
 
Reconciliation of GAAP to Non-GAAP
 
Adjusted Diluted Earnings per Share
(unaudited)
(in thousands, except per share data)
 
       

Three Months Ended September 30,

   

Nine Months Ended September 30,

        Percent         Percent
2018     2017     Change 2018     2017     Change
Net income attributable to
TSYS common shareholders (GAAP) $ 155,960 123,095 26.7 % $ 440,236 343,977 28.0 %

Adjust for amounts attributable to TSYS common shareholders:

Add: Acquisition intangible amortization $ 57,555 50,704 13.5 $ 182,373 156,489 16.5
Add: Share-based compensation 12,391 8,404 47.4 32,913 28,455 15.7
Add: Cayan and TransFirst M&A expenses* 2,887 1,052

nm

19,836 10,025 97.9
Add: Litigation, claims, judgments or settlements** - 26 (100.0 ) - 1,904 (100.0 )
Less: Tax impact of adjustments*** (16,381 )     (20,614 ) 20.5 (51,563 )     (67,702 ) 23.8
Adjusted earnings (non-GAAP) $ 212,412       162,667   30.6 % $ 623,795       473,148   31.8 %
 

Diluted EPS - Net income attributable to TSYS common shareholders

As reported (GAAP) $ 0.85       0.66   28.0 % $ 2.40       1.85   29.3 %
 
Adjusted diluted EPS (non-GAAP) $ 1.16       0.88   32.0 % $ 3.40       2.55   33.2 %
 
Weighted average diluted shares outstanding 183,846       185,809   183,601       185,472  
 
* Costs associated with the Cayan and TransFirst acquisitions and integrations are included in selling,
general and administrative expenses and nonoperating expenses.
** Litigation settlement or settlement discussions and related legal expenses.
*** Certain of these merger and acquisition costs are nondeductible for income tax purposes. Income tax impact
includes discrete items as a result of the acquisitions.
 
nm = not meaningful
 
 
 
 
 
 
Reconciliation of GAAP to Non-GAAP
 
Adjusted EBITDA
(unaudited)
(in thousands)
                           
Three Months Ended September 30, Nine Months Ended September 30,
Percent Percent
2018     2017     Change 2018     2017     Change
Net income (GAAP) (a) $ 155,960 124,726 25.0 % $ 441,497 348,345 26.7 %
Adjust for:
Less: Equity in income of equity investments (12,383 ) (8,497 )

(45.7

)

(35,313 ) (30,919 )

(14.2

)

Less: Income tax expense 31,112 54,628

(43.0

)

86,662 153,917

(43.7

)

Add: Interest expense, net 41,093 28,501 44.2 118,865 87,811 35.4
Add: Depreciation and amortization* 101,332 100,284 1.0 310,010 303,821 2.0
Add: Client incentive/contract asset amortization* 7,303 - na 20,888 - na
Add: Contract cost asset amortization* 8,592 - na 27,830 - na
Less: (Gain)/loss on foreign currency translations (187 ) 427 nm (295 ) 1,250 nm
Less: Other nonoperating (income)/expenses 388 (93 ) nm 1,536 (281 ) nm
Add: Share-based compensation 12,391 8,407 47.4 32,915 28,462 15.6
Add: Cayan and TransFirst M&A expenses** 2,887 1,052 nm 19,836 10,086 96.7
Add: Litigation, claims, judgments or settlements -       26  

(100.0

)

-       1,904  

(100.0

)

Adjusted EBITDA (non-GAAP) (b) $ 348,488       309,461   12.6 % $ 1,024,431       904,396   13.3 %
 
Total revenues (c) $ 1,015,371       1,247,576   $ 3,010,121       3,654,676  
Net income margin on total revenues (GAAP) (a)/(c) 15.4 %     10.0 % 14.7 %     9.5 %
 
Net revenue (d) $ 964,594       852,759   $ 2,856,639       2,529,719  
Adjusted EBITDA margin on net revenue (non-GAAP) (b)/(d) 36.1 %     36.3 % 35.9 %     35.8 %
 
* Client incentive/contract asset amortization and contract cost asset amortization are no longer included in depreciation and amortization due to the adoption of ASC 606 on January 1, 2018.
** Costs associated with the Cayan and TransFirst acquisitions and integrations are included in selling, general and administrative expenses.
 
nm = not meaningful
na = not applicable
 
 
 
 
 
 
Reconciliation of GAAP to Non-GAAP
 
Free Cash Flow
(unaudited)
(in thousands)
    Nine Months Ended  
Free cash flow: September 30,
2018     2017
 
Net cash provided by operating activities (GAAP) $ 752,508 659,428
Capital expenditures (140,029 ) (109,359 )
Free cash flow (non-GAAP) $ 612,479   550,069  
 
 
Revised Guidance Summary
(unaudited)
(in millions, except per share data)
 
 
Revenue:

2018(1)

% Change
 
Total revenues (GAAP) $ 3,990 to $ 4,040 (19 %) to (18 %)

Less: reimbursable items, interchange and payment network fees

200   to 200  
Net revenue (non-GAAP) $ 3,790 to $ 3,840 11 % to 13 %
 
 
Earnings per share (EPS):
 
Diluted EPS (GAAP) $ 3.09 to $ 3.15 (2 %) to 0 %

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

1.32   to   1.32  

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

$ 4.41 to $ 4.47 31 % to 33 %
 
* Weighted average diluted shares outstanding 184
 
(1) The estimated impact of the adoption of ASC 606 on TSYS' revised 2018 outlook is as follows: Total revenues ($1,700) to ($1,675), Net revenue ($69) to ($62), Diluted EPS and Adjusted diluted EPS of ($0.04) to ($0.03). 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 will be presented "net" of the amounts paid to them, as opposed to the "gross" presentation for certain of these fees in 2017.
 
 
 
 
 
 
 
TSYS
Impact of New Revenue Guidance on Financial Statement Line items
(unaudited)
(in thousands, except per share data)
 
      Three Months Ended     Nine Months Ended
September 30, 2018 September 30, 2018
    Balances     Effect of     Balances     Effect of
As Without Adoption Change As Without Adoption Change
Reported of Topic 606 Higher/(Lower) Reported of Topic 606 Higher/(Lower)
 
Total revenues $ 1,015,371 1,459,182 (443,811 ) 3,010,121 4,252,569 (1,242,448 )
Total expenses 799,388 1,239,228 (439,840 ) 2,397,169 3,631,739 (1,234,570 )
Operating income $ 215,983 219,954 (3,971 ) 612,952 620,830 (7,878 )
Income taxes $ 31,112 32,033 (921 ) 86,662 88,461 (1,799 )
Net income $ 155,960 159,010 (3,050 ) 441,497 447,575 (6,078 )
Net income attributable to TSYS common shareholders $ 155,960 159,010 (3,050 ) 440,236 446,314 (6,078 )
Earnings per share (EPS):
Basic EPS* $ 0.85 0.87 (0.02 ) 2.42 2.45 (0.03 )
Diluted EPS* $ 0.85 0.86 (0.02 ) 2.40 2.43 (0.03 )
 
* EPS amounts may not total due to rounding.
 
 
 
 

TSYS
Media Relations:
Cyle Mims, 706-644-3110
cylemims@tsys.com
or
Investor Relations:
Shawn Roberts, 706-644-6081
shawnroberts@tsys.com

Source: TSYS