TSS
$97.85
Total System Services
$.62
.64%
Earnings Details
2nd Quarter June 2018
Tuesday, July 24, 2018 4:15:00 PM
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Summary

Total System Services Misses

Total System Services (TSS) reported 2nd Quarter June 2018 earnings of $1.10 per share on revenue of $1.0 billion. The consensus earnings estimate was $1.08 per share on revenue of $929.7 million. The Earnings Whisper number was $1.11 per share. Revenue fell 17.6% compared to the same quarter a year ago.

The company said it expects 2018 non-GAAP earnings of $4.30 to $4.40 per share on revenue of $3.74 billion to $3.84 billion. The company's previous guidance was earnings of $4.25 to $4.35 per share on revenue of $3.70 billion to $3.80 billion and the current consensus earnings estimate is $4.31 per share on revenue of $3.76 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
$1.10
Earnings Whisper
$1.11
Consensus Estimate
$1.08
Reported Revenue
$1.01 Bil
Revenue Estimate
$929.7 Mil
Growth
Earnings Growth
Revenue Growth
Power Rating
Grade
Earnings Release

TSYS Reports Second Quarter Earnings and Increases 2018 Outlook

COLUMBUS, Ga.--(BUSINESS WIRE)-- TSYS (NYSE: TSS) today reported results for the second quarter of 2018.

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

Highlights for the second quarter of 2018 vs. 2017:

  • Total revenues were $1,007.6 million, a decrease of 17.6%. The decrease is the result of adopting ASC 606.(1)
  • Net revenue (non-GAAP), which excludes reimbursable items, interchange and payment network fees, was $956.5 million, an increase of 13.3%.
  • Net income attributable to TSYS common shareholders was $142.4 million, an increase of 23.8%. Diluted EPS were $0.78, an increase of 25.0%.
  • Adjusted earnings (non-GAAP) were $203.8 million, an increase of 28.8%. Adjusted diluted EPS (non-GAAP) were $1.11, an increase of 30.0%.
  • Adjusted EBITDA (non-GAAP) was $345.0 million, an increase of 12.1%.
(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) $3,940 to $4,040 (20%) to (18%)
Net revenue (non-GAAP) $3,740 to $3,840 10% to 13%
 
Earnings per share:
Diluted EPS (GAAP) $3.02

to

$3.12 (4%) to (1%)
Adjusted diluted EPS attributable to TSYS common shareholders (non-GAAP)

$4.30

to

$4.40

28%

to

31%

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, July 24. 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 12,000 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 Six Months Ended
June 30, June 30,
Percent Percent
2018 2017 Change 2018 2017 Change
 
Total revenues $ 1,007,580 1,222,375 (17.6) % $ 1,994,750 2,407,100 (17.1) %
 
Cost of services 617,818 877,887 (29.6) 1,231,183 1,739,744 (29.2)
Selling, general and administrative expenses 181,064 151,240 19.7 366,598 306,925 19.4
Total expenses 798,882 1,029,127 (22.4) 1,597,781 2,046,669 (21.9)
 
Operating income 208,698 193,248 8.0 396,969 360,431 10.1
 
Nonoperating expenses (41,170) (30,042) (37.0) (78,812) (59,945) (31.5)
 

Income before income taxes and equity in income of equity investments

167,528 163,206 2.6 318,157 300,486 5.9
Income tax expense 37,415 56,207 (33.4) 55,549 99,289 (44.1)
Income before equity in income of equity investments 130,113 106,999 21.6 262,608 201,197 30.5
Equity in income of equity investments, net of tax 12,322 9,513 29.5 22,929 22,422 2.3
Net income 142,435 116,512 22.2 285,537 223,619 27.7
Net income attributable to noncontrolling interests - (1,498) 100.0 (1,261) (2,737) 53.9
 
Net income attributable to TSYS common shareholders $ 142,435 115,014 23.8 % $ 284,276 220,882 28.7 %
 
Earnings per share (EPS):
Basic EPS $ 0.78 0.62 25.1 % $ 1.56 1.20 30.1 %
 
Diluted EPS $ 0.78 0.62 25.0 % $ 1.55 1.19 29.9 %
 

Weighted average shares outstanding: (includes participating securities)

Basic 182,355 184,153 181,991 184,019
Diluted 183,575 185,286 183,456 185,122
 
Dividends declared per share $ 0.13 0.10 30.0 % $ 0.26 0.20 30.0 %
 

Non-GAAP measures:*

Net revenue $ 956,548 844,068 13.3 % $ 1,892,045 1,676,960 12.8 %
 
Adjusted EBITDA $ 345,021 307,698 12.1 % $ 675,943 594,935 13.6 %
 
Adjusted earnings $ 203,796 158,215 28.8 % $ 411,383 310,480 32.5 %
 
Adjusted diluted EPS $ 1.11 0.85 30.0 % $ 2.24 1.68 33.7 %
 
* See reconciliation of non-GAAP measures.
 
 
TSYS
Segment Breakdown
(unaudited)
(in thousands)
                 
Three Months Ended June 30, Six Months Ended June 30,
Change Change
2018   2017   $   % 2018   2017   $   %
Adjusted operating income by segment:
Issuer Solutions (a) $ 151,490 147,277 4,213 2.9 % $ 302,481 281,150 21,331 7.6 %
Merchant Solutions (b) 124,817 101,996 22,821 22.4 234,831 193,275 41,556 21.5
Consumer Solutions (c) 50,232 46,044 4,188 9.1 99,585 94,692 4,893 5.2
Corporate admin and other (39,166 )   (36,036 )   (3,130 ) (8.7 ) (77,567 )   (71,608 )   (5,959 ) (8.3 )
Adjusted segment operating income (d) 287,373 259,281 28,092 10.8 559,330 497,509 61,821 12.4
Less:
Share-based compensation 14,229 11,008 3,221 29.3 20,524 20,055 469 2.3
Cayan and TransFirst M&A and integration expenses 2,581 4,165 (1,584 ) (38.0 ) 16,949 9,034 7,915 87.6
Litigation, claims, judgments or settlements - (83 ) 83 100.0 - 1,878 (1,878 ) (100.0 )
Acquisition intangible amortization 61,865     50,943     10,922   21.4 124,888     106,111     18,777   17.7
Operating income 208,698 193,248 15,450 8.0 396,969 360,431 36,538 10.1
Nonoperating expenses (41,170 )   (30,042 )   (11,128 ) (37.0 ) (78,812 )   (59,945 )   (18,867 ) (31.5 )

Income before income taxes and equity in income of equity investments

$ 167,528     163,206     4,322   2.6 % $ 318,157     300,486     17,671   5.9 %
 
Net revenue by segment:
Issuer Solutions (e) $ 421,015 392,760 28,255 7.2 % $ 844,589 780,015 64,574 8.3 %
Merchant Solutions (f) 346,389 278,588 67,801 24.3 663,792 539,149 124,643 23.1
Consumer Solutions (g) 200,293     183,065     17,228   9.4 410,781     380,530     30,251   7.9
Segment net revenue 967,697 854,413 113,284 13.3 1,919,162 1,699,694 219,468 12.9
Less: Intersegment revenues 11,149     10,345     804   7.8 27,117     22,734     4,383   19.3
Net revenue (h) 956,548 844,068 112,480 13.3 1,892,045 1,676,960 215,085 12.8

Add: reimbursable items, interchange and payment network fees

51,032     378,307     (327,275 ) (86.5 ) 102,705     730,140     (627,435 ) (85.9 )
Total revenues $ 1,007,580     1,222,375     (214,795 ) (17.6 )% $ 1,994,750     2,407,100     (412,350 ) (17.1 )%
 
 
Adjusted segment operating margin on segment net revenue:
Issuer Solutions (a)/(e) 36.0 %   37.5 % 35.8 %   36.0 %
Merchant Solutions (b)/(f) 36.0 %   36.6 % 35.4 %   35.9 %
Consumer Solutions (c)/(g) 25.1 %   25.2 % 24.2 %   24.9 %
 
Adjusted segment operating margin on net revenue (d)/(h) 30.0 %   30.7 % 29.6 %   29.7 %
 
 
TSYS
Segment Breakdown
(unaudited)
(in thousands)
                 
Three Months Ended June 30, Six Months Ended June 30,
Change Change
2018   2017   $   % 2018   2017   $   %
Depreciation and amortization by segment:
Issuer Solutions $ 29,640 35,735 (6,095 ) (17.1 )% $ 57,971 72,588 (14,617 ) (20.1 )%
Merchant Solutions 7,523 7,380 143 1.9 15,348 14,402 946 6.6
Consumer Solutions 4,313   4,180   133   3.2 8,573     8,272     301   3.6
Depreciation and amortization 41,476 47,295 (5,819 ) (12.3 ) 81,892 95,262 (13,370 ) (14.0 )
Acquisition intangible amortization 61,865 50,943 10,922 21.4 124,888 106,111 18,777 17.7
Corporate admin and other 949   1,121   (172 ) (15.3 ) 1,899     2,164     (265 ) (12.2 )
Total depreciation and amortization* $ 104,290   99,359   4,931   5.0 % $ 208,679     203,537     5,142   2.5 %
 
*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) 6,050.0 5,340.6 709.4 13.3 % 11,598.0 10,217.2 1,380.8 13.5 %
Total Accounts on file (AOF) (in millions) 829.3 773.6 55.7 7.2 %
Total Traditional AOF (in millions) 588.9 542.0 46.9 8.6 %
 

Merchant Solutions

Point-of-sale transactions (in millions) 1,498.5 1,233.5 265.0 21.5 % 2,838.0 2,361.3 476.7 20.2 %
Dollar sales volume (in millions) $ 40,362.1 31,127.5 9,234.6 29.7 % $ 77,628.8 60,247.9 17,380.9 28.8 %
Segment net revenue per transaction $ 0.231 0.226 0.005 2.4 % $ 0.234 0.228 0.006 2.4 %
 

Consumer Solutions

Gross dollar volume (in millions) $ 8,336.2 7,605.5 730.7 9.6 % $ 18,030.5 17,212.8 817.7 4.8 %
Direct deposit 90-day active cards (in thousands) 2,518.7 2,416.7 102.0 4.2 %
90-day active cards (in thousands) 5,078.5 4,964.9 113.6 2.3 %
% of 90-day active cards with direct deposit 49.6 % 48.7 %
 
 
TSYS
Condensed Balance Sheet
(unaudited)
(in thousands)
     
June 30, 2018 December 31, 2017
Assets
Current assets:
Cash and cash equivalents $ 460,019 450,357
Accounts receivable, net 440,875 412,322
Contract assets 34,083 -
Other current assets 202,045 216,565
Total current assets 1,137,022 1,079,244
Goodwill 4,088,579 3,264,071
Software and other intangible assets, net 1,357,099 1,110,861
Property and equipment, net 363,336 325,218
Contract assets - long-term 54,018 -
Contract cost assets - long-term 147,512 258,665
Other long term assets 318,924 293,630
Total assets $ 7,466,490 6,331,689
 
Liabilities
Current liabilities:
Accounts payable $ 63,282 62,310

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

21,349 565,812
Contract liabilities 54,701 52,913
Other current liabilities 306,997 308,057
Total current liabilities 446,329 989,092

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

4,053,187 2,628,002
Deferred income tax liabilities 370,587 238,317
Contract liabilities - long-term 19,111 48,526
Other long-term liabilities 75,580 71,070
Total liabilities 4,964,794 3,975,007
Redeemable noncontrolling interest - 115,689
Equity 2,501,696 2,240,993
Total liabilities and equity $ 7,466,490 6,331,689
 
 
TSYS
Selected Cash Flow Highlights
(unaudited)
(in thousands)
     
Six Months Ended June 30,
2018 2017
Cash flows from operating activities:
Net income $ 285,537 223,619

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

Equity in income of equity investments, net of tax (22,929 ) (22,422 )
Dividends received from equity investments 892 943
Depreciation and amortization 208,679 203,537
Amortization of debt issuance costs 2,362 2,163
Share-based compensation 20,524 20,055
Deferred income tax expense (benefit) 18,657 (18,191 )
Other noncash adjustments 43,187 38,247
Changes in operating assets and liabilities (86,316 ) (46,973 )
Net cash provided by operating activities 470,593   400,978  
 
Purchases of property and equipment (48,608 ) (26,739 )
Additions to licensed computer software from vendors (19,216 ) (10,568 )
Additions to internally developed computer software (19,934 ) (13,581 )
Additions to contract acquisition costs - (14,655 )
Cash used in acquisitions, net of cash acquired (1,051,629 ) -
Other investing activities (4,119 ) (759 )
Net cash used in investing activities (1,143,506 ) (66,302 )
 

 

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

(2,626,534 ) (234,093 )
Proceeds from long-term borrowings 3,477,000 -
Debt issuance costs (15,979 ) -
Purchase of noncontrolling interests (126,000 ) (70,000 )
Dividends paid on common stock (47,190 ) (36,734 )
Proceeds from exercise of stock options 29,289 8,987
Repurchase of common stock (82 ) (24 )
Other financing activities (3,778 ) (3,885 )
Net cash provided by (used in) financing activities 686,726   (335,749 )
 
Cash, cash equivalents and restricted cash:
Effect of exchange rate changes on cash, cash equivalents and restricted cash (4,143 ) 3,494  
Net increase in cash, cash equivalents and restricted cash 9,670 2,421
Cash, cash equivalents and restricted cash at beginning of period 451,370   425,810  
Cash, cash equivalents and restricted cash at end of period $ 461,040   428,231  
 
Supplemental
Capital expenditures $ 87,758   65,543  
Free cash flow (non-GAAP)* $ 382,835   335,435  
 
* 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

June 2018

 

At

June 2017

%
Change
 
Consumer 493.8 457.0 8.1
Commercial 56.8 51.5 10.1
Other 38.3     33.5   14.3
Traditional AOF 588.9 542.0 8.6
Prepaid*/Stored Value 37.0 50.6 (26.9 )
Government Services 97.4 91.3 6.7
Commercial Card Single Use 106.0     89.7   18.1
Total AOF 829.3     773.6   7.2
* Prepaid does not include Netspend accounts.
 

Growth in Accounts on File (in millions):

June 2017 to
June 2018

  June 2016 to
June 2017
Beginning balance 773.6 742.1
Change in accounts on file due to:
Internal growth of existing clients 53.7 53.1
New clients 37.3 23.7
Purges/Sales (34.4 ) (23.3 )
Deconversions (0.9 )   (22.0 )
Ending balance 829.3     773.6  
 
 
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 second 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 second quarter of 2018 were lower 17.8% as compared to a reported GAAP decrease of 17.1%.
 
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 June 30, Six Months Ended June 30,
Percent Percent
2018   2017   Change 2018   2017   Change

Consolidated

Constant currency (1) $ 1,002,182 1,222,375 (18.0 )% $ 1,978,164 2,407,100 (17.8 )%
Foreign currency impact (2) 5,398   - 16,586   -
Total revenues $ 1,007,580   1,222,375 (17.6 )% $ 1,994,750   2,407,100 (17.1 )%
 
Constant currency (1) $ 951,502 844,068 12.7 % $ 1,876,533 1,676,960 11.9 %
Foreign currency impact (2) 5,046   - 15,512   -
Net revenue $ 956,548   844,068 13.3 % $ 1,892,045   1,676,960 12.8 %
 
Constant currency (1) $ 206,777 193,248 7.0 % $ 391,662 360,431 8.7 %
Foreign currency impact (2) 1,921   - 5,307   -
Operating income $ 208,698   193,248 8.0 % $ 396,969   360,431 10.1 %
 

Issuer Solutions

Constant currency (1) $ 416,013 392,760 5.9 % $ 829,083 780,015 6.3 %
Foreign currency impact (2) 5,002   - 15,506   -
Segment net revenue $ 421,015   392,760 7.2 % $ 844,589   780,015 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 June 30, Six Months Ended June 30,
Percent Percent
2018   2017   Change 2018   2017   Change
Total revenues $ 1,007,580 1,222,375 (17.6 )% $ 1,994,750 2,407,100 (17.1 )%
Less: reimbursable items, interchange and payment network fees 51,032   378,307 (86.5 ) 102,705   730,140 (85.9 )
Net revenue $ 956,548   844,068 13.3 % $ 1,892,045   1,676,960 12.8 %
 
 
Reconciliation of GAAP to Non-GAAP
     
Adjusted Diluted Earnings per Share
(unaudited)
(in thousands, except per share data)
           
Three Months Ended June 30, Six Months Ended June 30,
Percent Percent
2018   2017   Change 2018   2017   Change

Net income attributable to TSYS common shareholders (GAAP)

$ 142,435 115,014 23.8 % $ 284,276 220,882 28.7 %
Adjust for amounts attributable to TSYS common shareholders:
Add: Acquisition intangible amortization $ 61,830 50,783 21.8 $ 124,818 105,785 18.0
Add: Share-based compensation 14,228 11,009 29.2 20,522 20,051 2.3
Add: Cayan and TransFirst M&A expenses* 2,581 4,149 (37.8 ) 16,949 8,973 88.9
Add: Litigation, claims, judgments or settlements** - (83 ) 100.0 - 1,878 (100.0 )
Less: Tax impact of adjustments*** (17,278 )   (22,657 ) 23.7 (35,182 )   (47,089 ) 25.3
Adjusted earnings (non-GAAP) $ 203,796     158,215   28.8 % $ 411,383     310,480   32.5 %
 

Diluted EPS - Net income attributable to TSYS common shareholders

As reported (GAAP) $ 0.78     0.62   25.0 % $ 1.55     1.19   29.9 %
 
Adjusted diluted EPS (non-GAAP) $ 1.11     0.85   30.0 % $ 2.24     1.68   33.7 %
 
Weighted average diluted shares outstanding 183,575     185,286   183,456     185,122  
 

* 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.

 
 
Reconciliation of GAAP to Non-GAAP
         
Adjusted EBITDA
(unaudited)
(in thousands)
           
Three Months Ended June 30, Six Months Ended June 30,
Percent Percent
2018 2017 Change 2018 2017 Change
Net income (GAAP) (a) $ 142,435 116,512 22.2 % $ 285,537 223,619 27.7 %
Adjust for:
Less: Equity in income of equity investments (12,322 ) (9,513 ) (29.5 ) (22,929 ) (22,422 ) (2.3 )
Less: Income tax expense 37,415 56,207 (33.4 ) 55,549 99,289 (44.1 )
Add: Interest expense, net 41,119 29,537 39.2 77,772 59,310 31.1
Add: Depreciation and amortization* 104,290 99,359 5.0 208,679 203,537 2.5
Add: Client incentive/contract asset amortization* 6,712 - na 13,584 - na
Add: Contract cost asset amortization* 8,511 - na 19,238 - na
Less: (Gain)/loss on foreign currency translations (535 ) 513 nm (107 ) 824 nm
Less: Other nonoperating (income)/expenses 586 (8 ) nm 1,147 (189 ) nm
Add: Share-based compensation 14,229 11,008 29.3 20,524 20,055 2.3
Add: Cayan and TransFirst M&A expenses** 2,581 4,166 (38.0 ) 16,949 9,034 87.6
Add: Litigation, claims, judgments or settlements -   (83 ) 100.0 -   1,878   (100.0 )
Adjusted EBITDA (non-GAAP) (b) $ 345,021   307,698   12.1 % $ 675,943   594,935   13.6 %
 
Total revenues (c) $ 1,007,580   1,222,375   $ 1,994,750   2,407,100  
Net income margin on total revenues (GAAP) (a)/(c) 14.1 % 9.5 % 14.3 % 9.3 %
 
Net revenue (d) $ 956,548   844,068   $ 1,892,045   1,676,960  
Adjusted EBITDA margin on net revenue (non-GAAP) (b)/(d) 36.1 % 36.5 % 35.7 % 35.5 %
 

* 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)
Six Months Ended      
Free cash flow: June 30,
2018         2017
   
Net cash provided by operating activities (GAAP) $ 470,593 400,978
Capital expenditures (87,758 ) (65,543 )
Free cash flow (non-GAAP) $ 382,835   335,435  
 
 
Revised Guidance Summary
(unaudited)
(in millions, except per share data)
 
 
Revenue:

2018(1)

% Change
 
Total revenues (GAAP) $ 3,940 to $ 4,040 (20%) to (18%)

Less: reimbursable items, interchange and payment network fees

200   to   200  
Net revenue (non-GAAP) $ 3,740 to $ 3,840 10% to 13%
 
 
Earnings per share (EPS):
 
Diluted EPS (GAAP) $ 3.02 to $ 3.12 (4%) to (1%)

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

1.28   to   1.28  

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

$ 4.30 to $ 4.40 28% to 31%
 
* Weighted average diluted shares outstanding 184
 

(1)

The estimated impact of the adoption of ASC 606 on TSYS' 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 Six Months Ended
June 30, 2018 June 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 $ 1,007,580 1,430,885 (423,305 ) 1,994,750 2,793,387 (798,637 )
Total expenses 798,882 1,218,770 (419,888 ) 1,597,781 2,392,511 (794,730 )
Operating income $ 208,698 212,115 (3,417 ) 396,969 400,876 (3,907 )
Income taxes $ 37,415 38,182 (767 ) 55,549 56,428 (879 )
Net income $ 142,435 145,085 (2,650 ) 285,537 288,564 (3,027 )
Net income attributable to TSYS common shareholders $ 142,435 145,085 (2,650 ) 284,276 287,303 (3,027 )
Earnings per share (EPS):
Basic EPS* $ 0.78 0.80 (0.01 ) 1.56 1.58 (0.02 )
Diluted EPS* $ 0.78 0.79 (0.01 ) 1.55 1.57 (0.02 )
 
* EPS amounts may not total due to rounding.

TSYS Media Relations
Cyle Mims, +1-706-644-3110
cylemims@tsys.com
or
TSYS Investor Relations
Shawn Roberts, +1-706-644-6081
shawnroberts@tsys.com

Source: TSYS