SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

Form 8-K

 

 

CURRENT REPORT

Pursuant to Section 13 or 15(d)

of the Securities Exchange Act of 1934

October 27, 2015

Date of Report (Date of Earliest Event Reported)

 

 

Total System Services, Inc.

(Exact Name of Registrant as Specified in its Charter)

 

 

 

Georgia		1-10254		58-1493818
(State of Incorporation)		(Commission File Number)		(IRS Employer Identification No.)

One TSYS Way, Columbus, Georgia 31901

(Address of principal executive offices) (Zip Code)

(706) 649-2310

(Registrant’s telephone number, including area code)

 

(Former name or former address, if changed since last report)

 

 

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

 

¨

Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

 

¨

Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

 

¨

Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

 

¨

Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

 

 

 

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Item 2.02

Results of Operations and Financial Condition.

On October 27, 2015, Total System Services, Inc. (“Registrant”) issued a press release announcing financial results for the third quarter ended September 30, 2015. The press release is attached hereto as Exhibit 99.1 and incorporated herein by reference. The information in the press release shall not be deemed to be filed for purposes of Section 18 of the Securities Exchange Act of 1934 or incorporated by reference into any document filed under the Securities Act of 1933 or the Securities Exchange Act of 1934 except as shall be expressly set forth by specific reference in such filing.

 

Item 7.01

Regulation FD Disclosure.

On October 27, 2015, Registrant will hold an investor conference call and webcast to discuss its financial results for the third quarter ended September 30, 2015. A copy of the presentation to be used during the conference call is attached hereto as Exhibit 99.2 and incorporated herein by reference. The information in the presentation shall not be deemed to be filed for purposes of Section 18 of the Securities Exchange Act of 1934 or incorporated by reference into any document filed under the Securities Act of 1933 or the Securities Exchange Act of 1934 except as shall be expressly set forth by specific reference in such filing.

 

Item 9.01

Financial Statements and Exhibits.

 

(d)

Exhibits

 

Exhibit No.		Description
99.1		Registrant’s press release dated October 27, 2015
99.2		Registrant’s presentation dated October 27, 2015

 

2

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Signature

Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, Registrant has caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

 

				TOTAL SYSTEM SERVICES, INC. (“Registrant”)
Dated: October 27, 2015				By:		/s/ Kathleen Moates
						Kathleen Moates
						Senior Deputy General Counsel

 

3

Exhibit 99.1

 

Total System Services, Inc. One TSYS Way P.O. Box 2567 Columbus, GA 31902-2567		+1.706.649.2307 +1.706.649.5740 www.tsys.com

For immediate release:

Contacts:

Shawn Roberts

TSYS Investor Relations

+1.706.644.6081

[email protected]

TSYS Reports Third Quarter Adjusted EPS Grew 40.2%

Raises 2015 Adjusted EPS and Revenue Guidance

COLUMBUS, Ga., October 27, 2015 — TSYS (NYSE: TSS) today reported results for the third quarter and year to date.

“We are very pleased with our outstanding third quarter results. These exceptional results were driven by the performance of our clients, the businesses we serve, the consumers who buy and use our products and our team members executing to our strategic plan,” said M. Troy Woods, chairman, president and chief executive officer of TSYS.

“As a result of this continued strong performance, we are raising our guidance range for revenues before reimbursables to 12-13%, up from the previous range of 10-12%, and our adjusted earnings per share (EPS) guidance range to 24-26%, up from the previous range of 15-17%,” said Woods.

Highlights for the third quarter of 2015 include:

 

•

Adjusted EPS from continuing operations were $0.78, an increase of 40.2%. On a GAAP basis, basic EPS from continuing operations were $0.66, an increase of 46.7%.

 

•

Excluding the impact from discrete tax items of approximately $0.13 per share in the quarter, adjusted EPS was $0.65, an increase of 17.2%.

 

•

Income from continuing operations attributable to TSYS’ shareholders was $120.6 million, an increase of 45.5%.

 

•

Adjusted EBITDA was $238.9 million, an increase of 20.6%.

 

•

Total revenues for the quarter were $707.9 million, an increase of 14.8%. Revenues before reimbursable items were $636.4 million, an increase of 15.1%.

 

•

Adjusted operating margin was 31.0%. GAAP operating margin was 23.0%.

 

1

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TSYS Reports Third Quarter Adjusted EPS Grew 40.2%

Highlights for the first nine months of 2015 include:

 

•

Adjusted EPS from continuing operations were $1.89, an increase of 36.8%. On a GAAP basis, basic EPS from continuing operations were $1.53, an increase of 48.2%.

 

•

Excluding the impact from discrete tax items of approximately $0.13 per share year to date, adjusted EPS was $1.76, an increase of 27.5%.

 

•

Income from continuing operations attributable to TSYS’ shareholders was $281.2 million, an increase of 46.5%.

 

•

Adjusted EBITDA was $638.9 million, an increase of 23.2%.

 

•

Total revenues were $2.1 billion, an increase of 13.8%. Revenues before reimbursable items were $1.9 billion, an increase of 14.2%.

 

•

Adjusted operating margin was 27.9%. GAAP operating margin was 20.2%.

“Our year-to-date free cash flow increased 45.8% over 2014 to $324.4 million. With this build-up of cash during the quarter, we plan to continue our strategic goal of returning approximately 75% of available free cash flow to our shareholders in the form of dividends and share repurchases,” said Woods.

 

		2015 Revised Financial Outlook
		Range (in millions, except per share amounts)		Percent Change
Total revenues		$2,728 to $2,746		11% to 12%
Revenues before reimbursable items		$2,463 to $2,473		12% to 13%
Adjusted EPS attributable to TSYS common shareholders from continuing operations*		$2.43 to $2.47		24% to 26%
* Average Basic Weighted Shares		184

 

*	Note: The impact of any future share repurchases is not included.

Conference Call

TSYS will host its quarterly conference call at 5:00 p.m. ET on Tuesday, October 27. 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.

 

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TSYS Reports Third Quarter Adjusted EPS Grew 40.2%

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 9 to 12 of this release.

About TSYS

At TSYS^® (NYSE: TSS), we believe payments should revolve around people, not the other way around. We call this belief People-Centered Payments^®. By putting people at the center of every decision we make, TSYS supports financial institutions, businesses and governments in more than 80 countries. Through NetSpend^®, 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.

 

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TSYS Reports Third Quarter Adjusted EPS Grew 40.2%

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’ plan to continue its strategic goal of returning approximately 75% of available free cash flow to shareholders and 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.

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TSYS Announces Third Quarter 2015 Earnings

Page 5 of 13

 

TSYS

Financial Highlights

(unaudited)

(in thousands, except per share data)

 

		Three Months Ended September 30,												Nine Months Ended September 30,
		2015				2014				Percent Change				2015				2014				Percent Change
Total revenues		$	707,890				616,891				14.8	%		$	2,062,698				1,811,774				13.8	%
Cost of services			456,465				407,391				12.0				1,366,141				1,246,763				9.6
Selling, general and administrative expenses			88,321				80,093				10.3				280,355				256,144				9.5
Total expenses			544,786				487,484				11.8				1,646,496				1,502,907				9.6
Operating income			163,104				129,407				26.0				416,202				308,867				34.8
Nonoperating expenses			(8,564	)			(9,997	)			14.3				(27,982	)			(30,195	)			7.3
Income before income taxes, noncontrolling interests and equity in income of equity investments			154,540				119,410				29.4				388,220				278,672				39.3
Income taxes			37,825				39,227				(3.6	)			119,204				94,333				26.4
Income before noncontrolling interests and equity in income of equity investments			116,715				80,183				45.6				269,016				184,339				45.9
Equity in income of equity investments, net of tax			5,336				4,135				29.0				15,309				11,831				29.4
Income from continuing operations, net of tax			122,051				84,318				44.8				284,325				196,170				44.9
Gain from discontinued operations, net of tax			—				880				nm				—				51,993				nm
Net income			122,051				85,198				43.3				284,325				248,163				14.6
Net income attributable to noncontrolling interests			(1,429	)			(1,393	)			(2.6	)			(3,109	)			(5,151	)			39.6
Net income attributable to TSYS common shareholders		$	120,622				83,805				43.9	%		$	281,216				243,012				15.7	%
Basic earnings per share (EPS):
Income from continuing operations to TSYS common shareholders*		$	0.66				0.45				46.7	%		$	1.53				1.03				48.2	%
Gain from discontinued operations to TSYS common shareholders*			—				0.00				nm				—				0.27				nm
Basic EPS		$	0.66				0.45				45.2	%		$	1.53				1.30				17.1	%
Diluted EPS:
Income from continuing operations to TSYS common shareholders*		$	0.65				0.44				47.3	%		$	1.52				1.02				49.1	%
Gain from discontinued operations to TSYS common shareholders*			—				0.00				nm				—				0.27				nm
Diluted EPS		$	0.65				0.45				44.2	%		$	1.52				1.29				17.8	%
Weighted average shares outstanding: (includes participating securities)
Basic			183,954				185,577								184,320				186,559
Diluted			185,281				187,572								185,534				188,836
Dividends declared per share		$	0.10				0.10							$	0.30				0.30
Amounts attributable to TSYS common shareholders:
Income from continuing operations, net of tax		$	120,622				82,925				45.5	%		$	281,216				192,018				46.5	%
Gain from discontinued operations, net of tax			—				880				nm				—				50,994				nm
Net income		$	120,622				83,805				43.9	%		$	281,216				243,012				15.7	%
Non-GAAP measures:
Adjusted EPS from continuing operations		$	0.78				0.56				40.2	%		$	1.89				1.38				36.8	%
Adjusted EBITDA		$	238,898				198,040				20.6	%		$	638,889				518,529				23.2	%

nm = not meaningful

*	EPS amounts may not total due to rounding.

 

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TSYS Announces Third Quarter 2015 Earnings

Page 6 of 13

 

TSYS

Segment Breakdown

(unaudited)

(in thousands)

 

		Three Months Ended September 30,																Nine Months Ended September 30,
										Change																Change
		2015				2014				$				%				2015				2014				$				%
Revenues before reimbursable items:
North America Services		$	293,571				240,957				52,614				21.8	%		$	846,989				698,543				148,446				21.3	%
International Services			86,446				87,385				(939	)			(1.1	)			244,033				248,890				(4,857	)			(2.0	)
Merchant Services			123,721				115,012				8,709				7.6				351,987				327,972				24,015				7.3
NetSpend			139,648				114,048				25,600				22.4				436,343				363,521				72,822				20.0
Intersegment revenues			(7,000	)			(4,542	)			(2,458	)			(54.1	)			(25,098	)			(15,248	)			(9,850	)			(64.6	)
Revenues before reimbursable items from external customers		$	636,386				552,860				83,526				15.1	%		$	1,854,254				1,623,678				230,576				14.2	%
Total revenues:
North America Services		$	341,416				282,833				58,583				20.7	%		$	984,493				818,335				166,158				20.3	%
International Services			92,177				91,865				312				0.3				261,597				264,710				(3,113	)			(1.2	)
Merchant Services			143,100				134,117				8,983				6.7				409,676				384,824				24,852				6.5
NetSpend			139,648				114,048				25,600				22.4				436,343				363,521				72,822				20.0
Intersegment revenues			(8,451	)			(5,972	)			(2,479	)			(41.5	)			(29,411	)			(19,616	)			(9,795	)			(49.9	)
Revenues from external customers		$	707,890				616,891				90,999				14.8	%		$	2,062,698				1,811,774				250,924				13.8	%
Depreciation and amortization:
North America Services		$	25,300				22,173				3,127				14.1	%		$	72,831				63,377				9,454				14.9	%
International Services			8,678				9,610				(932	)			(9.7	)			26,084				29,176				(3,092	)			(10.6	)
Merchant Services			4,670				3,624				1,046				28.9				13,394				10,591				2,803				26.5
NetSpend			2,632				2,155				477				22.1				7,547				5,779				1,768				30.6
Segment depreciation and amortization			41,280				37,562				3,718				9.9				119,856				108,923				10,933				10.0
Acquisition intangible amortization			22,883				24,210				(1,327	)			(5.5	)			69,601				72,805				(3,204	)			(4.4	)
Corporate admin and other			336				662				(326	)			(49.2	)			1,762				1,702				60				3.5
Total depreciation and amortization		$	64,499				62,434				2,065				3.3	%		$	191,219				183,430				7,789				4.2	%
Adjusted segment operating income:
North America Services		$	113,946				92,736				21,210				22.9	%		$	324,902				251,892				73,010				29.0	%
International Services			18,370				15,976				2,394				15.0				38,706				32,274				6,432				19.9
Merchant Services			42,387				40,409				1,978				4.9				117,192				103,473				13,719				13.3
NetSpend			37,315				36,123				1,192				3.3				109,224				95,543				13,681				14.3
Total adjusted segment operating income			212,018				185,244				26,774				14.5				590,024				483,182				106,842				22.1
Acquisition intangible amortization			(22,883	)			(24,210	)			1,327				5.5				(69,601	)			(72,805	)			3,204				4.4
NetSpend M&A operating expenses			—				(779	)			779				nm				—				(3,213	)			3,213				nm
Share-based compensation			(11,295	)			(5,420	)			(5,875	)			nm				(31,468	)			(23,019	)			(8,449	)			(36.7	)
Corporate admin and other			(14,736	)			(25,428	)			10,692				42.0				(72,753	)			(75,278	)			2,525				3.4
Operating income		$	163,104				129,407				33,697				26.0	%		$	416,202				308,867				107,335				34.8	%
Other:
Reimbursable items:
North America Services		$	47,845				41,876				5,969				14.3	%		$	137,504				119,792				17,712				14.8	%
International Services			5,731				4,480				1,251				27.9				17,564				15,820				1,744				11.0
Merchant Services			19,379				19,105				274				1.4				57,689				56,852				837				1.5
NetSpend			—				—				—				na				—				—				—				na
Intersegment revenues			(1,451	)			(1,430	)			(21	)			(1.5	)			(4,313	)			(4,368	)			55				1.3
Reimbursable items		$	71,504				64,031				7,473				11.7	%		$	208,444				188,096				20,348				10.8	%

 

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TSYS Announces Third Quarter 2015 Earnings

Page 7 of 13

 

TSYS

Condensed Balance Sheet

(unaudited)

(in thousands)

 

		September 30, 2015				December 31, 2014
Assets
Current assets:
Cash and cash equivalents		$	447,850				289,183
Accounts receivable, net			333,467				283,203
Other current assets			115,007				118,167
Total current assets			896,324				690,553
Goodwill			1,545,888				1,547,397
Other intangible assets, net			348,017				404,107
Property, equipment and software, net			641,696				656,733
Other long term assets			457,597				434,791
Total assets		$	3,889,522				3,733,581
Liabilities
Current liabilities:
Accounts payable		$	55,111				48,793
Bonds, notes and capital leases			41,777				50,911
Other current liabilities			228,473				196,809
Total current liabilities			325,361				296,513
Bonds, notes and capital leases, excluding current portion			1,377,927				1,405,106
Other long-term liabilities			282,067				309,826
Total liabilities			1,985,355				2,011,445
Redeemable noncontrolling interest			23,001				22,492
Equity
Shareholders’ equity			1,875,615				1,692,762
Noncontrolling interests in consolidated subsidiaries			5,551				6,882
Total equity			1,881,166				1,699,644
Total liabilities and equity		$	3,889,522				3,733,581

 

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TSYS Announces Third Quarter 2015 Earnings

Page 8 of 13

 

TSYS

Selected Cash Flow Highlights

(unaudited)

(in thousands)

 

		Nine Months Ended September 30,
		2015				2014
Cash flows from operating activities:
Net income		$	284,325				248,163
Adjustments to reconcile net income to net cash provided by operating activities:
Gain on disposal of subsidiaries			—				(87,013	)
Equity in income of equity investments			(15,309	)			(11,831	)
Dividends received from equity investments			12,092				9,189
Depreciation and amortization			191,219				184,827
Other non cash adjustments			35,926				40,626
Changes in operating assets and liabilities:			(47,699	)			6,153
Net cash provided by operating activities			460,554				390,114
Net cash used in investing activities			(138,618	)			(164,528	)
Net cash used in financing activities			(158,429	)			(236,189	)
Cash and cash equivalents:
Effect of exchange rate changes on cash and cash equivalents			(4,840	)			(1,586	)
Net increase in cash and cash equivalents			158,667				(12,189	)
Cash and cash equivalents at beginning of period			289,183				278,230
Cash and cash equivalents at end of period		$	447,850				266,041
Supplemental—Non-GAAP:
Net cash provided by operating activities		$	460,554				390,114
Capital expenditures			(136,183	)			(167,656	)
Free cash flow			324,371				222,458
Principal payments on debt and capital leases			(42,215	)			(48,682	)
Available free cash flow		$	282,156				173,776
Dividends paid on common stock			55,277				56,159
Repurchase of common stock under plans			83,521				115,675
Available free cash flow returned to shareholders		$	138,798				171,834
Percent available free cash flow returned to shareholders			49.2	%			98.9	%

 

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TSYS Announces Third Quarter 2015 Earnings

Page 9 of 13

 

TSYS

Supplemental Information

(unaudited)

Other

Accounts on File (AOF):

 

		Total Accounts on File
(in millions)		September 2015				September 2014				% Change
Consumer Credit			373.6				263.9				41.5
Retail			25.4				28.4				(10.3	)
Total Consumer			399.0				292.3				36.5
Commercial			44.1				41.5				6.0
Other			24.8				21.2				17.4
Subtotal			467.9				355.0				31.8
Prepaid/Stored Value			133.8				125.1				6.9
Government Services			78.7				66.7				18.0
Commercial Card Single Use			80.0				58.7				36.3
Total AOF			760.4				605.5				25.6

Growth in Accounts on File (in millions):

 

		September 2014 to September 2015				September 2013 to September 2014
Beginning balance			605.5				520.6
Change in accounts on file due to:
Internal growth of existing clients			41.0				39.6
New clients			153.7				76.0
Purges/Sales			(38.3	)			(30.3	)
Deconversions			(1.5	)			(0.4	)
Ending balance			760.4				605.5

Segment data:

 

		Three Months Ended September 30,
										Change
		2015				2014				Inc(Dec)				%
North America Segment:
Transactions (in millions)			4,156.7				2,833.6				1,323.1				46.7	%
International Segment:
Transactions (in millions)			626.1				574.3				51.8				9.0	%
Merchant Segment:
Point-of-sale transactions (in millions)			1,117.3				1,034.4				82.9				8.0	%
Dollar sales volume (in millions)		$	12,055.7			$	11,877.5			$	178.2				1.5	%
NetSpend Segment:
Gross dollar volume (in millions)		$	5,391.2			$	4,409.3			$	981.9				22.3	%

 

		Nine Months Ended September 30,
										Change
		2015				2014				Inc(Dec)				%
North America Segment:
AOF (in millions)			685.5				541.4				144.1				26.6	%
Transactions (in millions)			11,509.6				7,857.9				3,651.7				46.5	%
International Segment:
AOF (in millions)			74.9				64.1				10.8				16.9	%
Transactions (in millions)			1,812.0				1,650.3				161.7				9.8	%
Merchant Segment:
Point-of-sale transactions (in millions)			3,191.3				3,061.7				129.6				4.2	%
Dollar sales volume (in millions)		$	35,671.5			$	34,453.8			$	1,217.7				3.5	%
NetSpend Segment:
Gross dollar volume (in millions)		$	18,582.8			$	15,604.5			$	2,978.3				19.1	%
Direct deposit 90-day active cards (in thousands)			1,796.0				1,520.7				275.3				18.1	%
90-day active cards (in thousands)			3,643.4				3,086.1				557.3				18.1	%
% of 90-day active cards with direct deposit			49.3	%			49.3	%

 

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TSYS Announces Third Quarter 2015 Earnings

Page 10 of 13

 

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 third quarter 2015 financial results using the previous year’s foreign currency exchange rates. On a full year constant currency basis, TSYS’ total revenues grew 15.3% as compared to a reported GAAP increase of 13.8%.

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.

 

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TSYS Announces Third Quarter 2015 Earnings

Page 11 of 13

 

Reconciliation of GAAP to Non-GAAP

Constant Currency Comparison

(unaudited)

(in thousands)

 

		Three Months Ended September 30,												Nine Months Ended September 30,
		2015				2014				Percent Change				2015				2014				Percent Change
Consolidated
Constant currency (1)		$	716,363				616,891				16.1	%		$	2,088,418				1,811,774				15.3	%
Foreign currency impact (2)			(8,473	)			—								(25,720	)			—
Total revenues		$	707,890				616,891				14.8	%		$	2,062,698				1,811,774				13.8	%
Constant currency (1)		$	644,364				552,860				16.6	%		$	1,878,291				1,623,678				15.7	%
Foreign currency impact (2)			(7,978	)			—								(24,037	)			—
Total revenues before reimbursable items		$	636,386				552,860				15.1	%		$	1,854,254				1,623,678				14.2	%
Constant currency (1)		$	163,464				129,407				26.3	%		$	416,907				308,867				35.0	%
Foreign currency impact (2)			(360	)			—								(705	)			—
Operating income		$	163,104				129,407				26.0	%		$	416,202				308,867				34.8	%
International Services
Constant currency (1)		$	100,512				91,865				9.4	%		$	286,969				264,710				8.4	%
Foreign currency impact (2)			(8,335	)			—								(25,372	)			—
Total revenues		$	92,177				91,865				0.3	%		$	261,597				264,710				(1.2	)%

 

(1)	Reflects current period results on a non-GAAP basis as if foreign currency rates did not change from the comparable prior year period.

(2)	Reflects the impact of calculated changes in foreign currency rates from the comparable period.

Revenues Before Reimbursable Items

(unaudited)

(in thousands)

 

		Three Months Ended September 30,												Nine Months Ended September 30,
										Percent												Percent
		2015				2014				Change				2015				2014				Change
Total revenues		$	707,890				616,891				14.8	%		$	2,062,698				1,811,774				13.8	%
Reimbursable items			71,504				64,031				11.7				208,444				188,096				10.8
Revenues before reimbursable items		$	636,386				552,860				15.1	%		$	1,854,254				1,623,678				14.2	%

 

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TSYS Announces Third Quarter 2015 Earnings

Page 12 of 13

 

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,
		2015				2014				Percent Change				2015				2014				Percent Change
Income from continuing operations attributable to TSYS common shareholders		$	120,622				82,925				45.5	%		$	281,216				192,018				46.5	%
Adjust for amounts attributable to TSYS common shareholders:
Add: Acquisition intangible amortization, net of taxes		$	15,104				15,762				(4.2	)%			45,948				47,374				(3.0	)
Add: Share-based compensation, net of taxes			7,544				3,573				nm				21,018				15,174				38.5
Add: NetSpend M&A expenses, net of taxes*			—				786				nm				—				3,111				nm
Adjusted earnings		$	143,270				103,046				39.0	%		$	348,182				257,677				35.1	%
Deduct: Federal and state tax credits and related expenses, net of tax			(23,557	)			—				na				(23,557	)			—				na
Adjusted earnings without impact of one-time tax items		$	119,713				103,046				16.2	%		$	324,625				257,677				26.0	%
Basic EPS - Income from continuing operations attributable to TSYS common shareholders
As reported (GAAP)		$	0.66				0.45				46.7	%		$	1.53				1.03				48.2	%
Adjust for amounts attributable to TSYS common shareholders:
Add: Acquisition intangible amortization, net of taxes			0.08				0.08				(3.3	)			0.25				0.25				(1.8	)
Add: Share-based compensation, net of taxes			0.04				0.02				nm				0.11				0.08				40.1
Add: NetSpend M&A expenses, net of taxes*			—				0.00				nm				—				0.02				nm
Adjusted EPS **		$	0.78				0.56				40.2	%		$	1.89				1.38				36.8	%
Deduct: Federal and state tax credits and related expenses, net of tax			(0.13	)			—				na				(0.13	)			—				na
Adjusted EPS without impact of one-time tax items		$	0.65				0.56				17.2	%		$	1.76				1.38				27.5	%
Weighted average shares outstanding			183,954				185,577								184,320				186,559

 

*	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 September 30,												Nine Months Ended September 30,
		2015				2014				Percent Change				2015				2014				Percent Change
Net income		$	122,051				85,198				43.3	%		$	284,325				248,163				14.6	%
Adjust for:
Deduct: Income from discontinued operations			—				(880	)			nm				—				(51,993	)			nm
Deduct: Equity in income of equity investments			(5,336	)			(4,135	)			(29.0	)			(15,309	)			(11,831	)			(29.4	)
Add: Income taxes			37,825				39,227				(3.6	)			119,204				94,333				26.4
Add: Nonoperating expense			8,564				9,997				(14.3	)			27,982				30,195				(7.3	)
Add: Depreciation and amortization			64,499				62,434				3.3				191,219				183,430				4.2
EBITDA		$	227,603				191,841				18.6	%		$	607,421				492,297				23.4	%
Adjust for:
Add: Share-based compensation			11,295				5,420				nm				31,468				23,019				36.7
Add: NetSpend M&A operating expenses			—				779				nm				—				3,213				nm
Adjusted EBITDA		$	238,898				198,040				20.6	%		$	638,889				518,529				23.2	%
Deduct: State tax credits and related expenses			(15,084	)			—				na				(15,084	)			—				na
Adjusted EBITDA without impact of one-time tax items		$	223,814				198,040				13.0	%		$	623,805				518,529				20.3	%

nm  =  not meaningful

 

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TSYS Announces Third Quarter 2015 Earnings

Page 13 of 13

 

Reconciliation of GAAP to Non-GAAP

Segment Operating Margin and Consolidated Adjusted Operating Margin

(unaudited)

(in thousands)

 

		Three Months Ended September 30, 2015												Three Months Ended September 30, 2014
		Adjusted Segment Operating Income				Revenues before Reimbursable Items				Adjusted Operating Margin				Adjusted Segment Operating Income				Revenues before Reimbursable Items				Adjusted Operating Margin
North America Services		$	113,946				293,571				38.81	%		$	92,736				240,957				38.49	%
International Services			18,370				86,446				21.25				15,976				87,385				18.28
Merchant Services			42,387				123,721				34.26				40,409				115,012				35.13
NetSpend			37,315				139,648				26.72				36,123				114,048				31.67
Intersegment			—				(7,000	)							—				(4,542	)
Corporate admin and other			(14,736	)											(25,428	)
Adjusted operating margin		$	197,282				636,386				31.00	%		$	159,816				552,860				28.91	%
Acquisition intangible amortization			(22,883	)											(24,210	)
NetSpend M&A operating expenses			—												(779	)
Share-based compensation			(11,295	)											(5,420	)
Operating income and margin*		$	163,104				636,386				25.63	%		$	129,407				552,860				23.41	%
Reimbursable items							71,504												64,031
Operating income and margin (US GAAP)		$	163,104				707,890				23.04	%		$	129,407				616,891				20.98	%
		Nine Months Ended September 30, 2015												Nine Months Ended September 30, 2014
		Adjusted Segment Operating Income				Revenues before Reimbursable Items				Adjusted Operating Margin				Adjusted Segment Operating Income				Revenues before Reimbursable Items				Adjusted Operating Margin
North America Services		$	324,902				846,989				38.36	%		$	251,892				698,543				36.06	%
International Services			38,706				244,033				15.86				32,274				248,890				12.97
Merchant Services			117,192				351,987				33.29				103,473				327,972				31.55
NetSpend			109,224				436,343				25.03				95,543				363,521				26.28
Intersegment			—				(25,098	)							—				(15,248	)
Corporate admin and other			(72,753	)											(75,278	)
Adjusted operating margin		$	517,271				1,854,254				27.90	%		$	407,904				1,623,678				25.12	%
Acquisition intangible amortization			(69,601	)											(72,805	)
NetSpend M&A operating expenses			—												(3,213	)
Share-based compensation			(31,468	)											(23,019	)
Operating income and margin*		$	416,202				1,854,254				22.45	%		$	308,867				1,623,678				19.02	%
Reimbursable items							208,444												188,096
Operating income and margin (US GAAP)		$	416,202				2,062,698				20.18	%		$	308,867				1,811,774				17.05	%

 

*	Operating margin on revenue before reimbursable items

 

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