TSS Total System Services

Closes TransFirst Acquisition and Raises 2016 Guidance

TSYS (NYSE: TSS) today reported results for the first quarter of 2016 and raised its guidance after the acquisition of TransFirst, which closed on April 1, 2016. TSYS’ results for the first quarter do not include the results of TransFirst.

“Our financial performance for the first quarter was outstanding across all four of our segments. These results reflect exceptional execution by the TSYS team as we progress toward achieving our vision to become the leading global payment solutions provider and to deliver outstanding returns to our shareholders,” said M. Troy Woods, chairman, president and chief executive officer of TSYS.

Highlights for the first quarter of 2016 include:

• Adjusted EPS from continuing operations were $0.66, an increase of 22.8%. On a GAAP basis, basic EPS from continuing operations were $0.49, an increase of 17.3%.
• Income from continuing operations attributable to TSYS’ shareholders was $90.6 million, an increase of 16.6%.
• Adjusted EBITDA was $230.8 million, an increase of 19.3%.
• Total revenues for the quarter were $739.4 million, an increase of 11.7%. Net revenue was $671.6 million, an increase of 12.7%.
• Adjusted operating margin was 27.7%, an increase of 178 basis points. GAAP operating margin was 20.5%.

“We are excited to include TransFirst in our revised guidance for 2016 that includes a net revenue range in excess of $3.0 billion and an adjusted earnings per share growth range of 13% to 16%. As a result of this transaction, TSYS is the 6th largest1 U.S. acquirer based on net revenue and supports more than 645,000 merchant outlets. With the added strength of TransFirst, TSYS is uniquely positioned as a top tier provider in issuer processing, merchant acquiring and prepaid program management delivering on our strategic goal of being a leader in all markets we serve,” said Woods.

The following table provides TSYS’ revised guidance for 2016 including TransFirst from April 1, 2016. Included is the introduction of a new adjusted revenue disclosure, net revenue, that better aligns our reporting with how the company’s management measures performance internally. A reconciliation of net revenue, which is a non-GAAP measure, to GAAP revenues is included on page 10 of this press release.

    2016 Revised Financial Outlook** Range    

(in millions, except per

Percent

share amounts)

    Change Total revenues $4,182   to   $4,264 50%   to   53% Net revenue $3,040 to $3,102 22% to 24% Adjusted EPS attributable to TSYS common shareholders from continuing operations*

$2.78

to

$2.85

13%

to

16%

  * Average Basic Weighted Shares 183.6  

**The revised guidance includes TransFirst’s operating results for nine months of 2016, excludes one-time expenses incurred in connection with the TransFirst acquisition and assumes no significant movement in foreign exchange rates.

1 Pro forma ranking per First Annapolis Consulting and based on 2014 net revenue (gross revenue less interchange, assessments and card brand pass-throughs)

Conference Call

TSYS will host its quarterly conference call at 5:00 p.m. ET on Tuesday, April 26. The conference call can be accessed via simultaneous Internet broadcast at tsys.com by clicking on the link under "Webcasts" on the main homepage. The replay will be archived for 12 months and will be available approximately 30 minutes after the completion of the call. A slide presentation to accompany the call will be available by clicking on the link under "Webcasts" on the main homepage of tsys.com.

Non-GAAP Measures

This press release contains information prepared in conformity with GAAP as well as non-GAAP information. It is management’s intent to provide non-GAAP financial information to enhance understanding of its consolidated financial information as prepared in accordance with GAAP. This non-GAAP information should be considered by the reader in addition to, but not instead of, the financial statements prepared in accordance with GAAP. Each non-GAAP financial measure and the most directly comparable GAAP financial measure are presented so as not to imply that more emphasis should be placed on the non-GAAP measure. The non-GAAP financial information presented may be determined or calculated differently by other companies.

Additional information about non-GAAP financial measures, including, but not limited to, net revenue, 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

TSYS® (NYSE: TSS) unlocks opportunities in payments for payment providers, businesses and consumers. Our headquarters are in Columbus, Georgia, USA, and we operate in more than 80 countries with local offices across the Americas, EMEA and Asia-Pacific.

We provide seamless, secure and innovative solutions across the payments spectrum — from issuer processing and merchant acquiring to prepaid program management — delivered through partnership and expertise. We succeed because we put people, and their needs, at the heart of every decision. It’s an approach we call ‘People-Centered Payments®’.

Our industry is changing every day — and we’re leading the way towards the payments of tomorrow. We routinely post all important information on our website. For more, visit us at tsys.com.

Forward-Looking Statements

This press release contains “forward-looking statements” – that is, statements related to future, not past, events. Forward-looking statements often address our expected future business and financial performance and often contain words such as “expect,” “anticipate,” “intend,” “believe,” “should,” “plan,” “potential,” “will,” “could,” and similar expressions. These forward-looking statements include, among others, statements regarding TSYS’ revised earnings guidance for 2016 total revenues, net revenue and adjusted EPS, and the assumptions underlying such statements. These statements are based on the current beliefs and expectations of TSYS’ management, are based on management’s assumptions and are subject to significant risks and uncertainties. Actual results may differ materially from those contemplated by the forward-looking statements. A number of important factors could cause actual results or events to differ materially from those contemplated by our forward-looking statements in this press release. Many of these factors are beyond TSYS’ ability to control or predict. These factors include, but are not limited to, the material breach of security of any of TSYS’ systems; TSYS’ ability to integrate acquisitions and achieve the anticipated growth opportunities and other benefits of the acquisitions, particularly the recently closed TransFirst acquisition; the effect of current domestic and worldwide economic conditions; risks associated with foreign operations, including adverse developments with respect to foreign currency exchange rates; expenses are incurred associated with the signing of a significant client; TSYS does not convert clients’ portfolios as scheduled; the deconversion of a significant client; changes occur in laws, rules, regulations, credit card association rules, prepaid industry rules or other industry standards affecting TSYS and our clients that may result in costly new compliance burdens on TSYS and our clients and lead to a decrease in the volume and/or number of transactions processed or limit the types and amounts of fees that can be charged to customers; the costs and effects of litigation, investigations or similar matters or adverse facts and developments relating thereto; adverse developments with respect to the payment card industry in general, including a decline in the use of cards as a payment mechanism; and growth rates of TSYS’ existing clients are lower than anticipated or attrition rates of existing clients are higher than anticipated. Additional risks and other factors that could cause actual results or events to differ materially from those contemplated in this release can be found in TSYS’ filings with the Securities and Exchange Commission, including our most recent Annual Report on Form 10-K. We believe these forward-looking statements are reasonable; however, undue reliance should not be placed on any forward-looking statements, which are based on current expectations. We do not assume any obligation to update any forward-looking statements as a result of new information, future developments or otherwise.

  TSYS Financial Highlights (unaudited) (in thousands, except per share data)             Three Months Ended March 31, Percent 2016 2015 Change     Total revenues $ 739,378 662,156 11.7 %   Cost of services 480,556 449,705 6.9 Selling, general and administrative expenses 107,135   89,955   19.1 Total expenses 587,691   539,660   8.9   Operating income 151,687 122,496 23.8   Nonoperating expenses (22,440 ) (9,209 ) nm  

Income before income taxes, noncontrolling interests and equity in income of equity investments

129,247 113,287 14.1 Income taxes 43,429   39,782   9.2

Income before noncontrolling interests and equity in income of equity investments

85,818 73,505 16.8 Equity in income of equity investments, net of tax 6,590   5,394   22.2 Net income 92,408 78,899 17.1 Net income attributable to noncontrolling interests (1,780 ) (1,144 ) (55.6 )   Net income attributable to TSYS common shareholders $ 90,628   77,755   16.6 %   Earnings per share (EPS): Basic EPS $ 0.49   0.42   17.3 %   Diluted EPS $ 0.49   0.42   17.6 %   Weighted average shares outstanding: (includes participating securities) Basic 183,256   184,481   Diluted 183,886   185,563     Dividends declared per share $ 0.10   0.10      

Non-GAAP measures:

Net revenue $ 671,644   595,784   12.7 %   Adjusted EPS from continuing operations $ 0.66   0.54   22.8 %   Adjusted EBITDA $ 230,829   193,454   19.3 %   nm = not meaningful     TSYS Segment Breakdown (unaudited) (in thousands)           Three Months Ended March 31, Change 2016 2015 $ % Net revenue North America Services $ 303,641 266,219 37,422 14.1 % International Services 75,354 73,730 1,624 2.2 Merchant Services 120,612 110,398 10,214 9.3 NetSpend 184,992 155,074 29,918 19.3 Intersegment revenues (12,955 ) (9,637 ) (3,318 ) (34.4 ) Net revenue from external customers $ 671,644   595,784   75,860   12.7 %   Depreciation and amortization: North America Services $ 27,483 23,064 4,419 19.2 % International Services 8,136 8,778 (642 ) (7.3 ) Merchant Services 5,050 4,277 773 18.1 NetSpend 3,109   2,293   816   35.6 Segment depreciation and amortization 43,778 38,412 5,366 14.0 Acquisition intangible amortization 22,921 23,867 (946 ) (4.0 ) Corporate admin and other 884   536   348   64.9 Total depreciation and amortization $ 67,583   62,815   4,768   7.6 %   Adjusted segment operating income: North America Services $ 124,788 102,570 22,218 21.7 % International Services 10,289 6,983 3,306 47.3 Merchant Services 38,357 34,115 4,242 12.4 NetSpend 42,201   35,467   6,734   19.0 Total adjusted segment operating income 215,635 179,135 36,500 20.4 Acquisition intangible amortization (22,921 ) (23,867 ) 946 4.0 TransFirst M&A operating expenses (3,401 ) - (3,401 ) nm Share-based compensation (8,158 ) (8,143 ) (15 ) (0.2 ) Corporate admin and other (29,468 ) (24,629 ) (4,839 ) (19.6 ) Operating income $ 151,687   122,496   29,191   23.8 %   nm = not meaningful     TSYS Condensed Balance Sheet (unaudited) (in thousands)         March 31, 2016 December 31, 2015 Assets Current assets: Cash and cash equivalents $ 1,932,111 389,328 Accounts receivable, net 349,271 314,705 Other current assets 145,052 154,199 Total current assets 2,426,434 858,232 Goodwill 1,545,631 1,545,424 Other intangible assets, net 309,372 328,320 Property, equipment and software, net 679,903 694,968 Other long term assets 462,593 450,951 Total assets $ 5,423,933 3,877,895   Liabilities Current liabilities: Accounts payable $ 44,526 52,213 Bonds, notes and capital leases 21,647 53,546 Other current liabilities 217,524 233,173 Total current liabilities 283,697 338,932 Bonds, notes and capital leases, excluding current portion 2,887,247 1,377,541 Other long-term liabilities 306,362 289,330 Total liabilities 3,477,306 2,005,803 Redeemable noncontrolling interest 25,086 23,410 Equity Shareholders' equity 1,921,541 1,843,018 Noncontrolling interests in consolidated subsidiaries - 5,664 Total equity 1,921,541 1,848,682 Total liabilities and equity $ 5,423,933 3,877,895 Note: TSYS adopted Accounting Standards Update (ASU) 2015-03 "Interest - Imputation of Interest (Subtopic 835-30), Simplifying the Presentation of Debt Issuance Cost" on January 1, 2016. This ASU requires TSYS to present debt issuance costs in the balance sheet as a direct deduction from the carrying amount of the corresponding debt liability, consistent with debt discounts. All prior periods presented have been restated for this ASU.   TSYS also adopted ASU 2015-17 "Income Taxes (Topic 740), Balance Sheet Classification of Deferred Taxes" on January 1, 2016. This ASU requires the classification of all deferred tax assets and liabilities as noncurrent on the balance sheet instead of separating deferred taxes into current and noncurrent amounts. All prior periods presented have been restated for this ASU.   TSYS Selected Cash Flow Highlights (unaudited) (in thousands)       Three Months Ended March 31, 2016 2015 Cash flows from operating activities: Net income $ 92,408 78,899

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

Equity in income of equity investments (6,590 ) (5,394 ) Dividends received from equity investments - - Depreciation and amortization 67,583 62,815 Other noncash adjustments 47,629 16,836 Changes in operating assets and liabilities (55,202 ) 5,336   Net cash provided by operating activities 145,828 158,492   Net cash used in investing activities (44,388 ) (41,714 )   Net cash provided by (used in) financing activities 1,442,012 (73,756 )   Cash and cash equivalents: Effect of exchange rate changes on cash and cash equivalents (669 ) (4,093 ) Net increase in cash and cash equivalents 1,542,783 38,929 Cash and cash equivalents at beginning of period 389,328   289,183   Cash and cash equivalents at end of period $ 1,932,111   328,112     Supplemental - Non-GAAP: Net cash provided by operating activities $ 145,828 158,492 Capital expenditures (44,388 ) (43,554 ) Free cash flow 101,440 114,938 Principal payments on debt and capital leases* (9,654 ) (15,086 ) Available free cash flow $ 91,786   99,852     * Less accelerated principal payments     TSYS Supplemental Information (unaudited)               Other

Accounts on File (AOF):

Total Accounts on File

 

%

(in millions)

March 2016     March 2015     Change   Consumer 414.8 392.8 5.6 Commercial 46.3 42.3 9.3 Other 27.7     22.7 22.5 Traditional AOF 488.8 457.8 6.8 Prepaid*/Stored Value 103.1 126.6 (18.6 ) Government Services 82.7 74.5 11.1 Commercial Card Single Use 75.9     64.8 17.1 Total AOF 750.5     723.7 3.7 * Prepaid does not include NetSpend accounts

Growth in Accounts on File (in millions):

                March 2015 to March 2014 to March 2016         March 2015 Beginning balance 723.7 556.2 Change in accounts on file due to: Internal growth of existing clients 52.3 39.8 New clients 43.1 172.5 Purges/Sales (24.3 ) (44.2 ) Deconversions (44.3 )             (0.6 ) Ending balance 750.5               723.7   Segment data:       Three Months Ended March 31,   Change 2016   2015   Inc(Dec)     % North America Segment:     AOF (in millions)   669.7   653.2   16.5 2.5 % Traditional AOF (in millions) 423.3 396.3 27.0 6.8 % Transactions (in millions) 3,969.5 3,310.7 658.8 19.9 %   International Segment: AOF (in millions) 80.8 70.5 10.3 14.7 % Traditional AOF (in millions) 65.5 61.5 4.0 6.6 % Transactions (in millions) 618.3 572.0 46.3 8.1 %   Merchant Segment: Point-of-sale transactions (in millions) 1,091.0 984.6 106.4 10.8 % Dollar sales volume (in millions) $ 11,783.4 $ 11,301.6 $ 481.8 4.3 %   NetSpend Segment: Gross dollar volume (in millions) $ 9,161.5 $ 7,660.7 $ 1,500.8 19.6 %   Direct deposit 90-day active cards (in thousands) 2,789.2 2,403.5 385.7 16.0 % 90-day active cards (in thousands) 4,881.6 4,193.0 688.6 16.4 % % of 90-day active cards with direct deposit 57.1 % 57.3 %   Reconciliation of GAAP to Non-GAAP Financial Measures   Non-GAAP Measures   The schedule below provides a reconciliation of revenues and operating results on a constant currency basis to reported revenues and operating income. This non-GAAP measure presents first quarter 2016 financial results using the previous year’s foreign currency exchange rates. On a full year constant currency basis, TSYS’ total revenues grew 12.5% as compared to a reported GAAP increase of 11.7%.   The schedule below also provides a reconciliation of basic EPS, adjusted for the after-tax impact of acquisition intangible amortization, share-based compensation and merger and acquisition costs, to adjusted EPS.   The schedule below provides a reconciliation of total revenues to net revenue. Net revenue is defined as total revenues less reimbursable items (such as postage), as well as, merchant acquiring interchange and assessment fees charged by the card associations or payment networks that are recorded by TSYS as expense.   The tax rate used in the calculation of adjusted EPS for the quarter and year is equal to an estimate of our annual effective tax rate on GAAP income. This effective rate is estimated annually and may be adjusted during the year to take into account events or trends that materially impact the effective tax rate including, but not limited to, significant changes resulting from tax legislation, material changes in the mix of revenues and expenses by entity and other significant events.   The schedule also provides a reconciliation of net income, adjusted for income from discontinued operations, equity in income of equity investments, income taxes, nonoperating expense, depreciation and amortization, share-based compensation, and merger and acquisition expenses, to adjusted EBITDA.   TSYS believes that non-GAAP financial measures are important to enable investors to understand and evaluate its ongoing operating results. Accordingly, TSYS includes non-GAAP financial measures when reporting its financial results to shareholders and potential investors in order to provide them with an additional tool to evaluate TSYS’ ongoing business operations. TSYS believes that the non-GAAP financial measures are representative of comparative financial performance that reflects the economic substance of TSYS’ current and ongoing business operations.   Although non-GAAP financial measures are often used to measure TSYS’ operating results and assess its financial performance, they are not necessarily comparable to similarly titled captions of other companies due to potential inconsistencies in the method of calculation.   TSYS believes that its use of non-GAAP financial measures provides investors with the same key financial performance indicators that are utilized by management to assess TSYS’ operating results, evaluate the business and make operational decisions on a prospective, going-forward basis. Hence, management provides disclosure of non-GAAP financial measures to give shareholders and potential investors an opportunity to see TSYS as viewed by management, to assess TSYS with some of the same tools that management utilizes internally and to be able to compare such information with prior periods. TSYS believes that the presentation of GAAP financial measures alone would not provide its shareholders and potential investors with the ability to appropriately analyze its ongoing operational results, and therefore expected future results. TSYS therefore believes that inclusion of non-GAAP financial measures provides investors with additional information to help them better understand its financial statements just as management utilizes these non-GAAP financial measures to better understand the business, manage budgets and allocate resources.   Reconciliation of GAAP to Non-GAAP     Constant Currency Comparison (unaudited) (in thousands)               Three Months Ended March 31, Percent 2016     2015     Change Consolidated Constant currency (1) $ 744,974 662,156 12.5 % Foreign currency impact (2) (5,596 )   - Total revenues $ 739,378     662,156 11.7 %   Constant currency (1) $ 676,845 595,784 13.6 % Foreign currency impact (2) (5,201 )   - Net revenue $ 671,644     595,784 12.7 %   Constant currency (1) $ 152,781 122,496 24.7 % Foreign currency impact (2) (1,094 )   - Operating income $ 151,687     122,496 23.8 %   International Services Constant currency (1) $ 86,611 79,802 8.5 % Foreign currency impact (2) (5,538 )   - Total revenues $ 81,073     79,802 1.6 %   (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 March 31, Percent 2016     2015     Change Total revenues $ 739,378 662,156 11.7 % Reimbursable items 67,734 66,372 2.1 Interchange & assessments expense -     - - Net revenue $ 671,644     595,784 12.7 % Reconciliation of GAAP to Non-GAAP         Adjusted Earnings per Share (unaudited) (in thousands, except per share data)             Three Months Ended March 31, Percent

 

2016      

2015

    Change

Income from continuing operations attributable to TSYS common shareholders

$ 90,628 77,755 16.6 % Adjust for amounts attributable to TSYS common shareholders: Add: Acquisition intangible amortization, net of taxes 15,021 15,761 (4.7 ) Add: Share-based compensation, net of taxes 5,406 5,441 (0.6 ) Add: TransFirst M&A expenses, net of taxes* 9,655   -   nm Adjusted earnings $ 120,710       98,957   22.0 %  

 

Basic EPS - Income from continuing operations attributable to TSYS common shareholders

As reported (GAAP) $ 0.49       0.42   17.3 %   Adjust for amounts attributable to TSYS common shareholders: Add: Acquisition intangible amortization, net of taxes 0.08 0.09 (4.0 ) Add: Share-based compensation, net of taxes 0.03 0.03 (0.1 ) Add: TransFirst M&A expenses, net of taxes* 0.05       -   nm Adjusted EPS ** $ 0.66       0.54   22.8 %   Weighted average shares outstanding 183,256       184,481     * Certain merger and acquisition costs are nondeductible for income tax purposes ** Adjusted EPS amounts may not total due to rounding.                                 Adjusted EBITDA (unaudited) (in thousands)   Three Months Ended March 31, Percent 2016       2015     Change Net income $ 92,408 78,899 17.1 % Adjust for: Deduct: Equity in income of equity investments (6,590 ) (5,394 ) (22.2 ) Add: Income taxes 43,429 39,782 9.2 Add: Nonoperating expense 22,440 9,209 nm Add: Depreciation and amortization 67,583       62,815   7.6 EBITDA $ 219,270 185,311 18.3 % Adjust for: Add: Share-based compensation 8,158 8,143 0.2 Add: TransFirst M&A operating expenses 3,401       -   nm Adjusted EBITDA $ 230,829       193,454   19.3 %   nm = not meaningful Reconciliation of GAAP to Non-GAAP   Segment Operating Margin and Consolidated Adjusted Operating Margin (unaudited) (in thousands)                   Three Months Ended March 31, 2016 Three Months Ended March 31, 2015 Adjusted Segment Adjusted Adjusted Segment Adjusted Operating Income   Net Revenue   Operating Margin Operating Income   Net Revenue   Operating Margin North America Services $ 124,788 303,641 41.10 % $ 102,570 266,219 38.53 % International Services 10,289 75,354 13.65 6,983 73,730 9.47 Merchant Services 38,357 120,612 31.80 34,115 110,398 30.90 NetSpend 42,201 184,992 22.81 35,467 155,074 22.87 Intersegment - (12,955 ) - (9,637 ) Corporate admin and other (29,468 )     (24,629 )     Adjusted operating margin $ 186,167 671,644 27.72 % $ 154,506 595,784 25.93 % Acquisition intangible amortization (22,921 ) (23,867 ) TransFirst M&A operating expenses (3,401 ) - Share-based compensation (8,158 )     (8,143 )     Operating income and margin* $ 151,687 671,644 22.58 % $ 122,496 595,784 20.56 % Reimbursable items     67,734       66,372  

Operating income and margin (US GAAP)

$ 151,687     739,378   20.52 % $ 122,496     662,156   18.50 %

 

  * Operating margin on net revenue

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TSYS Investor RelationsShawn Roberts, +1-706-644-6081shawnroberts@tsys.com