Exhibit 99.1
TSYS Reports Fourth Quarter and Full Year Earnings
Provides 2018 Outlook for Revenues and Earnings per Share
Columbus, Ga., January 23, 2018 — TSYS (NYSE: TSS) today reported results for the fourth quarter and full year of 2017.
“2017 proved to be a truly exceptional year for our company. We delivered outstanding financial results, continued to expand our merchant business with the Cayan acquisition announcement and finished the year having met or exceeded our goals,” said M. Troy Woods, chairman, president and chief executive officer of TSYS.
Highlights for the fourth quarter of 2017 vs. 2016:
| · | | Total revenues were $1.3 billion, an increase of 12.5%. |
| · | | Net revenue (non-GAAP), which excludes reimbursable items, interchange and payment network fees, was $870.6 million, an increase of 10.8%. |
| · | | Net income attributable to TSYS common shareholders was $242.2 million, an increase of 227.5%, which includes $135.9 million of tax benefit from the Tax Cuts and Jobs Act. Diluted EPS were $1.31, an increase of 227.4%. |
| · | | Adjusted earnings (non-GAAP) were $151.0 million, an increase of 16.5%. Adjusted diluted EPS (non-GAAP) were $0.82, an increase of 16.5%. |
| · | | Adjusted EBITDA (non-GAAP) was $293.3 million, an increase of 10.0%. |
| · | | 3.45 million shares were purchased for $255.0 million. |
Highlights for the full year of 2017 vs. 2016:
| · | | Total revenues were $4.9 billion, an increase of 18.2%. |
| · | | Net revenue (non-GAAP), which excludes reimbursable items, interchange and payment network fees, was $3.4 billion, an increase of 11.8%. |
| · | | Net income attributable to TSYS common shareholders was $586.2 million, an increase of 83.4%, which includes $135.9 million of tax benefit from the Tax Cuts and Jobs Act. Diluted EPS were $3.16, an increase of 82.4%. |
| · | | Adjusted earnings (non-GAAP) were $624.2 million, an increase of 20.9%. Adjusted diluted EPS (non-GAAP) were $3.37, an increase of 20.2%. |
| · | | Adjusted EBITDA (non-GAAP) was $1.2 billion, an increase of 15.1%. |
| · | | 3.85 million shares were purchased for $282.6 million. |
| · | | Debt was reduced by $400 million and totaled $800 million over the past two years. |
“We expect the momentum of 2017 to carry over into 2018. We are projecting strong organic revenue growth as we remain laser focused on executing on our strategic plan and delivering outstanding results,” said Woods.
2018 Outlook
On January 1, 2018, TSYS adopted Accounting Standards Codification (ASC) 606 “Revenue from Contracts with Customers” using the modified retrospective transition method. The 2018 guidance is below and includes the expected impact of the adoption of the new revenue standard, the expected impact of the acquisition of Cayan, the expected impact of the new tax law (the Tax Cuts and Jobs Act) and the expected effective date of October 2018 of the prepaid rules by the Consumer Financial Protection Bureau.
| | | | | | | | | | | |
| | | | 2018 Financial | | | | |
(in millions, except per share amounts) | | | | Outlook Range(1) | | Percent Change |
Revenue: | | | | | | | | | | | |
Total revenues (GAAP) | | | $ | 3,850 | to | $ | 3,950 | | (22%) | to | (20%) |
Net revenue (non-GAAP) | | | $ | 3,650 | to | $ | 3,750 | | 7% | to | 10% |
| | | | | | | | | | | |
Earnings per share: | | | | | | | | | | | |
Diluted EPS (GAAP) | | | $ | 2.85 | to | $ | 2.95 | | (10%) | to | (7%) |
Adjusted diluted EPS attributable to TSYS common shareholders (non-GAAP) | | | $ | 4.10 | to | $ | 4.20 | | 22% | to | 25% |
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 | ($1,600) | to | ($1,575) |
Net revenue | ($62) | to | ($69) |
Diluted EPS | ($0.04) | to | ($0.03) |
Adjusted diluted EPS | ($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.
Conference Call
TSYS will host its quarterly conference call at 5:00 p.m. ET on Tuesday, January 23. The conference call can be accessed via simultaneous Internet broadcast 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 12 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 — from issuer processing and merchant acquiring to prepaid program management. 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 headquarters are located in Columbus, Ga., U.S.A., with approximately 11,800 team members and local offices spread across 13 countries. TSYS generated revenue of $4.9 billion in 2017. We are a member of The Civic 50 and were named one of the 2017 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 the expectation that the momentum of 2017 will carry over into 2018, the projected strong organic revenue growth and TSYS’ earnings guidance for 2018 total revenues, net revenue, diluted EPS and adjusted diluted EPS, and the assumptions underlying such statements, including with respect to TSYS’ earnings guidance for 2018 set forth under the caption “2018 Outlook” above. 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; 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, and in particular the CFPB’s new rule regarding prepaid financial products, including its effective date; 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.
Contacts:
Cyle Mims
TSYS Media Relations
+1.706.644.3110
cylemims@tsys.com
Shawn Roberts
TSYS Investor Relations
+1.706.644.6081
shawnroberts@tsys.com
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TSYS Announces Fourth Quarter 2017 Earnings
Page 6 of 15
TSYS
Financial Highlights
(unaudited)
(in thousands, except per share data)
| | | | | | | | | | | | | | | | |
| | Three Months Ended | | | Twelve Months Ended | |
| | December 31, | | | December 31, | |
| | | | | | Percent | | | | | | | | Percent | |
| | 2017 | | 2016 | | Change | | | 2017 | | 2016 | | Change | |
Total revenues | | $ | 1,273,289 | | 1,132,224 | | 12.5 | % | | $ | 4,927,965 | | 4,170,077 | | 18.2 | % |
| | | | | | | | | | | | | | | | |
Cost of services | | | 939,106 | | 826,332 | | 13.6 | | | | 3,577,320 | | 2,993,062 | | 19.5 | |
Selling, general and administrative expenses | | | 160,262 | | 175,345 | | (8.6) | | | | 616,601 | | 603,633 | | 2.1 | |
Total expenses | | | 1,099,368 | | 1,001,677 | | 9.8 | | | | 4,193,921 | | 3,596,695 | | 16.6 | |
| | | | | | | | | | | | | | | | |
Operating income | | | 173,921 | | 130,547 | | 33.2 | | | | 734,044 | | 573,382 | | 28.0 | |
| | | | | | | | | | | | | | | | |
Nonoperating expenses* | | | (27,702) | | (30,125) | | 8.0 | | | | (116,482) | | (112,350) | | (3.7) | |
Income before income taxes and equity in income of equity investments | | | 146,219 | | 100,422 | | 45.6 | | | | 617,562 | | 461,032 | | 34.0 | |
Income tax (benefit)/expense | | | (88,039) | | 33,209 | | nm | | | | 65,878 | | 161,175 | | (59.1) | |
Income before equity in income of equity investments | | | 234,258 | | 67,213 | | nm | | | | 551,684 | | 299,857 | | 84.0 | |
Equity in income of equity investments, net of tax* | | | 9,613 | | 7,162 | | 34.2 | | | | 40,532 | | 26,115 | | 55.2 | |
Net income | | | 243,871 | | 74,375 | | nm | | | | 592,216 | | 325,972 | | 81.7 | |
Net income attributable to noncontrolling interests | | | (1,663) | | (425) | | nm | | | | (6,031) | | (6,334) | | 4.8 | |
Net income attributable to TSYS common shareholders | | $ | 242,208 | | 73,950 | | nm | % | | $ | 586,185 | | 319,638 | | 83.4 | % |
| | | | | | | | | | | | | | | | |
Earnings per share (EPS): | | | | | | | | | | | | | | | | |
Basic EPS | | $ | 1.33 | | 0.40 | | nm | % | | $ | 3.19 | | 1.74 | | 83.3 | % |
| | | | | | | | | | | | | | | | |
Diluted EPS | | $ | 1.31 | | 0.40 | | nm | % | | $ | 3.16 | | 1.73 | | 82.4 | % |
| | | | | | | | | | | | | | | | |
Weighted average shares outstanding: | | | | | | | | | | | | | | | | |
(includes participating securities) | | | | | | | | | | | | | | | | |
Basic | | | 182,661 | | 183,665 | | | | | | 183,745 | | 183,655 | | | |
Diluted | | | 184,639 | | 184,533 | | | | | | 185,430 | | 184,448 | | | |
| | | | | | | | | | | | | | | | |
Dividends declared per share | | $ | 0.13 | | 0.10 | | 30.0 | % | | $ | 0.46 | | 0.40 | | 15.0 | % |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
Non-GAAP measures:** | | | | | | | | | | | | | | | | |
Net revenue | | $ | 870,613 | | 785,709 | | 10.8 | % | | $ | 3,400,332 | | 3,041,876 | | 11.8 | % |
| | | | | | | | | | | | | | | | |
Adjusted EBITDA | | $ | 293,277 | | 266,547 | | 10.0 | % | | $ | 1,197,673 | | 1,040,551 | | 15.1 | % |
| | | | | | | | | | | | | | | | |
Adjusted earnings | | $ | 151,036 | | 129,620 | | 16.5 | % | | $ | 624,183 | | 516,419 | | 20.9 | % |
| | | | | | | | | | | | | | | | |
Adjusted diluted EPS | | $ | 0.82 | | 0.70 | | 16.5 | % | | $ | 3.37 | | 2.80 | | 20.2 | % |
| | | | | | | | | | | | | | | | |
* Certain prior year amounts have been reclassified between nonoperating expenses and equity in income of equity investments, net of tax.
** See reconciliation of non-GAAP measures.
nm = not meaningful
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TSYS Announces Fourth Quarter 2017 Earnings
Page 7 of 15
TSYS
Segment Breakdown
(unaudited)
(in thousands)
| | | | | | | | | | | | | | | | | | | |
| | Three Months Ended December 31, | | Twelve Months Ended December 31, |
| | | | | | | Change | | | | | | | Change | |
| | 2017 | | 2016 | | $ | | % | | 2017 | | 2016 | | $ | | % | |
Adjusted operating income by segment: | | | | | | | | | | | | | | | | | | | |
Issuer Solutions (a) | | $ | 145,671 | | 132,506 | | 13,165 | | 9.9 | % | $ | 574,580 | | 525,025 | | 49,555 | | 9.4 | % |
Merchant Solutions (b) | | | 94,915 | | 88,539 | | 6,376 | | 7.2 | | | 391,466 | | 307,595 | | 83,871 | | 27.3 | |
Netspend (c) | | | 38,831 | | 34,834 | | 3,997 | | 11.5 | | | 182,082 | | 160,371 | | 21,711 | | 13.5 | |
Corporate admin and other | | | (37,395) | | (36,166) | | (1,229) | | (3.4) | | | (148,564) | | (135,996) | | (12,568) | | (9.2) | |
Adjusted segment operating income (d) | | | 242,022 | | 219,713 | | 22,309 | | 10.2 | | | 999,564 | | 856,995 | | 142,569 | | 16.6 | |
Less: | | | | | | | | | | | | | | | | | | | |
Share-based compensation | | | 13,946 | | 9,937 | | 4,009 | | 40.3 | | | 42,409 | | 43,728 | | (1,319) | | (3.0) | |
TransFirst and Cayan M&A and integration expenses | | | 3,281 | | 2,267 | | 1,014 | | 44.7 | | | 13,367 | | 28,176 | | (14,809) | | (52.6) | |
Litigation, claims, judgments or settlements | | | 43 | | 21,719 | | (21,676) | | (99.8) | | | 1,947 | | 21,719 | | (19,772) | | (91.0) | |
Acquisition intangible amortization | | | 50,831 | | 55,243 | | (4,412) | | (8.0) | | | 207,797 | | 189,990 | | 17,807 | | 9.4 | |
Operating income | | | 173,921 | | 130,547 | | 43,374 | | 33.2 | | | 734,044 | | 573,382 | | 160,662 | | 28.0 | |
Nonoperating expenses | | | (27,702) | | (30,125) | | 2,423 | | 8.0 | | | (116,482) | | (112,350) | | (4,132) | | (3.7) | |
Income before income taxes and equity in income of equity investments | | $ | 146,219 | | 100,422 | | 45,797 | | 45.6 | % | $ | 617,562 | | 461,032 | | 156,530 | | 34.0 | % |
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
Net revenue by segment: | | | | | | | | | | | | | | | | | | | |
Issuer Solutions (e) | | $ | 413,869 | | 380,446 | | 33,423 | | 8.8 | % | $ | 1,594,959 | | 1,515,462 | | 79,497 | | 5.2 | % |
Merchant Solutions (f) | | | 282,714 | | 253,960 | | 28,754 | | 11.3 | | | 1,103,682 | | 898,533 | | 205,149 | | 22.8 | |
Netspend (g) | | | 186,422 | | 160,617 | | 25,805 | | 16.1 | | | 746,870 | | 663,579 | | 83,291 | | 12.6 | |
Segment net revenue | | | 883,005 | | 795,023 | | 87,982 | | 11.1 | | | 3,445,511 | | 3,077,574 | | 367,937 | | 12.0 | |
Less: Intersegment revenues | | | 12,392 | | 9,314 | | 3,078 | | 33.0 | | | 45,179 | | 35,698 | | 9,481 | | 26.6 | |
Net revenue (h) | | | 870,613 | | 785,709 | | 84,904 | | 10.8 | | | 3,400,332 | | 3,041,876 | | 358,456 | | 11.8 | |
Add: reimbursable items, interchange and payment network fees | | | 402,676 | | 346,515 | | 56,161 | | 16.2 | | | 1,527,633 | | 1,128,201 | | 399,432 | | 35.4 | |
Total revenues | | $ | 1,273,289 | | 1,132,224 | | 141,065 | | 12.5 | % | $ | 4,927,965 | | 4,170,077 | | 757,888 | | 18.2 | % |
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
Adjusted segment operating margin on segment net revenue: | | | | | | | | | | | | | | | | | | | |
Issuer Solutions (a)/(e) | | | 35.2% | | 34.8% | | | | | | | 36.0% | | 34.6% | | | | | |
Merchant Solutions (b)/(f) | | | 33.6% | | 34.9% | | | | | | | 35.5% | | 34.2% | | | | | |
Netspend (c)/(g) | | | 20.8% | | 21.7% | | | | | | | 24.4% | | 24.2% | | | | | |
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
Adjusted segment operating margin on net revenue: (d)/(h) | | | 27.8% | | 28.0% | | | | | | | 29.4% | | 28.2% | | | | | |
| | | | | | | | | | | | | | | | | | | |
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TSYS Announces Fourth Quarter 2017 Earnings
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TSYS
Segment Breakdown
(unaudited)
(in thousands)
| | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended December 31, | | | Twelve Months Ended December 31, | |
| | | | | | Change | | | | | | | Change | |
| | 2017 | | 2016 | | $ | | % | | | 2017 | | 2016 | | $ | | % | |
Depreciation and amortization by segment: | | | | | | | | | | | | | | | | | | | | |
Issuer Solutions | | $ | 38,627 | | 35,450 | | 3,177 | | 9.0 | % | XX | $ | 147,914 | | 141,309 | | 6,605 | | 4.7 | % |
Merchant Solutions | | | 7,487 | | 6,851 | | 636 | | 9.3 | | | | 29,477 | | 25,553 | | 3,924 | | 15.4 | |
Netspend | | | 3,782 | | 3,667 | | 115 | | 3.1 | | | | 15,838 | | 13,133 | | 2,705 | | 20.6 | |
Depreciation and amortization | | | 49,896 | | 45,968 | | 3,928 | | 8.5 | | | | 193,229 | | 179,995 | | 13,234 | | 7.4 | |
Acquisition intangible amortization | | | 50,831 | | 55,243 | | (4,412) | | (8.0) | | | | 207,797 | | 189,990 | | 17,807 | | 9.4 | |
Corporate admin and other | | | 1,358 | | 866 | | 492 | | 56.8 | | | | 4,880 | | 3,561 | | 1,319 | | 37.0 | |
Total depreciation and amortization | | $ | 102,085 | | 102,077 | | 8 | | 0.0 | % | | $ | 405,906 | | 373,546 | | 32,360 | | 8.7 | % |
| | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | |
Segment statistical data: | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | |
Issuer Solutions | | | | | | | | | | | | | | | | | | | | |
Total transactions (in millions) | | | 5,863.5 | | 5,224.8 | | 638.7 | | 12.2 | % | | | 21,575.6 | | 19,858.1 | | 1,717.5 | | 8.6 | % |
Total Accounts on file (AOF) (in millions) | | | | | | | | | | | | | 797.5 | | 751.5 | | 46.0 | | 6.1 | % |
Total traditional AOF (in millions) | | | | | | | | | | | | | 571.9 | | 521.8 | | 50.1 | | 9.6 | % |
| | | | | | | | | | | | | | | | | | | | |
Merchant Solutions | | | | | | | | | | | | | | | | | | | | |
Point-of-sale transactions (in millions) | | | 1,221.8 | | 1,120.5 | | 101.3 | | 9.0 | % | | | 4,844.1 | | 4,548.1 | | 296.0 | | 6.5 | % |
Dollar sales volume (in millions) | | $ | 32,439.0 | | 28,710.2 | | 3,728.8 | | 13.0 | % | | $ | 124,165.1 | | 97,735.1 | | 26,430.0 | | 27.0 | % |
Segment net revenue per transaction | | $ | 0.231 | | 0.227 | | 0.005 | | 2.1 | % | | $ | 0.228 | | 0.198 | | 0.030 | | 15.3 | % |
| | | | | | | | | | | | | | | | | | | | |
Netspend | | | | | | | | | | | | | | | | | | | | |
Gross dollar volume (in millions) | | $ | 7,579.7 | | 6,579.1 | | 1,000.6 | | 15.2 | % | | $ | 32,034.8 | | 28,722.3 | | 3,312.5 | | 11.5 | % |
Direct deposit 90-day active cards (in thousands) | | | | | | | | | | | | | 2,395.1 | | 2,136.0 | | 259.1 | | 12.1 | % |
90-day active cards (in thousands) | | | | | | | | | | | | | 4,902.9 | | 4,295.0 | | 607.9 | | 14.2 | % |
% of 90-day active cards with direct deposit | | | | | | | | | | | | | 48.9% | | 49.7% | | | | | |
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TSYS Announces Fourth Quarter 2017 Earnings
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TSYS
Condensed Balance Sheet
(unaudited)
(in thousands)
| | | | | |
| | December 31, 2017 | | December 31, 2016 |
Assets | | | | | |
Current assets: | | | | | |
Cash and cash equivalents | | $ | 450,357 | | 425,354 |
Accounts receivable, net | | | 412,322 | | 432,847 |
Other current assets | | | 176,770 | | 164,488 |
Total current assets | | | 1,039,449 | | 1,022,689 |
Goodwill | | | 3,264,071 | | 3,270,952 |
Software and other intangible assets, net | | | 1,106,741 | | 1,329,864 |
Property and equipment, net | | | 325,218 | | 282,345 |
Other long term assets | | | 552,672 | | 460,327 |
Total assets | | $ | 6,288,151 | | 6,366,177 |
| | | | | |
Liabilities | | | | | |
Current liabilities: | | | | | |
Accounts payable | | $ | 58,191 | | 38,712 |
Current portion of long-term borrowings, capital leases and license agreements | | | 565,812 | | 50,727 |
Other current liabilities | | | 328,478 | | 330,914 |
Total current liabilities | | | 952,481 | | 420,353 |
Long-term borrowings, capital leases and license agreements, excluding current portion | | | 2,628,002 | | 3,313,276 |
Deferred income tax liabilities | | | 238,317 | | 419,552 |
Other long-term liabilities | | | 112,670 | | 88,983 |
Total liabilities | | | 3,931,470 | | 4,242,164 |
Redeemable noncontrolling interest | | | 14,283 | | 24,093 |
Equity | | | 2,342,398 | | 2,099,920 |
Total liabilities and equity | | $ | 6,288,151 | | 6,366,177 |
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TSYS Announces Fourth Quarter 2017 Earnings
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TSYS
Selected Cash Flow Highlights
(unaudited)
(in thousands)
| | | | | |
| | Twelve Months Ended December 31, |
| | 2017 | | 2016 |
Cash flows from operating activities: | | | | | |
Net income | | $ | 592,216 | | 325,972 |
Adjustments to reconcile net income to net cash provided by operating activities: | | | | | |
Equity in income of equity investments, net of tax | | | (40,532) | | (26,115) |
Dividends received from equity investments | | | 20,589 | | 15,246 |
Depreciation and amortization | | | 405,906 | | 373,546 |
Amortization of debt issuance costs | | | 4,307 | | 13,570 |
Share-based compensation | | | 42,409 | | 43,728 |
Deferred income tax (benefit)/expense | | | (172,488) | | 7,435 |
Other noncash adjustments | | | 78,498 | | 52,169 |
Changes in operating assets and liabilities | | | (74,413) | | (87,522) |
Net cash provided by operating activities | | | 856,492 | | 718,029 |
| | | | | |
Purchases of property and equipment | | | (70,039) | | (51,132) |
Additions to licensed computer software from vendors | | | (25,916) | | (11,551) |
Additions to internally developed computer software | | | (30,265) | | (34,043) |
Additions to contract acquisition costs | | | (69,806) | | (45,847) |
Cash used in acquisitions, net of cash acquired | | | — | | (2,345,493) |
Other investing activities | | | (2,718) | | (4,930) |
Net cash used in investing activities | | | (198,744) | | (2,492,996) |
| | | | | |
Principal payments on long-term borrowings, capital lease obligations and license agreements | | | (421,306) | | (724,084) |
Proceeds from long-term borrowings | | | 200,000 | | 2,666,295 |
Debt issuance costs | | | — | | (26,555) |
Purchase of noncontrolling interests | | | (70,000) | | (5,878) |
Dividends paid on common stock | | | (79,017) | | (73,378) |
Proceeds from exercise of stock options | | | 21,832 | | 11,708 |
Repurchase of common stock | | | (284,237) | | (30,275) |
Other financing activities | | | (5,997) | | 4,357 |
Net cash (used in) provided by financing activities | | | (638,725) | | 1,822,190 |
| | | | | |
Cash and cash equivalents: | | | | | |
Effect of exchange rate changes on cash and cash equivalents | | | 5,980 | | (11,197) |
Net increase in cash and cash equivalents | | | 25,003 | | 36,026 |
Cash and cash equivalents at beginning of period | | | 425,354 | | 389,328 |
Cash and cash equivalents at end of period | | $ | 450,357 | | 425,354 |
| | | | | |
Supplemental | | | | | |
Capital expenditures | | $ | 196,026 | | 142,573 |
Free cash flow (non-GAAP)* | | $ | 660,466 | | 575,456 |
* See reconciliation of non-GAAP measures.
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TSYS Announces Fourth Quarter 2017 Earnings
Page 11 of 15
TSYS
Supplemental Information
(unaudited)
Other
AOF:
| | | | | | |
| | Total Accounts on File |
| | At | | At | | % |
(in millions) | | December 2017 | | December 2016 | | Change |
Consumer | | 481.3 | | 442.9 | | 8.7 |
Commercial | | 54.2 | | 47.9 | | 13.2 |
Other | | 36.4 | | 31.0 | | 17.4 |
Traditional AOF | | 571.9 | | 521.8 | | 9.6 |
Prepaid*/Stored Value | | 38.6 | | 57.8 | | (33.3) |
Government Services | | 95.0 | | 88.7 | | 7.2 |
Commercial Card Single Use | | 92.0 | | 83.2 | | 10.7 |
Total AOF | | 797.5 | | 751.5 | | 6.1 |
* Prepaid does not include Netspend accounts
| | | | |
Growth in Accounts on File (in millions): | | | | |
| | December 2016 to | | December 2015 to |
| | December 2017 | | December 2016 |
Beginning balance | | 751.5 | | 732.5 |
Change in accounts on file due to: | | | | |
Internal growth of existing clients | | 53.1 | | 53.1 |
New clients | | 29.8 | | 27.8 |
Purges/Sales | | (36.4) | | (12.9) |
Deconversions | | (0.5) | | (49.0) |
Ending balance | | 797.5 | | 751.5 |
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TSYS Announces Fourth Quarter 2017 Earnings
Page 12 of 15
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 fourth quarter and year-to-date 2017 financial results using the previous year’s foreign currency exchange rates. On a constant currency basis, TSYS’ total year-to-date revenues for the fourth quarter of 2017 grew 18.5% as compared to a reported GAAP increase of 18.2%.
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 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.
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TSYS Announces Fourth Quarter 2017 Earnings
Page 13 of 15
Reconciliation of GAAP to Non-GAAP
Constant Currency Comparison
(unaudited)
(in thousands)
| | | | | | | | | | | | | | | |
| | Three Months Ended December 31, | | Twelve Months Ended December 31, |
| | | | | | Percent | | | | | | | Percent | |
| | 2017 | | 2016 | | Change | | 2017 | | 2016 | | Change | |
Consolidated | | | | | | | | | | | | | | | |
Constant currency (1) | | $ | 1,267,420 | | 1,132,224 | | 11.9 | % | $ | 4,943,433 | | 4,170,077 | | 18.5 | % |
Foreign currency impact (2) | | | 5,869 | | — | | | | | (15,468) | | — | | | |
Total revenues | | $ | 1,273,289 | | 1,132,224 | | 12.5 | % | $ | 4,927,965 | | 4,170,077 | | 18.2 | % |
| | | | | | | | | | | | | | | |
Constant currency (1) | | $ | 865,131 | | 785,709 | | 10.1 | % | $ | 3,414,749 | | 3,041,876 | | 12.3 | % |
Foreign currency impact (2) | | | 5,482 | | — | | | | | (14,417) | | — | | | |
Net revenue | | $ | 870,613 | | 785,709 | | 10.8 | % | $ | 3,400,332 | | 3,041,876 | | 11.8 | % |
| | | | | | | | | | | | | | | |
Constant currency (1) | | $ | 172,499 | | 130,547 | | 32.1 | % | $ | 742,966 | | 573,382 | | 29.6 | % |
Foreign currency impact (2) | | | 1,422 | | — | | | | | (8,922) | | — | | | |
Operating income | | $ | 173,921 | | 130,547 | | 33.2 | % | $ | 734,044 | | 573,382 | | 28.0 | % |
| | | | | | | | | | | | | | | |
Issuer Solutions | | | | | | | | | | | | | | | |
Constant currency (1) | | $ | 461,735 | | 430,555 | | 7.2 | % | $ | 1,816,232 | | 1,719,211 | | 5.6 | % |
Foreign currency impact (2) | | | 5,903 | | — | | | | | (15,378) | | — | | | |
Total revenues | | $ | 467,638 | | 430,555 | | 8.6 | % | $ | 1,800,854 | | 1,719,211 | | 4.7 | % |
| | | | | | | | | | | | | | | |
Constant currency (1) | | $ | 408,353 | | 380,446 | | 7.3 | % | $ | 1,609,285 | | 1,515,462 | | 6.2 | % |
Foreign currency impact (2) | | | 5,516 | | — | | | | | (14,326) | | — | | | |
Segment net revenue | | $ | 413,869 | | 380,446 | | 8.8 | % | $ | 1,594,959 | | 1,515,462 | | 5.2 | % |
(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.
Net Revenue
(unaudited)
(in thousands)
| | | | | | | | | | | | | | | |
| Three Months Ended December 31, | | | Twelve Months Ended December 31, | |
| | | | | Percent | | | | | | | Percent | |
| 2017 | | 2016 | | Change | | | 2017 | | 2016 | | Change | |
Total revenues | $ | 1,273,289 | | 1,132,224 | | 12.5 | % | | $ | 4,927,965 | | 4,170,077 | | 18.2 | % |
Less: reimbursable items, interchange and payment network fees | | 402,676 | | 346,515 | | 16.2 | | | | 1,527,633 | | 1,128,201 | | 35.4 | |
Net revenue | | 870,613 | | 785,709 | | 10.8 | % | | | 3,400,332 | | 3,041,876 | | 11.8 | % |
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TSYS Announces Fourth Quarter 2017 Earnings
Page 14 of 15
Reconciliation of GAAP to Non-GAAP
Adjusted Diluted Earnings per Share
(unaudited)
(in thousands, except per share data)
| | | | | | | | | | | | | | | | |
| | Three Months Ended December 31, | | Twelve Months Ended December 31, | |
| | | | | | Percent | | | | | | Percent | |
| | 2017 | | 2016 | Change | | 2017 | | 2016 | | Change | |
Net income attributable to TSYS common shareholders (GAAP) | | | $ | 242,208 | | 73,950 | | nm | % | $ | 586,185 | | 319,638 | | 83.4 | % |
Adjust for amounts attributable to TSYS common shareholders: | | | | | | | | | | | | | | | | |
Add: Acquisition intangible amortization | | $ | 50,683 | | 54,967 | | (7.8) | | $ | 207,172 | | 188,887 | | 9.7 | |
Add: Share-based compensation | | | 13,944 | | 9,925 | | 40.5 | | | 42,399 | | 43,691 | | (3.0) | |
Add: TransFirst and Cayan M&A expenses* | | | 3,281 | | 2,268 | | 44.7 | | | 13,306 | | 37,957 | | (64.9) | |
Add: Litigation, claims, judgments or settlements** | | | 43 | | 19,913 | | (99.8) | | | 1,947 | | 19,913 | | (90.2) | |
Less: Tax impact of adjustments*** | | | (23,252) | | (31,403) | | 26.0 | | | (90,955) | | (93,667) | | 2.9 | |
Less: Impact of Tax Cuts and Jobs Act*** | | | | (135,871) | | — | | na | | | (135,871) | | — | | na | |
Adjusted earnings (non-GAAP) | | $ | 151,036 | | 129,620 | | 16.5 | % | $ | 624,183 | | 516,419 | | 20.9 | % |
| | | | | | | | | | | | | | | |
Diluted EPS - Net income attributable to TSYS common shareholders | | | | | | | | | | | | | | | | |
As reported (GAAP) | | $ | 1.31 | | 0.40 | | nm | % | $ | 3.16 | | 1.73 | | 82.4 | % |
| | | | | | | | | | | | | | | |
Adjusted diluted EPS (non-GAAP) | | $ | 0.82 | | 0.70 | | 16.5 | % | $ | 3.37 | | 2.80 | | 20.2 | % |
| | | | | | | | | | | | | | | |
Weighted average diluted shares outstanding | | | 184,639 | | 184,533 | | | | | 185,430 | | 184,448 | | | |
* Costs associated with the TransFirst and Cayan acquisition and integration that are both 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 a discrete item as a result of the acquisitions.
**** On December 22,2017, President Trump signed into law the Tax Cuts and Jobs Act (the “Tax Act). Based on its preliminary analysis of the Tax Act, including the reduction of the federal corporate income tax rate, TSYS estimates that it will receive an additional, non-recurring income tax benefit of approximately $135.9 million due to the reduction of certain deferred tax liabilities and the repatriation of foreign earnings as a result of the Tax Act.
Adjusted EBITDA
(unaudited)
(in thousands)
| | | | | | | | | | | | | | | |
| | Three Months Ended December 31, | | Twelve Months Ended December 31, | |
| | | | | | | Percent | | | | | | | Percent | |
| | 2017 | | 2016 | | Change | | 2017 | | 2016 | | Change | |
Net income (GAAP) (a) | | $ | 243,871 | | 74,375 | | nm | % | $ | 592,216 | | 325,972 | | 81.7 | % |
Adjust for: | | | | | | | | | | | | | | | |
Less: Equity in income of equity investments | | | (9,613) | | (7,162) | | (34.2) | | | (40,532) | | (26,115) | | (55.2) | |
Less: Income tax (benefit)/expense | | | (88,039) | | 33,209 | | nm | | | 65,878 | | 161,175 | | (59.1) | |
Add: Interest expense, net | | | 28,217 | | 29,823 | | (5.4) | | | 116,028 | | 113,523 | | 2.2 | |
Add: Depreciation and amortization | | | 102,085 | | 102,077 | | 0.0 | | | 405,906 | | 373,546 | | 8.7 | |
Less: (Gain)/loss on foreign currency translations | | | (343) | | (84) | | nm | | | 907 | | (1,748) | | nm | |
Less: Other nonoperating (income) expenses | | | (172) | | 386 | | nm | | | (453) | | 575 | | nm | |
Add: Share-based compensation | | | 13,947 | | 9,937 | | 40.4 | | | 42,409 | | 43,728 | | (3.0) | |
Add: TransFirst and Cayan M&A expenses* | | | 3,281 | | 2,267 | | 44.7 | | | 13,367 | | 28,176 | | (52.6) | |
Add: Litigation, claims, judgments or settlements | | | 43 | | 21,719 | | (99.8) | | | 1,947 | | 21,719 | | (91.0) | |
Adjusted EBITDA (non-GAAP) (b) | | $ | 293,277 | | 266,547 | | 10.0 | % | $ | 1,197,673 | | 1,040,551 | | 15.1 | % |
| | | | | | | | | | | | | | | |
Total revenues (c) | | $ | 1,273,289 | | 1,132,224 | | | | $ | 4,927,965 | | 4,170,077 | | | |
Net income margin on total revenues (GAAP) (a)/(c) | | | 19.2% | | 6.6% | | | | | 12.0% | | 7.8% | | | |
| | | | | | | | | | | | | | | |
Net revenue (d) | | $ | 870,613 | | 785,709 | | | | $ | 3,400,332 | | 3,041,876 | | | |
Adjusted EBITDA margin on net revenue (non-GAAP) (b)/(d) | | | 33.7% | | 33.9% | | | | | 35.2% | | 34.2% | | | |
* Costs associated with the TransFirst and Cayan acquisition and integration that are both included in selling, general and administrative expenses.
nm = not meaningful
na = not applicable
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TSYS Announces Fourth Quarter 2017 Earnings
Page 15 of 15
Reconciliation of GAAP to Non-GAAP
Free Cash Flow
(unaudited)
(in thousands)
| | | | | |
| | | Twelve Months Ended |
| Free cash flow: | | December 31, |
| | | 2017 | | 2016 |
| | | | | |
| Net cash provided by operating activities (GAAP) | $ | 856,492 | | 718,029 |
| Capital expenditures | | (196,026) | | (142,573) |
| Free cash flow (non-GAAP) | $ | 660,466 | | 575,456 |
Guidance Summary
(unaudited)
(in millions, except per share data)
| | | | | | | | | | |
| | | 2018(1) | | % Change |
| Revenue: | | | | | | | | | |
| | | | | | | | | | |
| Total revenues (GAAP) | $ | 3,850 | to | $ | 3,950 | | (22%) | to | (20%) |
| Less: reimbursable items, interchange and payment network fees | | 200 | to | | 200 | | | | |
| Net revenue (non-GAAP) | $ | 3,650 | to | $ | 3,750 | | 7% | to | 10% |
| | | | | | | | | | |
| Earnings per share (EPS) : | | | | | | | | | |
| | | | | | | | | | |
| Diluted EPS (GAAP) | $ | 2.85 | to | $ | 2.95 | | (10%) | to | (7%) |
| Acquisition intangible amortization, share-based compensation, litigation, claims, judgments or settlements and TransFirst and Cayan M&A expenses, less the tax impact of adjustments | | 1.25 | to | | 1.25 | | | | |
| Adjusted diluted EPS attributable to TSYS common shareholders * (non-GAAP) | $ | 4.10 | to | $ | 4.20 | | 22% | to | 25% |
| | | | | | | | | | |
| * 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 ($1,600) to ($1,575), Net revenue ($62) to ($69), 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. |
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