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TSYS Reports Third Quarter 2014 Total Revenues Increased 8.1%
[October 28, 2014]

TSYS Reports Third Quarter 2014 Total Revenues Increased 8.1%


COLUMBUS, Ga. --(Business Wire)--

TSYS (NYSE: TSS) today reported results for the third quarter of 2014.

"We had an outstanding third quarter as we saw our organic revenue grow 8.5%, consolidated adjusted operating margin increase to 28.9% and all four segments improve their adjusted operating margins on a sequential basis for the second quarter in a row," said M. Troy Woods, president and chief executive officer of TSYS.

"Our incredibly strong foundation allows our team members to focus on growing our company in order to achieve our vision of being the leading global payment solutions provider," added Woods.

Highlights for the third quarter of 2014 include:

  • GAAP operating margin was 23.4%.
  • Total revenues for the quarter were $616.9 million, an increase of 8.1%. Revenues before reimbursable items were $552.9 million, an increase of 8.5%.
  • Adjusted EBITDA was $198.0 million, an increase of 10.4%.
  • Income from continuing operations attributable to TSYS shareholders was $82.9 million, an increase of 27.9%.
  • Adjusted earnings per share (EPS) from continuing operations was $0.56, an increase of 12.5%. On a GAAP basis, basic EPS from continuing operations was $0.45, an increase of 30.6%.
  • Double-digit reported revenue growth in three segments.
  • Total accounts on file exceeded 600 million for the first time.
  • Successful roll-out of an enterprise solution to support Apple Pay.

Conference Call

TSYS will host its quarterly conference call at 5:00 p.m. ET on Tuesday, October 28. 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, adjusted EBITDA and adjusted EPS, and a reconciliation of those measures to the most directly comparable GAAP measures are included on pages 12 to 15 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 was named one of the 2013 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.

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 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 risks described 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 Nine Months Ended
September 30,   September 30,  
Percent Percent
2014   2013   Change   2014   2013   Change  
 
Total revenues $ 616,891 570,551 8.1 % $ 1,811,774 1,481,202 22.3 %
 
Cost of services 407,391 377,147 8.0 1,246,763 983,143 26.8
Selling, general and administrative expenses 79,303 81,643 (2.9 ) 252,866 212,408 19.0
Merger and acquisition expenses 790   7,282   (89.2 ) 3,278   12,009   (72.7 )
 
Operating income 129,407 104,479 23.9 308,867 273,642 12.9
 
Nonoperating income (expenses) (508 ) (499 ) (1.8 ) (1,731 ) (86 ) nm
Merger and acquisition expenses - bridge loan facility & other financing (9,489 ) (9,789 ) 3.1 (28,464 ) (19,466 ) (46.2 )
 
Income before income taxes, noncontrolling interests
and equity in income of equity investments 119,410 94,191 26.8 278,672 254,090 9.7
Income taxes 39,227   30,100   30.3 94,333   77,547   21.6
Income before noncontrolling interests and
equity in income of equity investments 80,183 64,091 25.1 184,339 176,543 4.4
Equity in income of equity investments, net of tax 4,135   2,792   48.1 11,831   9,357   26.4
Income from continuing operations, net of tax 84,318 66,883 26.1 196,170 185,900 5.5
Gain from discontinued operations, net of tax 880   611   44.0 51,993   1,305   nm
Net income 85,198 67,494 26.2 248,163 187,205 32.6
Net income attributable to noncontrolling interests (1,393 ) (3,144 ) 55.7 (5,151 ) (8,110 ) 36.5
 
Net income attributable to TSYS common shareholders $ 83,805   64,350   30.2 % $ 243,012   179,095   35.7 %
 
Basic earnings per share:
Income from continuing operations to TSYS
common shareholders* $ 0.45 0.34 30.6 % $ 1.03 0.96 7.0 %
Gain (Loss) from discontinued operations to TSYS
common shareholders* 0.00   (0.00 ) nm 0.27   (0.01 ) nm
Basic earnings per share (EPS) $ 0.45   0.34   33.0 % $ 1.30   0.95   36.8 %
 
Diluted earnings per share:
Income from continuing operations to TSYS
common shareholders* $ 0.44 0.34 30.4 % $ 1.02 0.95 6.6 %
Gain (Loss)from discontinued operations to TSYS
common shareholders* 0.00   (0.00 ) nm 0.27   (0.01 ) nm
Diluted EPS $ 0.45   0.34   32.8 % $ 1.29   0.94   36.2 %
 
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 $ 82,925 64,834 27.9 % $ 192,018 180,835 6.2 %
Gain (Loss) from discontinued operations, net of tax 880   (484 ) nm 50,994   (1,740 ) nm
Net income $ 83,805   64,350   30.2 % $ 243,012   179,095   35.7 %
 

Non-GAAP measures:

Adjusted EPS from continuing operations $ 0.56   0.49   12.5 % $ 1.38   1.25   10.4 %
 
Adjusted EBITDA $ 198,040   179,446   10.4 % $ 518,529   442,996   17.1 %
 
nm = not meaningful
* EPS amounts may not total due to rounding.

 

     
TSYS
Consolidated Statements of Comprehensive Income
(unaudited)
(in thousands)
                 
 
Three Months Ended Nine Months Ended
September 30,   September 30,
 
2014   2013 2014   2013  
 
Net income $ 85,198 67,494 $ 248,163 187,205
Other comprehensive income (loss), net of tax:
Foreign currency translation adjustments as a
result of discontinued operations - - 3,514 -
Foreign currency translation adjustments (11,329 ) 7,222 (6,121 ) (6,489 )
Postretirement healthcare plan adjustments 147 1,113 442 1,423
Unrealized (loss) gain on available-for-sale securities (598 ) 1,479 (640 ) 1,479  
Other comprehensive income (loss) (11,780 ) 9,814 (2,805 ) (3,587 )
Comprehensive income 73,418 77,308 245,358 183,618
Comprehensive income attributable to
noncontrolling interests 1,071   3,228 5,050   6,149  
Comprehensive income attributable to
TSYS common shareholders $ 72,347   74,080 $ 240,308   177,469  
 
   
TSYS
Earnings Per Share
(unaudited)
(in thousands, except per share data)
                           
 
Three Months Ended Three Months Ended Nine Months Ended Nine Months Ended
September 30, 2014 September 30, 2013 September 30, 2014 September 30, 2013
Common Participating Common Participating Common Participating Common Participating
Stock Securities Stock Securities Stock Securities Stock Securities
 
Basic earnings per share:
Net income attributable to TSYS common shareholders $ 83,805 64,350 $ 243,012 179,095
Less income allocated to nonvested awards (843 ) 843 (605 ) 605 (2,477 ) 2,477 (968 ) 968
Net income allocated to common stock for
EPS calculation ( a ) $ 82,962   843 63,745   605 $ 240,535   2,477 178,127   968
 
Average common shares outstanding ( b ) 183,692   1,885 187,726   1,799 184,641   1,918 187,001   1,034
 
Average common shares and participating securities 185,577   189,525   186,559   188,035  
 
Basic earnings per share ( a )/( b ) $ 0.45   0.45 0.34   0.34 $ 1.30   1.29 0.95   0.94
 
Diluted earnings per share:
Net income attributable to TSYS common shareholders $ 83,805 64,350 $ 243,012 179,095
Less income allocated to nonvested awards (836 ) 836 (601 ) 601 (2,454 ) 2,454 (962 ) 962
Net income allocated to common stock for
EPS calculation ( c ) $ 82,969   836 63,749   601 $ 240,558   2,454 178,133   962
 
Average common shares outstanding 183,692 1,885 187,726 1,799 184,641 1,918 187,001 1,034
Increase due to assumed issuance of shares related
to common equivalent shares outstanding 1,995     1,758     2,277     1,565    
 
Average common and common
equivalent shares outstanding ( d ) 185,687   1,885 189,484   1,799 186,918   1,918 188,566   1,034
 
Average common and common
equivalent shares and participating securities 187,572   191,283   188,836   189,600  
 
Diluted earnings per share ( c )/( d ) $ 0.45   0.44 0.34   0.33 $ 1.29   1.28 0.94   0.93
 
     
TSYS
Segment Breakdown
(unaudited)
(in thousands)
       
Three Months Ended September 30,     Nine Months Ended September 30,    
Change     Change    
2014   2013   $   %   2014   2013   $     %  
Revenues before reimbursable items
North America Services $ 240,957 217,257 23,700 10.9 % $ 698,543 637,379 61,164 9.6 %
International Services 87,385 77,876 9,509 12.2 248,890 230,889 18,001 7.8
Merchant Services 115,012 113,650 1,362 1.2 327,972 335,903 (7,931 ) (2.4 )
NetSpend 114,048 103,706 10,342 10.0 363,521 103,706 259,815 nm
Intersegment revenues (4,542 ) (3,001 ) (1,541 ) (51.3 ) (15,248 ) (9,428 ) (5,820 ) (61.7 )
Revenues before reimbursable items
from external customers $ 552,860   509,488   43,372   8.5 % $ 1,623,678   1,298,449   325,229   25.0 %
 
Total revenues
North America Services $ 282,833 252,577 30,256 12.0 % $ 818,335 741,005 77,330 10.4 %
International Services 91,865 83,025 8,840 10.6 264,710 245,420 19,290 7.9
Merchant Services 134,117 135,616 (1,499 ) (1.1 ) 384,824 404,975 (20,151 ) (5.0 )
NetSpend 114,048 103,706 10,342 10.0 363,521 103,706 259,815 nm
Intersegment revenues (5,972 ) (4,373 ) (1,599 ) (36.6 ) (19,616 ) (13,904 ) (5,712 ) (41.1 )
Revenues from external customers $ 616,891   570,551   46,340   8.1 % $ 1,811,774   1,481,202   330,572   22.3 %
 
Depreciation and amortization
North America Services $ 22,173 18,764 3,409 18.2 % $ 63,377 55,060 8,317 15.1 %
International Services 9,610 9,584 26 0.3 29,176 29,734 (558 ) (1.9 )
Merchant Services 3,624 2,890 734 25.4 10,591 9,029 1,562 17.3
NetSpend 2,155   1,471   684   46.5 5,779   1,471   4,308   nm

Segment depreciation and amortization

37,562 32,709 4,853 14.8 108,923 95,294 13,629 14.3
Acquisition intangible amortization 24,210 24,731 (521 ) (2.1 ) 72,805 41,142 31,663 77.0
Corporate admin and other 662   461   201   43.6 1,702   1,322   380   28.7
Total depreciation and amortization $ 62,434   57,901   4,533   7.8 % $ 183,430   137,758   45,672   33.2 %
 
Adjusted segment operating income
North America Services $ 92,736 84,443 8,293 9.8 % $ 251,892 234,509 17,383 7.4 %
International Services 15,976 9,528 6,448 67.7 32,274 24,082 8,192 34.0
Merchant Services 40,409 40,753 (344 ) (0.8 ) 103,473 119,691 (16,218 ) (13.5 )
NetSpend 36,123   34,616   1,507   4.4 95,543   34,616   60,927   nm
Total adjusted segment operating income 185,244 169,340 15,904 9.4 483,182 412,898 70,284 17.0

Acquisition intangible amortization

(24,210 ) (24,731 ) 521 2.1 (72,805 ) (41,142 ) (31,663 ) (77.0 )
NetSpend M&A operating expenses (779 ) (7,282 ) 6,503 89.3 (3,213 ) (12,009 ) 8,796 73.2
Share-based compensation (5,420 ) (9,784 ) 4,364 44.6 (23,019 ) (19,587 ) (3,432 ) (17.5 )
Corporate admin and other (25,428 ) (23,064 ) (2,364 ) (10.2 ) (75,278 ) (66,518 ) (8,760 ) (13.2 )
Operating income $ 129,407   104,479   24,928   23.9 % $ 308,867   273,642   35,225   12.9 %
 
Other:
Reimbursable items:
North America Services $ 41,876 35,320 6,556 18.6 % $ 119,792 103,626 16,166 15.6 %
International Services 4,480 5,149 (669 ) (13.0 ) 15,820 14,531 1,289 8.9
Merchant Services 19,105 21,966 (2,861 ) (13.0 ) 56,852 69,072 (12,220 ) (17.7 )
NetSpend - - - na - - - na
Intersegment revenues (1,430 ) (1,372 ) (58 ) (4.2 ) (4,368 ) (4,476 ) 108   2.4
Reimbursable items $ 64,031   61,063   2,968   4.9 % $ 188,096   182,753   5,343   2.9 %
 
                                 
TSYS
Segment Breakdown
(unaudited)
(in thousands)
         
Other:
 
Volumes: At Change  
FTEs (full-time equivalents)   9/30/2014     9/30/2013     #   %    
North America Services 4,654 4,370 284 6.5 %
International Services 2,384 2,356 28 1.2
Merchant Services 1,608 1,617 (9 ) (0.6 )
NetSpend 540 462 78 16.9
Corporate Admin and Other   584     536     48   9.0
FTEs - Continuing Operations   9,770     9,341     429   4.6 %
Discontinued Operations   -     88     (88 ) na
FTEs   9,770     9,429     341   3.6 %
 
At Change  
Total assets (in thousands)   9/30/2014     12/31/2013     $   %    
North America Services $ 3,324,945 3,215,333 109,612 3.4 %
International Services 351,062 417,379 (66,317 ) (15.9 )
Merchant Services 696,591 676,592 19,999 3.0
NetSpend 1,556,253 1,596,150 (39,897 ) (2.5 )
Intersegment assets   (2,208,269 )   (2,218,886 )   10,617   0.5
Total assets $   3,720,582     3,686,568     34,014   0.9 %
 
 
Three Months Ended September 30,   Nine Months Ended September 30,  
Change   Change  
  2014     2013   Inc(Dec)   %     2014     2013   Inc(Dec) %    
North America Segment:
Accounts on File (AOF) (in millions) 541.4 461.4 80.0 17.4 %
Transactions (in millions) 2,833.6 2,395.8 437.8 18.3 % 7,857.9 6,644.2 1,213.7 18.3 %
 
International Segment:
AOF (in millions) 64.1 59.2 4.9 8.1 %
Transactions (in millions) 574.3 525.5 48.8 9.3 % 1,650.3 1,451.8 198.5 13.7 %
 
Merchant Segment:
Point-of-sale Transactions (in millions) 1,034.4 1,090.0 (55.6 ) (5.1 ) % 3,061.7 3,325.2 (263.5 ) (7.9 ) %
Dollar sales volume (in millions) $ 11,877.5 $ 10,963.2 $ 914.3 8.3 % $ 34,453.8 $ 32,123.2 $ 2,330.6 7.3 %
 
NetSpend Segment:
Gross Dollar Volume (in millions) $ 4,409.3 $ 3,780.9 $ 628.4 16.6 % $ 15,604.5 $ 13,107.6 $ 2,496.9 19.0 %
 
90-Day Active Cards (in thousands) 3,086.1 2,767.3 318.8 11.5 %
Direct Deposit 90-Day Active Cards (in thousands) 1,520.7 1,261.1 259.6 20.6 %
% of 90-Day Active Cards with Direct Deposit 49.3 % 45.6 %
 

 

         
TSYS
Balance Sheet
(unaudited)
(in thousands)
Sep 30, 2014   Dec 31, 2013
Assets  
Current assets:
Cash and cash equivalents $ 266,041 247,700
Accounts receivable, net 308,671 255,773
Deferred income tax assets 13,239 14,158
Prepaid expenses and other current assets 96,747 95,109
Current assets of discontinued operations 4,003 41,193
     
Total current assets 688,701 653,933
Goodwill 1,549,227 1,541,574
Other intangible assets, net 423,356 481,419
Computer software, net 365,004 363,880
Property and equipment, net 274,571 259,968
Contract acquisition costs, net 226,182 184,828
Equity investments, net 96,114 94,133
Deferred income tax assets, net 3,871 3,972
Other assets 93,556 87,146
Long-term assets of discontinued operations - 15,715
     
Total assets $ 3,720,582   3,686,568
 
Liabilities
Current liabilities:
Accounts payable $ 54,507 33,651
Current portion of borrowings 40,684 34,257
Accrued salaries and employee benefits 29,479 38,339
Current portion of obligations under capital leases 6,359 22,662
Other current liabilities 166,362 159,170
Current liabilities of discontinued operations 4,003 9,136
     
Total current liabilities 301,394 297,215
Long-term borrowings, excluding current portion 1,409,999 1,428,251
Deferred income tax liabilities 191,873 228,727
Obligations under capital leases, excluding current portion 6,196 7,500
Other long-term liabilities 99,463 81,600
Long-term liabilities of discontinued operations - 1,197
     
Total liabilities 2,008,925   2,044,490
Redeemable noncontrolling interest 22,197   39,652
Equity
Shareholders' equity:
Common stock 20,278 20,279
Additional paid-in capital 165,161 165,841
Accumulated other comprehensive income, net 1,046 3,749
Treasury stock (409,053) (326,996)
Retained earnings 1,905,112   1,718,204
Total shareholders' equity 1,682,544   1,581,077
Noncontrolling interests in consolidated subsidiaries 6,916   21,349
Total equity 1,689,460   1,602,426
Total liabilities and equity $ 3,720,582   3,686,568
 
         
TSYS
Cash Flow
(unaudited)
(in thousands)
Nine Months Ended September 30,
2014     2013  
 
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 248,163 187,205
Adjustments to reconcile net income to net cash
provided by operating activities:
Equity in income of equity investments (11,831 ) (9,357 )
Dividends received from equity investments 9,189 8,595
Loss on foreign currency 1,715 612
Depreciation and amortization 184,827 142,490
Amortization of debt issuance costs 1,361 6,775
Amortization of bond discount 286 131
Changes in fair value of private equity investments (239 ) (1,227 )
Share-based compensation 23,019 19,587
Excess tax benefit from share-based compensation (6,538 ) (2,727 )
Provisions for bad debt expense and billing adjustments 1,982 2,193
Charges for transaction processing provisions 5,081 8,545
Provision for fraud and other losses 29,923 6,398
Deferred income tax expense (15,989 ) 25,784
Loss on disposal of equipment, net 27 78
Gain on disposal of subsidiaries (87,013 ) -
Changes in operating assets and liabilities:
Accounts receivable (50,450 ) (6,721 )
Prepaid expenses, other current assets and other long-term assets (10,784 ) (12,610 )
Accounts payable 10,655 (41,055 )
Accrued salaries and employee benefits (8,462 ) (9,552 )
Other current liabilities and other long-term liabilities 65,192     (17,659 )
Net cash provided by operating activities 390,114     307,485  
 
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment, net (55,356 ) (24,896 )
Additions to licensed computer software from vendors (14,497 ) (34,412 )
Additions to internally developed computer software (31,263 ) (22,519 )
Proceeds from dispositions, net of expenses paid and cash disposed 45,002 -
Cash used in acquisitions, net of cash acquired (38,584 ) (1,314,660 )
Purchase of private equity investments (3,290 ) (1,146 )
Additions to contract acquisition costs (66,540 )   (36,824 )
Net cash used in investing activities (164,528 )   (1,434,457 )
 
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on long-term borrowings and
capital lease obligations (48,682 ) (82,644 )
Proceeds from borrowings of long-term borrowings - 1,395,661
Proceeds from exercise of stock options 26,877 27,488
Excess tax benefit from share-based compensation 6,538 2,727
Repurchase of common stock under plans and tax withholding (120,894 ) (6,267 )
Debt issuance costs - (13,471 )
Purchase of noncontrolling interests (37,500 ) -
Subsidiary dividends paid to noncontrolling shareholders (6,369 ) (5,897 )
Dividends paid on common stock (56,159 )   (37,514 )
Net cash (used in) provided by financing activities (236,189 )   1,280,083  
 
CASH AND CASH EQUIVALENTS:
Effect of exchange rate changes on cash and cash equivalents (1,586 )   (3,863 )
Net (decrease) increase in cash and cash equivalents (12,189 ) 149,248
Cash and cash equivalents at beginning of period 278,230     247,612  
Cash and cash equivalents at end of period 266,041 396,860
Less cash and cash equivalents of
discontinued operations at end of period -     27,667  
Cash and cash equivalents of continuing operations at end of period $ 266,041     369,193  
 
Supplemental Information:
    Accounts on File
Total
(in millions)

September
2014

 

 

September
2013

 

%
Change

 

Consumer Credit 263.9 224.1 17.8
Retail 28.4 26.8   5.8
Total Consumer 292.3 250.9 16.5
Commercial 41.5 38.8 6.9
Other 21.2 16.9   25.3
Subtotal 355.0 306.6 15.8
Prepaid/Stored Value 125.1 110.7 13.0
Government Services 66.7 61.6 8.1
Commercial Card Single Use 58.7 41.7   41.0
Total AOF 605.5 520.6   16.3
 
 
 

Growth in Accounts on File (in millions):

September 2013 to

September 2014

September 2012 to

September 2013

Beginning balance 520.6

 

466.3

Change in accounts on file due to:
Internal growth of existing clients 39.6

 

36.5

New clients 76.0

 

63.8

Purges/Sales (30.3 )

 

(45.4

)

Deconversions (0.4 )  

 

(0.6

)

 
Ending balance 605.5    

 

520.6

   
 
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 2014 financial results using the previous year's foreign currency exchange rates. On a full year constant currency basis, TSYS' total revenues grew 21.1% as compared to a reported GAAP increase of 22.3%.
 
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 pre-discrete 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 September 30, Nine Months Ended September 30,
Percent Percent
2014 2013 Change 2014 2013 Change
Consolidated
Constant currency (1) $ 610,554 570,551 7.0 % $ 1,793,838 1,481,202 21.1 %
Foreign currency (2) 6,337 - 17,936 -
Total revenues $ 616,891 570,551 8.1 % $ 1,811,774 1,481,202 22.3 %
 
Constant currency (1) $ 546,782 509,488 7.3 % $ 1,606,786 1,298,449 23.7 %
Foreign currency (2) 6,078 - 16,892 -
Total revenues before reimbursable items $ 552,860 509,488 8.5 % $ 1,623,678 1,298,449 25.0 %
 
Constant currency (1) $ 126,327 104,479 20.9 % $ 299,860 273,642 9.6 %
Foreign currency (2) 3,080 - 9,007 -
Operating income $ 129,407 104,479 23.9 % $ 308,867 273,642 12.9 %
 
International Services
Constant currency (1) $ 85,506 83,025 3.0 % $ 246,940 245,420 0.6 %
Foreign currency (2) 6,359 - 17,770 -
Total revenues $ 91,865 83,025 10.6 % $ 264,710 245,420 7.9 %
 
(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
2014 2013 Change 2014 2013 Change
Total revenues $ 616,891 570,551 8.1 % $ 1,811,774 1,481,202 22.3 %
Reimbursable items 64,031 61,063 4.9 188,096 182,753 2.9
Revenues before reimbursable items $ 552,860 509,488 8.5 % $ 1,623,678 1,298,449 25.0 %
 

 

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,
Percent Percent
Income from continuing operations attributable to 2014   2013   Change 2014   2013   Change  
TSYS common shareholders $ 82,925 64,834 27.9 % $ 192,018 180,835 6.2 %
Adjust for amounts attributable to TSYS common shareholders:
Add: Acquisition intangible amortization, net of taxes $ 15,762 16,595 (5.0 ) % 47,374 27,134 74.6 %
Add: Share-based compensation, net of taxes 3,573 6,706 (46.7 ) 15,174 13,425 13.0
Add: NetSpend M&A expenses, net of taxes* 786   5,424   (85.5 ) 3,111   13,934   (77.7 )
Adjusted earnings $ 103,046   93,559   10.1 % $ 257,677   235,328   9.5 %
 
Basic EPS - Income from continuing operations attributable to
TSYS common shareholders
As reported (GAAP) $ 0.45   0.34   30.6 % $ 1.03   0.96   7.0 %
 
Adjust for amounts attributable to TSYS common shareholders:
Add: Acquisition intangible amortization, net of taxes 0.08 0.09 (3.1 ) 0.25 0.14 76.0
Add: Share-based compensation, net of taxes 0.02 0.04 (45.5 ) 0.08 0.07 13.9
Add: NetSpend M&A expenses, net of taxes* 0.00   0.03   (85.3 ) 0.02   0.07   (77.5 )
Adjusted EPS ** $ 0.56   0.49   12.5 % $ 1.38   1.25   10.4 %
 
Average common shares and participating securities 185,577   189,525   186,559   188,035  
 
* 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,
Percent Percent
2014   2013   Change 2014   2013   Change  
Net income $ 85,198 67,494 26.2 % $ 248,163 187,205 32.6 %
Adjust for:
Deduct: Income from discontinued operations (880 ) (611 ) (44.0 ) (51,993 ) (1,305 ) nm
Deduct: Equity in income of equity investments (4,135 ) (2,792 ) (48.1 ) (11,831 ) (9,357 ) (26.4 )
Add: Income taxes 39,227 30,100 30.3 94,333 77,547 21.6
Add: Nonoperating expense 9,997 10,288 (2.8 ) 30,195 19,552 54.4
Add: Depreciation and amortization 62,434   57,901   7.8 183,430   137,758   33.2
EBITDA $ 191,841 162,380 18.1 % $ 492,297 411,400 19.7 %
Adjust for:
Add: Share-based compensation 5,420 9,784 (44.6 ) 23,019 19,587 17.5
Add: NetSpend M&A operating expenses* 779   7,282   (89.3 ) 3,213   12,009   (73.2 )
Adjusted EBITDA $ 198,040   179,446   10.4 % $ 518,529   442,996   17.1 %
 
nm = not meaningful
* Excludes share-based compensation
Reconciliation of GAAP to Non-GAAP
 
Segment Operating Margin and Consolidated Adjusted Operating Margin
(unaudited)
(in thousands)
         
Three Months Ended September 30, 2014 Three Months Ended September 30, 2013
Adjusted Segment Revenues before Adjusted Adjusted Segment Revenues before Adjusted
Operating Income   Reimbursable Items   Operating Margin   Operating Income   Reimbursable Items   Operating Margin  
North America Services $ 92,736 240,957 38.49 % $ 84,443 217,257 38.87 %
International Services 15,976 87,385 18.28 9,528 77,876 12.23
Merchant Services 40,409 115,012 35.13 40,753 113,650 35.86
NetSpend 36,123 114,048 31.67 34,616 103,706 33.38
Intersegment - (4,542 ) - (3,001 )
Corporate admin and other (25,428 )   -   (23,064 )   -  
Adjusted operating margin $ 159,816 552,860 28.91 % $ 146,276 509,488 28.71 %
Acquisition intangible amortization (24,210 ) (24,731 )
NetSpend M&A operating expenses (779 ) (7,282 )
Share-based compensation (5,420 )     (9,784 )    
Operating income and margin - $ 129,407     552,860   23.41 % $ 104,479     509,488   20.51 %
(US GAAP)
 
 
Nine Months Ended September 30, 2014 Nine Months Ended September 30, 2013
Adjusted Segment Revenues before Adjusted Adjusted Segment Revenues before Adjusted
Operating Income   Reimbursable Items   Operating Margin   Operating Income   Reimbursable Items   Operating Margin  
North America Services $ 251,892 698,543 36.06 % $ 234,509 637,379 36.79 %
International Services 32,274 248,890 12.97 24,082 230,889 10.43
Merchant Services 103,473 327,972 31.55 119,691 335,903 35.63
NetSpend 95,543 363,521 26.28 34,616 103,706 33.38
Intersegment - (15,248 ) - (9,428 )
Corporate admin and other (75,278 )   -   (66,518 )   -  
Adjusted operating margin $ 407,904 1,623,678 25.12 % $ 346,380 1,298,449 26.68 %
Acquisition intangible amortization (72,805 ) (41,142 )
NetSpend M&A operating expenses (3,213 ) (12,009 )
Share-based compensation (23,019 )     (19,587 )    
Operating income and margin - $ 308,867     1,623,678   19.02 % $ 273,642     1,298,449   21.07 %
(US GAAP)


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