TSYS Reports Second Quarter Results and Raises 2013 Guidance with NetSpend Acquisition

TSYS Reports Second Quarter Results and Raises 2013 Guidance with NetSpend Acquisition

COLUMBUS, Ga.--(BUSINESS WIRE)-- TSYS (NYS: TSS) today reported results for the second quarter of 2013 and raised its 2013 guidance to include the acquisition of NetSpend Holdings, Inc. (NetSpend), which closed on July 1, 2013. TSYS' results for the second quarter and year-to-date do not include the results for NetSpend for such periods.

For the second quarter, total revenues were $478.4 million, an increase of 3.4% as compared to 2012. Total revenues were impacted by a decrease of $3.0 million in reimbursable items for the quarter, as well as an unfavorable currency translation of $6.4 million. Revenues before reimbursable items for the quarter were $417.5 million, an increase of 4.7% over 2012, or 6.3% on a constant currency basis. Revenues before reimbursable items were impacted by an unfavorable currency translation of $6.2 million. TSYS' operating income, excluding merger and acquisition expenses associated with NetSpend, was $96.6 million, an increase of 4.9% over 2012. On a GAAP basis, operating income was $95.3 million, an increase of 3.5% over 2012. Basic earnings per share (EPS), excluding expenses incurred in connection with the acquisition of NetSpend, was $0.34, a decrease of 4.3% over 2012. Basic EPS on a GAAP basis was $0.31, a decrease of 12.9% over 2012. Diluted EPS on a GAAP basis was $0.31, a decrease of 12.4% over 2012.


On a year-to-date basis, total revenues were $943.4 million, an increase of 2.1% as compared to 2012. Total revenues were impacted by a decrease of $8.3 million in reimbursable items, as well as an unfavorable currency translation of $10.4 million. Revenues before reimbursable items were $821.7 million, an increase of 3.5% over 2012 or 4.8% on a constant currency basis. Revenues before reimbursable items were impacted by an unfavorable currency translation of $10.2 million. TSYS' operating income, excluding merger and acquisition expenses associated with NetSpend, was $174.9 million, a decrease of 1.1% over 2012. On a GAAP basis, operating income was $170.2 million, a decrease of 3.8% over 2012. Basic EPS, excluding expenses incurred in connection with the acquisition of NetSpend, was $0.67, an increase of 2.9% over 2012. Basic EPS on a GAAP basis was $0.61, a decrease of 6.0% over 2012. Diluted EPS on a GAAP basis was $0.61, a decrease of 5.9% over 2012.

"Our financial results for the first six months met our expectations excluding currency translation adjustments and merger and acquisition expenses. The acquisition of NetSpend is a transformational event for us. NetSpend's revenue has grown at a 22% CAGR over the past five years. The next two years will be very exciting as we work on the integration of NetSpend. We also plan on growing the prepaid program management business and converting the largest pipeline of accounts in our history over the next two years," said Philip W. Tomlinson, chairman of the board and chief executive officer, TSYS.

"NetSpend is the second largest provider of general purpose reloadable (GPR) and Paycards in the U.S. With the NetSpend acquisition, TSYS gains entry into one of the fastest growing areas of payments which is expected to double over the next 4-5 years. The acquisition complements our already strong presence in the prepaid processing space," said Tomlinson.

"There are an estimated 68 million U.S. consumers who are underserved. Only 17% of these consumers have ever used a GPR card, and NetSpend serves less than 5% of the overall market today. NetSpend has a leadership team with deep prepaid experience and a differentiated product offering customized for the consumers it serves. The opportunity to capture greater market share is within our reach. NetSpend's mission is to empower consumers with the convenience, security and freedom to be self-banked, which aligns with TSYS' brand promise to improve people's lives and businesses by putting people at the center of payments," said Tomlinson.

With the acquisition of NetSpend, TSYS is providing guidance on adjusted cash earnings per share and adjusted EBITDA as these metrics will provide a more meaningful measure of the company's financial performance given the increased borrowing of $1.4 billion and the increase in amortization expense for acquisition intangibles. Beginning in the third quarter, NetSpend will be reported as TSYS' fourth operating segment.

The new guidance ranges for 2013 as compared to 2012 include:

  2013 Revised Guidance*
Range     Range

(in millions, except per
share amounts)

   

Percent
Change

Total revenues $2,137   to   $2,180 14%   to   17%
Revenues before reimbursable items $1,898 to $1,936 17% to 20%
Adjusted EBITDA** $639 to $652 17% to 19%
Adjusted cash EPS*** $1.69 to $1.72 16% to 18%
 
 

*The guidance includes NetSpend 's operating results for six months of 2013, excludes one-time expenses incurred in connection with the NetSpend acquisition of $16.0 million, assumes approximately $33.5 million ($67 million on an annual basis) of acquisition intangible amortization associated with the NetSpend acquisition, no significant movement in foreign exchange rates, and assumes minimal synergies for 2013.

** Adjusted EBITDA is net income excluding equity in income of equity investments, nonoperating income/(expense), taxes, depreciation, amortization and stock-based compensation expenses and other non-recurring items.

*** Adjusted cash EPS is adjusted cash earnings divided by weighted average shares outstanding used for basic EPS calculations. Adjusted cash earnings is net income excluding the after-tax impact of stock-based compensation expenses, amortization of acquisition intangibles and other non-recurring items.

Conference Call

TSYS will host its quarterly conference call at 5:00 p.m. ET on Tuesday, July 23. 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

The financial highlights section of this release and this release contain the non-GAAP financial measures of revenues and operating results on a constant currency basis, basic EPS excluding merger and acquisition costs, net of taxes, operating income excluding merger and acquisition costs, revenues excluding reimbursable items, adjusted EBITDA, and adjusted cash EPS to describe TSYS' performance. Management uses these non-GAAP financial measures to better understand and assess TSYS' operating results and financial performance. TSYS believes these non-GAAP financial measures provide meaningful additional information about TSYS to assist investors in understanding and evaluating its operating results.

Additional information about non-GAAP financial measures and a reconciliation of those measures to the most directly comparable GAAP measures are included on pages 13 to 15 of this release.

About TSYS

At TSYS, (NYS: TSS) , we believe payments should revolve around people — not the other way around. We call this belief "People-Centered PaymentsSM." 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, Georgia, with local offices spread across the Americas, EMEA and Asia-Pacific. TSYS provides services to more than half of the top 20 international banks, and has been 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," "will," "could," and similar expressions. These forward-looking statements include, among others, statements regarding the NetSpend acquisition and the anticipated benefits from the NetSpend acquisition, the expected conversion of TSYS' pipeline of accounts, TSYS' revised earnings guidance for 2013 total revenues, revenues before reimbursable items, Adjusted EBITDA and Adjusted Cash 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 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, TSYS' ability to integrate NetSpend and achieve the anticipated growth opportunities and other benefits of the acquisition, the impact of consolidation among financial institutions and retail clients; TSYS ability to successfully renew or renegotiate agreements with its clients; the effect of current domestic and worldwide economic conditions; the material breach of security of any of TSYS' systems; TSYS' ability to adapt technology to changing industry and customer needs or trends; expenses TSYS incurs associated with the signing of a significant client; adverse developments with respect to the credit card industry in general, including a decline in the use of credit cards as a payment mechanism; the conversions and deconversions of clients; the impact of potential and completed acquisitions, including the costs associated therewith and TSYS' ability to successfully integrate such acquisitions; risks associated with foreign operations, including adverse developments with respect to foreign currency exchange rates; the costs and effects of litigation, investigations or similar matters or adverse facts and developments relating thereto; TSYS' ability to compete in a highly competitive market; changes occur in laws, rules, regulations, credit card association rules, the prepaid industry or other industry standards affecting TSYS and its clients; TSYS' reliance on financial institution sponsors; the impact of business cycles and the credit risk of merchants; the costs associated with chargeback and fraud related liabilities; costs and reputational harm caused by interruptions in our processing systems; TSYS' ability to protect its intellectual property and the costs associated therewith; and the loss of any key personnel and TSYS' ability to attract qualified personnel. Additional risks and other factors that could cause actual results 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 Six Months Ended
June 30, June 30,
Percent Percent
2013   2012   Change 2013   2012   Change
 
Total revenues $ 478,443 462,651 3.4 % $ 943,439 923,813 2.1 %
 
Cost of services 317,656 312,669 1.6 638,214 630,927 1.2
Selling, general and administrative expenses 64,220 57,886 10.9 130,274 115,959 12.3
NetSpend merger and acquisition expenses 1,253   -   na 4,734   -   na
 
Operating income 95,314 92,096 3.5 170,217 176,927 (3.8 )
 
Nonoperating income (expenses) (620 ) (1,818 ) 65.9 398 (2,223 ) nm
NetSpend merger and acquisition expenses - bridge loan facility & bonds (6,934 ) -   na (9,677 ) -   na
 
Income before income taxes, noncontrolling interests
and equity in income of equity investments 87,760 90,278 (2.8 ) 160,938 174,704 (7.9 )
Income taxes 29,947   24,553   22.0 47,793   54,108   (11.7 )
Income before noncontrolling interests and
equity in income of equity investments 57,813 65,725 (12.0 ) 113,145 120,596 (6.2 )
Equity in income of equity investments 2,748   2,252   22.0 6,565   5,026   30.6
Net income 60,561 67,977 (10.9 ) 119,710 125,622 (4.7 )
Net income attributable to noncontrolling interests (2,845 ) (1,267 ) nm (4,965 ) (2,516 ) (97.3 )
 
Net income attributable to TSYS common shareholders $ 57,716   66,710   (13.5 ) % $ 114,745   123,106   (6.8 ) %
 
Basic earnings per share $ 0.31   0.35   (12.9 ) % $ 0.61   0.65   (6.0 ) %
 
Diluted earnings per share $ 0.31   0.35   (12.4 ) % $ 0.61   0.65   (5.9 ) %
 
 
Dividends declared per share $ 0.10   0.10   $ 0.20   0.20  
 
Non-GAAP measures:
Basic EPS excluding M&A expenses, net of taxes $ 0.34   0.35   (4.3 ) % $ 0.67   0.65   2.9 %
 
Adjusted cash earnings per share $ 0.38   0.40   (3.5 ) % $ 0.77   0.73   5.2 %
 
Adjusted EBITDA $ 142,324   140,338   1.4 % $ 267,799   269,640   (0.7 ) %
 
 
nm = not meaningful
 
 
 
TSYS
Consolidated Statements of Comprehensive Income
(unaudited)
(in thousands)
         
 
Three Months Ended Six Months Ended
June 30, June 30,
 
2013   2012   2013   2012  
 
Net income $ 60,561 67,977 $ 119,710 125,622
Other comprehensive income (loss), net of tax:
Foreign currency translation adjustments (1,064 ) (10,027 ) (13,711 ) (7,065 )
Postretirement healthcare plan adjustments 155   23   310   287  
Other comprehensive income (loss) (909 ) (10,004 ) (13,401 ) (6,778 )
Comprehensive income 59,652 57,973 106,309 118,844
Comprehensive income attributable to
noncontrolling interests 2,455   1,594   2,922   2,135  
Comprehensive income attributable to
TSYS common shareholders $ 57,197   56,379   $ 103,387   116,709  

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