TSYS Reports Results for First Quarter 2008

TSYS today announced first quarter of 2008 total revenues of $462 million, operating income of $87 million, net income of $57 million, and basic earnings per share of $0.29 on a generally accepted accounting principles (GAAP) basis. Included in operating expenses in the quarter were $6.9 million of non-recurring spin-related expenses, or approximately $0.02 per share. Excluding these one-time items related to the spin-off of TSYS by its former parent, Synovus Financial Corp., on December 31, 2007, non-GAAP earnings per share for the quarter were $0.31. First Quarter Financial Highlights Total revenues increased 8% over the same period in 2007. Excluding revenues associated with deconverted portfolios, pro forma total revenues increased 14% over the same period in 2007. Revenues from the international-based support services segment grew 28% over 2007’s first quarter. Operating income on a GAAP basis increased 1% over the first quarter of 2007. On a non-GAAP basis, excluding the $6.9 million of non-recurring spin-related expenses, operating income increased 9% over the first quarter of 2007. First quarter operating income margins were 24% of revenues before reimbursables and 19% of total revenues on a GAAP basis. On a non-GAAP basis, excluding the $6.9 million of non-recurring spin-related expenses, operating income margins were 26% of revenues before reimbursables and 20% of total revenues. In the first quarter of 2007, operating income margins were 25% and 20% of revenues before reimbursables and total revenues, respectively. Net income on a GAAP basis decreased 1% compared to the first quarter of 2007. On a non-GAAP basis, excluding the $5 million after-tax impact of non-recurring spin-related expenses, net income increased 8% over 2007. GAAP basic earnings per share were $0.29. Adjusted for the $0.02 per share of non-recurring spin-related expenses, non-GAAP earnings per share were $0.31, a 7% increase over the first three months of 2007. The company used approximately $11 million to repurchase 500,000 shares of its common stock in the open market. "Our outstanding first quarter results as a fully independent, publicly traded company reflect our commitment to our core processing business and our global market strategy. We continue to benefit from the secular trend of increased usage of electronic payments and transactions over the use of cash and checks. Our operating margins remain steady and our organic revenue growth of 11% continues to support our business model of providing our services faster, cheaper and better than our competitors. Our non-operating income is down due to the payment of the $600 million special cash dividend at the end of last year in connection with the spin-off,” said Philip W. Tomlinson, chairman of the board and chief executive officer of TSYS. "We are on track to achieve our previously announced guidance to grow both total revenues and net income in 2008 over 2007 in the range of 7% to 9%, and to grow our operating income in the double digit range of 12% to 14%. With our strong and stable cash flow, we expect to bring the bottom line growth right along with the operating income growth,” said Tomlinson. This press release includes pro forma financial information that is not in accordance with GAAP. A reconciliation of non-GAAP to GAAP measures is included in this press release in the form of tables that should be read in conjunction with this pro forma information. Recent Highlights TSYS announced the renewal of a long-term agreement with Target Corporation, the operator of Target and SuperTarget stores, to service its REDcard portfolio. The multi-year agreement will include systems processing for Target® Visa® Credit Card, Target Credit CardSM, Target Check CardSM and the Target Business Card®. Target began working with TSYS in 2000 for the launch of its Visa product. TSYS began supporting the Target Credit CardSM portfolio in 2005. TSYS completed a contract to provide Standard Bank of South Africa card issuing, merchant acquiring and related payment services for the multiple countries across Africa in which Standard Bank operates. The South African-based financial services company has a global presence, operating in 18 countries in Africa and 20 on other continents, including the key financial centers of Europe, the Americas and Asia. TSYS announced the launch of ingenuity in action: n>genSM, a new business paradigm that makes it easy for TSYS clients to efficiently and thoroughly manage all their complex payments-related business needs with point-and-click ease. n>gen is not a new platform and use of n>gen will not require conversion to a new platform — it adds a new level of business intelligence made available through analytical-based services, giving institutions a "total” view of their portfolios to make actionable, well-informed decisions on growth opportunities and overall risk. Rod Boyer, a 21-year veteran of the payments and technology industries, was recently named president of TSYS Loyalty. TSYS Loyalty announced the development of an innovative product that calculates points and rewards for customers who subscribe to multiple products with a single financial institution, including direct deposit, credit, mortgage, insurance and Certificate of Deposit accounts. TSYS Enterprise RewardsSM (patent pending) also supports a Web interface, which allows the subscriber to manage their total relationship with a single access point. TSYS Healthcare successfully launched the industry’s most advanced benefits payments system. Fringe Benefits Management Company, the first third-party administrator to use this innovative solution, offers its subscribers the ability to pay from multiple healthcare tax-advantaged accounts, credit accounts and cash accounts through a single card. Projected Outlook for 2008 TSYS' expects its 2008 net income to increase between 7-9%, as compared to 2007, based on the following assumptions: 1. Expenses associated with the spin-off, net of tax, will be $10 million. In 2008, expenses associated with the spin-off are classified under GAAP as operating expenses and income taxes. These estimates are subject to change as operating expenses include estimates of services being provided on an ongoing basis during the transition period after the spin-off. These items are summarized as follows with a comparison to 2007 for the sake of clarity,   2008E     2007 Conversion of Synovus stock options to TSYS stock options $7 6   Other operating expenses 9 8 Total operating expenses $16 14   Tax impact* (6) (2) Other operating expenses, net of tax impact $10 12   Income taxes related to deconsolidation - 11 Total $10 23 * Certain expenses in a re-organization, such as the spin-off, are not deductible for tax purposes. A majority of the expenses in 2007 are not deductible. A smaller amount of non-deductible expenses is expected in 2008. 2. There will be no significant movements in LIBOR. TSYS’ guidance does not include any significant draws on its $252 million revolving credit facility. 3. Estimated total revenues will increase 7% to 9% in 2008. Excluding the revenues associated with deconverted portfolios and reimbursable items, estimated pro forma total revenues will increase in the range of 12% to 14% over 2007 levels. 4. Anticipated growth levels in employment, equipment and other expenses, which are included in 2008 estimates, will be accomplished. 5. There will be no significant movement in foreign currency exchange rates related to TSYS’ business. 6. TSYS will not incur significant expenses associated with the conversion of new large clients or acquisitions, or any significant impairment of goodwill or other intangibles, and there will be no significant portfolio deconversions. Presentation of revenues and earnings excluding the spin-related costs, revenues associated with deconverted portfolios, and reimbursable items are non-GAAP financial measures. The following table is a reconciliation of the range of changes from 2007 to 2008, comparing non-GAAP financial measures to GAAP financial measures for 2007 and estimated financial measures for 2008.         (Amounts in millions of dollars; certain amounts have been adjusted due to rounding)   Range of Guidance ($ in millions)     2008 Forecast     2007 Actual   08 vs. 07 Percent Change TOTAL REVENUES $1,928 to $1,964   $1,806 7% to 9% Less: reimbursable items ($391 to $399) ($378) Revenues excluding reimbursable items $1,537 to $1,565 $1,428 8% to 10% Less: revenues associated with deconverted portfolios - ($55) Revenues excluding reimbursable items and revenues associated with deconverted portfolios $1,537 to $1,565 $1,373 12% to 14%   NET INCOME $254 to $259 $237 7% to 9% Add: interest, taxes and other non-operating items $142 to $144 $117 OPERATING INCOME $396 to $403 $354 12% to 14% Add: operating spin-related costs $16 $14 Operating income, excluding spin-related expenses $412 to $419 $368 12% to 14% Add: depreciation and amortization $151 $152 EBITDA – earnings before interest, taxes, depreciation and amortization, excluding spin-related costs $563 to $570 $520 8% to 10% NET INCOME   $254 to $259   $237   7% to 9% Add: spin-related costs, net of tax $10 $23 Net income, excluding spin-related expenses $264 to $269 $260 1% to 3%   EARNINGS PER SHARE (EPS) - BASIC $1.29 to $1.31 $1.21 7% to 9% Add: spin-related costs, net of tax per share $0.05 $0.11 EPS, excluding spin-related expenses $1.34 to $1.36 $1.32 1% to 3% Common shares outstanding 197.405 196.759 TSYS believes the table above and the table on page 13 present meaningful information to assist investors in understanding the company’s changes in total revenues and net income from estimates in changes from 2007 to 2008 as a result of deconverted portfolios and spin-related costs as the non-GAAP financial measures exclude amounts that the company does not consider part of ongoing operating results. TSYS believes the information is useful for investors because it can provide a more complete understanding of TSYS’ underlying operational performance. The non-GAAP financial percentage changes should not be considered by themselves or as a substitute for the GAAP percentage changes year over year. The non-GAAP measures should be considered as an additional view of the way TSYS’ financial measures are affected by deconverted portfolios, reimbursable items and spin-related costs; and should be used in conjunction with all publicly filed financial statements and reports. Conference Call TSYS will host its quarterly conference call at 8:30 a.m. EDT, Tuesday, April 29, 2008. The conference call can be accessed via simultaneous Internet broadcast at tsys.com by clicking on the "Conference Call” icon on the homepage. The replay will be archived for 12 months and will be available approximately 30 minutes after the completion of the call. About TSYS TSYS (www.tsys.com) is one of the world’s largest companies for outsourced payment services, offering a broad range of issuer- and acquirer-processing technologies that support consumer-finance, credit, debit, debt management, healthcare, loyalty, prepaid services and debt management for financial institutions and retail companies in the Americas, EMEA and Asia-Pacific regions. For more information, contact news@tsys.com. This press release contains statements that constitute "forward-looking statements" within the meaning of the Securities Act of 1933 and the Securities Exchange Act of 1934 as amended by the Private Securities Litigation Reform Act of 1995. These forward-looking statements include, among others, statements regarding TSYS' earnings forecast for 2008, and the assumptions underlying such statements. These statements are based on the current beliefs and expectations of TSYS' management 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, one or more of the assumptions upon which TSYS' 2008 earnings forecast is based are incorrect. Additional 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 Annual Report on Form 10-K, Quarterly Reports on Form 10-Q and Current Reports on Form 8-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. © 2008 Total System Services, Inc.® All rights reserved worldwide. Total System Services, Inc. and TSYS® are federally registered service marks of Total System Services, Inc., in the United States. n>genuity in action: n>genSM is a service mark of Total System Services, Inc., in the United States and in other countries. Total System Services, Inc., and its affiliates own a number of service marks that are registered in the United States and in other countries. All other products and company names are trademarks of their respective companies. TSYS Financial Highlights (unaudited) (in thousands, except per share data)               Three Months Ended March 31,       Percentage Change   2008   2007       Revenues Electronic payment processing services* $ 241,279 230,060 4.9 % Merchant acquiring services 61,667 60,680 1.6 Other services* 57,095   52,871   8.0 Revenues before reimbursables 360,041 343,611 4.8 Reimbursable items 101,682   85,992   18.2 Total revenues 461,723   429,603   7.5   Expenses Salaries & other personnel expense* 148,317 140,445 5.6 Net occupancy & equipment expense* 72,886 67,348 8.2 Spin related expenses* 6,895 - nm Other operating expenses* 45,168   50,139   (9.9 ) Expenses before reimbursable items 273,266 257,932 5.9 Reimbursable items 101,682   85,992   18.2 Total operating expenses 374,948   343,924   9.0   Operating income 86,775   85,679   1.3   Other income: Interest income 2,563 5,488 (53.3 ) Interest expense (3,340 ) (210 ) nm Gain on foreign currency translation, net 1,943 683 184.5 Dividend income 134   15   nm Other income 1,300   5,976   (78.2 )   Income before income taxes, minority interest and equity in income of equity investments 88,075 91,655 (3.9 ) Income taxes 33,035   34,892   (5.3 ) Income before minority interest and equity in income of equity investments 55,040 56,763 (3.0 ) Minority interest (250 ) (350 ) 28.6 Equity in income of equity investments 1,824   860   112.1   Net income $ 56,614   57,273   (1.2 ) %   Basic earnings per share $ 0.29   0.29   (1.3 ) %   Diluted earnings per share $ 0.29   0.29   (1.3 ) %   Dividend declared per share $ 0.07   0.07     Average common shares outstanding 196,745   196,487     Average common and common equivalent shares outstanding 197,306   196,938       * Certain amounts have been previously reclassed to conform with the presentation adopted in 2008.   nm = not meaningful   TSYS Segment Breakdown (unaudited) (in thousands) Three Months Ended March 31, 2008   Three Months Ended March 31, 2007 Merchant Acquiring Services     Merchant Acquiring Services Domestic-Based Support Services International-Based Support Services Spin-Related Costs Domestic-Based Support Services International-Based Support Services Spin-Related Costs Consolidated   Consolidated Revenues before reimbursables $ 242,771 67,957 55,129 - 365,857 240,106 52,963 55,681 - 348,750 Intersegment revenues (5,231 ) (403 ) (182 ) -   (5,816 ) (4,776 ) (223 ) (140 ) - (5,139 ) Revenues before reimbursables from external customers $ 237,540   67,554   54,947   -   360,041   235,330   52,740   55,541   - 343,611   Total revenues $ 328,909 69,824 70,937 - 469,670 313,595 55,400 67,747 - 436,742 Intersegment revenues (7,362 ) (403 ) (182 ) -   (7,947 ) (6,776 ) (223 ) (140 ) - (7,139 ) Revenues from external customers $ 321,547   69,421   70,755   -   461,723   306,819   55,177   67,607   - 429,603   Depreciation and amortization $ 24,980   7,695   6,554   -   39,229   25,951   5,800   6,846   - 38,597   Intersegment expenses $ 2,774   (3,541 ) (7,180 ) -   (7,947 ) 3,476   (3,239 ) (7,371 ) - (7,134 ) Segment operating income $ 71,150   7,446   15,074   (6,895 ) 86,775   62,481   11,112   12,086     85,679   Income before income taxes, minority interest and equity income of equity investments 70,836   8,750   15,384   (6,895 ) 88,075   67,613   11,379   12,663     91,655   Income tax expense $ 26,637   2,914   5,408   (1,924 ) 33,035   26,186   4,172   4,534     34,892   Equity in income of equity investments $ (338 ) 2,162   -   -   1,824   -   860   -   - 860   Net Income $ 45,917   5,693   9,976   (4,972 ) 56,614   41,547   7,597   8,129     57,273   Identifiable assets 1,296,349 353,655 188,360 - 1,838,364 Intersegment eliminations (312,664 ) (1,514 ) (1,209 ) -   (315,387 ) Total assets 983,685   352,141   187,151   -   1,522,977           Note: Revenues from domestic-based services include electronic payment processing services and other services provided from the United States to clients domiciled in the United States or other countries. Revenues from international-based services include electronic payment processing services and other services provided from outside the United States to clients based mainly outside the United States. Revenues from merchant processing services include TSYS Acquiring's merchant acquiring and related services.   Effective February 1, 2008, TSYS merged the operations of Golden Retriever LLC with TSYS Acquiring Solutions, LLC. As a result of the merger, the results of Golden Retriever for prior periods have been reclassified to reflect the move from domestic-based support services to the merchant acquiring services segment.             TSYS Balance Sheet (in thousands)   Mar 31, 2008 Dec 31, 2007 (unaudited) (unaudited) Assets Current assets: Cash and cash equivalents $ 242,649 210,518 Restricted cash 25,706 29,688 Accounts receivable, net 261,935 256,970 Deferred income tax assets 19,787 17,152 Prepaid expenses and other current assets 75,492   72,250   Total current assets 625,569 586,578 Property and equipment, net 287,594 283,138 Computer software, net 195,853 205,830 Contract acquisition costs, net 159,778 151,599 Goodwill, net 143,555 142,545 Equity investments, net 85,189 80,905 Other intangible assets, net 13,209 13,462 Other assets 12,230   14,963   Total assets $ 1,522,977   1,479,020     Liabilities and Shareholders' Equity Current liabilities: Accrued salaries and employee benefits $ 50,787 85,142 Accounts payable 43,638 41,817 Current portion of notes payable 71,776 8,648 Current portion of obligations under capital leases 3,552 3,080 Other current liabilities 163,905   135,108   Total current liabilities 333,658 273,795 Notes payable, excluding current portion 186,292 252,659 Deferred income tax liabilities 67,232 67,428 Obligations under capital leases, excluding current portion 7,562 3,934 Other long-term liabilities 30,524   28,151   Total liabilities 625,268   625,967   Minority interests in consolidated subsidiaries 9,793   8,580   Shareholders' Equity: Common stock 20,038 19,966 Additional paid-in capital 112,402 104,762 Accumulated other comprehensive income, net 32,687 28,322 Treasury stock (45,475 ) (34,138 ) Retained earnings 768,264   725,561   Total shareholders' equity 887,916   844,473   Total liabilities and shareholders' equity $ 1,522,977   1,479,020                   TSYS Cash Flow (unaudited) (in thousands)   Three Months Ended March 31, 2008   2007     Cash flows from operating activities: Net income $ 56,614 57,273 Adjustments to reconcile net income to net cash provided by operating activities: Minority interests in consolidated subsidiaries' net income 250 350 Equity in income of equity investments (1,824 ) (860 ) Gain on currency translation adjustments, net (1,943 ) (683 ) Depreciation and amortization 39,229 38,597 Share-based compensation 7,895 3,036 Asset impairments - 620 Provisions for (recoveries of) bad debt expense and billing adjustments 2,101 (1,239 ) Charges for transaction processing provisions 265 (792 ) Deferred income tax benefit (6,875 ) (1,006 ) Loss on disposal of equipment, net 161 20 (Increase) decrease in: Accounts receivable (6,140 ) 9,089 Prepaid expenses, other current assets and other long-term assets 2,530 (3,518 ) Increase (decrease) in: Accounts payable 3,426 735 Accrued salaries and employee benefits (34,401 ) (39,211 ) Excess tax benefit from share-based payment arrangements (67 ) (2,503 ) Other current liabilities and other long-term liabilities 38,778   6,542   Net cash provided by operating activities 99,999   66,450     Cash flows from investing activities: Purchases of property and equipment, net (14,350 ) (17,232 ) Additions to licensed computer software from vendors (2,351 ) (3,884 ) Additions to internally developed computer software (2,413 ) (3,039 ) Cash used in acquisitions and equity investments - (472 ) Additions to contract acquisition costs (17,168 ) (7,145 ) Net cash used in investing activities (36,282 ) (31,772 )   Cash flows from financing activities: Proceeds from borrowings of long-term debt - 6,805 Principal payments on long-term debt borrowings and capital lease obligations (4,976 ) (562 ) Proceeds from exercise of stock options 59 3,518 Excess tax benefit from share-based payment arrangements 67 2,503 Repurchase of common stock (11,369 ) - Dividends paid on common stock (13,858 ) (13,783 ) Net cash used in financing activities (30,077 ) (1,519 ) Effect of exchange rate changes on cash and cash equivalents (1,509 ) (571 ) Net increase in cash and cash equivalents 32,131 32,588 Cash and cash equivalents at beginning of year 210,518   389,123   Cash and cash equivalents at end of period $ 242,649   421,711                 Geographic Area Data: The following geographic area data represents revenues for the three months ended March 31 based on where the client is domiciled:   Three Months Ended March 31, (dollars in millions): 2008 %     2007 %   % Chg United States $ 354.1 76.7 % $ 337.7 78.6 % 4.8 % Europe 58.9 12.7 45.9 10.7 28.2 Canada 31.7 6.9 30.0 7.0 5.4 Japan 7.4 1.6 5.3 1.2 40.0 Mexico 3.7 0.8 3.3 0.8 14.4 Other 5.9 1.3     7.4 1.7 (19.6 ) $ 461.7 100.0 % $ 429.6 100.0 % 7.5 %     Geographic Area Revenue by Operating Segment: The following table reconciles segment revenues to revenues by reporting segment for the three months ended March 31:   Three Months Ended March 31, Domestic-based support services International-based support services Merchant acquiring services     (dollars in millions): 2008 2007     2008 2007   2008   2007 United States $ 283.6 271.2 0.1 - 70.4 66.5 Europe 0.3 0.4 58.6 45.5 - - Canada 31.5 29.9 - - 0.2 0.1 Japan - - 7.4 5.3 - - Mexico 3.7 3.3 - - - - Other 2.1 2.9     3.6 4.4   0.2   0.1 $ 321.2 307.7     69.7 55.2   70.8   66.7             Supplemental Information: Accounts on File at March 31, (in millions) 2008   %   2007   %   % Change Consumer 211.4 57.9 % 268.9 63.6 % (21.4 ) % Retail 57.9 15.9 52.5 12.4 10.4 Commercial 40.1 11.0 32.8 7.8 22.1 Government services 24.1 6.6 21.5 5.1 11.8 Stored Value 26.0 7.1 42.2 10.0 (38.4 ) Debit 5.4   1.5   4.8   1.1 12.1 364.9   100.0 % 422.7   100.0 % (13.7 ) %     (in millions) March 31, 2008 March 31, 2007 % Change YTD Average Accounts on File 370.2 418.3 (11.5 )   Accounts on File at March 31, (in millions) 2008   %   2007   %   % Change Domestic 283.4 77.7 % 353.5 83.6 % (19.8 ) % International 81.5   22.3   69.2   16.4 17.9 364.9   100.0 % 422.7   100.0 % (13.7 ) %   Note: The accounts on file between domestic and international is based on the geographic domicile of processing clients.   Growth in Accounts on File (in millions): March 2007 to March 2008 March 2006 to March 2007 Beginning balance 422.7 440.4 Change in accounts on file due to: Internal growth of existing clients 53.9 36.2 New clients 18.2 96.1 Purges/Sales (25.3 ) (19.2 ) Deconversions (104.6 ) (130.8 ) Ending balance 364.9   422.7       Number of Employees (FTEs): 2008   2007   At March 31, 7,548 6,804 YTD average for period ended March 31, 7,245 6,740         RECONCILIATION OF GAAP TO NON-GAAP   Three Months Ended March 31, (in thousands, except per share)   2008     2007   % Change REVENUES Total revenues $ 461,723   429,603 7.5 % Deduct: revenues associated with deconverted portfolios   (4,856 )   (28,899 ) Total revenues, excluding revenues associated with deconverted portfolios $ 456,867     400,704   14.0 %   OPERATING INCOME Operating income $ 86,775 85,679 1.3 % Add: spin-related costs   6,895     -   Operating income, excluding spin-related expenses $ 93,670     85,679   9.3 %   Revenues before reimbursables $ 360,041     343,611   Total revenues $ 461,723     429,603     Operating margin, as reported   18.8 %   19.9 % Operating margin, excluding reimbursables   24.1 %   24.9 % Operating margin, excluding reimbursables and spin-related expenses   26.0 %   24.9 %   NET INCOME Net income $ 56,614 57,273 (1.2 ) % Add: spin-related costs, net of tax   4,972     -   Net income, excluding spin-related expenses $ 61,586     57,273   7.5 %   Common shares outstanding   196,745     196,487     EARNINGS PER SHARE (EPS) - Basic Basic earnings per share $ 0.29 0.29 (1.3 ) % Add: spin-related costs, net of tax per share   0.02     -   Basic EPS, excluding spin-related expenses $ 0.31     0.29   7.4 %