Certegy (NYSE:CEY)
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Certegy Reports First Quarter 2005 Diluted EPS Growth of 32.1%
Raises Full Year 2005 Diluted EPS Guidance
ST. PETERSBURG, Fla., April 21 /PRNewswire-FirstCall/ -- Certegy Inc.
(NYSE:CEY) today reported first quarter 2005 diluted earnings per share of
$0.37, an increase of 32.1% over the prior year quarter. Diluted earnings per
share from continuing operations was $0.34, a 30.8% increase compared to $0.26
in the first quarter of 2004. Revenue of $262.5 million increased 9.7%, and
operating income of $37.1 million increased 23.6% over the prior year quarter.
FIRST QUARTER FINANCIAL HIGHLIGHTS
Summarized highlights of the 2005 first quarter results from continuing
operations, as compared to the first quarter of 2004 are as follows:
- Revenue increased 9.7% to $262.5 million.
- Card Services increased 11.0%.
- Check Services increased 7.8%.
- Operating income of $37.1 million increased 23.6%.
- Card Services increased 7.0%
- Check Services increased 76.4%
- Corporate expense increased 15.5%
- Net income from continuing operations increased 25.5% to $21.2 million.
- Diluted earnings per share from continuing operations increased 30.8%
to $0.34.
- Capital expenditures totaled $12.0 million.
"Our strong first quarter performance is the result of new customer signings,
solid execution of our business plan, and outstanding profitability in Check
Services," stated Lee Kennedy, Certegy's chairman and chief executive officer.
"Our strategy remains focused on increasing market share, developing new and
improved products and penetrating new vertical industries."
SEGMENT RESULTS
Card Services generated revenue of $154.0 million in the first quarter of 2005,
an increase of 11.0% above the 2004 quarter. Revenue growth of 9.2% in the
Company's North American card operation resulted from new customer signings,
growth in e-banking, card loyalty programs and institution merchant processing.
International card revenue increased by 19.7%, primarily due to new customers,
growth within existing customers, higher software maintenance and support and
favorable currency rates. Card Services operating income of $31.0 million
increased 7.0%, compared to $29.0 million in the first quarter of 2004. Card
Services operating margin of 20.2% in the first quarter of 2005 decreased by 70
basis points compared to an operating margin of 20.9% in the prior year
quarter.
Check Services generated revenue of $108.5 million in the first quarter of
2005, an increase of 7.8% over the 2004 quarter, driven by new customer
signings, growth in cash access services and favorable currency rates. Check
Services operating income of $14.2 million increased 76.4% compared to $8.1
million in the first quarter of 2004. Check Services operating margin of 13.1%
in the first quarter of 2005 increased by 510 basis points compared to an
operating margin of 8.0% in the prior year quarter. Certegy's proprietary risk
modeling technology, improved collections and increased margins in cash access
services drove the significantly improved profitability in the check segment.
Corporate expense of $8.2 million increased by $1.1 million over the prior year
quarter. The increase is largely attributable to higher audit related and
employee costs, including variable compensation accruals driven by above target
year-to-date profit performance.
Interest expense of $3.3 million increased by $0.3 million compared to the
first quarter of 2004, due to higher average interest rates on revolving credit
borrowings. Other income of $0.2 million was comparable to the prior year
quarter.
ACCOUNTING CHANGE
Certegy adopted Statement of Financial Accounting Standards ("SFAS") No.
123(R), "Share-Based Payment," in the first quarter of 2005 using the modified
retrospective transition method, which requires restatement of prior periods
presented. The adoption of SFAS 123(R) reduced first quarter 2005 and 2004
diluted earnings per share by $0.02 and $0.04, respectively. The Company
expects the accounting required by SFAS 123(R) to reduce full year 2005 diluted
earnings per share by approximately $0.08, compared with $0.13 per share in
2004.
ANTICIPATED DISPOSAL OF MERCHANT ACQUIRING BUSINESS
Certegy has entered into advanced discussions regarding the disposition of its
merchant acquiring business, pursuant to a plan previously approved by the
Certegy Board of Directors. The parties expect to reach a definitive agreement
during the second quarter of 2005.
OUTLOOK
Management updated its earnings outlook for 2005 as follows. This guidance
excludes any gain on the sale of the discontinued merchant acquiring business
and its profitability prior to disposition:
- Revenue growth of approximately 10% to 12%, driven by low-double digit
revenue growth in Card Services and high single-digit growth in Check
Services.
- Operating income growth of 15% to 17% over $168.5 million in 2004.
- The effective tax rate is expected to approximate 37.6%.
- Diluted earnings per share from continuing operations of $1.83 to
$1.86, representing growth of 19.6% to 21.6% over $1.53 in 2004.
The Company expects to achieve revenue growth of 9% to 10% in the second
quarter of 2005 and diluted earnings per share from continuing operations of
$0.39 to $0.40, representing growth of 18% to 21% over $0.33 per diluted share
in the second quarter of 2004.
TELECONFERENCE
Management will host a teleconference to discuss first quarter earnings on
Thursday, April 21, 2005, at 11:00 a.m. Eastern Time. The live audio Webcast
will be available at http://www.certegy.com/ . Please be advised that
Microsoft's Windows Media Player(TM) must be downloaded prior to accessing the
presentation. It can be downloaded from
http://www.microsoft.com/windows/mediaplayer . A replay of the Webcast will be
available in the Investor Center section of the website after the call ends
continuing through May 5, 2005.
About Certegy
Certegy Inc. (NYSE:CEY) provides credit and debit processing, check risk
management and check cashing services, merchant processing and e-banking
services to over 6,000 financial institutions, 117,000 retailers and 100
million consumers worldwide. Headquartered in St. Petersburg, Florida, Certegy
maintains a strong global presence with operations in the United States, United
Kingdom, Ireland, France, Chile, Brazil, Australia, New Zealand, Thailand and
the Caribbean. As a leading payment services provider, Certegy offers a
comprehensive range of transaction processing services, check risk management
solutions and integrated customer support programs that facilitate the exchange
of business and consumer payments. Certegy generated over $1.0 billion in
revenue in 2004. For more information on Certegy, please visit
http://www.certegy.com/ .
Forward-Looking Statements
The statements in this release include forward-looking statements that are
based on current expectations, assumptions, estimates, and projections about
Certegy and our industry. Without limitation, Certegy's revenue, operating
income and earnings per share projections for fiscal 2005 under the heading
"Outlook" above are forward-looking statements. Forward-looking statements are
not guarantees of future performance and are subject to risks and
uncertainties, many of which are outside of Certegy's control that may cause
actual results to differ significantly from what is expressed in those
statements. Factors that could, either individually or in the aggregate,
affect our performance include: our reliance on a small number of business
segments and strategic relationships; our ability to comply with bankcard
association rules and government regulations; the sensitivity of our business
to the economy; declines in check writing; and other factors described in
detail in the section entitled "Certain Factors Affecting Forward-Looking
Statements" in our 2004 Annual Report on Form 10-K filed on March 11, 2005,
with the SEC.
CERTEGY INC.
CONSOLIDATED STATEMENTS OF INCOME
FOR THE THREE MONTHS ENDED MARCH 31, 2005 AND 2004
(In thousands, except per share amounts)
(Unaudited)
Three Months Ended March 31,
2005 2004
Revenues $262,458 $239,340
Operating expenses(1):
Costs of services 190,292 177,240
Selling, general and
administrative 35,114 32,130
225,406 209,370
Operating income 37,052 29,970
Other income, net 165 220
Interest expense (3,305) (2,976)
Income from continuing operations
before income taxes 33,912 27,214
Provision for income taxes (12,757) (10,363)
Income from continuing operations 21,155 16,851
Income from discontinued operations,
net of taxes of $1.2 million and
$0.7 million, respectively(2) 2,041 1,272
Net income $23,196 $18,123
Basic earnings per share:
Income from continuing operations $0.34 $0.26
Income from discontinued operations 0.03 0.02
Net income $0.38 $0.28
Average shares outstanding 61,794 63,677
Diluted earnings per share:
Income from continuing operations $0.34 $0.26
Income from discontinued operations 0.03 0.02
Net income $0.37 $0.28
Average shares outstanding 62,859 64,643
Revenues and operating income of the Company's reportable segments for the
three months ended March 31, 2005 and 2004 are as follows:
Three Months Ended March 31,
Revenues: 2005 2004
Card Services $153,956 $138,654
Check Services 108,502 100,686
$262,458 $239,340
Operating income(1):
Card Services $31,046 $29,013
Check Services 14,202 8,051
45,248 37,064
General corporate expense (8,196) (7,094)
$37,052 $29,970
(1) The Company adopted Statement of Financial Accounting Standards
No. 123 (revised 2004), "Share-Based Payment," on January 1, 2005,
restating all prior periods. SFAS No. 123(R) requires the Company to
expense stock options issued to employees. See Item 10 for further
information.
(2) During the third quarter of 2004, Certegy's Board of Directors
approved a plan to dispose of the Company's retail merchant acquiring
business.
CERTEGY INC.
SUPPLEMENTAL INFORMATION
(Unaudited)
1. Revenues by product and service offering are as follows (in thousands):
2004
1st Qtr 2nd Qtr 3rd Qtr 4th Qtr
Card Issuer Services $117,862 $123,410 $126,762 $134,562
Check Services 100,686 110,736 113,118 124,584
Merchant Processing 19,294 20,225 21,232 21,023
Software and Support 1,498 1,293 1,548 1,673
$239,340 $255,664 $262,660 $281,842
2004 2005
Year 1st Qtr
Card Issuer Services $502,596 $128,727
Check Services 449,124 108,502
Merchant Processing 81,774 22,756
Software and Support 6,012 2,473
$1,039,506 $262,458
Revenues from discontinued operations not reflected above are as
follows (in thousands):
2004
1st Qtr 2nd Qtr 3rd Qtr 4th Qtr
Discontinued Operations $24,069 $28,460 $27,667 $26,998
2004 2005
Year 1st Qtr
Discontinued Operations $107,194 $25,328
2. Revenues by geographic area (based on location of customer) are as
follows (in thousands):
2004
1st Qtr 2nd Qtr 3rd Qtr 4th Qtr
Domestic $197,478 $215,295 $217,183 $231,947
International 41,862 40,369 45,477 49,895
$239,340 $255,664 $262,660 $281,842
2004 2005
Year 1st Qtr
Domestic $861,903 $215,372
International 177,603 47,086
$1,039,506 $262,458
3. Revenues are comprised of the following (in thousands):
2004
1st Qtr 2nd Qtr 3rd Qtr 4th Qtr
Product and Service Fees $204,509 $217,713 $225,440 $245,947
Interchange Fees 16,054 16,917 17,978 18,054
Reimbursable Expenses 18,777 21,034 19,242 17,841
$239,340 $255,664 $262,660 $281,842
2004 2005
Year 1st Qtr
Product and Service Fees $893,609 $221,290
Interchange Fees 69,003 19,678
Reimbursable Expenses 76,894 21,490
$1,039,506 $262,458
Revenues from discontinued operations not reflected above are
comprised of the following (in thousands):
2004
1st Qtr 2nd Qtr 3rd Qtr 4th Qtr
Product and Service Fees $6,475 $7,629 $7,249 $7,214
Interchange Fees 17,594 20,831 20,418 19,784
Reimbursable Expenses - - - -
$24,069 $28,460 $27,667 $26,998
2004 2005
Year 1st Qtr
Product and Service Fees $28,567 $6,793
Interchange Fees 78,627 18,535
Reimbursable Expenses - -
$107,194 $25,328
4. Currency translation increased (decreased) revenues and operating
income for the three months ended March 31, 2005 as compared with the
prior year as follows (in thousands):
Operating
Revenues Income
Card Services $925 $(217)
Check Services 557 64
$1,482 $(153)
5. Check volumes in dollars are as follows (in millions):
2004 2005
1st Qtr 2nd Qtr 3rd Qtr 4th Qtr Year 1st Qtr
Domestic $8,206 $8,623 $8,719 $10,961 $36,509 $10,105
International 925 904 917 1,065 3,811 840
$9,131 $9,527 $9,636 $12,026 $40,320 $10,945
Guarantee $7,048 $7,248 $7,207 $8,548 $30,051 $6,960
Verification 2,083 2,279 2,429 3,478 10,269 3,985
$9,131 $9,527 $9,636 $12,026 $40,320 $10,945
6. Number of cards and accounts processed (end of period) are as follows
(in thousands):
2004 2005
1st Qtr 2nd Qtr 3rd Qtr 4th Qtr 1st Qtr
Cards:
Domestic 23,466 23,843 23,846 23,846 24,239
International 23,359 24,244 23,763 25,026 26,076
46,825 48,087 47,609 48,872 50,315
Accounts:
Domestic 18,069 18,254 17,033 17,032 17,314
International 20,282 21,044 20,620 21,972 22,739
38,351 39,298 37,653 39,004 40,053
7. Merchant volumes in dollars and number of transactions are as follows:
2004 2005
1st Qtr 2nd Qtr 3rd Qtr 4th Qtr Year 1st Qtr
Dollars (in millions) $864 $931 $989 $937 $3,721 $1,013
Number of
Transactions (in
thousands) 9,291 10,385 10,777 10,278 40,731 10,500
Merchant volumes and number of transactions from discontinued
operations not reflected above are as follows:
2004 2005
1st Qtr 2nd Qtr 3rd Qtr 4th Qtr Year 1st Qtr
Dollars (in millions) $1,005 $1,158 $1,127 $1,091 $4,381 $1,026
Number of
Transactions (in
thousands) 11,464 12,463 12,153 11,424 47,504 10,942
8. Depreciation and amortization by segment is as follows (in thousands):
2004 2005
1st Qtr 2nd Qtr 3rd Qtr 4th Qtr Year 1st Qtr
Card Services $7,985 $8,067 $8,722 $9,280 $34,054 $9,025
Check Services 2,784 2,953 3,175 3,202 12,114 3,178
Corporate 315 322 320 324 1,281 326
$11,084 $11,342 $12,217 $12,806 $47,449 $12,529
Amortization of acquired merchant portfolios from discontinued
operations not reflected above is as follows (in thousands):
2004 2005
1st Qtr 2nd Qtr 3rd Qtr 4th Qtr Year 1st Qtr
Discontinued
Operations $753 $789 $785 $- $2,327 $-
9. Capital expenditures and acquisitions are as follows (in thousands):
2004 2005
1st Qtr 2nd Qtr 3rd Qtr 4th Qtr Year 1st Qtr
Capital
expenditures $7,026 $10,083 $11,373 $12,426 $40,908 $12,037
Acquisitions,
net of cash
acquired $33,391 $(433) $8,063 $(300) $40,721 $-
Capital expenditures and acquisitions from discontinued operations not
reflected above are as follows (in thousands):
2004 2005
2nd 3rd 4th 1st
1st Qtr Qtr Qtr Qtr Year Qtr
Capital expenditures $85 $31 $40 $5 $161 $-
Acquisitions,
net of cash acquired $5,800 $- $- $- $5,800 $-
10. Adoption of Statement of Financial Accounting Standards No. 123
(revised 2004), "Share-Based Payment":
The Company adopted SFAS No. 123 (revised 2004) on January 1, 2005
using the modified retrospective method, restating all prior
periods. SFAS No. 123(R) requires the Company to expense stock
options issued to employees. Previously, the Company did not
record compensation expense for employee stock options. Prior year
periods are restated using the pro forma amounts previously disclosed
in the Company's consolidated financial statements under SFAS
No. 123.
Stock option expense for 2005 and 2004 is as follows:
2004 2005
1st Qtr 2nd Qtr 3rd Qtr 4th Qtr Year 1st Qtr
Stock option expense $3,557 $2,769 $2,414 $2,418 $11,158 $1,520
Income tax benefit (1,022) (651) (580) (707) (2,960) (415)
$2,535 $2,118 $1,834 $1,711 $8,198 $1,105
Diluted EPS $0.04 $0.03 $0.03 $0.03 $0.13 $0.02
During 2005, the quarterly impact of SFAS No. 123(R) is expected to
be approximately $0.02 per diluted share, amounting to approximately
$0.08 per diluted share for the full year 2005.
Stock option expense for 2005 and 2004, by segment, is as follows:
2004 2005
1st Qtr 2nd Qtr 3rd Qtr 4th Qtr Year 1st Qtr
Card Services $1,351 $1,052 $917 $919 $4,239 $578
Check Services 717 558 487 487 2,249 306
Corporate 1,489 1,159 1,010 1,012 4,670 636
$3,557 $2,769 $2,414 $2,418 $11,158 $1,520
11. Selected Consolidated Balance Sheet and Cash Flow Data:
The following preliminary balance sheet and cash flow data is provided
for informational purposes and is subject to final reclassifications
associated with the adoption of SFAS No. 123(R).
Consolidated Balance Sheet Data (in thousands):
March 31, December 31,
2005 2004
Cash and cash equivalents $50,625 $41,801
Trade accounts receivable, net of
allowance $106,534 $120,767
Claims recoverable $32,707 $39,316
Property and equipment, net $64,438 $61,490
Accounts payable and other accrued
expenses $57,134 $56,764
Claims payable $27,847 $36,204
Compensation and benefit liabilities $17,660 $19,384
Long-term debt:
Unsecured notes, 4.75%, due 2008,
net of unamortized discount $199,574 $199,543
Borrowings under revolving
credit facility 24,300 48,600
Notes payable, variable rate,
due 2009 22,364 22,364
Capital lease obligations 3,971 3,461
$250,209 $273,968
Consolidated Cash Flow Data (in
thousands):
Three Months Ended March 31,
2005 2004
Net cash provided by operating activities $46,411 $36,893
Net cash used in investing activities (12,037) (40,417)
Net cash (used in) provided by financing
activities (27,020) 27,561
Effect of foreign currency exchange
rates on cash (622) 161
Cash provided by discontinued operations 2,092 52
Net cash provided $8,824 $24,250
DATASOURCE: Certegy Inc.
CONTACT: Mary Waggoner, SVP - Investor Relations of Certegy Inc.,
+1-678-867-8004
Web site: http://www.certegy.com/