Certegy (NYSE:CEY)
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Certegy Reports Second Quarter Earnings Diluted EPS From
Continuing Operations Increases 21.2% to $0.40
ST. PETERSBURG, Fla., July 21 /PRNewswire-FirstCall/ -- Certegy Inc.
(NYSE:CEY) today reported second quarter 2005 diluted earnings per share of
$0.75, including an after-tax gain of $27.3 million on the sale of its merchant
acquiring business and a $6.8 million after-tax write-down of its remaining
merchant acquiring portfolio held for sale to estimated net realizable value,
as summarized below:
Net Income Diluted EPS
Continuing Operations $25,391 $0.40
Discontinued Operations:
Gain on sale 27,276 $0.43
Write-down (6,823) (0.11)
Income from operations 1,700 0.03
22,153 0.35
Net Income $47,544 $0.75
Diluted earnings per share from continuing operations was $0.40, a 21.2%
increase compared to $0.33 in the second quarter of 2004. Revenue of $276.0
million increased 8.0%, and operating income of $43.4 million increased 15.8%
over the prior year quarter.
SECOND QUARTER FINANCIAL HIGHLIGHTS
Summarized highlights of the 2005 second quarter results from continuing
operations, as compared to the second quarter of 2004, are as follows:
- Revenue increased 8.0% to $276.0 million.
- Card Services increased 13.2%.
- Check Services increased 1.1%.
- Operating income of $43.4 million increased 15.8%.
- Card Services increased 8.2%.
- Check Services increased 39.7%.
- Corporate expense increased 20.2%.
- Net income from continuing operations increased 19.3% to $25.4 million.
- Diluted earnings per share from continuing operations increased 21.2%
to $0.40.
- Capital expenditures totaled $16.1 million.
"Strong revenue and earnings momentum in Card Services, e-Payments and Cash
Access, along with another quarter of significant margin expansion in Check
Services, drove solid second quarter results," stated Lee A. Kennedy, chairman
and chief executive officer of Certegy. "While Check Services revenue growth
was weaker than expected, we remain confident that strong new customer signings
and new product initiatives will generate increased revenue growth in the
second half of the year."
SEGMENT RESULTS
Card Services generated revenue of $164.1 million in the second quarter of
2005, an increase of 13.2% above the 2004 quarter. Revenue growth of 10.0% in
the Company's North American card operation was driven by growth in institution
merchant processing, e-payments (e-banking and electronic bill payment), card
transactions, new customer signings and increased adoption of card loyalty
programs. International card revenue increased 30.6%, primarily due to new
customer signings, growth within existing customers, higher software
maintenance and support, the prior year CariCard acquisition and favorable
currency rates versus the 2004 quarter. Card Services operating income of
$35.3 million increased 8.2%, compared to $32.6 million in the second quarter
of 2004. Card Services operating margin of 21.5% in the second quarter of 2005
decreased by 100 basis points compared to an operating margin of 22.5% in the
prior year quarter, primarily due to product mix and business development
costs.
Check Services generated revenue of $111.9 million in the second quarter of
2005, an increase of 1.1% over the 2004 quarter. New customer additions,
strong growth in cash access services and favorable currency rates were
partially offset by lower check guarantee volumes. Check Services operating
income of $16.2 million increased 39.7% compared to $11.6 million in the second
quarter of 2004. Check Services operating margin of 14.5% in the second
quarter of 2005 increased by 400 basis points compared to an operating margin
of 10.5% 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 $8.1 million increased by $1.4 million over the prior year
quarter. The increase is largely attributable to higher audit related fees and
business development costs. Interest expense of $3.3 million was comparable to
the prior year quarter. Other income of $576,000 increased by $491,000, driven
by higher cash balances and interest rates.
SALE OF MERCHANT ACQUIRING BUSINESS
In June 2005, Certegy completed the sale of a majority of its merchant
acquiring business. The Company realized an after-tax gain of $27.3 million
($0.43 per diluted share) on the sale. Also during the quarter, the Company
recorded a $6.8 million after-tax write-down ($0.11 per diluted share) of its
remaining merchant acquiring portfolio to estimated net realizable value. The
Company expects to complete the sale of the remaining portfolio in the third
quarter of 2005.
OUTLOOK
Management provided its earnings outlook for the full year 2005 as follows.
This guidance is based on the Company's continuing operations only, and
excludes results from the discontinued merchant acquiring business:
- Revenue growth of approximately 10%, driven by low double-digit revenue
growth in Card Services and mid 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 approximately 9% in the third
quarter of 2005, driven by low double-digit growth in Card Services and mid
single-digit growth in Check Services. Diluted earnings per share from
continuing operations in the third quarter of 2005 is expected to be $0.46 to
$0.47.
TELECONFERENCE
Management will host a teleconference to discuss second quarter earnings on
Thursday, July 21, 2005, at 10:00 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 August 4, 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, 100,000 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 JUNE 30, 2005 AND 2004
(In thousands, except per share amounts)
(Unaudited)
Three Months Ended June 30,
2005 2004
Revenues $276,023 $255,664
Operating expenses(1):
Costs of services 196,466 184,537
Selling, general and administrative 36,180 33,684
232,646 218,221
Operating income 43,377 37,443
Other income, net 576 85
Interest expense (3,250) (3,153)
Income from continuing operations
before income taxes 40,703 34,375
Provision for income taxes (15,312) (13,092)
Income from continuing operations 25,391 21,283
Income from discontinued operations,
net of taxes of $14.8 million and
$0.9 million, respectively(2) 22,153 1,536
Net income $47,544 $22,819
Basic earnings per share:
Income from continuing operations $0.41 $0.34
Income from discontinued operations 0.36 0.02
Net income $0.77 $0.36
Average shares outstanding 61,899 63,083
Diluted earnings per share:
Income from continuing operations $0.40 $0.33
Income from discontinued operations 0.35 0.02
Net income $0.75 $0.36
Average shares outstanding 63,029 64,272
Revenues and operating income of the Company's reportable segments for the
three months ended June 30, 2005 and 2004 are as follows:
Three Months Ended June 30,
Revenues: 2005 2004
Card Services $164,100 $144,928
Check Services 111,923 110,736
$276,023 $255,664
Operating income(1):
Card Services $35,253 $32,568
Check Services 16,246 11,633
51,499 44,201
General corporate expense (8,122) (6,758)
$43,377 $37,443
(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 11 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. On June 1, 2005, the Company sold a majority of its retail
merchant acquiring business. The remainder of the business is
expected to be sold during the third quarter of 2005. See Item 12 for
further information.
CERTEGY INC.
CONSOLIDATED STATEMENTS OF INCOME
FOR THE SIX MONTHS ENDED JUNE 30, 2005 AND 2004
(In thousands, except per share amounts)
(Unaudited)
Six Months Ended June 30,
2005 2004
Revenues $538,481 $495,004
Operating expenses(1):
Costs of services 386,758 361,777
Selling, general and administrative 71,294 65,814
458,052 427,591
Operating income 80,429 67,413
Other income, net 741 305
Interest expense (6,555) (6,129)
Income from continuing operations
before income taxes 74,615 61,589
Provision for income taxes (28,069) (23,455)
Income from continuing operations 46,546 38,134
Income from discontinued operations,
net of taxes of $16.1 million and
$1.6 million, respectively(2) 24,194 2,808
Net income $70,740 $40,942
Basic earnings per share:
Income from continuing operations $0.75 $0.60
Income from discontinued operations 0.39 0.04
Net income $1.14 $0.65
Average shares outstanding 61,847 63,380
Diluted earnings per share:
Income from continuing operations $0.74 $0.59
Income from discontinued operations 0.38 0.04
Net income $1.12 $0.63
Average shares outstanding 62,937 64,478
Revenues and operating income of the Company's reportable segments for the
six months ended June 30, 2005 and 2004 are as follows:
Six Months Ended June 30,
Revenues: 2005 2004
Card Services $318,056 $283,582
Check Services 220,425 211,422
$538,481 $495,004
Operating income(1):
Card Services $66,299 $61,581
Check Services 30,448 19,683
96,747 81,264
General corporate expense (16,318) (13,851)
$80,429 $67,413
(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 11 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. On June 1, 2005, the Company sold a majority of its
retail merchant acquiring business. The remainder of the business is
expected to be sold during the third quarter of 2005. See Item 12 for
further information.
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
2005
Year 1st Qtr 2nd Qtr
Card Issuer Services $502,596 $128,727 $135,559
Check Services 449,124 108,502 111,923
Merchant Processing 81,774 22,756 26,008
Software and Support 6,012 2,473 2,533
$1,039,506 $262,458 $276,023
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
2005
Year 1st Qtr 2nd Qtr
Domestic $861,903 $215,372 $227,631
International 177,603 47,086 48,392
$1,039,506 $262,458 $276,023
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
2005
Year 1st Qtr 2nd Qtr
Product and Service Fees $893,609 $221,290 $230,042
Interchange Fees 69,003 19,678 22,787
Reimbursable Expenses 76,894 21,490 23,194
$1,039,506 $262,458 $276,023
4. Currency translation increased (decreased) revenues and operating
income for the three months and six months ended June 30, 2005 as
compared with the prior year as follows (in thousands):
Revenues
1st Qtr 2nd Qtr YTD
Card Services $925 $2,215 $3,140
Check Services 557 504 1,061
$1,482 $2,719 $4,201
Operating Income
1st Qtr 2nd Qtr YTD
Card Services $(217) $(395) $(612)
Check Services 64 116 180
$(153) $(279) $(432)
5. Check volumes in dollars are as follows (in millions):
2004
1st Qtr 2nd Qtr 3rd Qtr 4th Qtr
Domestic $8,206 $8,623 $8,719 $10,961
International 925 904 917 1,065
$9,131 $9,527 $9,636 $12,026
Guarantee $7,048 $7,248 $7,207 $8,548
Verification 2,083 2,279 2,429 3,478
$9,131 $9,527 $9,636 $12,026
2005
Year 1st Qtr 2nd Qtr
Domestic $36,509 $10,105 $11,927
International 3,811 840 870
$40,320 $10,945 $12,797
Guarantee $30,051 $6,960 $7,159
Verification 10,269 3,985 5,638
$40,320 $10,945 $12,797
6. Number of cards and accounts processed (end of period) are as
follows (in thousands):
2004
1st Qtr 2nd Qtr 3rd Qtr 4th Qtr
Cards:
Domestic 23,466 23,843 23,846 23,846
International 23,359 24,244 23,763 25,026
46,825 48,087 47,609 48,872
Accounts:
Domestic 18,069 18,254 17,033 17,032
International 20,282 21,044 20,620 21,972
38,351 39,298 37,653 39,004
2005
1st Qtr 2nd Qtr
Cards:
Domestic 24,239 24,692
International 26,076 26,422
50,315 51,114
Accounts:
Domestic 17,314 17,637
International 22,739 22,992
40,053 40,629
7. Merchant volumes in dollars and number of transactions are as
follows:
2004
1st Qtr 2nd Qtr 3rd Qtr 4th Qtr
Dollars (in millions) $864 $931 $989 $937
Number of
Transactions (in thousands) 9,291 10,385 10,777 10,278
2005
Year 1st Qtr 2nd Qtr
Dollars (in millions) $3,721 $1,013 $1,151
Number of
Transactions (in thousands) 40,731 10,500 12,072
8. Depreciation and amortization by segment is as follows
(in thousands):
2004
1st Qtr 2nd Qtr 3rd Qtr 4th Qtr
Card Services $7,985 $8,067 $8,722 $9,280
Check Services 2,784 2,953 3,175 3,202
Corporate 315 322 320 324
$11,084 $11,342 $12,217 $12,806
2005
Year 1st Qtr 2nd Qtr
Card Services $34,054 $9,025 $9,360
Check Services 12,114 3,178 3,213
Corporate 1,281 326 311
$47,449 $12,529 $12,884
9. Capital expenditures and acquisitions are as follows
(in thousands):
2004
1st Qtr 2nd Qtr 3rd Qtr 4th Qtr
Capital expenditures $7,026 $10,083 $11,373 $12,426
Acquisitions,
net of cash acquired $33,391 $(433) $8,063 $(300)
2005
Year 1st Qtr 2nd Qtr
Capital expenditures $40,908 $12,037 $16,082
Acquisitions,
net of cash acquired $40,721 $- $-
10. Long-term debt at June 30, 2005 and December 31, 2004 consists of
(in thousands):
June 30, December 31,
2005 2004
Unsecured notes, 4.75%, due
2008, net of unamortized discount $199,605 $199,543
Borrowings under revolving
credit facility - 48,600
Notes payable, variable rate,
due 2009 22,364 22,364
Capital lease obligations 4,057 3,461
$226,026 $273,968
11. 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
1st Qtr 2nd Qtr 3rd Qtr 4th Qtr
Stock option expense $3,557 $2,769 $2,414 $2,418
Income tax benefit (1,022) (651) (580) (707)
$2,535 $2,118 $1,834 $1,711
Diluted EPS $0.04 $0.03 $0.03 $0.03
2005
Year 1st Qtr 2nd Qtr
Stock option expense $11,158 $1,520 $1,524
Income tax benefit (2,960) (415) (430)
$8,198 $1,105 $1,094
Diluted EPS $0.13 $0.02 $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
1st Qtr 2nd Qtr 3rd Qtr 4th Qtr
Card Services $1,351 $1,052 $917 $919
Check Services 717 558 487 487
Corporate 1,489 1,159 1,010 1,012
$3,557 $2,769 $2,414 $2,418
2005
Year 1st Qtr 2nd Qtr
Card Services $4,239 $578 $554
Check Services 2,249 306 $331
Corporate 4,670 636 639
$11,158 $1,520 $1,524
12. Sale of Retail Merchant Acquiring Business:
On June 1, 2005, the Company sold a majority of its retail merchant
acquiring business. The remainder of the business will be sold during
the third quarter of 2005. Income from discontinued operations in the
second quarter of 2005 is comprised of:
Before- Income After-
Tax Tax Tax
Income from operations $2,721 $(1,021) $1,700
Gain on sale 45,433 (18,157) 27,276
Write-down of remaining portfolio
held for sale to estimated net
realizable value (11,167) 4,344 (6,823)
$36,987 $(14,834) $22,153
DATASOURCE: Certegy Inc.
CONTACT: Mary Waggoner, SVP - Investor Relations of Certegy Inc.,
+1-678-867-8004
Web site: http://www.certegy.com/