CEY Certegy

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/

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