Raises Full Year 2005 Diluted EPS Guidance
ST. PETERSBURG, Fla., April 21 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.
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