Segment Reporting and Major Customers

3 Months Ended

Mar. 31, 2017

Segment Reporting, including Geographic Area Data and Major Customers

Segment Reporting, including Geographic Area Data and Major Customers

Note 7 — Segment Reporting and Major Customers

Refer to Note 22 of the Company’s audited financial statements for the year ended December 31, 2016, which is included as Exhibit 13.1 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2016, as filed with the SEC, for a discussion regarding segment reporting and major customers.

At TSYS, the chief operating decision maker (CODM) is a group consisting of Senior Executive Management and above. In the first quarter of 2017, the CODM combined the North America Services and International Services segments for purposes of segment reporting into the new Issuer Solutions segment, since they provide similar services to similar customers and to reflect the manner in which decisions on allocation of resources are made. All prior periods were restated to reflect this change. This change is used to evaluate performance and assess resources starting in the first quarter of 2017. The information utilized by the CODM consists of the financial statements and the main metrics monitored are revenue growth and growth in profitability.

The following table presents the Company’s total assets by segment:

		As of
(in thousands)		March 31, 2017	December 31, 2016
Issuer Solutions	$	5,888,921	5,892,410
Merchant Solutions		3,269,813	3,295,509
Netspend		1,492,632	1,474,595
Intersegment assets		(4,300,686)	(4,296,337)
Total assets	$	6,350,680	6,366,177

The Company maintains property and equipment, net of accumulated depreciation and amortization, in the following geographic areas:

	As of
(in thousands)	March 31, 2017		December 31, 2016
United States	$	234,504	236,913
Europe		39,768	38,866
Other		7,158	6,566
Total	$	281,430	282,345

The following table presents the Company’s depreciation and amortization by segment:

	Three months ended March 31,
(in thousands)		2017	2016
Depreciation and amortization:
Issuer Solutions	$	36,853	35,619
Merchant Solutions		7,022	5,050
Netspend		4,092	3,110
Segment depreciation and amortization		47,967	43,779
Acquisition intangible amortization		55,167	22,921
Corporate Administration and Other		1,044	883
Total depreciation and amortization	$	104,178	67,583

The following tables reconcile geographic revenues to external revenues by operating segment based on the domicile of the Company’s customers:

	Three months ended March 31, 2017
(in thousands)	Issuer Solutions		Merchant Solutions	Netspend	Total
United States	$	260,729	563,108	197,058	$	1,020,895
Europe1		70,115	80	-		70,195
Canada1		76,195	276	-		76,471
Other1		16,842	322	-		17,164
Total	$	423,881	563,786	197,058	$	1,184,725

	Three months ended March 31, 2016
(in thousands)	Issuer Solutions		Merchant Solutions	Netspend		Total
United States	$	257,649	137,719	184,199	$	579,567
Europe1		69,813	-	-		69,813
Canada1		69,850	65	-		69,915
Other1		19,889	194	-		20,083
Total	$	417,201	137,978	184,199	$	739,378

1Certain of these revenues are impacted by movements in foreign currency exchange rates.

The following table presents the Company’s operating results by segment:

Operating Segments	Three months ended March 31,
(in thousands)		2017	2016
Operating income (GAAP) (a)	$	167,183	151,687
Share-based compensation		9,047	8,158
TransFirst M&A and integration expenses1		4,868	3,401
Litigation claims, judgments or settlements		1,961	-
Acquisition intangible amortization		55,167	22,921
Adjusted operating income (non-GAAP) (b)	$	238,226	186,167
Adjusted segment operating income (non-GAAP):
Issuer Solutions (c)	$	133,873	135,077
Merchant Solutions (d)		91,279	38,357
Netspend (e)		48,648	42,201
Corporate Administration and Other		(35,574)	(29,468)
Adjusted segment operating income2 (non-GAAP)	$	238,226	186,167
Total revenues (GAAP) (f)	$	1,184,725	739,378
Less: reimbursable items, interchange and assessment expenses		351,833	67,734
Net revenue3 (g)		832,892	671,644
Intersegment revenues		12,389	11,969
Segment net revenue (non-GAAP)	$	845,281	683,613
Segment net revenue (non-GAAP):
Issuer Solutions (h)	$	387,255	378,009
Merchant Solutions (i)		260,561	120,612
Netspend (j)		197,465	184,992
Segment net revenue (non-GAAP)	$	845,281	683,613
Operating margin (GAAP) (a)/(f)		14.1%	20.5%
Adjusted operating margin on net revenue (non-GAAP) (b)/(g)		28.6%	27.7%
Adjusted segment operating margin on net revenue (non-GAAP):
Issuer Solutions (c)/(h)		34.6%	35.7%
Merchant Solutions (d)/(i)		35.0%	31.8%
Netspend (e)/(j)		24.6%	22.8%
Segment external net revenue:
Issuer Solutions	$	375,529	366,884
Merchant Solutions		260,305	120,561
Netspend		197,058	184,199
Segment external net revenue	$	832,892	671,644

¹ Excludes share-based compensation

² Adjusted segment operating income is a non-GAAP measure. Adjusted segment operating income excludes acquisition intangible amortization, TransFirst M&A and integration expenses, share-based compensation and expenses associated with Corporate Administration and Other.

³ Net revenue is a non-GAAP measure defined as total revenues less reimbursable items (such as postage), as well as, merchant acquiring interchange and assessment fees charged by the card associations or payment networks that are recorded by TSYS as expense.  

Major Customers

For the three months ended March 31, 2017 and 2016, the Company did not have any major customers.