NetSpend 2013 Annual Report Download - page 19

The core services include housing an account on
TSYS’ system (AOF), authorizing transactions
(authorizations), accumulating monthly transactional
activity (transactions) and providing a monthly
statement (statement generation). From these core
services, TSYS’ clients also have the option to use
fraud and portfolio management services.
Collectively, these services are considered volume-
based revenues.
Non-volume related revenues include processing
fees which are not directly associated with AOF and
transactional activity, such as value added products
and services, custom programming and certain other
services, which are only offered to TSYS’ processing
clients.
Value added products and services, which includes
services such as data analytics and application
processing, are primarily non-volume related, are only
offered to TSYS’ processing clients (i.e., indirectly
derived from accounts on file). These ancillary
products and services, along with offerings such as
card production, statement production, managed
services, customized reporting and custom
programming provided to clients at an hourly rate, are
considered non-volume based products and services.
Additionally, certain clients license the Company’s
processing systems and process in-house. Since the
accounts are processed outside of TSYS for licensing
arrangements, the AOF and other volumes are not
available to TSYS. Thus, volumes reported by TSYS
do not include volumes associated with licensing.
A summary of each segment’s results follows:
North America Services
The North America Services segment provides issuer
account solutions for financial institutions and other
organizations primarily based in North America.
Growth in revenues and operating profit in this
segment is derived from retaining and growing the
core business and improving the overall cost
structure. Growing the core business comes primarily
from an increase in account usage, growth from
existing clients (also referred to as organic growth)
and sales to new clients and the related account
conversions.
This segment has one major customer. Below is a
summary of the North America Services segment:
Years Ended
December 31, Percent Change
(in millions) 2013 2012 2011
2013
vs.
2012
2012
vs.
2011
Total revenues ........ $1,000.1 965.4 954.6 3.6% 1.1%
Revenues before
reimbursable items . . . 860.6 826.8 809.1 4.1 2.2
Adjusted segment
operating income1... 314.6 289.5 254.6 8.7 13.7
Adjusted segment
operating margin2... 36.6% 35.0% 31.5%
Key indicators:
AOF ............... 481.9 424.8 351.4 13.4 20.9
Transactions ........ 9,132.8 8,102.3 7,218.4 12.7 12.2
1 Adjusted segment operating income excludes acquisition
intangible amortization and expenses associated with Corporate
Administration and Other.
2 Adjusted segment operating margin equals adjusted segment
operating income divided by revenues before reimbursable
items.
Total segment revenues increased $34.7 million for
2013, as compared to 2012. The increase is
attributable to an $80.0 million increase in new
business, internal growth and reimbursable items,
partially offset by $45.3 million decrease related to
client deconversion, price reductions and other
adjustments. Total segment revenues increased
$10.8 million for 2012, as compared to 2011. The
increase is attributable to $67.3 million increase in
new business and internal growth partially offset by
$49.7 million decrease related to client
deconversions, price reductions and termination fees
and a $6.9 million decrease in reimbursable items
due to lost business. The decreases in 2013 and 2012
caused by price reductions are related to a tiered-
pricing arrangement signed in the third quarter of
2012.
The increase in adjusted segment operating income
for 2013, as compared to 2012, is driven by an
increase in revenues while total operating expenses
decreased. The increase in adjusted segment
operating income for 2012, as compared to 2011, is
driven by an increase in revenues while expenses
remained flat.
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