Total System Services Inc.
) reported second-quarter 2014 operating earnings per share of 41
cents. While the bottom line was at par with the Zacks
Consensus Estimate, it was higher the year-ago quarter figure of 34
cents. The results include share-based compensation.
Total System Services Inc - Quarterly EPS
(BNRI) | FindTheBest
Including acquisition intangible amortization, share-based
compensation, gain from discontinued operations in Japan ($50
million or 27 cents a share) and the Net Spend acquisition-related
expenses, Total System's reported net income stood at $109.9
million or 58 cents per share against $57.7 million or 31 cents a
share in the year-ago quarter.
Results reflected revenue growth in North America, NetSpend and
international segments along with an increase in overall
transaction volume and new accounts. However, lower revenues from
the merchant services and higher expenses were setbacks. Meanwhile,
operating and free cash flow witnessed improvement.
Behind the Headlines
For the first time, total revenue rose to $602 million, surging
30.4% year over year and exceeding the Zacks Consensus Estimate of
$594 million. Reimbursable items increased 5% to $64 million.
On a geographical basis, quarterly revenues from
improved 9.9% year over year to $273.3 million, while that from
increased 11% to $90.5 million. However, revenues from
merchant acquiring services
declined 6.2% to $128 million. Meanwhile,
revenues were $116.8 million, down from $132.6 million in the last
sequential quarter, driven by gross dollar volume (GDV) that grew
17.4% and direct deposit customer base growth of 17.6%.
revenues deteriorated 39.3% year over year to a negative $6.6
Sales volume from the direct merchant business climbed 7%,
although point-of-sale (POS) transactions decreased 8% on a
year-over-year basis. On the other hand, transaction volumes in
North America and international segments grew 20.7% and 13.3%,
Additionally, as of Jun 30, 2014, total number of accounts on
file was 572.7 million, up 17.2% from 488.7 million at the end of
the year-ago period. The upside was primarily driven by internal
and existing client growth, partially offset by lower new client
Total System further reported a 33% year-over-year hike in
selling, general and administrative (SG&A) expenses, which
stood at $85.6 million. Cost of services spiked 38.1% to $416.5
million. Alongside, non-operating expense were $0.9 million versus
$0.6 million in the year-ago quarter. Merger and acquisition
expenses were $1.2 million, down 5.1% from the prior-year
Subsequently, adjusted earnings before interest, taxes,
depreciation and amortization (EBITDA) jumped 22% year over year to
$170.9 million. Operating income rose 4.4% to $98.8 million in the
At the end of Jun 2014, operating cash flow escalated 52.3% year
over year to $239.4 million. Free cash flow was pegged at $133.7
million, up 69.6% from $54.9 million from the year-ago period.
Moreover, cash and cash equivalents rose to $251 million from
$247.7 million at 2013-end.
Meanwhile, total assets dipped to $3.68 billion from $3.69
billion at 2013-end, while total equity climbed to $1.63 billion
from $1.60 billion at 2013-end. Long-term debt dipped to $1.41
billion from $1.43 billion at 2013-end.
Capital Deployment Update
For the first time since the purchase of NetSpend, Total System
repurchased 3.7 million shares for $115.7 million during the
reported quarter, driven by strong cash flow.
In Jan 2014, the board of Total System sanctioned a new share
repurchase program worth 20-28 million shares through Apr 2015.
On Jul 1, 2014, Total System paid a regular quarterly dividend
of 10 cents per share to the shareholders of record as on Jun
Management reiterated the full-year 2014 revenue growth guidance
of 17-20% to $2.42-2.47 billion. Before reimbursable items,
revenues are expected to grow 20-22% to $2.18-2.23 billion, while
adjusted EBITDA is estimated to escalate 17-20% to $732-746
million. Moreover, operating earnings per share is projected to
grow in the band of 10-12% to $1.90-1.93.
Higher expenses, declining revenues from merchant acquiring
services and moderated NetSpend revenues, witnessed in the first
half of 2014 and most of 2013, are likely limit margin expansion.
Nevertheless, growth is picking up in North America and
international sources, which along with improving industry trends
and consistent debt reduction is expected to position the company
favorably forthe upcoming quarters.
Projecting steady growth, Total System sports a Zacks Rank #1
(Strong Buy). Other players with the same Zacks Rank such as
VeriFone Systems Inc.
) are also worth considering.
Meanwhile we also await the earnings results of the electronic
payment processing industry giant,
) with a Zacks Rank #2 (Buy), scheduled to release after the
closing bell on Jul 24.
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