Total System's fourth-quarter earnings topped the Zacks Consensus
Estimate on improved revenues across segments, except merchant
acquiring services, partially offset by higher operating expenses.
Moreover, transaction volumes, new accounts and cash flows
witnessed strong growth. Conservative debt and ample free cash also
pave the way for incremental capital deployment. A diversified and
restructured portfolio, strong network alliances, strategic
acquisitions and technical competence augur long-term growth.
However, risks from stiff competition, regulatory challenges, low
interest rate and foreign exchange volatility raise concerns.
Tapered synergies from NetSpend justify the tepid guidance as well
as our Neutral recommendation.
Founded in 1982 and based in Columbus, Georgia, Total System
Services Inc. provides electronic payment processing, merchant
services and related services to financial and non-financial
institutions in the U.S. and internationally. As of Dec 31, 2013,
the company had 9,600 full-time equivalent employees.
Total System is one of the world's largest companies for
outsourced payment services, offering a broad range of issuer- and
acquirer-processing technologies that support consumer-finance,
credit, debit, healthcare, loyalty and prepaid services for
financial institutions and retail companies in more than 80
countries across the Americas, EMEA and Asia-Pacific regions. The
company's services are divided into three broad operating
North America Services (accounted for 46% of gross revenue in
2013) provides services to clients in the U.S., Canada, Mexico and
the Caribbean. Total System processes information through its
cardholder systems and provides issuer account solutions for
financial institutions and other organizations throughout the
International Services (19%) provides services to clients in
Europe, India, the Middle East, Africa, Asia Pacific and Brazil.
Total System processes information through its cardholder systems
to international financial institutions.
Merchant Services (25%) provides merchant services to financial
institutions and other organizations primarily in the U.S.
Effective third-quarter 2013, NetSpend (10%) has been included
as the fourth operating segment of Total System. Acquired in Jul
2013 for about $1.4 billion, NetSpend offers reloadable prepaid
debit and payroll cards as well as alternative financial services
to the under-banked and to other consumers in the U.S. Total System
raised $1.1 billion through a two-part note offering in May 2013 to
fund the acquisition. One set of 5-year notes worth $550 million
carries an annual interest of 2.375%, while the remaining $550
million worth of notes are due to mature in 10 years and bear
annual interest of 3.75%.
The company primarily functions through four business
operations: Electronic payment processing, merchant services,
reimbursable items and other services.
Electronic payment processing services include providing issuer
processing services for consumer credit, retail, debit, stored
value, government services and commercial card accounts. Merchant
services include processing services, acquiring solutions, related
systems and integrated support services. Reimbursable items are
receipts for out-of-pocket expenses as revenues and expenses. The
largest reimbursable expense item, for which clients reimburse the
company, is postage. Changes in postal rates as well as volume of
mailing activity by its clients affect the company's reimbursable
items. Other services include business process management, mail and
correspondence processing, tele-servicing, data documentation,
offset printing, collections, and account solicitation and client
Total System continues to develop and enhance its processing
solutions by developing solutions and strategic acquisitions to
expand its service offerings. In 2008, Total System acquired
Infonox for an aggregate consideration of approximately $50.6
million, with contingent payments over the next three years of up
to $25 million, based on performance.
In order to divest its non-strategic businesses, Total System
sold Total Debt Management Inc. (TDM) in Aug 2009, followed by the
sale of TSS POS Systems and Services LLC (TPOS) in Sep 2010. In Apr
2010, Total System acquired 51% ownership of a newly formed company
named First National Merchant Solutions LLC (FNMS), under a joint
venture with First National Bank of Omaha (FNBO), for approximately
$150.5 million. FNMS is the name under which FNBO currently
conducts its merchant activities. On Jan 1, 2011, Total System
acquired the remaining 49% of FMNS for $169.6 million. Following
the completion of the acquisition, Total System has renamed FNMS as
TSYS Merchant Solutions (TMS).
Additionally, in May 2011, Total System acquired TermNet
Merchant Services, which is the 52nd largest merchant acquirer in
the U.S. by dollar volume, according to The Nilson Report. The
company has been re-branded as Total System and fully integrated
into TMS. In Oct 2011, Total System purchased the merchant
portfolio of Florida-based Vanguard Payment Systems Inc. In Aug
2012, Total System formed a joint venture (Central Payment Joint
Venture (CPay)) with Central Payment Co. LLC by buying a 60% stake
in the privately-held direct merchant acquirer for $66 million, and
inflated this holding to 75% in Feb 2014. In Dec 2012, the company
acquired Utah-based privately-held payment solution provider ProPay
for an undisclosed amount.
Meanwhile, the company vended of operations in Japan during
second-quarter 2014. Thus, it is now a discontinued operation.
Total System Services Inc. (TSS): Read the Full
Want the latest recommendations from Zacks Investment Research?
Today, you can download 7 Best Stocks for the Next 30 Days.
Click to get this free report
TOTAL SYS SVC (TSS): Free Stock Analysis Report
To read this article on Zacks.com click here.