Total System Services, Inc. (TSS)

TSS 
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Total System Services (TSS)

Q4 2012 Earnings Call

January 22, 2013 5:00 pm ET

Executives

Shawn Roberts - Director of Investor Relations

Philip W. Tomlinson - Chairman, Chief Executive Officer and Member of Executive Committee

James B. Lipham - Chief Financial Officer and Senior Executive Vice President

Analysts

David Togut - Evercore Partners Inc., Research Division

James E. Friedman - Susquehanna Financial Group, LLLP, Research Division

Darrin D. Peller - Barclays Capital, Research Division

Bryan Keane - Deutsche Bank AG, Research Division

Jason Kupferberg - Jefferies & Company, Inc., Research Division

Brett Huff - Stephens Inc., Research Division

Timothy W. Willi - Wells Fargo Securities, LLC, Research Division

Craig J. Maurer - Credit Agricole Securities (USA) Inc., Research Division

Kevin D. McVeigh - Macquarie Research

Glenn Greene - Oppenheimer & Co. Inc., Research Division

Gregory Smith - Sterne Agee & Leach Inc., Research Division

Roman Leal - Goldman Sachs Group Inc., Research Division

Presentation

Operator

Good afternoon. My name is Lucy, and I will be your conference operator today. At this time, I would like to welcome everyone to the TSYS Fourth Quarter 2012 Earnings Conference Call. [Operator Instructions] As a reminder, ladies and gentlemen, this conference is being recorded today, January 22, 2013. Thank you.

I would now like to introduce your speaker, Mr. Shawn Roberts, Director of Investor Relations. Please go ahead, sir.

Shawn Roberts

Thank you, Lucy, and welcome, everyone. On the call today, our Chairman and CEO, Phil Tomlinson, will provide highlights on the fourth quarter and year-end 2012. And then he'll turn it over to Jim Lipham, our CFO, who's going to review our financials. After that, we'll open it up for Q&A.

I'd like to now call your attention to the fact that we'll be making forward-looking statements about the future operating results of TSYS. These forward-looking statements involve risks and uncertainties. Factors that could cause TSYS's actual results to differ materially from the forward-looking statements are set forth in TSYS's reports filed with the Securities and Exchange Commission.

At this time, I'd like to introduce TSYS's CEO, Phil Tomlinson.

Philip W. Tomlinson

Thank you, Shawn, and good evening, everybody. As I'm sure you've already seen in our earnings release, we ended 2012 with a very solid fourth quarter in every respect. We reported a $0.33 EPS for the fourth quarter and achieved the high end of our '12 earnings per share guidance of $1.30. It is a 13.1% increase over 2011. We're at the high end of our net income guidance as a result of strong growth in same client transactions.

Transactions from our North America and international same client issuer processing businesses were up 12% year-over-year. Point-of-sale transactions in our indirect merchant or processing businesses, excluding deconverted clients, were up 9.9%, and sales volume in our direct merchant business was up 12.9%. Although '12 ended with a lot of uncertainty with the government handling of the potential fiscal cliff, holiday spending certainly improved, at least from what we saw of it. The holiday season, the TSYS card issuing clients were ahead of 2011 by 15% if you take North America and internationally together.

You may know it or you may not, we have just entered 2013 as our 30th year as a public company, and we believe we're one of the more tenured companies in the payment industry, and I'm proud to say we lead the market with a passionate and experienced leadership team and about 8,700 team members who consistently deliver on great quality and developing long-term relationships and continuous quality improvement. You've heard me say before that we believe this is what distinguishes TSYS among its peers in this payments business.

Our tagline for the 30th anniversary is "Looking back but moving forward". And while we reflect and celebrate our success and lessons that we've learned over the past 30 years, we're certainly building on that past and looking forward to the future, working with clients to identify the innovations that are going to drive this business forward and continue to ensure our success along with our clients.

Before I move into these 3 segments, I'd like to mention our '13 guidance. This is the second year in a row that we've guided to a double-digit EPS growth and strong topline revenue growth coming from improved economic confidence and growth into card and merchant segments. '13, we believe, will be an exciting year for us. We have the previously mentioned conversions of approximately 30 million accounts in the second half of the year, and we'll continue to build toward a conversion of the Bank of America consumer portfolio in 2014. We were also planning on implementing new products and services provided from our -- that came with our 2012 acquisitions in our merchant business and continue to build our international footprint.

Let me share some fourth quarter news within our 3 reporting segments. In North America, we renewed our contract with a top 5 major retailer and signed an agreement for their Canadian business during the fourth quarter. We successfully converted the consumer portfolio of Scotiabank in Mexico from a competitor. We signed an agreement with First American State Bank and experienced growth in new accounts from several community, regional and credit unions that were -- regional banks and credit unions that were not on our systems a year ago.

And as we shared last quarter, our conversion pipeline is approximately 102 million accounts on file. I've talked about adding the 30 million in the second half and then, of course, BofA in the summer of '14.

Transactions for North America were up 12.7%, the 11th quarter in a row of year-over-year quarterly growth.

In international, we focus on delivery to existing clients, securing new prospects to build our conversion and pipeline and ongoing effort to improve future margins. Jim is going to talk about margins in a little bit, and we'll answer your questions on that.

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