Total System Services, Inc. (TSS)

TSS 
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Total System Services, Inc. (TSS)

Barclays Capital Emerging Payments Forum

March 19, 2013 1:40 pm ET

Executives

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

Presentation

Unknown Analyst

All right. We can jump in here. We -- why don't we get started? So, everyone, can take a seat if you're in the back. We're happy to have Total System Services, TSYS, with us today. We have a number of people from the company here, but we happen to have -- we're lucky to have Phil Tomlinson, the CEO, with us. We're going to have a little chat here on stage.

I'm going to start off by asking a couple of questions for the audience responses to begin. So if you have your handhelds, you can get ready now. Number one, do you currently own shares of TSS stock: yes, overweight; yes, equal weight; yes, underweight or no?

[Voting]

Unknown Analyst

I think we can see a lot of people that are learning space. Wow. All right. Number two, what is your general bias towards TSYS stock right now: positive, negative, neutral?

[Voting]

Unknown Analyst

Okay. All right, great. Well, Phil, thank you again for being with us. I think we'll jump right in. TSYS is actually one of our topics right now. We started off thinking about it earlier in the year as a stock that not only had a very, very strong cash flow generation potential and continued to be very sustainable on that front but obviously had a very attractive capital structure. We also think the underlying organic business in the card issuing space was a business that had the potential to continue to grow at least stably over time. International has some very good growth opportunities, merchant processing. Overall, the business is a nice mix, in our view, and then we just saw a big acquisition recently of NetSpend. So I think that gives a lot of people here at least a sense of what they do. Card issuer processing, which today is about 70% to 75% of the company; 20%, 25% of the business, merchant processing, merchant acquiring, merchant processing, although the profile is changing now given the deal that they just announced with NetSpend prepaid operator, which should be closing hopefully in the middle of this year, with about $350 million potentially as much going forward as $400 million of revenue.

Before I forget, I also want to call out, we have Jim Lipham and Jim Cosgrove and Shawn Roberts, the CFO, the Treasurer and the IR here in the back for anyone who probably has additional questions as well. So thank you, all, for being here as well.

Question-and-Answer Session

Unknown Analyst

But with that, why don't we just jump in? And Phil, I think maybe give a high-level discussion and overview, start off with -- on the trends in the card issuing space. I mean, the card-issuing processing side has done well, as we talked about with Barclaycard CEO here earlier. It's an area that the audience said is slow but very profitable growth. So what are you seeing in the U.S. card-issuing market? What are you seeing in terms of the processing opportunity?

Philip W. Tomlinson

Well, first of all, thank you for inviting us. We're thrilled to be here. I appreciate all this great weather you sent. We're from Georgia, and it was 78 degrees when I left Sunday. And I woke up this morning in the middle of a blizzard, I think. I guess that's what you call that here. But -- and it looks like there's some big opportunities here to sell some stock. So I'll try very hard. We are seeing very positive trends in the card business. We like what we see. We -- as you know, the Card business suffered dramatically during the recession. It was -- we lost 2 top 5 customers to the Federal Reserve and the FDIC. So we struggled through that a little bit. We've gotten out of that. We continue to sign new clients, particularly on international basis through the recession, and we have continued to sign new clients even after the recession was so-called over. We've got about 100-plus million accounts in the pipeline, the biggest of those being Bank of America consumer and for Visa and MasterCard issuance. So that's a really big win for us. We've got about 30 million, 35 million more accounts on top of the BofA business, and all of that will be loaded onto TSYS by the middle of next year. And BofA will be the last to be loaded up. But we're seeing good trends. We're seeing people want to issue cards, we're seeing new products go out and that's good for business. Our transactions have held up pretty well. The first quarter is always one of the slowest quarters we have. And so it's kind of tough for the first quarter, but it gets better as the year goes along. It's cyclical in that way, but we're looking for good things this year. And we've got good guidance, double-digit EPS. Earnings per share is up in the double digits. And we're excited about where we're at. It's good to be back. We didn't enjoy the recession any more than any of you did, and it's just so good to be talking to new customers and adding new business. And as you said, we're excited about the NetSpend addition, and we hope to close that, as you said, hopefully by mid-year. We had 2 acquisitions in the merchant acquiring space. Last year, we acquired 60% of Central Pay out in San Rafael, California. We have a decision to make in 2014 whether we want to go ahead and buy the rest of that. Chances are, we probably will. And then December 26, we acquired ProPay out of Utah, which is a pretty unique little merchant processing company that has a product that is just like Square. I mean, it's the dongle, I think, is what they call it, and it works very well. And they've been very successful with that. So we have a lot of very positive things going on. The issuers are feeling better, and it's feeling better internationally, too. I think one of the things that surprised us through all of this is the fact that our international transactions were always higher than the U.S. transactions. And after we studied a little bit, it finally -- the light bulb went out in most of our European customers or Northern Europe as opposed to Southern Europe. So we're not in Greece. We're not in Spain. We're not in Portugal. We have a small customer in Italy, but the rest of ours are up in U.K., Ireland, Netherlands, Germany, places like that. So we're feeling bullish about the issuing business.

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