Total System Services, Inc. (TSS)

TSS 
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Total System Services (TSS)

Q1 2013 Earnings Call

April 23, 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

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

Bryan Keane - Deutsche Bank AG, Research Division

Steven Kwok - Keefe, Bruyette, & Woods, Inc., Research Division

Glenn T. Fodor - Morgan Stanley, Research Division

Tulu Yunus - Nomura Securities Co. Ltd., Research Division

Roman Leal - Goldman Sachs Group Inc., Research Division

Darrin D. Peller - Barclays Capital, Research Division

Ashwin Shirvaikar - Citigroup Inc, Research Division

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

Brett Huff - Stephens Inc., Research Division

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

Presentation

Operator

Good afternoon. At this time, I would like to welcome everyone to the TSYS conference call. [Operator Instructions] I would now like to turn the conference over to our host, Mr. Shawn Roberts, Senior Director of Investor Relations. Mr. Roberts, you may begin.

Shawn Roberts

Thank you, Lisa, and welcome, everyone. On the call today our Chairman and CEO, Phil Tomlinson, will provide first quarter 2013 highlights. And then he's going to turn it over to Jim Lipham, our CFO, who's going to review our financials. And after that, as usual, we'll open it up to 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' actual results to differ materially from the forward-looking statements are set forth in TSYS' reports filed with the SEC.

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

Philip W. Tomlinson

Thank you, Shawn, and good evening, everyone. Welcome to our first quarter call. If I sound a little hoarse today, we've got about an inch of pollen on the ground here in Middle Georgia, and I think everybody is having problems with it.

Speaking of the first quarter, during my, really, 30-plus years of TSYS, I don't ever recall a busier quarter and I don't expect this pace to slow down. It's driven though by a lot of good things happening that I think reflect a bright future going forward. Our 100-plus million accounts on file in the pipeline through June '14 are obviously requiring a lot of attention and focus by our team. We've also been working hard during the first quarter preparing to close the acquisition of NetSpend. That process is moving along pretty much as expected and we hope to close midyear.

NetSpend will become a fourth reporting segment for TSYS, representing what we think is the fastest-growing area of payments today and really, as in our first foray into the B2C space in payroll cards. NetSpend is delivering some of the most innovative products in the market today, and as you know, is focused on serving the underserved and underbanked. We think there are numerous revenue synergy opportunities with NetSpend's general-purpose reloadable cards when combined with our clients' needs and our merchant relationships.

During the first quarter, we had a $6.2 million pretax and $5.2 million after-tax expense associated with the NetSpend acquisition. By the way, the NetSpend shareholders' meeting is scheduled for May 22, and we will certainly keep you up-to-date as this acquisition comes to closure.

There are 3 other areas that incurred some expenses, which Jim will quantify financially in more detail, which are related to positioning TSYS for the next-generation of technology and innovation. I just want to kind of go through them very quickly. The first is moving our merchant business off of the First National Bank of Omaha, legacy system in Omaha, home to our newly developed merchant clearing and settlement system. And when it's completed, this new system will allow us to operate much more efficiently and effectively and surely achieve some significant year-over-year cost savings.

Second, on the issuing side of our business, we kicked off what I would describe as our most significant business and technology initiative since, really, the launch of TS2. While we're not ready to formally introduce this to the public or to the market, this new multi-year initiative will provide a forward-thinking infrastructure that really supports new and emerging technologies and will be much easier to integrate new products, services, new conversions and different partners. It's not a new platform but it exponentially enhances the power of our core systems or our black box, as we call it. And it certainly gives us and our clients -- it will certainly give us and our clients, the agility and flexibility to meet the changes in payments, the quick changes in payments that we face today, as well as much more -- is being much more flexible and has newer technology -- has a newer technology framework for future growth. Continuous change and innovation are really the reason we have to have this.

We've partnered with some of the most reputable technology suppliers in our industry who are working with us to deliver this initiative that includes a single view of the cardholder across the multiple relationships a cardholder may have with their issuer. Cardholders will have more self-service options, allowing them to access their account information through multiple channels, whether it's the branch, voice response, web, mobile or even social media, all with what I believe is the same superior and consistent service that we are known for. There are just a few -- those are just a few features that we expect and I believe it's a real game-changer going forward.

On the last issue, many of you know that during the first quarter we experienced a 3.5 hour power interruption at 1 of our 2 North American data issuer -- data centers or processing centers, which impacted a small number of our clients. As a result, we experienced some nonrecurring one-time expenses and charges during the first quarter that Jim will cover later. The type of interruption which occurred -- that occurred has never happened in the history of our business, and we've been in business 38 years doing this. After extensive investigation and testing, the issues associated with the incident have been corrected, and we certainly don't believe it will be a recurring problem.

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