Total System Services, Inc. (TSS)

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Total System Services (TSS)

Q2 2011 Earnings Call

July 26, 2011 5:00 pm ET

Executives

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

James Lipham - Chief Financial Officer and Senior Executive Vice President

Shawn Roberts - Director of Investor Relations

Analysts

Roman Leal

Glenn Fodor - Morgan Stanley

Brett Huff - Stephens Inc.

Darrin Peller - Barclays Capital

Timothy Willi - Wells Fargo Securities, LLC

Presentation

Question-and-Answer Session

Brett Huff - Stephens Inc.

Sure. And then last question for me, the pipeline comment that, Jim, I think you made, there's 13 millions accounts on file coming later this year, and I think, Phil, you referenced that those are signed contracts. And then it sounds like you said, I just want to make sure that we're going through this so I get this correctly, one in 3Q and 2012 are going to have some good conversions. Is that what you said?

James Lipham

That is what I said.

Brett Huff - Stephens Inc.

And then what, just --m can you remind me those are?

Philip Tomlinson

Let me clarify one thing, though. That 13 million, I think what he said was that some of those will be in 2012. I thought that's what you asked. It was going to be in '12. And we got some this third quarter and this fourth quarter, and then we'll have some in the first quarter of next year and the third quarter of next year.

Brett Huff - Stephens Inc.

So you've got 13 million basically over the next 6 quarters?

James Lipham

That's correct.

Brett Huff - Stephens Inc.

Okay. That's what I wanted to make sure I understood. I just want to clear that up. Those are the numbers I needed.

Operator

Next question comes from the line of Glenn Fodor [Morgan Stanley].

Glenn Fodor - Morgan Stanley

This is the first time we had a chance to talk to you since the final Durbin regs came out. So I just want to get your views on whether just the new ones, was there anything in them that changed your views on the whole situation overall?

Philip Tomlinson

No.

Glenn Fodor - Morgan Stanley

That's easy answer, okay...

Philip Tomlinson

I mean we just -- personally just have a philosophical issue with the government setting prices like that. But it did come out a tad bit better than what we had been led to believe that it might be. And so I guess that's progress, and I guess as time goes by, we'll see where that falls out. There's still a lot of questions to be answered and hopefully, we'll have those answers here shortly.

Glenn Fodor - Morgan Stanley

If we think about the Merchant side as it relates to Durbin, I mean aside from the pricing aspect, have you been talking to merchants about what you can do for them under this new world order? And can you shed any light on what we could see from that angle on a product standpoint?

Philip Tomlinson

Well, I mean we talked about what it would mean as far as the interchange sharing or the interchange giveback. I mean, I think it will, as I said earlier, it will helps us -- I don't think it's going to be material, mainly because I think that eventually, most of it, and I say most of it, I don't have a percentage, but a lot of it will certainly go back to the merchants. And I think it just depends on everybody that you talk to, whether they're on a Interchange-plus arrangement or they're on a bundled pricing arrangement and no one -- the merchants that are on a bundled pricing or is going to happen -- they're going to give back a little slower than the folks on Interchange-plus.

Glenn Fodor - Morgan Stanley

Is there anything you're going to be doing from a product or service standpoint that might change and be an opportunity for you, away from the price but product line?

James Lipham

I'm not really prepared to answer that today, Glenn. I don't mean to be evasive. I just don't have that answer right in front of me.

Glenn Fodor - Morgan Stanley

Okay, that's fine. And just one last one, if you don't mind. At the Analyst Day, you talked about long-term growth rates possibly reaching high-single, low double-digit levels. If you look around at your main regions or your business segments, can you just provide some color for us on the high points as to kind of what has to happen in each of those to get to those overall company high-single, low double-digit levels and maybe some color on what kind of growth rates you'd expect out of each of those?

James Lipham

Are you talking about each product line or each segment line?

Glenn Fodor - Morgan Stanley

To however you would prefer to do. Geographies, just remain couple or your business segments, however you prefer.

Philip Tomlinson

Yes. I think that if you start in the U.S., which is our biggest market, I do think that we are starting to see improvement. It's getting better. It's not off-the-chart by any means, but it is getting better. I do think that as a result of the recession that people who are processing in-house will, over time, take a hard look at what someone like us could provide. I think that will be helpful to us. I think that as the economy starts to improve our organic growth in particular will improve and people will begin to issue new cards, new card products. I think that will also carry over to the Commercial side of the house, which is a very strong product that we have here. And today, we process probably 80%, 85% of the Commercial cards in this country. I think we continue to make good progress in Canada. We've got 2 or 3 good bids up there right now that we feel, I won't say confident, but we're sort of liking the position we're in. This time next year, we'll be processing, we will have added Bank of Montréal. That's just a great organization. We're very excited about that. We are starting to sign, as I mentioned earlier, some merchant business in that part of the Merchant Acquiring Processing business in that part of the world. When you go to Europe, we have continued to make really good progress in Germany. You heard me talk about BNS in Germany, huge merchant acquirer. So really it would be, I guess, the largest number of merchants that we process for anybody. That is a really big jumpoff point for us. You know that since we signed Deutsche Bank now, we are up to 5 total banks in Germany. We think that will continue in that region. If you go into the U.K. region, I think we'll continue to see that's kind of on the same track as the U.S. We need for our 2 Irish banks to continue to improve. Jimmy talked a little bit about China and China UnionPay. There's not much I can say beyond what he just said there. It is a joint venture, and we'll continue to provide those numbers to you. Japan is a little troubling right now. When you talk about Japan, I think you just have to be realistic that they are still trying to recover from the issues that they have had. And I think that's just going to take some time, and we would not expect anything really big out of Japan on the near horizon. In Brazil, we're actually starting to see some prospects crop up. We need to go ahead and get this final piece of the Carrefour conversion done. We look forward to getting that done, as I said earlier, in the first quarter. On the merchant side of the house, we would like to add more girth to that business. We think, over time, we will add to that business. We're continuing to get more aggressive on the sales side of the Merchant Acquiring business. Again, it's a process for us, and now I think we're getting better at the process. When you talk about TAS, the acquiring side, we're not expecting tremendous growth there. We would like to see some growth, and we certainly are talking to lots of people about that. But the truth is this economy, and I know you guys are just as tired as I am of hearing about the economy, but we are very consumer-driven and as the economy improves, it is really rather magical to watch what happens as this organic growth takes off TSYS, it becomes very profitable. And so that is the one common theme throughout our Global business, is we need this economy to at least settle down to where people are not just worried about like what's going on in Washington today and why was the President and the Speaker on television last night. It just creates uncertainty and we would like to see that uncertainty get cleared up, as most everybody would. But I think our core businesses are healthy, they are throwing off good earnings. We've got a good prospect pipeline. It's just probably as good as we've ever had in history. People are actually starting to make decisions again. That's very good for us. I think we've got 14, 15 conversions lined up that will happen over the next few years. That's a lot of conversions that we're working on. We talked about 13 million accounts in the pipeline. That's positive. At some point, we will sign on a very large issuer, I would hope, and all of a sudden, the pipeline explodes to some degree. So there's just a lot going on. I think that we have a good chance of maybe winning some business with some of the merger and acquisition talks that you hear. You just read about it and hear in the banking world today. You're never totally confident of anything like it until it happens, but I do think that there's certainly possibilities there that could be what we call "bluebird," a client that just shows up with a big piece of business. That's always a nice thing to happen and that really didn't happen to us during the recession. We lost 3 really good clients during the recession as a result of the regulators coming in and taking them over and they went to other places. I don't know if that helps you.

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