Total System Services, Inc. (TSS)

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Total System Services (TSS)

Q4 2011 Earnings Call

January 24, 2012 5:00 pm ET

Executives

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

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

Shawn Roberts - Director of Investor Relations

Analysts

David M. Scharf - JMP Securities LLC, Research Division

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

Bryan Keane - Deutsche Bank AG, Research Division

John Campbell - Stephens Inc., Research Division

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

Ashwin Shirvaikar - Citigroup Inc, Research Division

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

Roman Leal - Goldman Sachs Group Inc., Research Division

Robert J. Dodd - Morgan Keegan & Company, Inc., Research Division

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

David Togut - Evercore Partners Inc., Research Division

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

Darrin D. Peller - Barclays Capital, Research Division

Presentation

Operator

Good afternoon. My name is Michelle, and I will be your conference operator today. At this time, I would like to welcome everyone to the TSYS First Quarter 2012 Earnings Conference Call. [Operator Instructions] As a reminder, ladies and gentlemen, this conference call is being recorded today, January 24, 2012. I would now like to introduce Mr. Shawn Roberts, Director of Investor Relations. Please go ahead.

Shawn Roberts

Thank you, Michelle and welcome, everyone, to our fourth quarter year-end 2011 earnings call. On the call today, our Chairman and CEO, Phil Tomlinson, is going to provide some highlights on the fourth quarter of 2011, and then turn it over to Jim Lipham, our CFO, who's going to review our financials. And after that, we're going to open it up for Q&A.

As every quarter, I'd like to kind of talk a little bit about the Safe Harbor. The fact is we'll be making some 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, Phil Tomlinson.

Philip W. Tomlinson

Thanks, Shawn, and good evening, everybody, and happy New Year. We're delighted to be able to share our fourth quarter and year-end results with you today. And as I was thinking about the call this afternoon, I really was thinking back to last year about this time when I told a story about after a Sunday dinner, hold on your fork because something better is coming. I held on to my fork, and I hope you did too, because something better is here. And I'm really happy about these results that we've had for the quarter and for the year.

We met or exceeded the high end of our revised guidance, with total revenues up 7.3% for the quarter and 5.3% for the year. Our EPS was $0.31 for the fourth quarter, up 29.4% for the quarter and $1.15 for the full year, a little over a 14% increase.

Our holiday season was strong, and our issuance segment with overall transactions, up 13% both in the U.S. and the international side.

Point-of-sale transactions and our same-client merchant segment increased 6% in the fourth quarter, and that's excluding the BAMS transactions.

At a macro level, it appears to us that consumer spending on credit cards increased as the year progressed, delinquencies continue to fall. And electronic transactions, in general, continue to show growth, and we're obviously very excited about that.

I wanted to take just a few minutes to provide you with some metrics that we're very proud of, and I think they speak to the overall health of the company and long-term value to our shareholders.

When you look back at 2011, our total shareholder return was 29.2%. We increased our quarterly dividend by 42.8%. Our return on shareholder equity was 17.4%; return on invested capital of 21.4%; return on assets of 11.6%; free cash flow of $340 million. We repurchased 6.6 million shares at a cost of $120 million, and we spent $214 million in cash on acquisitions, which I think all of those numbers are really impressive.

Over the next 18 months, we have a net of approximately 26 million accounts in the pipeline to be converted. Much of it is under contract today, and we're optimistic about the rest. And the dates are more of a timing issue. As you know, you get into the fourth quarter and you get to the Thanksgiving time frame, and it's very hard to get anybody to move forward with the conversion through the holiday season.

I think all of this adds up to great results for TSYS and for the shareholders for 2011. And we believe this will continue to pay rewards into 2012 and beyond.

I want to give you a brief update on our 3 reporting segments before Jim reviews the financial details and our guidance for 2012. In North America, our momentum continued with a solid fourth quarter and full year. Accounts on file were up 10.3% over the fourth quarter of 2010. And if you include prepaid accounts, they were up 18.5%. Same-client transactions were up 13% for the quarter and 12% for the year, representing 9 consecutive quarters of positive growth.

Total transactions were up 13% from a year ago. It's the highest number of transactions we've seen since the 2007 peak. On a different note, I'm confident that many of you saw the Green Dot announcement today where they bought the assets of a non-operating payment processing company, a prepaid payment processing company. And as I understand it, their plan is to move their processing in-house over the next several years.

I think it's really important to note that they concurrently extended the TSYS contract through August of 2014. Green Dot's a great story and is a wonderful client. We'll continue to service them as they move forward with this strategy.

In 2011, our international segment had a good year as we expanded our geographic footprint. We entered Switzerland, Italy, Brazil, and overall, successfully implemented 14 different conversions. We continue to focus more resources to support the technology and services in these markets, which is positive for our current and certainly, for prospective clients.

In Brazil, we're happy to report that we're in the final phase of the Carrefour conversion, and that'll be completed in February, next month, which starts just a few days from now. We certainly believe that there are many additional opportunities in Brazil to grow our business. It's the world's fourth largest credit card market. We're excited about that. And we are still -- we are very focused on adding scale and managing expenses, streamlining operations and cross-selling additional products and services to Carrefour today and future clients.

Read the rest of this transcript for free on seekingalpha.com