Total System Services, Inc. (TSS)

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Total System Services (TSS)

Q3 2012 Earnings Call

October 23, 2012 5:00 pm ET


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


Roman Leal - Goldman Sachs Group Inc., Research Division

Ashish Sabadra - Deutsche Bank AG, Research Division

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

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

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

Ramsey El-Assal - Jefferies & Company, Inc., Research Division

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

Brett Huff - Stephens Inc., Research Division

David Togut - Evercore Partners Inc., Research Division

Kevin D. McVeigh - Macquarie Research



Good afternoon. My name is Catherine, and I will be your conference operator today. At this time, I would like to welcome everyone to the TSYS Third Quarter 2012 Earnings Conference Call. [Operator Instructions] After the speaker's prepared remarks, there will be a question-and-answer period. [Operator Instructions] As a reminder, ladies and gentlemen, this conference is being recorded today, October 23, 2012. Thank you. I would now like to introduce Mr. Shawn Roberts, Director of Investor Relations. Please go ahead, sir.

Shawn Roberts

Thank you, Catherine, and welcome, everyone. On the call today, our Chairman and CEO, Phil Tomlinson, will provide highlights on the third quarter of 2012. And then he's going to turn it over to Jim Lipham, our CFO, who's going to review our financials. After that, we'll open it up for the 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 SEC.

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

Philip W. Tomlinson

Thanks, Shawn, and good evening, everybody. We have a big crowd on the phone tonight. We appreciate that. We're certainly happy to report good results and an overall strong performance for the quarter. We had double-digit operating income growth of 12% over the third quarter of 2011. Our earnings per share was $0.32 for the quarter, an increase of 5.7% quarter-over-quarter. Total revenues were $484.1 million, up 1.8%, with this increase being somewhat tampered by a decrease of $7.6 million in reimbursable items.

For the quarter, we also saw good increases in transactions. Our same client transactions from our issuer processing business were up 10.1% over last year. Same client transactions in our North America segment were up 9.9% and 11.4% for International. Point-of-sale transactions in our indirect merchant processing business, excluding deconverted clients, was up 9.5%. As you know, during the quarter, we formed a joint venture with Central Payments, really, to strengthen our sales distribution channel in the direct merchant acquiring business. And as we've said, we'll continue to diversify more into the direct merchant acquiring business.

For the third quarter, our direct business represents 48% of our merchant business compared to 38% for the same time last year. Sales volume in the direct merchant business was up 20.5%. When you exclude the impact of the C Payment [ph] acquisition, sales volume in the direct merchant business was up 15.6% quarter-over-quarter for this quarter.

As you read every day and as we know, there's more innovation and different things happening within the payments industry than I've seen maybe in the past 30 years. It's a really busy time. We have active dialogue with many new entrants and nontraditional players. We have a number of initiatives underway, including making investments through private equity funds to helping young companies entering the payments space. We're also forming partnerships with companies we feel will add incremental value to our clients and the customers we serve. The latest example of that is a partnership we recently announced with Truaxis, which will integrate our client's cardholder spending patterns and behavior to deliver personalized rewards and offers. As you know, Truaxis was recently acquired by MasterCard, and we are really excited about our agreement with them.

I want to take just a few minutes and give you a brief update on some highlights from our 3 reporting segments. Let's go to North America first. The heavy lifting is really underway with the Bank of America conversion process that we expect to be complete in mid-2014. We continue to see success with our outreach to community banks and credit unions to offer end-to-end credit card management services, which we call TPS, and have signed agreements recently with Heritage Bank in Georgia and St. Mary's Credit Union in New Hampshire, which, by the way, is the oldest credit union in the U.S. So we have the largest credit union in the U.S., Navy Federal, and then we have the oldest credit union in the U.S. with St. Mary's Credit Union. We extended our contract with Redstone Federal Credit Union for 4 years and with Synovus and CB&T for 7 years. The Barclays and Regions consumer portfolios were successfully converted. We have approximately 100 million accounts in the conversion pipeline, which we expected to be converted by the end of 2014. We continue to see account on file growth. It was up 20.9% from the third quarter a year ago. Transactions for the quarter were up 9.5% for the year, the 10th quarter in a row of year-over-year quarterly growth.

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