Total System Services (TSS)

Q3 2011 Earnings Call

October 25, 2011 5:00 pm ET


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


Bryan Keane - Deutsche Bank AG, Research Division

Glenn Greene - Oppenheimer & Co. Inc., Research Division

Brett Huff - Stephens Inc., Research Division

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

Roman Leal - Goldman Sachs Group Inc., Research Division

Darrin D. Peller - Barclays Capital, Research Division

Glenn Fodor - Morgan Stanley, Research Division



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Good afternoon, my name is Casey, and I will be your conference operator today. At this time, I would like to welcome everyone to the TSYS Third Quarter 2011 Earnings Conference Call. [Operator Instructions] As a reminder, ladies and gentlemen, this conference is being recorded today, October 25, 2011. Thank you. I would like to introduce Mr. Shawn Roberts, Director of Investor Relations. Please go ahead, sir.

Shawn Roberts

Thank you, Casey, and welcome, everyone. On the call today, our Chairman and CEO, Phil Tomlinson, will provide highlights of the third quarter 2011 and then turn it over to Jim Lipham, our CFO, who's going to review the financials. After that, we'll open it up to question-and-answer.

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, Phil Tomlinson.

Philip W. Tomlinson

Thank you, Shawn, and good evening, everybody. We are certainly excited to report another quarter of positive results in really virtually every category.

I hope you've had a chance to read our release and the details that back it up. Total revenues grew 6.1% over the last year, and earnings per share were up 30.6% for the quarter.

Total cardholder transactions, which is a real measure of our health, increased 12.7% in the third quarter, which is the seventh consecutive quarter of growth and the fourth straight quarter with double-digit growth.

Our accounts on file ended at 392 million, and they were up 10%. And if you include prepaid accounts, the total was up 15.7%. Both very, very good numbers for TSYS. With these results and our outlook for the remainder of the year, we've raised our revenue net income EPS guidance for the full year.

Our operational improvements were certainly held by very resilient card market, increased number of transactions and account growth from our conversion, our sales and conversion pipeline. Improved operations, lower effective tax rates and our share repurchase saw our outlook for 2011 improve our net income to 11% to 12% range, and for EPS to the 14% to 15% range, an increase of $0.05 a share.

My confidence in the card market was certainly reinforced this quarter with our organic revenue growth year-to-date of 5% in our North America segment and 7.5% in our international segment. While not back to the levels we once saw, North America's organic growth is over 2x higher than it was where we -- well, when I say was, where we were a year ago at this time.

As an update on our conversion pipeline, we have about 12.5 million accounts scheduled to migrate over to our systems over the next 12 to 18 months that will net out. We've got a couple of things we're going to lose, nothing big, but I think it nets out to about 9 million accounts total.

As you -- I'm sure you probably have seen the 8-K we issued on October 6 regarding the renewal of the Capital One business, which we have talked about earlier. This renewal extends our relationship out until 2017. It calls for TSYS to continue providing processing services for the Cap One North American portfolio of consumer and small business credit card accounts. And it's no surprise to you, according to the 2011 Nielsen report, Cap One is the fourth largest card issuer in the U.S. both by volume and outstandings. We're certainly delighted to have this long-term contract renewal. We have an excellent relationship with Cap One, and they're obviously one of our largest clients.

Regarding any concerns relative to the pricing pressure, I can assure you that the renewal is in line with the range of price compression that we deal with in other large contract renewal. And we feel very good about where we're at with Cap One.

I'd like to move on to just some highlights in North America. In June, we converted the accounts of Simmons First National Bank in the Sony retail portfolio, which was acquired by Cap One. We also added the Citi consumer portfolio acquired by CIBC and converted Silverton Bank to our TPS, our Total Programming Solutions that we have talked about for the past year. Just some highlights.

And on the international side, we added debit card processing at the Bank of Ireland. This program is now fully underway, and the first debit cards will be in the market in late 2011. We are happy to note that we completed the conversions for Swisscard and the Italian group, Cedacri. And we have a few other conversions in Germany and the Netherlands scheduled for the remaining months of this year. But as you know, with the holiday season coming up, with the -- the time frame to get any more conversions plugged into 2011 is pretty short. A very, very few people would be interested in doing any kind of work like that after the Thanksgiving holidays.

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