Total Systems Services, Inc. (TSS)

Q2 2010 Earnings Call

July 21, 2010 5:00 p.m. ET


Philip Tomlinson – Chairman of the Board and Chief Executive Officer

James Lipham – Senior Executive Vice President and Chief Financial Officer

Shawn Roberts – Director of Investor Relations


Bryan Keene – Credit Suisse

Adam Frisch – Morgan Stanley

Ramsey El-Assal – UBS

John Williams – Goldman Sachs

Brett Huff – Stephens, Inc.

Greg Smith – Duncan Williams

Glenn Greene – Oppenheimer & Co.

Paul Bartolai – PB Investment Research

Craig Maurer – Calyon Securities, Inc.



Good afternoon, ladies and gentlemen, and welcome to the TSYS Q2 2010 earnings conference call. At this time all participants have been placed in a listen only mode; we’ll open the floor for your questions and comments after the presentation. It is now my pleasure to turn the floor over to your host, Shawn Roberts. Sir, the floor is yours.

Sh a w n Roberts

Thank you, Anthony, and welcome everyone. In the call today our Chairman and CEO Phil Tomlinson will provide highlights on the Q2 events, and then turn it over to Jim Lipham, our CFO, who will review our Q2 financials. And after that we’re going to open it up for Q&A.

I’d like to 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, as set forth in TSYS’ reports filed with the SEC. At this time I’d like to introduce TSYS CEO, Phil Tomlinson.

Philip Tomlinson

Thank you, Shawn, and thank you to everybody on the phone for being with us toady. We’ve got a lot to cover and I’m happy to say that most of it, we feel, is positive and shows improvement.

I’d like to take a few minutes to talk a little bit more about our merchant acquiring joint venture with First of Omaha, and we call that FNMS – First National Merchant Services, which we closed on April 1 st of this year. Frankly, we consider this to be a really significant step towards TSYS becoming a real full-service payment solution provider. It broadens the entire scope of TSYS much beyond providing the core card processing services that we’ve become so well known for over the years. We can now create and package end-to-end payment solutions for users, acquirers and merchants. And I certainly understand that FNMS represents less than 10% of our revenues today, that’s before reimbursables. But it certainly does not represent business as usual. I’m sure we’ll look back at this transaction in a few years and think of it as a watershed event as it does get us closer to the merchant and ultimately the end customer.

Out of the 407,000 merchant locations served, 70,000 are owned by FNMS with the rest being processed by FNMS. They focus on creating solutions to reduce expenses and complexity of accepting electronic payments. It uses direct sales to focus on small businesses, national sales for the mid-market and national companies, and we also do business with third-party companies or referrals through banks, associations, VARs or value added resellers, ISO sales as well as backend core processing acquiring services.

FNMS has services that complement and enhance niche areas that TSYS has defined as targets of focus, particularly in this healthcare and prepaid market that we’re very excited about. The great thing is we’re now able to refer merchant leads and will ultimately create efficiencies and synergies between our TAS operation (Total Acquiring Solutions) and First National Merchant Services that are still somewhat in the discovery stage. As you know, we’ve only owned this quarter now, but we are delighted with what’s happened so far and with the team and their strong leadership group, and all the efforts that they’ve put forth in this first quarter of ownership.

Now I just wanted to direct a few comments on TSYS and other reporting segments and the current economic and regulatory environment. On a positive note I’m really happy to report that during the Q2 2010 versus the same quarter in 2009 that our same client transactions increased 4.9% and that the TAS point of sale transactions increased 8.5%. On a year-to-date basis same client revenue growth increased 3.6% and the same client account on file growth increased 8.1%, which we are very impressed with.

We also have some good news from the new business side of the house. During the Q2 we began processing for two very well-known retail brands in Canada – President’s Choice and Wal-Mart of Canada, and we have not put out press releases on those yet but I just wanted you to be the first to hear that. Those have been converted and they are customers today. Also we’ve signed a contract directly with Tesco Financial in the UK. We've been processing that business through Royal Bank of Scotland and Tesco decided to go out on their own, and we bid on it and we will continue to process that very, very good piece of business.

We continue to make good progress on the Carrefour conversion in Brazil. We still have several key milestones and decision points facing us over the next few days, and we’re working very diligently to meet Carrefour’s needs. We believe we’ll have this conversion completed pretty quickly. This success will give us the opportunity to add additional clients in the Brazilian market as we go forward, which is one of the world’s top five markets for cards.

Remember, you’ve heard us talk about clustering when we enter new markets, and that is as we add one customer it’s easier for us to add additional customers and we do a good job of selling into additional customers. As the latest example we now have signed our fifth client in Germany over about the last year and a half, and we’re very excited about that.

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