Total System Services (TSS)

Q4 2010 Earnings Call

January 25, 2011 5:00 pm ET


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


Robert Dodd - Morgan Keegan & Company, Inc.

Greg Smith - Duncan-Williams, Inc.

Brett Huff - Stephens Inc.

David Scharf - JMP Securities LLC

Thomas McCrohan - Janney Montgomery Scott LLC

Bryan Keane - Crédit Suisse AG

Darrin Peller - Barclays Capital

Ramsey El-Assal - UBS

Paul Bartolai - Credit Suisse

Glenn Greene - Oppenheimer & Co. Inc.



Good afternoon. My name is Jeremy, and I will be your conference operator today. At this time, I would like to welcome everyone to the TSYS Fourth Quarter 2010 Earnings Conference Call. [Operator Instructions] I would now like to introduce Mr. Shawn Roberts, Director of Investor Relations. Please go ahead, sir.

Shawn Roberts

Thank you, Jeremy, and welcome, everyone. On the call today, our Chairman and CEO, Phil Tomlinson, will provide highlights on the fourth quarter and 2010 year-end events, and then turn it over to Jim Lipham, our CFO, who will review our financials as well as our 2011 guidance. After that, we'll open it up for 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 the TSYS's reports filed with the SEC. At this time, I'd like to introduce TSYS's CEO, Philip Tomlinson.

Philip Tomlinson

Thanks, Shawn, and good afternoon, everyone. We appreciate you being with us today. I hope your weather, wherever you're at, is better than it is here in Georgia. It's pretty rainy, and they're talking about snow in Atlanta tomorrow. I'd like to start off by saying that I really believe we ended a very challenging 2010 stronger than originally expected. We are seeing a gradual improvement in the economy, and frankly, I'm very proud of the way our team has performed during this very difficult last two and a half year period.

Our 2010 revenues remained strong despite a couple of client losses in the first quarter. We've continued to show we can manage our expense base during very difficult times. We announced several new wins in 2010. The new business we signed in Canada will increase our share of the market there to about 64% when we get Bank of Montréal converted. With our wins in Germany, we now consider this a home market. We've secured three new wins there, one of which is, as you know, our biggest win there is Deutsche Bank in that market. We've also signed deals with ICARD in the prepaid business. We've signed a deal with BNP Paribas, which is our first contract in France for their home cash card, used for money transfer. And we did renew the BAMS Merchant Processing agreement. We also launched a new processing system in the world's fourth largest card market, with a new client, Carrefour, in Brazil. They are really our anchor tenant there, and we believe that, that's going to serve us well going forward.

We entered into a joint venture with First National Bank of Omaha and the merchant acquiring business by buying a 51% stake back in the March-April timeframe. And then on January 4 of this year, we announced we purchased the remaining 45% in FNMS, which is the 10th largest merchant acquirer in the U.S., and we have we rebranded that to TSYS Merchant Solutions. We're very excited about that, and I think that's going to bode well for us, long term.

Lingering economic indicators like unemployment, home foreclosures, slipping consumer confidence index, continue to cast a shadow on this economy. And ultimately, the recovery has been slow, and yet our business model is showing signs of strength that we're very excited about. We've aligned our multiple business units that operate as P&L units into three business reporting segments, and I want to kind of go through those very quickly to let you know what we were thinking about.

The number one is North America. We want to continue to expand our outreach and really dive deeper into the community bank and credit union space, as we've talked about in several conversations earlier. And we want to focus more on large debit issuers, in addition to the traditional business that we've been working on for 30 years. Certainly, the challenges included in the North American segment would be the current regulatory environment and ongoing industry consolidation, but our prospect list continues to grow in North America. We're pretty excited about what it looks like.

The second segment is the international segment, and we will focus on margin improvement. We've got to push to achieve operational excellence in our newly launched outsourced platform. And we've got to increase our leverage on both the TS2 Prime and TS2 in our target markets. We continue to grow revenue in both our Processing and Licensed businesses, and both are doing well. Our challenges, internationally, are really focused on successfully executing 14 conversions this year and improving the economies of scale, which ultimately will improve our margins.

And then third, and certainly not least, but in the Merchant Services segment, we're focused on growing this business and expanding our distribution and capabilities through the TMS or TSYS Merchant Solutions, as well as our Processing business, what we call TAS, TSYS Acquiring Solutions. We'll continue investing in new technology to enhance new products and to expand into select merchant verticals. We will continue to build scale as a direct acquirer, with more focus on sales, and we hope to continue to have meaningful acquisitions in that area. It's an area that we want to continue to grow. Obviously, challenges sit around further consolidation, data security, and again, neverending regulation.

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