Total System Services Inc. said a lot Wednesday without saying much.
The Columbus, Ga., transaction processor teased analysts during its first-quarter earnings call by mentioning a recent deal with a large retailer, which it did not name, and saying it is pursuing an acquisition.
Though Philip W. Tomlinson, TSYS' chairman and chief executive, would not provide any names during the call, one analyst speculated that TSYS has already closed a deal to take over card processing for Target Corp.'s card portfolio.
Gregory Smith, an analyst at Merrill Lynch & Co., said it is "widely believed" that TSYS is working with the Minneapolis retailer.
Mr. Tomlinson said his company has a huge backlog of card accounts in its conversion pipeline, including the new retailer.
"We have the largest new account pipeline, with well over 75 million accounts scheduled to convert between now and yearend," he said. "That's the largest pipeline in the history of this company."
He also said that the customer has not yet agreed to publicize the relationship. "We certainly have to honor that," Mr. Tomlinson said. However, he also told analysts that they "can probably take a pretty good guess" as to the company's name, "and you would be right."
Target is the No. 5 U.S. retailer, and Mr. Smith estimated that it has about 20 million to 25 million of the 75 million-plus accounts in the pipeline.
Mr. Smith had fewer guesses about what companies TSYS may be considering buying. "There are a lot of different areas" where an acquisition would be a welcome boost, he said.
Mr. Tomlinson said his company is "looking at two or three" potential acquisition targets, including one that is getting a "really hard" look. "That will be an international acquisition. That will either happen in the next 30 days, or it's not going to happen."
He also said he wants to expand in several areas, notably issuer processing, merchant processing, data analytics, and consulting. Though he would not describe any of the companies he is evaluating, Mr. Tomlinson said that one is well known; he told the analysts that if he identified its field, "you'd know who it was."
One unit that might benefit from an acquisition is the merchant acquiring one, which was named Vital Processing Services until Monday, when it was renamed TSYS Acquiring Solutions. Mr. Tomlinson said the new name would give the unit more brand recognition as it expands abroad.
Mr. Smith said the unit's performance was one of the reasons TSYS' first-quarter revenue fell short of his estimate of $346 million before reimbursables. However, the company has also been expanding other areas of its business, such as health care processing.
Still, the processor is facing a big revenue hit this year when it loses Bank of America Corp.'s processing business. The Charlotte company said in December that it would bring its consumer card processing in-house in October.
"This is still a company that, even if they weren't losing B of A, needs to do something," Mr. Smith said.
TSYS' first-quarter revenue before reimbursables rose 17.5% from a year earlier, to $329.6 million. Total revenue rose 17.8%, to $412.3 million. Net income rose 9.3%, to $50.4 million, or 26 cents a share.
Anthony R. Davis, an analyst with BankAtlantic Bancorp Inc.'s Ryan Beck & Co., said he thinks B of A's announcement was a wake-up call for TSYS. It "really shook this company to its foundation."
He would not speculate on specific companies that TSYS is working with or considering acquiring, but he agreed that health care is one area where it could benefit from an acquisition.
Last month TSYS got a firmer foothold in the health care market by signing a deal to process payments for a multi-purpose health care card that will be issued by Exante Financial Services. Some analysts said the card, which could combine health savings accounts with a line of credit, is the first of its kind.
TSYS' earnings per share missed Mr. Davis' estimate by a penny, he wrote in a report released Wednesday. TSYS' stock closed at $19.67, down 1.7%.
Mr. Tomlinson said that planning a strategy to recover from the pending B of A loss has become "a very fine juggling act," because TSYS must support those accounts until B of A takes them in-house.
He also said that TSYS is "gaining more traction in Japan," and that the company expects to "have some news there soon," though, again, he would not provide any details. "Contracts are sometimes more difficult to get signed than you would like."
