Total System Services Inc., which is expected to start deconverting Bank of America Corp.'s massive consumer credit card portfolio today, says it is not worried about the lost business.
The Columbus, Ga., processor reported strong earnings Wednesday and raised its guidance for this year and 2007, saying that several new contracts have offset the loss of B of A, once its largest customer.
Bank of America has not been TSYS' only major loss; a long-term processing contract with Sears, Roebuck and Co. ended in June, and JPMorgan Chase & Co. has said it plans to end its processing agreement with TSYS next year, but will license its software to handle the work in-house.
Those customer defections have been countered by a processing deal with Capital One Financial Corp. that began generating revenue for TSYS this quarter.
"You can see that we're making good progress on our plan to deal with the loss of a couple of very large customers," Philip W. Tomlinson, TSYS' chairman and chief executive, said during a conference call with analysts Wednesday. "We think it's impressive considering the challenges we faced and the losses and the size of those losses."
Net third-quarter income for TSYS, which is majority-owned by Synovus Financial Corp., rose 13%, to $54.3 million, from a year earlier. Revenue rose 4.7%, to $441.8 million.
One of the quarter's highlights was the Capital One conversion project. Mr. Tomlinson said that TSYS has already converted 46 million of the McLean, Va., company's card accounts, and expects to convert the last several million accounts early next year.
Bank of America decided to do its own processing shortly after buying MBNA Corp. in January. TSYS said in December that B of A generated $140.4 million of revenue in 2005, about 8.7% of its revenue overall. TSYS will retain the Charlotte banking company's commercial card portfolio.
Bank of America will pay TSYS $69 million this quarter to get out of the processing deal early and another $6 million in accelerated amortization costs related to the contract. Excluding that fee, TSYS predicts that its revenue will be flat, or grow by up to 2% next year; including the fee, it expects revenue to fall 3%-5%, and earnings to fall 7%-9%. Its earlier forecast called for a 14%-16% decline.
TSYS raised its earnings guidance for the current year. It now expects growth of 26% to 28% instead of the 21% to 23% it had projected. Revenue is expected to increase by 9%-11%.
Mr. Tomlinson highlighted a deal in Japan that it announced last month, to process transactions for a cobranded Visa debit card from Toyota Finance Corp. and Nikko Cordial Securities, one of Japan's largest brokerage companies. The card allows users to access accounts in both Japanese yen and U.S. dollars. Observers have long said that it is very difficult for U.S. processors to break into the Japanese market.
TSYS has a 51% stake in GP Network Corp., a Tokyo acquiring organization, but the Toyota-Nikko deal was its first processing contract.
"We think it's a real break in the Japanese market," Mr. Tomlinson said. "We've been in Japan a little over five years now and we have had no success in breaking the code, if you will, for the processing market. We now think we have done that."
Larry Berlin, an analyst for First Analysis Securities Corp. in Chicago, said that TSYS has "had good luck with contract signings" this year and "they're going to grow despite these revenue losses" from B of A and others.
