Total System Services Inc., known as TSYS, plans to reduce expenses and employee headcount in anticipation of another difficult year. The Columbus, Ga.-based transaction processor believes it will see continued constriction in its business until the economy begins to recover and unemployment levels fall.
The loss of large clients, price compression, negative currency-exchange rates and the ailing economy contributed to a difficult fourth quarter and 2009 overall for TSYS. The same themes also likely will affect the processor this year, executives noted last week during a conference call with analysts.
“We believe until we see unemployment start to fall and people regaining jobs and feeling more secure and beginning to spend again, we expect some level of continued constriction,” TSYS Chairman and CEO Phil Tomlinson said during the conference call. “2010, if nothing else, is going to be a year of transition for TSYS, but we believe that the recession and unemployment will make some progress.”
TSYS still is feeling the effects of the “card market in general deleveraging,” or reducing its risk, says Darrin Peller, information technology and computer services analyst at Barclays Capital, the investment-banking division of England-based Barclays Bank PLC. “Issuers are trying to cut back on risk,” he says. “By nature of growth slowing down as issuers cut back, these guys will feel it because most of their revenue comes from processing credit card accounts on file.”
During the fourth quarter, TSYS tried to hold up the best that it could in the difficult market, but “2010 is going to be a tough year for these guys,” says Peller.
To reduce expenses, the processor has placed new hiring on hold indefinitely and plans to decrease its overall workforce by roughly 5% this year. TSYS already has reduced its workforce by 5%. Tomlinson did not state the number of employees employed at TSYS.
“When you add 2009 and 2010 together, we will reduce our headcount by about 10%,” said Tomlinson. “Headcount makes up 54% of our expense base.”
TSYS also has frozen bonuses, salaries and discretionary retirement-plan contributions “until we see some improvement in this economy,” he says.
Q4 Numbers
TSYS reported $60.2 million in net income for the quarter ended Dec. 31, a 9.2% decline from $66.3 million during the same period in 2008. TSYS reported a 0.5% increase in revenue, to $434.8 million from $432.7 million.
The company faces a “significant revenue hole” going into 2010 “unlike anything we have ever faced,” said Tomlinson, noting TSYS is starting the year with a $153 million reduction in revenues. He points to client losses, price concessions, negative currency-exchange rates and the overall economy as contributors to the company’s financial situation.
Furthermore, “as a result of this reregulation of this industry and the continued economic problems clients have, they continue to delay projects or they’ve stopped them altogether, and organic growth has been anemic at best,” Tomlinson said.
TSYS had 352.2 million accounts on file in December 2008, but the total dropped 2.2% a year later, to 344.8 million. Washington Mutual Inc., Nordstrom Inc., Charming Shoppes Inc. and Bank of America Corp. are among the processing clients TSYS lost. Overall, the company added 25.2 million accounts from internal growth and 28.1 million from new clients last year. It lost 34.1 million accounts from account purges and sales and 26.9 million others from deconversions.
Fourth quarter revenue for the North America segment declined 9.9%, to $247.3 million from $274.4 million a year earlier. The International Services segment’s revenue increased 24.7%, to $99.9 million from $80.1 million. The Merchant Services segment posted revenue of $87.6 million, a 12% increase from $78.2 million in the fourth quarter of 2008.
Total cardholder transactions decreased 4% during the quarter from the same period in 2008, and point-of-sale transactions reached 1.3 billion, according to TSYS. The processor did not provide exact figures for comparison.
Economic recovery will be slow, and it will continue to affect the card industry and the processor, Tomlinson believes.
TSYS expects to announce several new clients in 2010, Tomlinson noted.
The company last week announced it has signed a multiyear payment-services agreement with Caterpillar Financial Services Corp., the financial arm of Caterpillar Inc. Under the agreement, TSYS will process commercial credit accounts and provide its CounterPass Web-based virtual point-of-sale product to Caterpillar’s more than 900 dealer locations in the United States. TSYS did not release the terms of the agreement.
