The loss of large clients, price compression, negative currency-exchange rates and the difficult economy contributed to a difficult fourth quarter and 2009 overall for Total System Services Inc., known as TSYS. The same themes also likely will affect the Columbus, Ga.-based transaction processor this year, executives noted yesterday during a conference call with analysts.
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.
“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.
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.
TSYS still is feeling the effects of the “card market in general deleveraging,” 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.”
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 last year.
Total cardholder transactions decreased 4% during the quarter from the same period last year, and point-of-sale transaction reached 1.3 billion, according to TSYS.
Economic recovery will be slow, and it will continue to affect the card industry and the processor, Tomlinson believes.
“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%.
“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 expects to announce several new clients in 2010, Tomlinson noted. The company today 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.
