Total System (TSS) Beats On Q2 Earnings As Revenues Rise

Total System Services, Inc.’s (NYSE:TSS) second-quarter 2016 operating earnings per share (EPS) of 69 cents beat the Zacks Consensus Estimate by 1.5% and improved 30.2% year over year. The company’s better-than-expected earnings were driven by strong performance by all four of its operating segments.

Total revenue of $1.09 billion, missed the Zacks Consensus Estimate of $1.15 billion but was up 74.4% year over year.

Behind the Headlines

On a geographical basis, quarterly total revenues jumped 3.5% year over year to $297.2 million in North America. Top-line growth in the region was backed by job gains in the U.S. and overall strength in consumer spending during the quarter.

International Services revenues were down 2.5% year over year to 81.8 million.

Revenues from Merchant Acquiring Services more than doubled to $261.5 million from $117.9 million in the year-ago quarter. This increase was backed by additional revenues from the TransFirst acquisition that was completed on Apr 1.

NetSpend revenues increased 14.8% to $162.6 million as the company surpassed 101,000 distributing locations and employers in the quarter. The company expects revenue growth in low double-digits on a full-year basis, with slightly expanding margins for 2016 versus 2015 for this segment.

Inter-segment posted revenues of $8.1 million, which deteriorated 4.4% year over year.

As of Jun 30, 2016, the total number of accounts on file was 742.1 million, down 2.1% year over year.

Total System reported a year-over-year increase of 80.7% in total expenses to $1.02 billion. The increase stemmed from an 82.1% rise in cost of services and a 74.5% increase in selling, general and administrative expenses.

Financial Update

Total assets soared 67% to $6.48 billion as of Jun 30, 2016 from $3.88 billion at year-end 2015. Total equity increased 7.6% to $1.99 billion as of Jun 30, 2016 from $1.85 billion at the end of 2015.

Cash from operations was $340.9 million, up from $285.3 million in the year-ago quarter. Free cash flow as of Jun 30, 2016, totaled $259.1 million, up from $188.7 million as of Jun 30, 2015. The company estimates free cash flow in the range of $510 million to $540 million for full-year 2016.

2016 Earnings Guidance

The company did not provide any guidance but said that its earlier provided guidance remains unchanged. It also cautioned that Brexit vote and its impact on the pound and euro on the dollar could negatively impact the company’s international results in the back half of the year.

As per the guidance provided earlier, management estimates 2016 total revenue before reimbursable items to increase 50– 53%, revenues to grow in the range of 22% to 24%, and adjusted EPS to grow in the range of 13% to 16%. This translates into total revenue before reimbursable items of $4,182–$4,264 million, revenues of $3,040–$3,102 million and adjusted EPS of $2.78–$2.85.

Zacks Rank & Other Performances

Currently, Total System carries a Zacks Rank #2 (Buy). Recently, Visa Inc. (NYSE:V) and American Express Co. (NYSE:AXP) reported results. The bottom line of both companies beat their Zacks Consensus Estimate. Another player Envestnet Inc. (NYSE:V) , also with a Zacks Rank #2, is expected to release second-quarter results on Aug 8.