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Total System's (TSS) Q4 Earnings Beat on Higher Revenues
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Total System Services, Inc.’s fourth-quarter 2016 operating earnings per share (EPS) of 69 cents (adjusting for share-based compensation) beat the Zacks Consensus Estimate of 65 cents. Also, it improved 30.2% year over year.
Better-than-expected results were mainly due to higher revenues, partially offset by higher expense. Except international services, net revenue increased in all other segments.
Net income attributable to the company’s common shareholders came in at $74 million or 40 cents per share, compared to $82.8 million or 45 cents per share in the prior-year quarter.
Total revenue of $1.13 billion came below the Zacks Consensus Estimate of $1.14 billion. However, the top line soared 57.9% year over year.
For full-year 2016, revenues surged 50% year over year to $4.17 billion. The Zacks Consensus Estimate was $4.18 billion.
Total System reported a year-over-year increase of 67.2% in total expenses to $1 billion. The rise was driven by higher cost of services as well as selling, general and administrative expenses.
Segments Results
North America Services
Net revenue inched up 1.4% year over year to $304.5 million. Total transaction for this segment was $4.48 billion in the reported quarter, up 5% year over year.
Operating income of $117.3 million for the segment climbed 12.6% year over year. Operating margin of 38.53% increased from 34.69% in the year-ago quarter.
International Services
For this segment, net revenue decreased 11.6% year over year to $77.1 million. The segment recorded total transaction of $742.1 million, reflecting a rise of 12.2% on a year-over-year basis.
Operating income plunged 28.9% year over year to $15.2 million. Operating margin declined to 19.74% from 24.54% in the prior-year quarter.
Merchant Services
Net revenue increased significantly year over year to $254 million. Point-of-sales transactions increased 4.2% to $1.12 billion. Dollar sales volume for this segment grew significantly year over year to $28.71 billion.
Operating income surged significantly year over year to $88.5 million. Operating margin improved to 34.86% from 27.06% in the year-ago quarter.
NetSpend
Net revenue increased 11.5% year over year to $160.6 million. Gross dollar volume for this segment was $6.58 billion in the quarter, up 15.6% year over year.
Operating income grew by 21.7% year over year to $34.8 million. Operating margin increased to 21.69% from 19.87% in the prior-year quarter.
Notably, the company mentioned that it has made changes in its segments, combining its North America and International segments into a new reporting segment – Issuer Solutions.
Financial Update
Total assets increased to $6.37 billion as of Dec 31, 2016 from $3.88 billion at year-end 2015. Total shareholder’s equity climbed to $2.10 billion as of Dec 31, 2016 from $1.84 billion at the end of 2015.
Net cash from operations was $717.9 million for 2016 as against $600.2 million in 2015. Free cash flow totaled $575.3 million as of Dec 31, 2016 compared with $396.9 million in the year-ago period.
2017 Guidance
Total System provided financial guidance for full-year 2017. Total revenue on a GAAP basis is expected in the range of $4.75 billion–$4.85 billion, reflecting an increase of 14–16%. On a non-GAAP basis, net revenue is anticipated in the range of $3.28 billion–$3.38 billion, reflecting a rise of 8–11%.
GAAP EPS is projected in the range of $2.14–$2.21, representing a rise of 23–28%. Adjusted EPS attributable to the company’s common shareholders is estimated in the range of $3.05–$3.15, reflecting an increase of about 9–12%.
Our Take
Total System’s results reflect a decent performance. This Columbus, GA–based company continues to benefit from its long-term processing contracts, as it focuses on retaining and acquiring clients. Further, it should benefit from the TransFirst acquisition which was completed in Apr 2016. However, impact of the CFPB’s new rules on prepaid released in Oct 2016, remains a key concern. Among others, stiff competition and huge cash outlays on acquisition keep us cautious.
Total System Services, Inc. Price, Consensus and EPS Surprise
Among other firms in the finance space, Ally Financial Inc. (ALLY - Free Report) and Credit Acceptance Corp. (CACC - Free Report) are slated to release results on Jan 31, while Regional Management Corp. (RM - Free Report) is scheduled to release on Feb 7.
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Total System's (TSS) Q4 Earnings Beat on Higher Revenues
Total System Services, Inc.’s fourth-quarter 2016 operating earnings per share (EPS) of 69 cents (adjusting for share-based compensation) beat the Zacks Consensus Estimate of 65 cents. Also, it improved 30.2% year over year.
Better-than-expected results were mainly due to higher revenues, partially offset by higher expense. Except international services, net revenue increased in all other segments.
Net income attributable to the company’s common shareholders came in at $74 million or 40 cents per share, compared to $82.8 million or 45 cents per share in the prior-year quarter.
Total revenue of $1.13 billion came below the Zacks Consensus Estimate of $1.14 billion. However, the top line soared 57.9% year over year.
For full-year 2016, revenues surged 50% year over year to $4.17 billion. The Zacks Consensus Estimate was $4.18 billion.
Total System reported a year-over-year increase of 67.2% in total expenses to $1 billion. The rise was driven by higher cost of services as well as selling, general and administrative expenses.
Segments Results
North America Services
Net revenue inched up 1.4% year over year to $304.5 million. Total transaction for this segment was $4.48 billion in the reported quarter, up 5% year over year.
Operating income of $117.3 million for the segment climbed 12.6% year over year. Operating margin of 38.53% increased from 34.69% in the year-ago quarter.
International Services
For this segment, net revenue decreased 11.6% year over year to $77.1 million. The segment recorded total transaction of $742.1 million, reflecting a rise of 12.2% on a year-over-year basis.
Operating income plunged 28.9% year over year to $15.2 million. Operating margin declined to 19.74% from 24.54% in the prior-year quarter.
Merchant Services
Net revenue increased significantly year over year to $254 million. Point-of-sales transactions increased 4.2% to $1.12 billion. Dollar sales volume for this segment grew significantly year over year to $28.71 billion.
Operating income surged significantly year over year to $88.5 million. Operating margin improved to 34.86% from 27.06% in the year-ago quarter.
NetSpend
Net revenue increased 11.5% year over year to $160.6 million. Gross dollar volume for this segment was $6.58 billion in the quarter, up 15.6% year over year.
Operating income grew by 21.7% year over year to $34.8 million. Operating margin increased to 21.69% from 19.87% in the prior-year quarter.
Notably, the company mentioned that it has made changes in its segments, combining its North America and International segments into a new reporting segment – Issuer Solutions.
Financial Update
Total assets increased to $6.37 billion as of Dec 31, 2016 from $3.88 billion at year-end 2015. Total shareholder’s equity climbed to $2.10 billion as of Dec 31, 2016 from $1.84 billion at the end of 2015.
Net cash from operations was $717.9 million for 2016 as against $600.2 million in 2015. Free cash flow totaled $575.3 million as of Dec 31, 2016 compared with $396.9 million in the year-ago period.
2017 Guidance
Total System provided financial guidance for full-year 2017. Total revenue on a GAAP basis is expected in the range of $4.75 billion–$4.85 billion, reflecting an increase of 14–16%. On a non-GAAP basis, net revenue is anticipated in the range of $3.28 billion–$3.38 billion, reflecting a rise of 8–11%.
GAAP EPS is projected in the range of $2.14–$2.21, representing a rise of 23–28%. Adjusted EPS attributable to the company’s common shareholders is estimated in the range of $3.05–$3.15, reflecting an increase of about 9–12%.
Our Take
Total System’s results reflect a decent performance. This Columbus, GA–based company continues to benefit from its long-term processing contracts, as it focuses on retaining and acquiring clients. Further, it should benefit from the TransFirst acquisition which was completed in Apr 2016. However, impact of the CFPB’s new rules on prepaid released in Oct 2016, remains a key concern. Among others, stiff competition and huge cash outlays on acquisition keep us cautious.
Total System Services, Inc. Price, Consensus and EPS Surprise
Total System Services, Inc. Price, Consensus and EPS Surprise | Total System Services, Inc. Quote
Total System currently carries a Zacks Rank #4 (Sell). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Among other firms in the finance space, Ally Financial Inc. (ALLY - Free Report) and Credit Acceptance Corp. (CACC - Free Report) are slated to release results on Jan 31, while Regional Management Corp. (RM - Free Report) is scheduled to release on Feb 7.
Zacks' Top Investment Ideas for Long-Term Profit
How would you like to see our best recommendations to help you find today’s most promising long-term stocks? Starting now, you can look inside our portfolios featuring stocks under $10, income stocks, value investments and more. These picks, which have double and triple-digit profit potential, are rarely available to the public. But you can see them now. Click here >>