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Total System (TSS) Beats on Q1 Earnings, Raises 2018 View

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Total System Services, Inc.’s first-quarter 2018 earnings per share of $1.13 surpassed the Zacks Consensus Estimate by 17% and grew 37.6% year over year. Better-than-expected results were driven by growth strong contribution from all its segments.

Net revenues of $935.5 million grew 12.3% year over year and beat the Zacks Consensus Estimate by 3.13%.

The company reported adjusted EBITDA of $330.9 million, up 15.2% from the year-ago quarter.

Total System Services, Inc. Price, Consensus and EPS Surprise

Strong Segment Results

Issuer Solutions

In the first quarter, net revenues for this segment increased 9.4% year over year to $423.6 million. Total transaction in this segment was 5.5 billion, up 13.8% year over year.

Operating income of $151 million was up 12.8% year over year. Operating margin of 35.6% increased 100 basis points (bps) from the year-ago quarter.

Merchant Solutions

Net revenues increased 21.8% to $317.4 million. Dollar sales volume for this segment grew 28% year over year to $37.3 billion.

Operating income advanced 20.5% to $110 million, whereas operating margin declined 30 basis points to 34.7%, from the prior-year quarter. The acquisition of Cayan during the quarter had an approximately 100-basis-point negative point impact on the merchant segment margin.

Net Spend

Net revenues increased 6.6% year over year to $210.5 million in the reported quarter. Gross dollar volume for this segment was $9.7 billion, up 0.9% from the prior-year quarter.

Operating income grew 1.4% to $49.4 million, whereas operating margin increased 50 basis points to 29.1%, from the year-ago quarter.

Financial Position

Total assets increased 19% from Dec 31, 2017 to $7.5 billion as of Mar 31, 2018. During the quarter, the company paid down $125 million of its debt consistent with the deleveraging plan and retired $200 million of its collateral loan.

Total shareholders’ equity climbed to $2.4 billion on Mar 31, 2018, from $2.2 billion, at the end of 2017.

Free cash flow totaled $165.7 million for the quarter ended Mar 31, 2018, down 35.4% from the Dec 31, 2017 levels.  

2018 Guidance

Drive by strong first-quarter results and favorable expectations for the remainder of the year, the company upped its 2018 guidance. The company now expects total revenues on a GAAP basis in the range of $3.9-$4.0 billion up from the earlier guidance of $3.85-$3.95 billion down 21%-19%. On a non-GAAP basis, net revenues are anticipated in the range of $3.7-$3.8 billion (versus $3.65-$3.75 billion earlier), reflecting year-over-year growth of 9-12%.

GAAP EPS will likely be in the $3.0-$3.10 band (versus $2.85-$2.95 earlier), down 5-12% from the prior-year quarter. Adjusted EPS, is expected between $4.25 and $4.35 (compared with $4.10-$4.20), reflecting an increase of about 26-29%.

The company expects free cash flow for 2018 between $770 million and $800 million.

Zacks Rank and Stocks to Consider

Total System carries a Zacks Rank #3 (Hold). Some better-ranked stocks in the same space are Mastercard Incorporated (MA - Free Report) , VeriFone Systems, Inc. (PAY - Free Report) and WEX Inc. (WEX - Free Report) . Each of these stocks carries a Zacks Rank #2 (Buy).  

Mastercard is expected to report first-quarter 2018 earnings results on May 2. The company has an Earnings ESP of +0.83% and a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

WEX Inc. is expected to report first-quarter 2018 earnings results on May 3. The company has an Earnings ESP of +1.61% and a Zacks Rank #2.

VeriFone Systems beat estimates in one and met the same in three of the four reported quarters with an average positive surprise of 0.58%.

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