U.S. Markets close in 3 hrs 7 mins

Edited Transcript of TSS earnings conference call or presentation 23-Apr-19 9:00pm GMT

Q1 2019 Total System Services Inc Earnings Call

COLUMBUS Apr 25, 2019 (Thomson StreetEvents) -- Edited Transcript of Total System Services Inc earnings conference call or presentation Tuesday, April 23, 2019 at 9:00:00pm GMT

TEXT version of Transcript

================================================================================

Corporate Participants

================================================================================

* Kelley C. Knutson

Total System Services, Inc. - Senior EVP & President of Netspend

* M. Troy Woods

Total System Services, Inc. - Chairman, President & CEO

* Paul Michael Todd

Total System Services, Inc. - Senior EVP & CFO

* Shawn Roberts

Total System Services, Inc. - VP of IR

================================================================================

Conference Call Participants

================================================================================

* Ashwin Vassant Shirvaikar

Citigroup Inc, Research Division - Director and U.S. Computer and Business Services Analyst

* Brett Richard Huff

Stephens Inc., Research Division - MD

* Daniel Rock Perlin

RBC Capital Markets, LLC, Research Division - Analyst

* Darrin David Peller

Wolfe Research, LLC - MD & Senior Analyst

* David John Koning

Robert W. Baird & Co. Incorporated, Research Division - Associate Director of Research and Senior Research Analyst

* Georgios Mihalos

Cowen and Company, LLC, Research Division - MD & Senior Research Analyst

* James Edward Schneider

Goldman Sachs Group Inc., Research Division - VP

* James Eric Friedman

Susquehanna Financial Group, LLLP, Research Division - Senior Analyst

* Jeffrey Brian Cantwell

Guggenheim Securities, LLC, Research Division - VP and Analyst

* Michael Browning Del Grosso

Jefferies LLC, Research Division - Equity Associate

* Ramsey Clark El-Assal

Barclays Bank PLC, Research Division - Research Analyst

* Timothy Wayne Willi

Wells Fargo Securities, LLC, Research Division - MD & Senior Analyst

* Wai Ming Kwok

Keefe, Bruyette, & Woods, Inc., Research Division - VP

================================================================================

Presentation

--------------------------------------------------------------------------------

Operator [1]

--------------------------------------------------------------------------------

Good afternoon, and welcome to the TSYS 2019 First Quarter Earnings Release and Conference Call. (Operator Instructions) Please note, this event is being recorded.

I would now like to turn the conference over to Shawn Roberts, Vice President, Investor Relations. Please go ahead.

--------------------------------------------------------------------------------

Shawn Roberts, Total System Services, Inc. - VP of IR [2]

--------------------------------------------------------------------------------

Thank you, Gary, and welcome, everyone. We will begin this evening's call with opening comments by TSYS' Chairman, President and CEO, Troy Woods; followed by TSYS' CFO, Paul Todd, reviewing the first quarter 2019 highlights and consolidated financials. Troy and Paul will be referencing a slide presentation during their prepared remarks. A copy of this slide presentation as well as our earnings release and supplemental schedules are available on our website at investors.tsys.com. After the prepared remarks, we'll open the call up for Q&A. (Operator Instructions)

I'll now call your attention to the fact that we'll be making forward-looking statements about the future operating results of TSYS. These forward-looking statements involve risks and uncertainties. Factors that could cause TSYS' actual results to differ materially from the forward-looking statements are set forth in TSYS' reports filed with the SEC, including its 2018 annual report on Form 10-K. We will also discuss items that do not conform to GAAP. We reconcile those measures to GAAP measures in the appendix of the slide presentation and in the supplemental schedules to the press release.

At this point, I'll turn the call over to Troy Woods.

--------------------------------------------------------------------------------

M. Troy Woods, Total System Services, Inc. - Chairman, President & CEO [3]

--------------------------------------------------------------------------------

Thank you, Shawn. Good evening, and welcome to our first quarter earnings call. Overall, we were very pleased with our results for the first quarter as we continue our focus on executing our business strategy during 2019 and beyond.

During the quarter, we achieved a number of significant strategic wins with new customer signings, extensions and renewals, new and expanded partnerships and continued our product rollouts, all while expanding our margins in all 3 segments. Some of the highlights for the first quarter include: net revenue up 4.8%; adjusted EBITDA increased 8%; adjusted diluted earnings per share increased 5.8%; and our consolidated adjusted EBITDA margin expanded 108 basis points.

I want to congratulate and thank all of our team members for their commitment and focus and for producing these first quarter results. During the quarter, TSYS was recognized and honored by several organizations that I would like to highlight before I move into the specific results for each segment. For the third year in a row, Forbes has named TSYS to its list of America's Best Employers, a recognition that is due in part to our strong people-centered and performance-driven culture. PaymentsSource recently named Theresa Gongora, Senior Vice President of Finance for our Merchant segment, one of the most influential women in payments. And Sanders Griffith, our Senior Executive Vice President, General Counsel and Secretary, has been honored by the Atlanta Business Chronicle and the Association of Corporate Counsel with their prestigious Lifetime Achievement award. These honors and recognitions are a true testament to the caliber of talent in our organization and the dedication, hard work and loyalty of our team members around the world. Our congratulations go out to Theresa and Sanders.

Now I'd like to provide a few comments on each of our business segments. In our Issuer Solutions Segment, we continued the momentum from 2018 with a solid first quarter as we set another record for traditional accounts on file at $628 million, an increase of 8.6%.

The 2 highlights of the quarter were seeing some of the new business we have been talking about come to fruition. I am very pleased to announce that we have reached a long-term agreement with SunTrust Bank to expand our relationship. We are very excited to deepen this great partnership, which will allow SunTrust to leverage our innovative payment solutions as part of their future growth opportunities.

We continue to gain momentum in Brazil, with the signing of an agreement with ModalMais, the online broker of DTCM and Banco Modal, one of the largest asset managers in Brazil. This is our second customer in Brazil and a very important strategic win for the team there.

We also recently executed a new agreement with Capital One to provide call center support and signed a new agreement with Citibank to perform statement production to some of their portfolios that we do not currently process. This new piece of business for Citibank will run out of our new Output Services facility in Ohio, evidence of our recent operational investments. Both Citibank and Capital One have been terrific, long-term customers of TSYS, and we are thrilled to continue to build our relationships with them.

We continue to see success within our healthcare vertical as well. This quarter, we successfully boarded almost 2 million wellness incentive accounts that serve Medicaid and Medicare members. This new business is being processed using our patent pending Advanced Auth Control solution that we have discussed on previous calls.

On the renewal front, we signed contract extensions with Empire Innovation Group, now known as OneBridge Benefits; Vancouver City Savings Bank; and Synovus. Our expanded agreement with Synovus adds both the TSYS Customer Service platform and the TSYS Digital Engagement Platform to the products they are currently using. Adding all of these new customers as well as these new products and services to our existing customers reaffirms our commitment to delivering on our vision of being the best-in-class issuing processor.

Our new product delivery efforts continue to pay dividends with heightened customer engagement and continued strong demand for our solutions. For several quarters, we have discussed the investments we are making in our issuer business. We are currently in the final stages of planning and staging our multiyear modernization program. A big part of this process is moving customers from our legacy TS1 platform to TS2 as well as other newly delivered platforms and transitioning legacy products and services to new cloud-ready platforms and from mainframe to distributed tech stacks.

We continue to have conviction around the delivery of products and services, which integrate with and amplify the value of our connected ecosystem and remain focused on continuous investment to expand that suite. All in all, our Issuer Solutions Segment finished strong this quarter with great wins in existing business, product delivery and new business that will continue to expand our global footprint.

Now let's look at our Merchant Solutions segment. We delivered strong organic growth from both the top and bottom line and expanded margins in the first quarter. Net revenue was $343 million and adjusted segment EBITDA was $128.8 million, which represent annual growth rate increases of 8.1% and 8.3%, respectively.

During last quarter's call, we mentioned the prospect of a new partnership with a very large well-known brand. We were very excited to announce our relationship with T-Mobile, one of the nation's largest mobile providers, serving over 75 million customers and boasting more than $40 billion in revenue. Through this partnership, T-Mobile will sell a white label version of our Vital POS software on their handsets and tablets, all branded as GoPoint. The combination of T-Mobile's scale and reach, combined with our innovative platform is a game changer for expanding Vital's addressable market. Selecting TSYS as a trusted partner is a stamp of approval on our ability to execute on our industry reputation.

Another major stamp of approval for our Vital solution was winning the 2019 Fintech Breakthrough award in the Best Small Business Payments Solutions category. Fintech Breakthrough is an independent organization that recognizes top companies, technologies and products in the global fintech market. There were over 3,500 nominations this year, so winning this category is a major accomplishment and establishes us as a formidable player in this competitive space. We have already deployed thousands of Vital POS devices since our launch just a little over 3 months ago, showing strong out-of-the-gate momentum and demonstrating that we are well positioned for success in the small business market with a compelling value proposition for merchants and partners.

On the customer front, we had a strong quarter for wins and renewals. We signed 11 new clients in our partner channel and extended agreements with 9, including a long-term renewal with BB&T, one of our most tenured and respected FI partners. The BB&T renewal also includes a commitment to extend our relationship through a broader set of products and solutions. Likewise, our integrated channel renewed several major integrated partners and signed 39 new relationships during the quarter.

As I mentioned last quarter, we are underway with several platform consolidation and enhancement efforts. This includes accelerating the capabilities of our Genius platform to make it the market-leading solution for the healthcare vertical by the end of this year. We also just announced that Genius is now EBT and SNAP-enabled, which positions us to expand into the convenience store and grocery verticals.

We are committed to continuing our investment in our platforms to deliver frictionless experience for our merchants and partners. As our first quarter story demonstrates, we are confident in our Merchant segment's ability to drive sustainable solid growth while maintaining a commitment to invest in product and technology innovation.

And finally, let's turn our attention to our Consumer Solutions segment. Early in the quarter, we celebrated the 20th anniversary of NetSpend and we continue to be bullish about the future of the prepaid industry. Specific to our business, we continue to be very positive about our DDA product performance, new business pipeline and product expansion. Our efforts in these areas will enable us to broaden beyond our core underbanked and underserved customer base and to diversify our value propositions to meet the needs of new customer segments.

From a financial results perspective, net revenue for the first quarter grew 4.1% year-over-year to a record $219 million, and gross dollar volume exceeded $10 billion for the first time. Seasonality, and in particular the impact of tax season in the first quarter, is always an important topic for our Consumer Solutions segment. According to the IRS, during the first calendar quarter of 2019, the number, total dollar amount and average size of federal tax refunds declined by 1% to 3%. Consistent with the statistics published by the IRS, we saw fewer tax refunds in first quarter 2019 compared to first quarter 2018, both in terms of number of refunds and total refunds loaded onto our various products. The size of the average refund per card did increase slightly but not enough to offset the decline in the total number and value of overall refunds. In short, this means that our first quarter 2019 tax season was slightly softer than anticipated. However, our Consumer Solutions segment did expand the first quarter margin by 356 basis points over the same period last year.

In terms of our DDA upgrades and new sales activities, we now have over 600,000 active DDA cards exiting the first quarter, with over 70% of those customers on direct deposit. Our current DDA proposition is performing well, and we will continue to evolve our DDA product set even further during 2019 across our multiple channels, partners and brands.

During the first quarter, we finalized significant partner renewals with an impressive array of high-profile brands, including Brink's, Western Union, Cumberland Farms and Circle K. We intend to continue developing deeper and broader relationships with these partners as our product set expands to support their key customer segments and overall business strategies.

As an example, our partnership with Brink's has steadily evolved over the years, beginning with a PayCard referral partnership in 2013, expanding to a direct-to-consumer approach in 2014 and then renewing and expanding our PayCard referral relationships in 2017.

As you know, April 1 represented the end of an important chapter in the evolution of the prepaid industry, with the CFPB prepaid rules going into effect. Getting to this point has been a challenging journey for the entire industry, but it is an important step, which enables our Consumer Solutions business to differentiate itself from new competitive threats as well as from some existing players with less diversified value propositions.

We will continue to support robust and smart regulation of our industry that promotes financial inclusion and empowerment for consumers and businesses, including those without access to traditional Financial Services. We also remain committed to developing innovative and safe financial solutions and products that give consumers the choice and control they need to manage their financial lives.

In summary, I believe these solid results for the first quarter underscore the financial health of our business, our continued commitment to our customers and the strength of our strategic plans.

Now let me turn to Paul to provide detailed first quarter financial information. Paul?

--------------------------------------------------------------------------------

Paul Michael Todd, Total System Services, Inc. - Senior EVP & CFO [4]

--------------------------------------------------------------------------------

Thank you, Troy. And I want to reiterate how pleased we are with our first quarter performance. I will first cover our consolidated performance starting on Slide 6. First quarter GAAP total revenues were $1.03 billion and non-GAAP net revenue was $980.3 million, both up 4.8% from the first quarter of last year on a reported basis and both up 5.6% on a constant currency basis. GAAP diluted EPS was $0.90 for the quarter, up 16.1% from 1Q of 2018. Non-GAAP quarterly adjusted diluted EPS was $1.20, up 5.8% from 1Q last year.

I mentioned on our last call that our discrete tax benefits in Q1 2019 would be lower than comparable discrete tax items in Q1 2018. Normalizing for this difference, first quarter adjusted diluted EPS would have been up approximately 9% for the quarter. First quarter non-GAAP adjusted EBITDA increased 8% to $357.3 million, and our adjusted EBITDA margin of 36.4% was up approximately 108 basis points from the first quarter of last year.

On the capital side, free cash flow was $147.2 million for the quarter. And we also completed our previously announced accelerated share repurchase activity during the quarter, repurchasing approximately 4.3 million shares for $400 million at roughly $92.68 per share.

Now I will cover our Issuer Solutions segment performance, starting on Slide 8. First, on revenue. The Issuer Solutions segment grew net revenue 2.3% on a reported basis and 4.2% on a constant currency basis. As I mentioned on our call this time last year, we had some nonrecurring revenue in the first quarter of last year that would be a comparator challenge for this year. Excluding the approximately $7 million nonrecurring item in 1Q of last year, our constant currency net revenue growth for this quarter would have been 6%. For the year, we continue to expect this segment to grow net revenue in the 5% to 7% constant currency range.

Next, on margin. Quarterly adjusted segment EBITDA margin of 47.3% is up 106 basis points from 1Q of last year. I commented on our last call that we expected our issuing segment to return to margin expansion in 2019, and the first quarter is evidence of that expansion. This was an important quarter from an issuing perspective as we experienced good fundamental revenue growth while expanding the margin and announcing some important wins from the pipeline.

Now onto Slide 9 and our Merchant Solutions segment. First, on growth. Net revenue grew 8.1% for the quarter, which was right in line with our expectations for the quarter. And we continue to expect our net revenue to grow in the 8% to 10% range for the year. Our integrated channel continued to grow in the double-digit range for the quarter, and we are pleased with the growth we continue to see from our ISV and Cayan partners. For the segment, we did have some anticipated headwinds on the indirect side with the effect of the renewals of 3 of our top 10 indirect customers that have occurred over the last year as well as some softness in our national portfolio.

On margin, our adjusted segment EBITDA margin was 37.6% for the quarter, up 10 basis points from 1Q of last year as we continue to balance growth in the business with investments for the future. We are pleased with the progress we made in Merchant for the quarter, with our revenue growth, our margin expansion, the renewal activity, highlighted with the BB&T renewal among others, and the progress on the product front with the Vital launch and the T-Mobile partnership.

Now onto the Consumer Solutions segment on Slide 10. First, on growth. As Troy mentioned, we had a somewhat softer tax season during the first quarter than expected and saw fewer tax refunds in 2019 compared to 2018. Because of this, first quarter growth in the Consumer Solutions segment slowed to 4.1%. We were pleased to set a new record for net revenue at $219.2 million for the first quarter and continue to expect this segment to grow net revenue in the 3% to 5% range on a full-year basis.

Next on margin. Consumer Solutions had a record quarter for adjusted segment EBITDA of $63.7 million. The adjusted segment EBITDA margin of 29.1% was up 356 basis points from 1Q of last year. We exited the first quarter of 2019 with over 5.2 million debit active cards with over half of them on direct deposit, and gross dollar volume for the quarter exceeded $10 billion for the first time. This was an important quarter for us in Consumer Solutions as we completed our implementation efforts of the CFPB rules, continued the rollout of our DDA program and completed some important renewals while significantly expanding the margin of the business.

Finally, at the consolidated level on Slide 12, I want to reaffirm the guidance that we gave on our last call. We also continue to expect to expand our consolidated adjusted EBITDA margin in the 25 to 75 basis points range for the year and expect our effective tax rate to decrease slightly to the 20% to 22% range for the year.

I now want to wrap up with 3 callouts related to this quarter's performance. The first is on growth and particularly, the strategic expansion we had across our businesses during the quarter. While we were successful in the quarter of continuing the string of organic revenue growth in each of our segments, I specifically want to call out the strategic importance of the wins we announced across our platform. First, in issuing. We were pleased to be able to announce several of the new wins that had been in our pipeline and that we have been discussing over the last few quarters. We have also been talking for some time about investing in the segment, and the announcement of the Citi Output Services win was an example of new business that was made possible by the additional investments we had made in our new Output Services facility that opened last year. Finally, we continue to see success on the product front in this segment during the quarter as our investments in our product areas began to gain more traction.

Next, moving to Merchant. We have equally compelling strategic announcements during the quarter, with the Vital launch in January and the announcement and launch of the T-Mobile GoPoint partnership. These 2 product-driven rollouts are further examples that while we are focused on growing our Merchant segment organically, we are equally focused on positioning the business strategically in the SMB marketplace for the future.

And finally, on the consumer side, we had a strategically significant quarter with the final stages of the CFPB implementation, the continued successful rollout of our DDA program and the important distribution renewals at Brink's and Western Union.

We spent considerable time last year discussing the investments we were making in all 3 segments that would better position us in the payments ecosystem and provide for growth over the longer term. The strategic announcements we have made this quarter across all 3 of our segments show that the results from those investments are paying off and that the offerings across our segments are winning in the payments marketplace.

The next callout is on our margin. While we are focused on growth and strategic positioning, we have always maintained our focus on our margin. This quarter was another example of that focus, with consolidated adjusted EBITDA margin expansion of approximately 108 basis points from 1Q of last year.

As we move through the year, we will continue to invest in our businesses where that investment adds to our strategic positioning and provides for future growth. As a result, we continue to expect consolidated adjusted EBITDA margin expansion in the 25 to 75 basis point range for the year.

And the final callout is on capital. With our successful deleveraging last year from the Cayan acquisition, we were pleased to pivot this quarter to a more share repurchase focus with the completion of our previously announced $400 million accelerated share repurchase during the quarter. Our strong free cash flow allows us continued flexibility on the capital front as we look to potential future repurchase activity, accretive acquisitions and deleveraging consistent with our prior track records while remaining committed to our investment-grade rating.

In all, the first quarter was a good start for 2019 as we continue to deliver successful execution of our strategic plans. We thank each of the team members at TSYS whose tireless efforts again allowed us to deliver these first quarter results.

And with that, we will open it up to questions.

================================================================================

Questions and Answers

--------------------------------------------------------------------------------

Operator [1]

--------------------------------------------------------------------------------

(Operator Instructions) Our first question comes from George Mihalos with Cowen.

--------------------------------------------------------------------------------

Georgios Mihalos, Cowen and Company, LLC, Research Division - MD & Senior Research Analyst [2]

--------------------------------------------------------------------------------

A couple of things. I guess starting on the issuer side, one, maybe just a point of clarification, Paul. The expectation to still post 5% to 7% revenue growth in the segment, is that adjusting for sort of the onetime items from a year ago, like the 100 basis points in the first quarter?

And then as we think about the portfolio and the wins over there, you called out SunTrust. Do you think there are additional opportunities given that SunTrust win with the merger that's going on between themselves and BB&T Bank?

--------------------------------------------------------------------------------

Paul Michael Todd, Total System Services, Inc. - Senior EVP & CFO [3]

--------------------------------------------------------------------------------

So I'll take the first part, George, and then Troy can take the second part. No, the 5% to 7% is all in. There is no kind of adjustment for kind of onetime today or so. That's an all-in number that's reflective of everything inclusive there.

--------------------------------------------------------------------------------

M. Troy Woods, Total System Services, Inc. - Chairman, President & CEO [4]

--------------------------------------------------------------------------------

And George, as it relates to your question on portfolio wins and SunTrust, clearly, this announcement that we made today is strictly around SunTrust. As you probably know, we already do the merchant processing for BB&T. And so I think that's just the best place to leave it today.

--------------------------------------------------------------------------------

Georgios Mihalos, Cowen and Company, LLC, Research Division - MD & Senior Research Analyst [5]

--------------------------------------------------------------------------------

Okay. And just a quick follow-up. As we look at the consumer segment, is there a way to sort of parse out the first quarter results, maybe the refunds coming in lower than expected on a volume basis, relative to maybe a little bit of a pushout into 2Q based on the timing of some of these refunds?

--------------------------------------------------------------------------------

Paul Michael Todd, Total System Services, Inc. - Senior EVP & CFO [6]

--------------------------------------------------------------------------------

No, George, it really isn't that kind of parsing that we provide. So while there may be some effect of quarterly move, I think there's some effect here that's permanent in nature, just from an overall volume standpoint. So there isn't anything else we can provide there. I think I just would kind of reiterate though that we are staying within our 3% to 5% revenue growth range for the year that's inclusive of this effect.

--------------------------------------------------------------------------------

Operator [7]

--------------------------------------------------------------------------------

Next question comes from Dave Koning with Baird.

--------------------------------------------------------------------------------

David John Koning, Robert W. Baird & Co. Incorporated, Research Division - Associate Director of Research and Senior Research Analyst [8]

--------------------------------------------------------------------------------

I guess my first question, just the cadence of revenue in issuer and then the EBITDA margins, just those 2 things within issuer. Is issuer going to kind of be at the higher end the rest of year pretty sustainably, at like 7% the rest of the year to kind of get to that 5% to 7%? Or there's going to be a little bit of bumpiness along the way? I guess that's my first question.

--------------------------------------------------------------------------------

Paul Michael Todd, Total System Services, Inc. - Senior EVP & CFO [9]

--------------------------------------------------------------------------------

Yes. So Dave, there wouldn't really be too much I would say there on the cadence. It's in a more normalized band, so I wouldn't call it too bumpy. But obviously, it's going to be at a higher level for the out quarters than it is for the first quarter to be in that 5% to 7% range for the year.

--------------------------------------------------------------------------------

David John Koning, Robert W. Baird & Co. Incorporated, Research Division - Associate Director of Research and Senior Research Analyst [10]

--------------------------------------------------------------------------------

Okay. And then I guess my follow-up question, I guess it's 2-parted. One, it looked like the EBITDA margins for the year-ago changed. It looked like there was a little change to the way you did EBITDA in issuer. And then there was a new word you added, unplanned large clients within the guidance components. You added that there won't be significant expenses from new large unplanned clients. Just wondering what that new word might have meant, maybe in Q1 even.

--------------------------------------------------------------------------------

Paul Michael Todd, Total System Services, Inc. - Senior EVP & CFO [11]

--------------------------------------------------------------------------------

Yes. There isn't anything I would necessarily call out unique to that. There's -- the guidance is we have the same kind of principles underlying the guidance this quarter as we did in the last quarter. So there isn't anything unique that I would call out there. We do, obviously, in our guidance, have all kind of our conversion activities that's kind of baked in. So there isn't anything that I would call out there.

--------------------------------------------------------------------------------

Operator [12]

--------------------------------------------------------------------------------

Next question comes from Jim Schneider with Goldman Sachs.

--------------------------------------------------------------------------------

James Edward Schneider, Goldman Sachs Group Inc., Research Division - VP [13]

--------------------------------------------------------------------------------

I was wondering if you -- maybe, Troy, you could provide us a little bit of an update on the portfolio within issuer. Clearly, you're seeing some good conversions there. But as we go forward, would you expect to see additional LOIs convert, that you would expect to announce over the next quarter or 2?

--------------------------------------------------------------------------------

M. Troy Woods, Total System Services, Inc. - Chairman, President & CEO [14]

--------------------------------------------------------------------------------

Jim, well, absolutely. Our intention is always to convert LOIs into signed contracts. Obviously, we've discussed some of those today. We're very proud of adding the new business down in Brazil and, of course, the SunTrust announcement. We've also got in the Q that we've talked about before, Regents is still in the pipeline that we talked about before as well as a few others. So when you look at our pipeline, when we look at our conversion implementation pipeline, it's pretty much full to early 2021 at this time.

--------------------------------------------------------------------------------

James Edward Schneider, Goldman Sachs Group Inc., Research Division - VP [15]

--------------------------------------------------------------------------------

That's helpful. And then maybe as a follow-up, can you maybe just talk a little bit more about what happened in the Merchant Solutions segment? You mentioned a couple of large ISO renewals. Is there anything unusual about the pricing at which those renewed at? And can you maybe talk about any further renewals and kind of the cadence of what you'd expect in terms of revenue performance in Merchant as we head into Q2 and Q3?

--------------------------------------------------------------------------------

Paul Michael Todd, Total System Services, Inc. - Senior EVP & CFO [16]

--------------------------------------------------------------------------------

So Jim, maybe I'll start off and then Troy wants to add anything on the business development front. But there's nothing unique about those renewals, kind of from an economic standpoint that we would call out. And from an overall revenue standpoint for the quarter, this was exactly what we were expecting. And as I said in my prepared remarks, we still expect to be in the 8% to 10% range for the overall year. So nothing that I would call out that's really a change on the business development side. And Troy, I don't know if there's anything to add on those renewals.

--------------------------------------------------------------------------------

M. Troy Woods, Total System Services, Inc. - Chairman, President & CEO [17]

--------------------------------------------------------------------------------

No. Not really, not really. Of course, BB&T renewing is a really, really big deal for us. And as I mentioned in my prepared remarks, they have also agreed to expand significantly their product set with us. Beyond that, nothing really out of the ordinary on the renewal front. The real excitement as well, of course, to help us grow is the Vital announcement of our products in January, which is really getting a lot of traction in the marketplace, both from our partners, direct and indirect as well as of course the T-Mobile GoPoint announcement.

--------------------------------------------------------------------------------

Operator [18]

--------------------------------------------------------------------------------

The next question comes from Brett Huff with Stephens.

--------------------------------------------------------------------------------

Brett Richard Huff, Stephens Inc., Research Division - MD [19]

--------------------------------------------------------------------------------

Troy, can you talk a little bit about the accounts on file in issuer? I think at first glance, I saw you guys had another really good, nice sequential bump in traditional accounts on file. Can you just talk through any of those? And then any -- I'll ask kind of the same question as last quarter, which is, what's the feedback you're getting from your large issuers? Is it still full steam ahead or are they being more selective in how they're issuing, any pumping of the brakes, anything like that?

--------------------------------------------------------------------------------

M. Troy Woods, Total System Services, Inc. - Chairman, President & CEO [20]

--------------------------------------------------------------------------------

Thank you, Brett. Well, you're right. We did add over 14 million accounts in the first quarter. If you recall last quarter, we had a higher number, but we also had a pretty significant conversion toward the end of the fourth quarter last year. As I mentioned in my prepared remarks, roughly 2 million of the 6 -- of the 14 million were related to the wellness accounts that we converted. So when you normalize all that stuff, you can easily see that we are not experiencing through our customers any type of slowdown of new accounts.

As to feedback, I mean, again, as I've mentioned many times before when we meet in our quarterly business reviews with our customers, we try to get insight into their plans and expectations and anticipations of growth. And we still are not seeing anything that would give us reason to pause about growth. The consumer is still the horsepower in fueling the economy. The consumer sentiment is still relatively strong. You saw, as we did, some of the reports that have come out in the first quarter for some of the large issuers and all of them had relatively healthy card volume in the first quarter. So all in all, pretty good signs for our growth.

--------------------------------------------------------------------------------

Brett Richard Huff, Stephens Inc., Research Division - MD [21]

--------------------------------------------------------------------------------

Okay, great. And then my follow-up is can you talk a little bit about value-added services? I know when we were kind of middle of the cycle last time around, the value-added services really became a part of that. It makes clients stickier and the margins are good. Any sort of thoughts on the mix of that or what people are interested in? Any sort of bigger opportunities that you're seeing that maybe you can get a higher fee per card here in the medium term?

--------------------------------------------------------------------------------

M. Troy Woods, Total System Services, Inc. - Chairman, President & CEO [22]

--------------------------------------------------------------------------------

I'll take the first part of it and Paul, maybe you want to add some quantification to it. But as we've talked now for several quarters, Brett, our value-added services in issuing are -- really began to get significant traction. We've rolled out our digital engagement platform, our communications platform. We're getting a lot of traction in our artificial intelligence fraud product. All of these are beginning to make contributions to the issuer revenue growth line. Paul, you may want to talk about the growth.

--------------------------------------------------------------------------------

Paul Michael Todd, Total System Services, Inc. - Senior EVP & CFO [23]

--------------------------------------------------------------------------------

Yes. So we -- in that traditional bucket, we did see about 10% growth for the quarter with that kind of traditional grouping there. And as I said in my prepared remarks, we are seeing good traction. It is becoming more of an important contributor to the growth, and we're excited about the opportunities that we've got down this products solutions area.

--------------------------------------------------------------------------------

Operator [24]

--------------------------------------------------------------------------------

Next question comes from Mike Del Grosso with Jefferies.

--------------------------------------------------------------------------------

Michael Browning Del Grosso, Jefferies LLC, Research Division - Equity Associate [25]

--------------------------------------------------------------------------------

The first one is on the Merchant Solutions adjusted EBITDA margin cadence throughout the remainder of the year. How should we think about that progressing? Because I know that last year, in the first quarter, there was a nonrecurring direct expense item which negatively impacted the margin in that segment. Any commentary on that would be helpful.

--------------------------------------------------------------------------------

Paul Michael Todd, Total System Services, Inc. - Senior EVP & CFO [26]

--------------------------------------------------------------------------------

Yes. So I wouldn't necessarily comment on the cadence kind of at the segment level per se or anything I'd really call out dramatically there other than in the fourth quarter, we did have some over performance there in the fourth quarter of last year. So that will be comp challenge on a comp basis there, but nothing else that I would call out there.

--------------------------------------------------------------------------------

Michael Browning Del Grosso, Jefferies LLC, Research Division - Equity Associate [27]

--------------------------------------------------------------------------------

Okay. And then on consumer, I know we're roughly a month into the implementation of the CFPB's prepaid rule. Any update on the impact on operations relative to your initial expectation?

--------------------------------------------------------------------------------

Paul Michael Todd, Total System Services, Inc. - Senior EVP & CFO [28]

--------------------------------------------------------------------------------

No, Mike. Not at all. As I indicated in my prepared remarks, it's been a long, arduous journey. Congratulations to so many people in our Consumer Solutions group for all the hard work to get it to the finish line. It was implemented on time, no real issues. I think we stopped our overdraft on our GPR 2 days prior to the April 1 deadline and everything so far is working as expected.

--------------------------------------------------------------------------------

Operator [29]

--------------------------------------------------------------------------------

The next question comes from James Berkley with Wolfe Research.

--------------------------------------------------------------------------------

Darrin David Peller, Wolfe Research, LLC - MD & Senior Analyst [30]

--------------------------------------------------------------------------------

It's actually Darrin Peller from Wolfe. So just a quick question. I mean, look, it still sounds like you're expecting the 5% to 7% in issuer despite the first quarter growth, so you're not adjusting for anything. I guess, the large clients are still coming on, assume that's going to take time into the second half of '19 and '20. So you're growing 5% to 7%, without -- just to be clear, growing that way without those wins, including without SunTrust. Just help us understand why your growth wouldn't accelerate as SunTrust and others roll on. And then what is differentiated about your offering now that you think has been the (inaudible) share?

--------------------------------------------------------------------------------

Paul Michael Todd, Total System Services, Inc. - Senior EVP & CFO [31]

--------------------------------------------------------------------------------

So Darrin, maybe I'll start off and then Troy can talk about the differentiation piece on the platform side. But I think we've talked about, for some time now, on some of these conversions, it has a much more outyear kind of impact, due to the timing of some of these recent announcements, those playing in kind of a more 2020 time frame than a 2019 impact. So we have said, obviously, that we are going to be in this 5 -- our expectation to be in this 5% to 7% range for calendar year 2019. And then obviously, when we get to our 20th guidance cycle, we'll come in on the growth from that perspective at that time, even though our longer-term target for this segment is still at that like 5% to 7% range. As far as, Troy, on the differentiation on the platform?

--------------------------------------------------------------------------------

M. Troy Woods, Total System Services, Inc. - Chairman, President & CEO [32]

--------------------------------------------------------------------------------

Darrin, I think the 2 things I might just call out, to the question. I think the trusted brand and we clearly have a great reputation in our Issuer Processing business for service, technology, customer service. I think to some degree, there may be some market disruption going on that's helping us. Clearly, we think we have, and it's been validated by other third-party reviewers, the TS2 platform which is the best in the business. And I think some of our new cloud-based products are also helping us win additional business in the issuing segment.

--------------------------------------------------------------------------------

Darrin David Peller, Wolfe Research, LLC - MD & Senior Analyst [33]

--------------------------------------------------------------------------------

Okay. Let me just -- for a quick follow-up, I mean, there's now been 2 large deals announced, one of them is since your last quarter's report. So I guess, Troy, I just want to hear your view on the state of the market now competitively. I mean it's -- I think you're alluding to your hope that there's some disruption that you can take advantage of. Can you just comment on if you're seeing any feedback from the client base, whether it's on the Merchant side or the issuer side around this?

--------------------------------------------------------------------------------

M. Troy Woods, Total System Services, Inc. - Chairman, President & CEO [34]

--------------------------------------------------------------------------------

Well, Darrin, it's always competitive. It is competitive today. It's competitive before those announcements, and it'll be competitive tomorrow. So really, little change there. Again, I would just go back to what I said a few minutes ago. We do have a great reputation of being best-in-class issuer processor. We're working hard at it. I think again, some of the products that we've been rolling out for the past, really, 1.5 years, some of the things that I mentioned like our new digital platform and communications platform and our new customer service platform and our artificial intelligence around fraud detection. I think all of those things, coupled with our attention for customer service and the TS2 platform are helping us continue to win in the marketplace.

--------------------------------------------------------------------------------

Operator [35]

--------------------------------------------------------------------------------

The next question comes from Ashwin Shirvaikar with Citi.

--------------------------------------------------------------------------------

Ashwin Vassant Shirvaikar, Citigroup Inc, Research Division - Director and U.S. Computer and Business Services Analyst [36]

--------------------------------------------------------------------------------

So I guess the first question is, relative to consensus, you guys had weaker revenues but higher EBITDA margins and EPS beat by $0.04. But it's still -- you're still maintaining that wide-looking $0.15 range for the outlook even though you've done a -- what I'd call a front-end loaded buyback that should benefit for the full year. So are you more comfortable with the upper part of the range now? Is there anything that we should be factoring in with regards to any specific investment timing or something that we should be thinking about along those lines?

--------------------------------------------------------------------------------

Paul Michael Todd, Total System Services, Inc. - Senior EVP & CFO [37]

--------------------------------------------------------------------------------

Yes. So Ashwin, a couple of things there you hit on. First, as it relates to our guidance, obviously, we did have the buyback activity embedded in that guidance and even the timing around that buyback activity was embedded in the guidance. I made the comments on our last call around it being front-end loaded, and so that's all kind of baked in and was baked in, obviously, when we gave the guidance.

On the revenue side, we're staying with all of the revenue ranges that we talked about in the original guidance now. And so from a revenue standpoint, that's our current outlook.

And there isn't anything on the investment side. There's obviously movements that we make across our segments from time to time. Obviously, managing to that overall 25 to 75 basis points of expansion. We talked about that for several quarters now, of managing at the consolidated. So there is some timing of investments that we can make across the segments. But nothing that I would call out, or nothing that's changed dramatically from when we gave the guidance originally.

--------------------------------------------------------------------------------

Ashwin Vassant Shirvaikar, Citigroup Inc, Research Division - Director and U.S. Computer and Business Services Analyst [38]

--------------------------------------------------------------------------------

Got it. And then the second question is on the consumer business. Can you comment on or would it be possible to get, at least for the interim, some DDA account-type metrics? How is that doing versus your expectations? And what level of growth do you need to offset the CFPB impact at the midpoint, say for example?

--------------------------------------------------------------------------------

M. Troy Woods, Total System Services, Inc. - Chairman, President & CEO [39]

--------------------------------------------------------------------------------

Well Ashwin, I'll take the first part of it, and Paul may want to chime in on the back end. But as I indicated in the prepared remarks, we exited the first quarter a little over 600,000 DDA accounts. You can go back and look at the end of 4Q, and you can see we added around 70,000 accounts during the quarter. So we're absolutely on schedule, perhaps a little bit ahead of schedule in what we had thought about putting on for active DDA accounts. I also mentioned that we're very pleased with the percentage of our DDA accounts that are opting in for the overdraft option. And so, so far, so good. And I just might add that we just now are beginning to roll out during this quarter, the ability to take on new accounts for DDA versus just an upgrade. Really for the past almost year, we've only allowed new account acquisitions through one of our larger partners. And so again, in sometime late quarter, we'll begin moving beyond the upgrade stage. Paul, if you want to add any...

--------------------------------------------------------------------------------

Paul Michael Todd, Total System Services, Inc. - Senior EVP & CFO [40]

--------------------------------------------------------------------------------

So the only thing I would add, Ashwin, on that is, is obviously with a slower-than-expected tax season and to still stay in our 3% to 5% range, we are projecting to do slightly better on the CFPB kind of implementation side. So we are pleased with those mitigation efforts and where that's trending to, even though it is still early.

--------------------------------------------------------------------------------

Operator [41]

--------------------------------------------------------------------------------

Your next question is from Timothy Willi with Wells Fargo.

--------------------------------------------------------------------------------

Timothy Wayne Willi, Wells Fargo Securities, LLC, Research Division - MD & Senior Analyst [42]

--------------------------------------------------------------------------------

I just had one question around net spend in the consumer business. We've seen players like Venmo and Square Cash and others essentially build prepaid like products off of those platforms, direct deposit capabilities. And they quote what appears to be pretty strong momentum, though it might be from a small base. I'm just sort of curious, if you think about NetSpend and the next generation of Financial Services and customer acquisition for that channel, given what's emerging from those types of companies like Square, Venmo, et cetera, do you see anything on the investment side or any kind of inherent advantage you have around protecting the leads that NetSpend has established? Just any thoughts you have there as you look out over the next couple of years.

--------------------------------------------------------------------------------

M. Troy Woods, Total System Services, Inc. - Chairman, President & CEO [43]

--------------------------------------------------------------------------------

Tim, great question. And Kelley Knutson is here, and I think I'll ask him to address that one.

--------------------------------------------------------------------------------

Kelley C. Knutson, Total System Services, Inc. - Senior EVP & President of Netspend [44]

--------------------------------------------------------------------------------

Tim, yes, we're seeing not only good progress as indicated from both Paul and Troy on the DDA upgrade, but we are going to be accelerating our DD acquisition to offset some of the noise in the market. We believe now, in particular with our core platform, our understanding of regulation, how the networks work and also the risk profile of type customers that are attracted to these new DDA products, we can continue to differentiate ourselves. And we're also going to be moving more and more into the whole money movement space and virtual account space at the back end of this year as well, to kind of round out some of our product diversification strategies. So I think later this year, we'll be in a position to talk about some of the newer relationships and some of the things we'll be progressing in those 2 areas in particular, around virtual accounts and money movement.

--------------------------------------------------------------------------------

Operator [45]

--------------------------------------------------------------------------------

The next question is from Dan Perlin with RBC Capital Markets.

--------------------------------------------------------------------------------

Daniel Rock Perlin, RBC Capital Markets, LLC, Research Division - Analyst [46]

--------------------------------------------------------------------------------

I might have missed it, but the EBITDA margin in consumer was close to 350 basis points, and that's in the face of a weak tax season. I know you had better maybe execution on the DDA. So I'm just trying to understand what is happening in the mix of that business? Or are you kind of positioning consumer to have a big first quarter so that you can continue on your margin targets, understanding that the mitigation efforts are going to have to take place in the second, third and fourth?

--------------------------------------------------------------------------------

Paul Michael Todd, Total System Services, Inc. - Senior EVP & CFO [47]

--------------------------------------------------------------------------------

Yes, Dan, it would be more of the latter there. And so obviously, we are -- have several margin activities at play where we're managing the expense base there and we did have a timing aspect to some of that as well. So nothing's dramatically changed on the margin front, although we were very pleased to be able to have this kind of margin expansion to start the year.

--------------------------------------------------------------------------------

Daniel Rock Perlin, RBC Capital Markets, LLC, Research Division - Analyst [48]

--------------------------------------------------------------------------------

Okay. And Troy, I thought I heard you say in issuing, the pipeline is full. I thought you said 2021 at this point. I didn't -- I wanted to make sure I understood what you're saying. Are you saying that it's full and therefore, even incremental clients that you're bringing on, you've got kind of a cadence that you know of already? So you've got visibility into 2021, but you can't throttle it up from these levels?

--------------------------------------------------------------------------------

M. Troy Woods, Total System Services, Inc. - Chairman, President & CEO [49]

--------------------------------------------------------------------------------

Yes, that's pretty much exactly what I said, Dan. If you think about all the wins that we have announced, several LOIs that we are obviously still working on to get them across the finish line with respect to a contract. Now when you look at the calendar and when we've laid all those out, we've talked about 2 portfolios in Cap One, the ModalMais, the Regents commercial, et cetera, et cetera, when you look at all of that, SunTrust as well coming up, you can see a conversion pipeline that pretty much takes us for the next almost 24 months to the first quarter of 2021.

--------------------------------------------------------------------------------

Operator [50]

--------------------------------------------------------------------------------

The next question is from Steven Kwok with KBW.

--------------------------------------------------------------------------------

Wai Ming Kwok, Keefe, Bruyette, & Woods, Inc., Research Division - VP [51]

--------------------------------------------------------------------------------

I guess I just had one question around the guidance. Given what we've seen in the first quarter already, outlook for the rest of the year, is there any indication around, like is it pointing towards the lower end, upper end of the guidance as it seems like there's some onetimers here? And so I just wanted to see if anything's changed from a perspective on -- around your guidance.

--------------------------------------------------------------------------------

Paul Michael Todd, Total System Services, Inc. - Senior EVP & CFO [52]

--------------------------------------------------------------------------------

No, Steven, there wouldn't be anything I would point to there. Nothing has dramatically changed, and so there isn't anything I would point to specifically.

--------------------------------------------------------------------------------

Wai Ming Kwok, Keefe, Bruyette, & Woods, Inc., Research Division - VP [53]

--------------------------------------------------------------------------------

Great. And then just around the 2 large deals that has already occurred. Do you feel like you're missing any pieces of business that you would go out and acquire that would strengthen it to better compete with the 2 large players going forward?

--------------------------------------------------------------------------------

M. Troy Woods, Total System Services, Inc. - Chairman, President & CEO [54]

--------------------------------------------------------------------------------

No, Steven, I don't think so. As we've indicated before, we like where we're playing, with the 3 legs of our stool. We don't think we're missing anything. We obviously want to continue to grow and gain scale where we currently play in our Consumer Solutions, issuer and Merchant business. But beyond that, no, we don't think we're missing anything.

--------------------------------------------------------------------------------

Operator [55]

--------------------------------------------------------------------------------

Next question is from Ramsey El-Assal with Barclays.

--------------------------------------------------------------------------------

Ramsey Clark El-Assal, Barclays Bank PLC, Research Division - Research Analyst [56]

--------------------------------------------------------------------------------

I had a kind of a higher elevation question about the mix or potential mix in your issuer processing business. You guys historically, I believe, have been more focused on the credit side, maybe putting prepaid card processing aside for NetSpend. Is there a reason why the market -- why it's sort of shaking out that way, why you are more sort of credit card issuer processing focused rather than debit? Is debit an opportunity? Are there any reasons why you haven't sort of further penetrated that side of things, are there worse economics, or do I have that whole kind of conception of your mix incorrect?

--------------------------------------------------------------------------------

M. Troy Woods, Total System Services, Inc. - Chairman, President & CEO [57]

--------------------------------------------------------------------------------

No, Ramsey, not really. Obviously, we started off as a legacy credit card processer. We do process today for a lot of debit accounts, both domestically and internationally and have some real good opportunities in the pipeline. I think some of the things like driving ATMs or perhaps owning a network has probably pulled us back some in developing to be a much, much larger player in debit processing.

--------------------------------------------------------------------------------

Ramsey Clark El-Assal, Barclays Bank PLC, Research Division - Research Analyst [58]

--------------------------------------------------------------------------------

Okay. I had a question on Vital and interesting and quite positive that you've deployed thousands of devices already. It feels like -- I guess the first part of the question, it feels like the mix is sort of a blend between a direct and indirect distribution strategy. I guess, first, is that the right way to look at it? Or is there one primary method by which you're getting them out there? And then the second part of our question, then I'll hop back in the queue, is just how are you solving for the kind of -- building on a prior question here, how are you solving for the value-added software side in the terminal itself? When you think about Square terminals and you think about Clover, both in slightly different ways of solving for offering these ancillary services to that small merchant. Are you guys building, potentially building your own solutions, your own software to roll out? Is there a third-party development angle? How do you bring those value-added solutions to bear through Vital?

--------------------------------------------------------------------------------

M. Troy Woods, Total System Services, Inc. - Chairman, President & CEO [59]

--------------------------------------------------------------------------------

Yes, Ramsey. Paul again may want to add to it. So the primary source as we roll out Vital is on the direct side. But as we've indicated before, this is clearly a very partner-centric product rollout. And we have had a lot of our indirect customers show interest in gaining the Vital product. I think one of the other things that has made it so attractive, both direct and indirect, is the ability to white label the product, which is what T-Mobile is doing as well. As it relates to building out, yes, that is a plan. We talked about iM3 and the market portal and the ability to bring things to these small businesses, to help them grow their businesses, to help them reduce some of the complexity that they have. And so the portal will certainly create some embedded solutions to help our SMB portfolio.

--------------------------------------------------------------------------------

Paul Michael Todd, Total System Services, Inc. - Senior EVP & CFO [60]

--------------------------------------------------------------------------------

Yes. No, I would just add the same thing, that the Vital kind of is the platform, and there will be value-added solutions added on top of that so will, from an overall solution standpoint, have a look and feel on the effectiveness of some of the comparables that you talked about there.

--------------------------------------------------------------------------------

Ramsey Clark El-Assal, Barclays Bank PLC, Research Division - Research Analyst [61]

--------------------------------------------------------------------------------

But you'll be developing those ancillary -- those value-added solutions? It's not like a -- the Clover model, the third-party app developers, or is there a blend of both, I guess?

--------------------------------------------------------------------------------

Paul Michael Todd, Total System Services, Inc. - Senior EVP & CFO [62]

--------------------------------------------------------------------------------

Yes, would be that blend of both. No, that's exactly right. It's a blend of both in-house solutions as well as partnered solutions.

--------------------------------------------------------------------------------

Operator [63]

--------------------------------------------------------------------------------

The next question comes from Jamie Friedman with Susquehanna.

--------------------------------------------------------------------------------

James Eric Friedman, Susquehanna Financial Group, LLLP, Research Division - Senior Analyst [64]

--------------------------------------------------------------------------------

Yes, I wanted to ask you about value-added services -- sorry, not value-added services, Output Services -- sorry, Output Services. Troy, how strategic should we think about that? And is the Citi announcement a sign of additional things to come?

--------------------------------------------------------------------------------

M. Troy Woods, Total System Services, Inc. - Chairman, President & CEO [65]

--------------------------------------------------------------------------------

Yes, Jamie. Well, wouldn't say strategic. Obviously, for many, many, many years, we've been in card production and Output Services, statement production. We, for the most part, want to do that for our customers. This is a great example of Citibank bringing us part of their statement portfolio that we don't even do their processing for that particular piece. I think we shared with you maybe, gosh, 18-plus months ago that we have this tremendous ability to penetrate deeper into our customer base, to do all of their cards and statement production, which obviously, we do not do today. So it's very important. As Paul has indicated over the past probably 3 quarters, the growth of our Output Services has been in the low teens, so it's been a very good growth area for us. So it is very important to us, and hence, the reason we made some of the strategic investments up in Ohio for cards, and another local place here in Columbus, Georgia as well.

--------------------------------------------------------------------------------

James Eric Friedman, Susquehanna Financial Group, LLLP, Research Division - Senior Analyst [66]

--------------------------------------------------------------------------------

Okay. And then if I just also follow-up on issuer, how should we be thinking about the timing of an account as big a SunTrust rolling on? Congratulations on that one. But what -- how should we be layering that into the model?

--------------------------------------------------------------------------------

M. Troy Woods, Total System Services, Inc. - Chairman, President & CEO [67]

--------------------------------------------------------------------------------

Thank you, Jamie. We appreciate that. Really, as it relates to the timing of SunTrust, that's not something we're prepared to get into today. And the only ones that we've really talked about from a timing perspective have been the Cap One portfolios, which still schedule one -- one of those still scheduled for the latter part of this year and the other one in early 2020. But as it relates to the others, we have not given a specific timing.

--------------------------------------------------------------------------------

Operator [68]

--------------------------------------------------------------------------------

The next question comes from Jeff Cantwell with Guggenheim Securities.

--------------------------------------------------------------------------------

Jeffrey Brian Cantwell, Guggenheim Securities, LLC, Research Division - VP and Analyst [69]

--------------------------------------------------------------------------------

Can you talk a little bit more about the T-Mobile partnership? I guess, first, I would love if you could tell us a little bit about what the early feedback on the product has been for merchants, maybe a little bit about which vertical is GoPoint seeing adoption in and which of its features you're hearing have been the most well-received by the merchants.

And then secondly, the press release by T-Mobile, that was one of the more interesting press releases I've read in a while. T-Mobile specifically said, let's bring Clover and Square on notice, while clearly implying they think GoPoint's a better solution for small businesses. So I just want to see if you can comment on that. Why do you think this is a better product than what Clover and Square offer? Just appreciate hearing your thoughts on that, so it helps us compare that product versus others that are already out there in the market.

--------------------------------------------------------------------------------

M. Troy Woods, Total System Services, Inc. - Chairman, President & CEO [70]

--------------------------------------------------------------------------------

Thank you, Jeff. Well, clearly, there are 2 parts, I think, to your question. One, let's just kind of talk about what TSYS is doing behind the scenes to help T-Mobile in their GoPoint proposition. I think we've talked about it quite a bit, but the Vital suite of products is pretty comprehensive. It's pretty compelling with the 3 that we talked about. They like what they see. They like the ability to partner up and have a white label. They like the fact that we had iM3 behind it, that they were already familiar with them. As it relates to their press release, I think you should go back and look at a lot of the press releases from T-Mobile and they clearly have a really nice edge to them. Look, it's a really attractive product. They're going out there with a lot of features around less fees. But I think it's best to really talk to T-Mobile about what they saw in the market. It's really, I don't think, our place to get into what they see in the market, how they plan to win business. I just know we're here to help them. As far as the features, I think I've touched on some, but it's a little bit early. We've only been out now for about 30, 40 days with it, couple of months, I guess. So we do think it will be disruptive. I think we've proven that already.

--------------------------------------------------------------------------------

Jeffrey Brian Cantwell, Guggenheim Securities, LLC, Research Division - VP and Analyst [71]

--------------------------------------------------------------------------------

Great. And then just a second one, on your white label strategy that we're starting to see in your Merchant segment, like in the case with T-Mobile. Should we expect to see more of these types of partnerships between yourselves and nontraditional payment companies? And if that's the case, can you maybe just tell us whether that strategy was originally contemplated in your longer-term guidance in Merchant of 7% to 9% in that revenue growth for the segment?

--------------------------------------------------------------------------------

M. Troy Woods, Total System Services, Inc. - Chairman, President & CEO [72]

--------------------------------------------------------------------------------

Well, yes. Obviously, it's early again and clearly, when we gave our guidance back in January, we obviously talked about the rollout of Vital. So we were clearly baking that in. And the answer to the first part of your question is absolutely, yes. The interests that we have in being able to white label and the portability of our Vital platform, those 2 things, in addition to the feature functionality, are 2 of the biggest marketing drivers of the product.

--------------------------------------------------------------------------------

Operator [73]

--------------------------------------------------------------------------------

This concludes our question-and-answer session. I would like to turn the conference back over to Shawn Roberts for any closing remarks.

--------------------------------------------------------------------------------

Shawn Roberts, Total System Services, Inc. - VP of IR [74]

--------------------------------------------------------------------------------

Thank you, Gary. We would like to thank everybody for participating in the call, and hope to see you on the road at some time in the near future.

--------------------------------------------------------------------------------

Operator [75]

--------------------------------------------------------------------------------

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.