Merchant Unit and a $136 Million Present From Uncle Sam Boost TSYS’s Bottom Line

Total System Services Inc. (TSYS) generated $1.1 billion in segment revenues from its Merchant Solutions unit in 2017, a 22.8% increase from $898.5 million in 2016, the Columbus, Ga.-based processor reported late Tuesday. That growth outpaced 2017’s revenue increases of 5.2% and 12.6%, respectively, in TSYS’s card-issuing and Netspend prepaid card segments.

Besides the growth in its three main units, TSYS also received a $135.9 million one-time tax benefit from the Tax Cuts and Jobs Act, which President Trump signed into law Dec. 22. TSYS said the measure reduced some of its deferred tax liabilities and enabled it to repatriate foreign earnings.

Merchant Solutions in the fourth quarter processed 1.22 billion point-of-sale transactions and dollar volume of $32.4 billion representing respective increases of 9% and 13%. Comparable full-year figures were 4.84 billion POS transactions and dollar volume of $124.2 billion, up 6.5% and 27%, respectively.

The unit generated $282.7 million in fourth-quarter revenues, up 11.3% from $254 million in the year-earlier period, and adjusted operating income of $94.9 million, up 7.2%.

Merchant Solutions will be considerably larger when TSYS reports its first-quarter financials in three months. TSYS completed its $1.05 billion cash acquisition of merchant processor Cayan LLC on Jan. 11. Boston-based Cayan serves 70,000 merchants that generate $26 billion in annualized gateway and processing volume.

Issuer Solutions, which provides transaction processing, card production, and other services for payment card issuers, remains TSYS’s biggest segment, having generated $1.59 billion in revenues last year. Adjusted operating income totaled $574.6 million, up 9.4% over 2016. In the fourth quarter, Issuer Solutions produced revenues of $413.9 million, an 8.8% increase from a year earlier, and adjusted operating income of $145.7 million, up 9.9%.

The unit processed 21.6 billion transactions last year, up 8.6% from 2016, and had 797.5 million accounts on file, up 6.1%.

Netspend posted revenues of $746.9 million last year and adjusted operating income of $182.1 million, up 13.5%. Fourth-quarter revenues increased 16.1% year over year to $186.4 million, while operating income rose 11.5% to $38.8 million.

Gross dollar volume on Netspend cards increased 11.5% in 2017 to $32 billion while the active card count grew 14.2% to 4.9 million. Nearly 49% of active cards had direct deposit.

In all, TSYS reported revenues of $4.93 billion for the full year, up 18.2% from $4.17 billion in 2016. Boosted by the tax benefit, net income jumped 83.4% to $586.2 million from 2016’s $319.6 million. Fourth-quarter revenues of $1.27 billion were up 12.5% from $1.13 billion a year earlier. Reflecting the tax benefit, quarterly net income jumped 228% to $242.2 million versus the prior year’s $74 million.

“2017 proved to be a truly exceptional year for our company,” M. Troy Woods, TSYS’s chairman, president, and chief executive, said in a statement. “We delivered outstanding financial results, continued to expand our merchant business with the Cayan acquisition announcement, and finished the year having met or exceeded our goals.”