Total System Services Q1 2007 Earnings Call Transcript

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 |  About: Total System Services, Inc. (TSS)
by: SA Transcripts
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Total System Services, Inc. (NYSE:TSS)

Q1 2007 Earnings Call

April 19, 2007 4:30 pm ET

Executives

Phil Tomlinson - CEO

Jim Lipham - CFO

Analysts

Adam Frisch - UBS Warburg

Tony Wible - Citigroup

Robert Dodd - Morgan, Keegan & Company

David Parker - Merrill Lynch

Nancy Bush - Ryan, Beck & Co.

Presentation

Operator

Good afternoon ladies and gentlemen, and welcome to TSYS First Quarter 2007 Earnings Call. At this time, all participants have been placed on listen-only mode. We'll open the floor for your questions or comments following the presentation.

It is now my pleasure to turn the floor over to your host, Phil Tomlinson. Sir, the floor is yours.

Phil Tomlinson

Thank you, Anthony, and welcome to our first quarter earnings call. We are very excited about our report, and look forward to chatting with you. As usual, before I get started, I wanted to call your attention to the fact that we will be making forward-looking statements about the future operating results of TSYS. These statements involve risks and uncertainties. So, any factors that could cause TSYS's actual results to differ materially from the forward-looking statements are set forth in our reports filed with the SEC.

I’ll tell you we are feeling pretty good today, we sort of feel like the kid who has pulled a rabbit out of the hat. We really think we've made great, great progress, and we are awfully proud of what our people have been able to accomplish. And we are going to get right into that.

Obviously, there has been lot of buzz in the industry about what's going on in First Data and Metavante, and we've been quietly settling down here going about our business. We believe that our results were outstanding. As you saw the revenues before reimbursables increased 4.3%, compared to 2006 quarter one.

And if you look at it both Sears and Bank of America were included in quarter one '06, and over $50 million in core revenues went away from the first quarter of '07 as a result of losing those two clients.

We've replaced that lost revenue in new business and really strong internal growth. Speaking of internal growth, it was over 12%. Net income was an all time record setting $57.3 million, up, 13.7%.

Our operating margins before reimbursable revenues increased from 21.8 to 24.9 quarter-over-quarter. And as we told you in our last conference call, we expect these margins to be in the 25% to 26% range for '07.

Our diluted earnings per share increased 13.9% to $0.29 a share in the first quarter of '07, compared to $0.26 in the first quarter of '06.

From March 31, '06, through March 31, '07, we added over 132 million new accounts internally and from new clients. We also generated this quarter $67 million new cash. As you know, we have been really counting on our international growth as said, and international revenues grew 47% in the quarter.

I think it's just incredibly impressive to note that on a non-GAAP pro forma basis, net income for the year should increase in the 20% to 22% range, up from our previous guidance of 14% to 17%. And on a GAAP basis we have improved net income guidance from minus 3% to a new guidance range of flat to a plus 2%.

Back in May of 2006, our best guess here were the problems that we were dealing with, that we would be down 17% to 15% as I recall. And we have made up all of that difference and more.

I think these results, if somebody had suggested this to me six months ago, nine months ago, I would have said, it is impossible. It's a result of our team working on revenue growth and expense control. And I think this just is a great indicator of how truly resilient TSYS is.

We had some nice highlights for the quarter. We signed agreements to provide merchant processing solutions for Clearent and National Processing. And as you know, National Processing was formally the Iron Triangle Payment Solutions.

We renewed merchant processing agreements with Sage Payment Solutions and Moneris Solutions for their U.S. portfolio. We signed Norway's largest financial services group the DnB NOR Bank certainly in Norway. We are going to manage their fast growing portfolio. They have plans to really grow and we're very excited about it. And that is a Card Tech opportunity by the way. And they will be among the first to implement SEPA compliant technology, which we think is going to be a real plus for us long-term.

We also resigned Spira de México to another long-term contract. And as you know they are one of Mexico's largest private label companies or retailers.

And last but certainly not least we completed the final phase of the Cap One conversion.

We are absolutely thrilled about the improvement in our 2007 guidance, and again think it is a great indicator of our business and financial strength in what we can do when pushed, and have to do it when we feel good about what we've been able to accomplish.

And with that I'm going to turn it over to Jim Lipham, our Chief Financial Officer who is going to give you a lot more details.

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Jim Lipham

Thank you, Phil. I'd ask that you look at the income statement that was attached to the press release, and I'll go down and talk about the various line items there and try to give you a little color for them.

As we look at the first line, electronic payment process and as you know that's our core process in service line, also includes now our license and arrangements. But this number was up 4.1% for the quarter and that's $9.1 million. Phil mentioned the first quarter of last year and the $50 million of revenues that was associated with the two de-conversions and if you backed that out on a pro forma basis quarter-to-quarter would have been 34.6% just outstanding growth. But our revenue growth is fueled by initial internal growth its 12.3%. We also had new business that includes acquisition that added about 20% of the growth.

Account on file numbers are about 17 or 7 million accounts below prior year, which is really good considering the loss of over 132 million accounts from those two large customers. We also saw good growth in the quarter from our transactions, they were up 10% to $2.5 billion and authorizations were up 12% to $2.3 billion.

In the International revenue, Phil mentioned is up 47%, as [$209.4] million for the quarter showing very strong growth as well as including the revenue generated by our TSYS Card Tech that was about $8 million of total revenue. International revenues, also specifically Europe, was positively impacted by the currency translation adjustments and that's about $5 million pick there.

Value added services continue to grow at about $2.7 million up or 5.25%. And for the quarter, they represented 12.76% of our total revenues including reimbursable. So, it continues to grow, as a part of our total revenues. And we're just doing a real good job there.

Merchant services next line item, obviously is down when compared to last year and the decrease in the comparison is a result of the two large de-conversions, that went on last year along with continued weakness in the TSYS, POS systems business, VTMS and this is as you know was a plan to shut down that went on to last year, started in the first quarter, and it has continued to drill down, and has less impact now in this quarter.

As you remember, this being a low margin, so it has an effect to really improve our margins, as we get out of that business. But it does have a negative impact on the revenue. We also are experiencing in TSYS Acquiring some price compression, as you know, we renewed three of the top five class last year, and then three more of the top 20, and all that was done during '06. But these price compressions and loss revenues are being offset somewhat by internal growth. Our planning and transaction volumes during the quarter were up 15%, equates to about 7% growth in revenues.

For the quarter, the internal growth was $4 million, sequentially revenues were down 7% and really we anniversary those de-conversions and the price concessions, which will be late this year, revenue growth will be restrained. But on a positive note, when you look at TSYS Acquiring, the operating income for the first quarter was $12 million, a 19% increase over the first quarter of '06. And as Phil mentioned, it clearly shows what a great job the team is doing in controlling the expenses, after these de-conversions of last year.

Our operating margins in TSYS Acquiring, when you exclude reimbursable items have increased to 21.8% for the first quarter, compared to 17% in the same period last year. And we in TSYS Acquiring are continuing to work with our clients to develop these new products such as merchant cash advance and contact-less payments and gift cards and we feel like the ancillary service that they offer will be a good thing for us going forward.

We'll get back to our other services; you see the first quarter increased 18.5% or $8.2 million. Half of this increase is a result of the new joint venture with Dimension Data in Europe, which we call TSYS Managed Services.

ESC, our Loyalty Company, in Atlanta. They made up another 25% of this memorable growth in their redemption business and their new loyalty platform.

The remainder of the increase came from a product called profit, as more customers have signed up on that. So, a lot of this came from the diversification of Capital One as they’ve come on board.

Revenues for reimbursable items as you can see they were up 3.9%. And this is primarily the result of the treatment of the core cost as of reimbursable item as a result of the renegotiated contract last year that went on with total debt management.

So, total revenues for the first quarter up 4.2% and the increase as I mentioned before included about a $5.1 million currency translation favorable effect for us. As we go down to the expense side, we look at salaries first; they were up 15.8% or $19 million for the quarter. And this is a result of the acquisition of TSYS Card Tech and TSYS Managed Services. They added approximately $6.6 million additional employment expense. Europe’s rapid growth in revenues also impacted employment cost by another $3.7 million. In the U.S. we've had reduction in capitalized salaries and contractors, which added another $6.7 million of this growth.

But on a sequential quarter basis employment expenses were down approximately $1 million. When you look at our headcount at the end of March, it’s approximately 187 people more than it was in March of '06. But when you exclude the employees associated with Card Tech and Managed Services, we are down approximately 137 people since March of '06. The relocation of our prepaid Manhattan office is on schedule, and scheduled to be completed during the third quarter of '07. And we continue to review our allocation of people resources to ensure we are managing this important resource effectively.

Our occupancy and equipment cost is down 12.2% to $66 million. We did book a onetime adjustment in Europe for a VAT tax benefit that came in as $2.3 million. We also experienced decreases in software amortization on mid based software and also lower equipment main expense as we lost those de-convergence last year of Sears and BOA.

Other Expense category decreased 15.8 for the first quarter. A large part of this was attributable to lower transaction delivery cost at TSYS Acquiring. We also had the reclassification of other expenses such as quarter calls to reimbursement, which is contingent. And we also had lower TS2 conversion amortization as a result of the BOA de-conversion. So, all of that contributed to that decrease.

Excluding reimbursable our operating profit margin for the quarter as Phil mentioned is 24.93% up from 21.8% in the first quarter of '06. And we do expect our margins for the year to remain in the 24-26 range.

Other income coming down the page is increased $3.2 million for the first quarter. There again, with that increased amount of cash available to invest and that’s combined with increases in short-term rates, which has caused this increase. Income taxes for the quarter increased 40%, the effective tax rate jumped to 37.9% compared to 33.4% for last year. This is a direct result of a one-time adjustment that we had to reserve, for potential loss of certain state income tax credits that were previously taken. We otherwise anticipate our effective tax rate to again be in the 36% range.

Net income for the quarter increased 13.7% or $6.9 million. Earnings per share increased to $0.29, up 13.9% over the $0.26 for last year. We excluded the income tax adjustment that we had to book. Net income would have been up 18.2% and earnings per share would have been up $0.30 a share, just an outstanding quarter.

Now, we'd like to flip over to the balance sheet and just cover a couple of items there. Unrestricted cash is $44.2 million; it increased $33 million since December '06. We now have approximately $2.15 of cash per share outstanding.

We revised our analysis of the intangibles in the quarter for the Card Tech acquisition and made some adjustments there for the goodwill and acquisition intangibles, and those are the big changes there for the balance sheet.

On the cash flow statement, you all know that significant contribution, cash generated from operating activities were $66 million and we do continue to generate a significant amount of cash to fund investing and financing activities.

We invested $17 million in property and equipment, that’s mainly a production equipment and processing hardware. And then we invested about $6.9 million in software, $3.9 million of it being purchased, and $3 million developed. And we also paid dividends of $13.8 million during the quarter.

In our free cash flow analysis, free cash flow ended at $35.2 million for the quarter. Just an outstanding quarter, good growth in cash.

Phil, I turn it back over to you.

Phil Tomlinson

Thanks Jim. And if you think you hear a train, you do. We have a train trussel over the river behind us. It goes by about this time everyday, and he is convinced he is going to blow his horn to let us know he is coming this way.

I hope you'll agree that our ship has turned around and headed in the right direction. And we are dealing with issues and showing strong results. Again I am very proud of what we've been able to do. And I wanted to open it up Anthony, for the Q&A session now if you will.

Question-and-Answer Session

Operator

Thank you. Ladies and gentlemen the floor is open for questions. (Operator Instructions). The first question comes from Adam Frisch. Your line is live.

Adam Frisch - UBS Warburg

Good afternoon guys.

Phil Tomlinson

Good afternoon Adam, how are you.

Adam Frisch - UBS Warburg

I am doing okay, thanks. You got the B-team with you today. Just wanted to ask you about the operating margins in the first quarter, a few things I wanted to ask you about., One; were there any one-time things in there that aren't sustainable, because you are right around 25% in the quarter, and that's what you are forecasting for the year. So what I wanted to know if there was anything in first quarter that was, maybe not recurring, where in the second, third or fourth we might see some volatility or bounce?

Jim Lipham

Adam this is Jim. The big item that we had is one time would be the tax refund, we had about $2.8 million, it came in from Europe.

Adam Frisch - UBS Warburg

Is that in the operating margin line or would that be below the line?

Jim Lipham

That's in operating line.

Adam Frisch - UBS Warburg

That's in the operating line. Okay. But that's about it; everything else was kind of recurring from just doing your thing?

Jim Lipham

That's right.

Adam Frisch - UBS Warburg

Okay. The 25% for the year, any seasonality in there that we should expect? In the past couple of years, I didn't really know this pattern, because you have some one-times moving in and out. But, do you expect it to fall in any material ways in any quarter during the year?

Jim Lipham

It's pretty flat through the year.

Adam Frisch - UBS Warburg

Pretty flat through the year, okay.

Jim Lipham

It will get a little bit better probably in the fourth quarter.

Adam Frisch - UBS Warburg

Okay.

Jim Lipham

When volumes pick up and those kind of things.

Adam Frisch - UBS Warburg

Right. Okay.

Phil Tomlinson

So Adam, encourage your wife to use our card.

Adam Frisch - UBS Warburg

I don't need to do that. I'll try that though, just for you though. On the sales pipeline, I know you guys said you have pretty robust outlook out there. You replaced a lot of business that you lost last year. When can we see this kind of deals coming and where are they coming? Is it from the MBNA side or is it just from international or describe where that comes from?

Jim Lipham

It's pretty interesting, we are talking to a lot of big players and we are talking to a lot of smaller dealers. We are doing a good job of cross-selling value-added. The core processing pipeline as far as prospects is getting better by the day. Our loyalty business is getting stronger by the day. International is very hot. We are picking up some pace in Mexico. We are not doing much in Latin America. If you recall, we opened up an office in Brazil and we think that's just a good investment and we believe that long-term we will make some progress there.

China UnionPay, or Cut Data is on target. As we've said many times before that's a three to five year deal. We are continuing to win with banks there. We think we're doing well there. There is going to be a very controlled rollout of credit cards in China, we believe.

Adam Frisch - UBS Warburg

Right

Jim Lipham

They are not going to allow just a mass issuance of cards like we have done in years past in the US. So, I'm going to have to say that we feel pretty good about our prospects and as I said earlier, and they seem to be to be picking up.

Adam Frisch - UBS Warburg

Okay.

Jim Lipham

At least the discussion activity is picking up.

Adam Frisch - UBS Warburg

Okay. Couple more here. Just on the merchant processing side, lot going on there. Wanted to just get an update, if you could on your platform? Is it robust enough to go after some of the bank alliances that may shake out as a result of what's going on in First Data? And then also how you view the ISO channel right now?

Jim Lipham

I certainly think that our software is more than robust enough. And certainly, I think any time, there is confusion in the marketplace, opportunities will present themselves. The ISO channel has always been under pressure. The alliances have been there long time and it's always hard to break up something that has been there and in place for a long time. But, certainly that's part of our job and that's what we try to do and we'll continue to try to win in that marketplace.

When it comes to, you talked about ISO, is we've had a couple of announcements this week. I think we may have another small announcement tomorrow or late tonight, I'm not sure. Again, activity is picking up. We are feeling more positive about really every segment of our business today then we have in long-term.

Adam Frisch - UBS Warburg

Okay. If I can just ask squeeze in one last one, your performance so far and having digested all of the one-time deconversion, that kind of stuff last year, I think is nothing short to remarkable, but there's a lot of one timers card at '07, which makes me think that if we look to '08, maybe we get a better sense of where you think you are going to be in terms of growth and margin so forth, one things settled down a little bit. I know its early, I know it hasn't broken 40 degrees yet here in New York this year, but what are you guys thinking about '08 at this point in time?

Phil Tomlinson

Well Adam, there is a still in bloom here, so I would even suggest to you that '08 would, we are still trying to get over the shock of '05 and '06. So, as I said we are feeling good about our future, but I wouldn't even take a guess at '08 at this point.

Adam Frisch - UBS Warburg

Okay.

Phil Tomlinson

When last time I did that, the folks in this room almost ran me out of town on rail.

Adam Frisch - UBS Warburg

Alright. Well, its worth a shot, but I think the faster we can get visibility on that I think the better it will be for the multiple and so forth and bigger multiple on higher numbers might work for that but like you said.

Phil Tomlinson

Right.

Adam Frisch - UBS Warburg

Thanks guys, congrats again.

Phil Tomlinson

Thank you.

Operator

Our next question comes from Tony Wible. Your line is live.

Tony Wible - Citigroup

If we could probably talk a little bit about SEPA nice to see that win that you guys had what kind of time line would you anticipate seeing more SEPA related deal?

Phil Tomlinson

Well, I think probably anything on a go forward basis it has got to include SEPA capability or SEPA functionality. And we have, we are talking to a lot of different people in a lot of different countries in that part of the world and that's one of the things. I think and I have said this before, but anytime you have change whether it would be regulatory or ownership or anything else, anytime associations or government put in change. It's probably good for us because it causes people to look at their options. And we think that is part of the process for SEPA.

Tony Wible - Citigroup

Would you see some of those opportunities on just the card side or do you see more opportunity on the merchant side?

Phil Tomlinson

Well, we are seeing it in both. Obviously, we tend to be a little more card focused in Europe today. But we certainly would like to be more aggressive in the merchant business in Europe, as time goes forward. With Card Tech, we do have a platform that will operate in that part of the world, and many other parts of the world, as the matter of fact. We just have not gone to the point with that platform or we have not sold it, going to the point where we sold it to anyone to roll it out yet. But rest assured, we are working on that.

Tony Wible - Citigroup

Alright. I have a question on guidance, we are not reaching as far as '08, as we get towards the potential J.P. Morgan Chase conversion. What would you anticipate reimbursable is kind of moving down to as a percentage of revenue?

Phil Tomlinson

Give us a second on that one.

Phil Tomlinson

Tony, I don't have that.

Phil Tomlinson

Alright, dandy with me, but I would be guessing if had to play a number on you, right now.

Tony Wible - Citigroup

Alright, I will just throw out one last question, and I will jump off, the store value business is going on very well. Do you think high level of that, what's driving some of the growth there? And anything you see on the legislative front that could help continue to drive that business?

Phil Tomlinson

Well, we think it's a big market, and we've got some great clients there, two or three very aggressive ones and now again we are moving that. We've done very well in Europe. We've signed a couple of deals in Japan. It's still a market that we are learning to operate in. We've got to learn how to operate on a low cost basis in that marketplace. And we're also learning where the market is. We have not been really successful in selling to financial institutions. We've been more successful in selling to other companies, if you will for different types of products. But we think there is 84 million, 85 million unbanked people in this country. There is a huge market for that. We still are bullish about the prepaid business. So, I think we feel like though in order for us to really be a market leader, we're going to need some more time.

Tony Wible - Citigroup

Alright. Okay, great. Thank you.

Operator

Next question is from Robert Dodd. Your line is live.

Robert Dodd - Morgan, Keegan & Company

Hi, guys. Just looking at the expenses going forward, I mean what do you expect to do in terms of the cost cutting you talk about? I mean is it further attrition of headcount or do you expect amortization of step down again when we get through Chase or can you give us an idea what particularly you're looking now?

Jim Lipham

Rob, it's Jim. What we are looking at going forward is you will have some step down when Chase leaves obviously in the equipment side of the house. We are anticipating our headcount to remain relatively flat through the rest of the year. And so you have pickups there as you compare back to prior years of the prior year numbers for both of those items.

Robert Dodd - Morgan, Keegan & Company

Okay. And then on China, we obviously we've got some if you want to call regulatory deadlines or whatever for the card issuers in July. Are you picking up anything about a potential for a more open market in the second half of the year there. I mean are these regulatory pressures inhibiting decisions in the near-term when we could see a more of a pick up later in the year?

Phil Tomlinson

We are not seeing that right now, Robert. I mean we have people in China, and Jim Lipham is on our board over there. We're not seeing it yet. But, we do think it's going to be and I think the key in the meantime is we've got to pick up these banks and I forget the number, but I think through our partnership with CUP we've signed 30 banks today.

Jim Lipham

About 29.

Phil Tomlinson

29.

Robert Dodd - Morgan, Keegan & Company

Okay. Thanks.

Phil Tomlinson

Thank you.

Operator

Our next question comes from David Parker, your line is live.

David Parker - Merrill Lynch

Good afternoon, everyone.

Phil Tomlinson

Hi, David.

David Parker - Merrill Lynch

I just was wondering if you can give us an update on the situation with Synovus. We continue to hear speculation that they might be looking at options but, just wondering if you're hearing anything or staying in touch with them?

Phil Tomlinson

Probably they own 81%. So, I promise you we stay in touch with them. But I would suggest that, you listen to their call next week. That’s a decision that they are going to have to make and certainly I don’t know of any changes at this point.

David Parker - Merrill Lynch

Okay. Good, and then on the CapEx number it was little bit higher this quarter than normal you talked about spending more on production equipment. Is that a run rate that we should expect in the next few quarters, or is that just a hiccup this quarter?

Phil Tomlinson

That was a hiccup this quarter for some production equipment in the card area. It won't continue that way.

David Parker - Merrill Lynch

Okay. Great. And then with Vital or your merchant acquiring business has pricing compression been more severe than you originally expected when you first closed that acquisition or acquired the percentage of the business from Visa? Has it been more difficult to renew some of these contracts or what's driving some of the weakness there?

Phil Tomlinson

Well, I think what Jimmy talked about some of the business that we have, when we got out of the terminal business. But I think the merchant business has always been hypercompetitive, and I think it will continue to be so. It's just like the card business, and we've got to learn to better operate on economies of scale, and in doing things smarter. But we still feel good about that business, and we've got some prospects in that business that could significantly change, what we do at Total Acquiring Services. But I do think that there is tremendous pricing pressure there, and I think its getting worse.

David Parker - Merrill Lynch

Did you know what its trending at approximately? Historically it has been 3% to 5%.

Phil Tomlinson

I'd just say, I'd be guessing it. We would have to ask Bob.

David Parker - Merrill Lynch

Okay. Great, thank you.

Phil Tomlinson

Thank you.

Operator

Our next question is coming from Nancy Bush. Your line is live.

Nancy Bush - Ryan, Beck & Co.

Hi guys, how are you?

Phil Tomlinson

Hi Nancy, how are you?

Nancy Bush - Ryan, Beck & Co.

Fine. [The salvias are blooming here at akin] as well.

Phil Tomlinson

Alright. Good for you.

Nancy Bush - Ryan, Beck & Co.

Phil, you made some initial comments about the changes in the industry and they have been fairly dramatic for Metavante and then First Data, etcetera. Can you just give us your anecdotal, what are people in the industry saying about this, what are your customers', saying about this? The ownership of companies by venture capital funds, private equity investors has not always been entirely beneficent let's put it that way. And I'm just wondering what the feedback has been?

Phil Tomlinson

Well, like I said earlier, it has created some consternation and some worry on people's parts, and which is probably a good thing for TSYS or of some of the other competitors.

The fact of matter is, they are going to have an awful lot of debt to deal with. And I never underestimate those guys. They've been a very strong competitor for many years. And I think they'll continue to do that.

There is a lot of speculation out there about whether they will be able to hold that company together and I don't know honestly. There would be some difficult decisions. I think it certainly has been a really hot topic of discussion, not only the First Data transaction, but the Metavante transaction as well.

Both were pretty unusual for our industry, and we had heard rumors about First Data or a lot of rumors have been floating around about First Data, and so I don't think we were too surprised. But, in some ways I was just shocked when I heard it on Bloomberg, coming in to work that morning.

And I wish I had a crystal ball and knew what was going to happen. We're sitting here trying to figure out the best route for us to go and this has probably made it a little bit more difficult in some ways. But, hopefully there will be some opportunities as a result of this and that's about all we can hope for.

Nancy Bush - Ryan, Beck & Co.

How has it made it more difficult for Synovus and you guys to make that decision?

Phil Tomlinson

I don't know that it is made that any more difficult.

Nancy Bush - Ryan, Beck & Co.

Okay.

Phil Tomlinson

I think you would have to ask Richard that, Nancy. But, I think we've been trying to get the resolved and it has always been a hard question. We've been partners since 1974 and I would think it would be hard to give up 30%, 35% of your net earnings. But, I am sure he will address that next week.

Nancy Bush - Ryan, Beck & Co.

Also in the in the internal growth that you saw from first quarter, which has been quite remarkable, and then 20% growth coming from new customers. Can you, I know it's very hard to track "market share", particularly in your business where it kind of moves around. But, is picking up market share in the business part of this or is that basically an untrackable number?

Phil Tomlinson

Well, we try to track market share. But part of it you probably get close on branded cards, but when you start talking about private-label cards, it's really, virtually impossible. We think of the Visa and MasterCard market, we are probably 40% right now in the US. I wouldn't even venture a guess outside the US, but we know in Canada, for example, we are little over 40% market share.

Nancy Bush - Ryan, Beck & Co.

Okay.

Phil Tomlinson

That's down in some ways. They had a low percentage of active accounts, they had a lot of accounts, and of course you are fully familiar with the Banc of America portfolio.

Nancy Bush - Ryan, Beck & Co.

Also I would just ask about Europe. Your growth that you are experiencing in Europe right now. What is the best products geography, whatever in Europe that you are experiencing right now?

Phil Tomlinson

Well, I still think that you are going to see a lot of growth in the UK area, and I think you'll see some good things come out this year there. We seem to have hit a real niche market over in The Netherlands, in Norway and I'm not sure there's a term for that part of the world. It's not coming to mind right now.

Nancy Bush - Ryan, Beck & Co.

Top North?

Phil Tomlinson

Is it Benelux? Anyway, we seem to be doing well there. We would certainly like to do better in Spain and we would like to be in Italy and I think you will see us heading into those countries. We think there is awful lot of opportunities there. It's just every time you go into a new country it's just difficult. Because, you've got to gear up forward, you've got to spend money and every country is different. So, I mean we think we've got a pretty good plan put together for Europe. We are doing very well in the UK.

Nancy Bush - Ryan, Beck & Co.

Okay. Thank you.

Phil Tomlinson

Thank you.

Operator

We have a follow up coming from Tony Wible. Your line is live.

Tony Wible - Citigroup

Can you see, Jim, if you had the answer on reimbursables?

Jim Lipham

I do. We knew you were going to come back on that Tony. The first quarter Tony, we were high on a little bit, we were about 20% of revenues on the reimbursables and this was mainly due to some card specials and things that we did for Banc of America.

But what you will see going forward is that we are being hovering around the mere 18.5% of revenue total for reimbursables. And then, when Chase leaves, we are not doing their statements and cards so it has very little impact on our reimbursable number.

Tony Wible - Citigroup

Great. And the other question I had on the strategic front is, it seems like you guys have gotten a lot of strategic equations, but can you spend little time talking about what you could potentially look to acquire. Is there anything out there that you feel is more compelling? I know in the past you guys have talked about analytic, you have also talked about broad-based processing, is there any particular area that you feel is retreating right now?

Jim Lipham

Well, I don't think our plan has changed much there. We certainly would be in broad-based processing. We would be interested in the merchants, the acquiring business. We have started our own consulting group, now and it's up to about 45 people and is doing very well. We have greatly enhanced our analytical abilities. We still think, there's a nice little niche market there for us. Does it make sense for us to look at some acquisitions in Latin America or Europe, it probably does and US.

Tony Wible - Citigroup

And would most of the considered kind of small tuck-ins or is your appetite a little bit larger?

Jim Lipham

I think our appetite is a little larger.

Tony Wible - Citigroup

Okay. Any one of those particular areas you find more intriguing now because of I guess the industry backdrop?

Phil Tomlinson

No, not off the top of my head. Obviously, there are a few companies out there that could be of immediate help. But a lot of that goes right along with this, with the spin question. We've got a pretty good bank row stacked away now, and so we can make a pretty decent sized acquisition.

Tony Wible - Citigroup

Alright.

Phil Tomlinson

Nothing is imminent.

Tony Wible - Citigroup

Alright, but its still in the front of your mind?

Phil Tomlinson

Yeah, we'd love to be able to do more.

Tony Wible - Citigroup

Okay. Thank you very much.

Phil Tomlinson

Thank you.

Operator

Ladies and gentlemen, there appear to be no further questions in the queue. Do you have any closing comments you would like to finish with?

Phil Tomlinson

I would just like to tell you that thank you for being with us. We are committed to be the best in the business. We are trying very hard everyday to be there. I think you can see that we have a great passion for this, and I think we've built up some very strong momentum. And we appreciate your support and if you have any questions don't hesitate to call Shawn, and we'll get the answers up for you. And we appreciate your attention and being on the call with us and we wish you nothing but success. Thank you.

Operator

Thank you, ladies and gentlemen. This does conclude today's teleconference. You may disconnect your phone lines at this time, and have a wonderful day. Thank you for your participation.

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