Total System Services — Investor Day (June 2005)
84 slides from Total System Services's investor day presentation, June 2005
Slide 1: TSYS Analyst Day, Sea Island, June 2005
TSYS ANALYST DAY SEA ISLAND, JUNE 2005
Slide 2: Forward-looking statements
This presentation contains forward-looking statements about the future operating results of TSYS. These statements are based on management’s current expectations and assumptions and are subject to risks, uncertainties and changes in circumstances. Actual results may differ materially from those set
Slide 3: Top Questions
Top Questions 1. Perception is that we are a market winner in a mature / slow growth market? Where will the growth come from? 2. Pricing environment? 3. What are the opportunities internationally? 4. How can TSYS grow outside of its core business? 5. What is the growth outlook for Vital? 6. Where ar
Slide 4: Agenda
I TSYS Business Outlook - Troy Woods II Emerging Markets - Gaylon Jowers AGENDA AGENDA III Vital Processing Services - Bev Wells IV Financial Outlook - Jim Lipham V Portfolio of Growth - Phil Tomlinson TSYS | 2005 ANALYST DAY 4
Slide 5: Business Outlook - Troy Woods
Business SECTION I OUTLOOK TROY WOODS President & Chief Operating Officer TSYS TSYS | 2005 ANALYST DAY 5
Slide 6: Growth in Electronic Transactions
Growth in Electronic Transactions INDUSTRY TRENDS U.S. Transaction Trends Cash & Check Electronic 24% 36% 50% 1998 2003 2008 Source: The Nilson Report, Dec 2004 TSYS | 2005 ANALYST DAY 6
Slide 7: Global Electronic Payments Concentrated in U.S. & European Regions
Global Electronic Payments Concentrated in U.S. & European Regions INDUSTRY TRENDS • 62% of consumer payment transactions in U.S. & European regions • Latin America & Asia Pacific regions also present strong growth potential Global Non-Cash Consumer Payment Transactions by Region – 2004 (Total 198 B
Slide 8: Global Credit Card Spend
Global Credit Card Spend INDUSTRY TRENDS (US $ Billions) 2002 2007* CAGR North America $1,569 $2,382 9% Latin America $42 $109 21% Europe $679 $1,084 10% Asia – Pacific $456 $624 6% * Denotes projection Source: Morgan Stanley Research TSYS | 2005 ANALYST DAY 8
Slide 9: Core Processing
CORE PROCESSING TSYS | 2005 ANALYST DAY 9
Slide 10: Account Growth
Account Growth CORE PROCESSING 450 400 21-year CAGR - 25% 350 300 250 200 150 100 50 0 * 83 85 87 89 91 93 95 97 99 01 03 05 19 19 19 19 19 19 19 19 19 20 20 20 * Denotes projection TSYS | 2005 ANALYST DAY 10
Slide 11: Revenue Growth
Revenue Growth CORE PROCESSING $1,000 $900 21-year CAGR - 22% $800 $700 $600 $500 $400 $300 $200 $100 $0 97 01 83 85 87 89 91 93 95 99 03 19 19 20 19 19 19 19 19 19 19 20 TSYS | 2005 ANALYST DAY 11
Slide 12: Net Income Growth
Net Income Growth CORE PROCESSING $160 $140 21-year CAGR - 23% $120 $100 $80 $60 $40 $20 $0 83 85 87 89 91 93 95 97 99 01 03 19 19 19 19 19 19 19 19 19 20 20 TSYS | 2005 ANALYST DAY 12
Slide 13: Transactions per Active Account
Transactions per Active Account CORE PROCESSING % 9.1 46.6 % 8.9 % 42.7 3.4 39.2 37.9 2001 2002 2003 2004 TSYS | 2005 ANALYST DAY 13
Slide 14: TSYS Accounts on File
TSYS Accounts on File CORE PROCESSING 2000 2004 Consumer Retail Commercial Debit Government 8.7% 13.8% International TSYS | 2005 ANALYST DAY 14
Slide 15: Economics per Portfolio Type
Economics per Portfolio Type CORE PROCESSING Consumer Revenue per Account Retail Commercial Debit Government Margin per Account TSYS | 2005 ANALYST DAY 15
Slide 16: Market Share Gain
Market Share Gain CORE PROCESSING TSYS | 2005 ANALYST DAY 16
Slide 17: U.S. Market Share
Market Share Gain CORE PROCESSING U.S. Market Share 2003 2005* In-house In-house TSYS TSYS 20% 37% TSYS Market Share * Denotes projection TSYS | 2005 ANALYST DAY 17
Slide 18: Prospects for New Account Growth: Consumer Cards
Prospects for New Account Growth: Consumer Cards – U.S. CORE PROCESSING Top Issuers by Accounts AOF (mil.) Primary Processor 1 Citibank 95.0 In-house • Industry (Sears Portfolio) 29.9 TSYS consolidation 2 Chase Card Services (incl. Bank One) 73.1 TSYS 3 American Express Centurion Bank 57.3 0.4 In-ho
Slide 19: Economies of Scale in Core Processing
Economies of Scale in Core Processing CORE PROCESSING Although revenue per account on file is declining, operating costs per account on file are decreasing faster – yielding improved operating margins. Dollars per Average Account on File Revenue/AOF Operating Costs/AOF Operating Margin/AOF 1995 1996
Slide 20: Prospects for New Account Growth: Commercial
Prospects for New Account Growth: Commercial CORE PROCESSING Top Commercial Issuers by Cards ( > 1M ) Primary Top Issuers by Accounts AOF (mil.) Processor 1 Bank of America 4.9 TSYS 2 Citigroup 4.5 TSYS 3 MBNA America 2.7 TSYS 4% 4 US Bancorp 1.7 TSYS R –1 627.2 AG 5 GE Capital Financial 1.4 TSYS 6
Slide 21: Prospects for New Account Growth: Retail Cards
Prospects for New Account Growth: Retail Cards CORE PROCESSING Top Retail Issuers by Cards ( > 5M ) Primary Top Issuers by Accounts AOF (mil.) Processor 1 GE Capital Financial 2 Alliance Data Systems 101.0 80.6 Other In-house • Citi / SEARS 3 Sears (Citibank) 50.8 TSYS 4 Citibank 5 Federated Departm
Slide 22: International
INTERNATIONAL TSYS | 2005 ANALYST DAY 22
Slide 23: Prospects for New Account Growth: Consumer Cards – International
Prospects for New Account Growth: Consumer Cards – International INTERNATIONAL • Highly fragmented • Legal and cultural barriers to entry AOF Primary AOF Primary Top Issuers by Accounts Country (mil.) Processor Top Issuers by Accounts Country (mil.) Processor CANADA EUROPE 1 Royal Bank of Canada Can
Slide 24: International Market Trends
International Market Trends INTERNATIONAL Trends Opportunities • Highly fragmented markets • Global payment solution – Mostly done in-house – Single global platform – Localized in region – Currency conversion • Increased competition • Best of breed technology – Bank consolidation – Competitive advan
Slide 25: International Revenue Growth
International Revenue Growth INTERNATIONAL $250 Other $200 A GR Japan C % 40 Mexico (in millions) $150 Canada $100 Europe $50 $0 2000 2001 2002 2003 2004 International Revenue as a % of Total 7.3% 10.5% 14.6% 18.1% 18% Revenue TSYS | 2005 ANALYST DAY 25
Slide 26: Value Add Products
VALUE ADD PRODUCTS TSYS | 2005 ANALYST DAY 26
Slide 27: Value Add Products: Solutions and Customer Challenges
Value Add Products VALUE ADD PRODUCTS TSYS Solutions Customer Challenges • Mitigate portfolio risk • Fraud systems • Drive card activation • New account acquisition • Target marketing • Portfolio Management • Reporting TSYS | 2005 ANALYST DAY 27
Slide 28: Value Add Revenue Distribution
Value Add Products VALUE ADD PRODUCTS Portfolio Management Reporting Resources 25% 23% Account 8% Acquisition 44% Fraud TSYS Value Add Revenue Distribution TSYS | 2005 ANALYST DAY 28
Slide 29: Product Penetration Rate and New Products
Value Add Products VALUE ADD PRODUCTS Product Penetration Rate New Products • Portfolio Management 57% Strategy Design Services, TTS, Probe • Reporting 36% Customer Data Integration, Campaign Manager • Fraud 50% Authorization Decision Strategy, TSYS Notification, TSYS Alert • Account Acquisition 27%
Slide 30: Value Add Products Revenue Growth
Value Add Products VALUE ADD PRODUCTS $180 $160 CAGR 25% $140 millions $120 $100 $80 $60 $40 1999 2000 2001 2002 2003 2004 TSYS | 2005 ANALYST DAY 30
Slide 31: Operating Strategy
OPERATING STRATEGY TSYS | 2005 ANALYST DAY 31
Slide 32: Alignment of Leadership
Alignment of Leadership OPERATING STRATEGY Rick RickUssery Ussery Phil Phil Tomlinson Tomlinson Chairman Chairmanofofthe theBoard Board CEO CEO Troy TroyWoods Woods President President&&COO COO Bev BevWells Wells Ken KenTye Tye Bill Bill Pruett Pruett Jim Jim Lipham Lipham President, SR. President,
Slide 33: TSYS Strategic Business Units
TSYS Strategic Business Units OPERATING STRATEGY TSYS | 2005 ANALYST DAY 33
Slide 34: What Does This All Mean?
What Does This All Mean? • Transaction processing is still a good business – Industry trends support solid organic growth • Industry consolidation protection – Process for over 200 million accounts for the top 15 banks – All other processors combined will process less than 12 million • Scale implica
Slide 35: Emerging Markets - Gaylon Jowers
Emerging SECTION II MARKETS GAYLON JOWERS Executive Vice President International, Affiliates and Global Sales and Marketing TSYS TSYS | 2005 ANALYST DAY 35
Slide 36: Payments Industry Landscape
Payments Industry Landscape EMERGING MARKETS Credit & Debit ACQUIRING DEBIT CREDIT ACQUIRER ASSOCIATION NETWORK ISSUER PROCESSING PROCESSING PROCESSING Retailer ISO ISO Consumer Payment Gateways Merchant Visa/ Visa/ Issuer Issuer Credit Credit Financial Financial Retail Cardholder MasterCard MasterC
Slide 37: Payment Pools for Emerging Payments Products
Payment Pools for Emerging Payments Products EMERGING MARKETS Growth 2004-2008 CAGR Percent 100% ATM remittance 90% 80% RFID Unbanked Wireless spending card 70% Consumer 60% Small business General purpose Commercial 50% gift card debit gift 40% Payroll cards P2P 30% Debit Corp/p-card 20% EMT 10% Tee
Slide 38: Extend: ESC Loyalty
EXTEND: ESC Loyalty TSYS | 2005 ANALYST DAY 38
Slide 39: Why Loyalty?
Why Loyalty? EXTEND: ESC LOYALTY Credit Card Attrition Rates (Account Closures) 25% • The typical credit card issuer spends six to twelve times more 20% to get a customer than to keep one 15% 2003 10% 8% • Keeping one existing customer is 5% five to seven times more profitable than obtaining a new 0
Slide 40: Market Opportunities
Market Opportunities EXTEND: ESC LOYALTY Market Segment Penetration U.S. Consumer Credit Cards 2004 Total Cards 641 MM Loyalty 404 MM Penetration (63%) Source: Packaged Facts, 2005, ESC Loyalty analysis • Issuer Spend on Card Based Loyalty Programs – US. Loyalty Market -- $6.0B/ year – Global Market
Slide 41: TSYS Position
TSYS Position EXTEND: ESC LOYALTY • Diversified product offering – Fulfillment – Loyalty transaction processing – Consulting services • Integrated with TSYS’ processing systems • Enabled for multi-product programs to pool points and benefits Credit Debit Small Mortgage Loan Savings Auto Electronic C
Slide 42: Diversify: TSYS Prepaid
DIVERSIFY: TSYS Prepaid TSYS | 2005 ANALYST DAY 42
Slide 43: Why Prepaid?
Why Prepaid? DIVERSIFY: TSYS PREPAID • The prepaid card industry is one of the fastest growing segments of electronic payments • Factors driving growth for businesses – Need to reengineer legacy payment processes into efficient and cost- effective systems – Desire to introduce new payment card produ
Slide 44: Market Opportunity
Market Opportunity DIVERSIFY: TSYS PREPAID • Vertical Markets – healthcare, Forecasted Growth in US Prepaid Cards corporate incentives, gift, (Spend Value of Transactions 2002-2007) unbanked and underserved, $175 payroll, insurance, consumer $146 promotions, travel and $150 $122 remittance $125 $100
Slide 45: TSYS Position
TSYS Position DIVERSIFY: TSYS PREPAID • Integrated Approach CREDIT LOYALTY • Offer leading technology … solutions across all prepaid Travel verticals on a single platform … Other Gift • Growth strategy is to capture Client largest prepaid card processing Unbanked opportunities across all vertical He
Slide 46: Vital - Bev Wells
SECTION VITAL III BEV WELLS President Vital Processing Services TSYS | 2005 ANALYST DAY 46
Slide 47: Agenda
Agenda VITAL • Vital Overview • Customers and Products • Results • Commitment to Growth • Summary TSYS | 2005 ANALYST DAY 47
Slide 48: Vital History
Vital History VITAL • Strong growth in card usage • Banks exit acquiring Search for end-to-end value • First Data threat TSYS | 2005 ANALYST DAY 48
Slide 49: Top Line Vital Facts
Top Line Vital Facts VITAL • Performs 13% of U.S. authorizations • Services 20% of U.S. merchants • 23 of top 25 U.S. acquirers are clients TSYS | 2005 ANALYST DAY 49
Slide 50: Vital Demographics
Vital Demographics VITAL 750 employees 6 locations TSYS | 2005 ANALYST DAY 50
Slide 51: Two-Fold Service Model
Two-Fold Service Model VITAL • Acquirer focus Users of Vital’s – Providing tools and services acquirer-focused products & services that increase acquirers efficiency and effectiveness Distributors of Vital’s merchant-focused products & services • Merchant focus – Providing products and Users of Vita
Slide 52: Vital's Clients
Vital’s Clients VITAL • Bank acquirers 2004 Revenue Distribution by Client Type • Independent sales organizations (ISO’s) • Processors – First Data & Alliances Bank of America/ NPC – 25% – Other Processors who Other Bank are also acquirers Acquirers – 34% ISO's – 21% Processors & Others – 20% TSYS |
Slide 53: Market Verticals
Market Verticals VITAL 2004 Credit & Offline Debit Transactions TSYS | 2005 ANALYST DAY 53
Slide 54: Vital's Product Line
Vital’s Product Line VITAL Primary Products & Services 2004 Revenue By Product Line • Authorization & Capture Processing • Clearing & Settlement Processing Value-added Products & Services • Terminal Deployment & Servicing • Merchant Customer Service Primary Products & Services – 73% • Information Re
Slide 55: Serving Acquirers: Merchant Processing Lifecycle
Serving Acquirers VITAL Merchant Processing Lifecycle TSYS | 2005 ANALYST DAY 55
Slide 56: Serving Merchants
Serving Merchants VITAL TSYS | 2005 ANALYST DAY 56
Slide 57: Strong Results: Transaction Growth
Strong Results VITAL Transaction Growth 7 CAGR 14.2% 6.2 Transactions (in billions) 6 5.2 5.3 5 4.7 4.0 4 3.4 2.8 3 2 1 0 1998 1999 2000 2001 2002 2003 2004 Authorization Clearing & Settlement TSYS | 2005 ANALYST DAY 57
Slide 58: Strong Results: Revenue Growth
Strong Results VITAL Revenue Growth $300 CAGR 12.3% $249 $250 $228 $224 $225 $200 $181 Millions $151 $150 $124 $100 $50 $0 1998 1999 2000 2001 2002 2003 2004 TSYS | 2005 ANALYST DAY 58
Slide 59: Focused Execution Excellence
Focused Execution Excellence VITAL TSYS | 2005 ANALYST DAY 59
Slide 60: Commitment to Growth
Commitment to Growth VITAL • Aggressive Technology Investment TSYS | 2005 ANALYST DAY 60
Slide 61: What Makes Vital Distinctive
What Makes Vital Distinctive VITAL • Broad merchant solutions • Strong merchant support services • Technology scale & sophistication • Focused execution excellence • Growth that out performs the industry 2003-2004 Volume Growth TSYS | 2005 ANALYST DAY 61
Slide 62: Commitment to Growth
Commitment to Growth VITAL • Intense commitment to client partnerships • 10% revenue reinvested in new products and services • Focus on analytics to drive merchant value • Integration with TSYS to achieve end-to-end value TSYS | 2005 ANALYST DAY 62
Slide 63: Conclusion
Conclusion VITAL Vital is the engine inside the industry TSYS | 2005 ANALYST DAY 63
Slide 64: Financial Review - Jim Lipham
SECTION FINANCIAL IV REVIEW JIM LIPHAM Senior Executive Vice President & Chief Financial Officer TSYS TSYS | 2005 ANALYST DAY 64
Slide 65: Financial Highlights
Financial Highlights FINANCIAL REVIEW • Strong internal core revenue growth • Conversion pipeline • Long-term visibility • Operating leverage • Strong Free Cash Flow TSYS | 2005 ANALYST DAY 65
Slide 66: Internal Core Growth Rate 2004
Internal Core Growth Rate FINANCIAL REVIEW 20% 6% 5% 15% New Clients 11% 10% 10% Portfolio Sales -(3%) Other - (2%) Total - (5%) 5% Internal Core Growth Reported Growth 2004 vs. 2003 TSYS | 2005 ANALYST DAY 66
Slide 67: Revenue Growth Drivers
Revenue Growth Drivers FINANCIAL REVIEW 10% 122 111 2003 2004 Average Active Account per Month (millions) TSYS | 2005 ANALYST DAY 67
Slide 68: Internal Core Growth Rate 1Q05
Internal Core Growth Rate FINANCIAL REVIEW 20% 9% 3% 15% 15% New Clients Portfolio Sales (2%) 10% 9% Other– (1%) Total – (3%) 5% Internal Core Growth Reported Growth 1Q05 vs. 1Q04 TSYS | 2005 ANALYST DAY 68
Slide 69: Long Term Visibility
Long Term Visibility FINANCIAL REVIEW Percentage of Electronic Payment Processing Revenue Contractually Committed and Not up for Renewal 120% 100% 96% 80% 85% 81% 77% 60% 64% 40% 20% 0% 2005 2006 2007 2008 2009 Note: excluding TSYS subsidiaries TSYS | 2005 ANALYST DAY 69
Slide 70: Operating Leverage
Operating Leverage FINANCIAL REVIEW • Economies of scale 66.6% 66.6% – Recent account wins will 65.7% equip TSYS with 64.3% unmatched scale 62.8% • Cost of technology • Longer-term benefits of recent platform developments 2000 2001 2002 2003 2004 Salaries and Occupancy Expenses as a Percent of Reven
Slide 71: Operating Leverage – Team Member
Operating Leverage – Team Member FINANCIAL REVIEW 72,660 61,900 47,700 45,538 42,473 39,877 2000 2001 2002 2003 2004 2005* * Denotes projection Accounts per Team Member TSYS | 2005 ANALYST DAY 71
Slide 72: Operating Leverage - Technology
Operating Leverage - Technology FINANCIAL REVIEW 33% 2000 2001 2002 2003 2004 2005* * Denotes projection Cost per Account TSYS | 2005 ANALYST DAY 72
Slide 73: Operating Leverage - Technology
Operating Leverage - Technology FINANCIAL REVIEW 22% 2000 2001 2002 2003 2004 2005* * Denotes projection MIPS per Million Accounts TSYS | 2005 ANALYST DAY 73
Slide 74: Operating Leverage - Technology
Operating Leverage - Technology FINANCIAL REVIEW $29.5 $21.4 $18.3 $17.7 $13.7 $10.5 $5.2 2000 2001 2002 2003 2004 Developed / Acquired Software Acquisitions (millions) TSYS | 2005 ANALYST DAY 74
Slide 75: Free Cash Flow Trends
Free Cash Flow Trends $222.3 $156.8 Free Cash Flow $90.3 Contract Acquisition Costs $63.3 Software Property and Equipment 2002 2003 2004 Acquisition of campus Based on recurring items (acquisitions not included) TSYS | 2005 ANALYST DAY 75
Slide 76: TSYS 2005 Guidance
TSYS 2005 Guidance FINANCIAL REVIEW Revenues before Reimbursables Up 30 – 33%* Vital contribution $225 – $235 million Accounts on file 430 – 435 million Net Income Up 22 – 25% * Denotes no significant customer losses or additions TSYS | 2005 ANALYST DAY 76
Slide 77: A Portfolio of Growth - Phil Tomlinson
A Portfolio of SECTION V GROWTH PHIL TOMLINSON Chief Executive Officer TSYS TSYS | 2005 ANALYST DAY 77
Slide 78: Portfolio of Growth
Portfolio of Growth A PORTFOLIO OF GROWTH account growth beyond credit international complete expansion payment solution TSYS | 2005 ANALYST DAY 78
Slide 79: Competitive Advantages
Competitive Advantages A PORTFOLIO OF GROWTH TSYS | 2005 ANALYST DAY 79
Slide 80: Top Questions
Top Questions A PORTFOLIO OF GROWTH 1. Perception is that we are a market winner in a mature / slow growth market? Where will the growth come from? – Solid organic growth – Conversion pipeline that backs growth through 2007 – Vital, International, and extension and diversification strategy 2. Pricin
Slide 81: Top Questions
Top Questions A PORTFOLIO OF GROWTH 4. How can TSYS grow outside of its core business? – Extend deeper into the value chain of our customers – Card-based applications are taking on multiple forms 5. What is the growth outlook for Vital? – Dynamic growth trends and transactions support organic growth
Slide 82: Alternate Perspective of Our Strategy
Alternate Perspective of Our Strategy A PORTFOLIO OF GROWTH LONG TERM SUCCESS Healthcare? Managed Services? Data Analytics? ?? Consumer Products? Vital, TSYS Prepaid, Affiliates ESC Loyalty, TSYS Debt Management International Canada, Mexico, Brazil, Europe, Japan and China Value Added Services, Anci
Slide 83: Questions
QUESTIONS TSYS | 2005 ANALYST DAY 83
Slide 84: TSYS Analyst Day, Sea Island, June 2005
TSYS ANALYST DAY SEA ISLAND, JUNE 2005