Total System Services, having completed its purchase of the prepaid card marketer NetSpend, has raised its full-year earnings guidance.
TSYS' revenue for the second quarter rose 3.4%, to $478.4 million, from the same period a year earlier. Its net income attributable to common shareholders dropped 13.5%, to $57.7 million, from a year earlier. These figures do not include earnings for NetSpend, which TSYS purchased July 1 for $1.4 billion.
Including NetSpend, TSYS now projects its revenue will rise 14% to 17%, to a range of $2.137 billion to $2.180 billion. Its earlier revenue guidance, published in January, projected an increase of 5% to 7% over 2012, to a range of $1.955 billion to $1.995 billion.
NetSpend's revenue rose 23%, to $105 million, in the second quarter from a year earlier. Its pact with Intuit to provide prepaid card services to TurboTax users "was a significant contributor to NetSpend's revenue" during the second quarter, said Troy Woods, TSYS' president and chief operating officer, in a July 23 conference call to discuss earnings. Intuit began working with NetSpend late last year, replacing an earlier arrangement between Intuit and rival prepaid card provider Green Dot Corp.
"The acquisition of NetSpend is a transformational event for us," said Philip W. Tomlinson, TSYS' chairman and chief executive, in a press release (he was unable to speak at length on the earnings conference call due to laryngitis).
"NetSpend is the second-largest provider of general purpose reloadable and paycards in the U.S.," Tomlinson said in the release. "With the NetSpend acquisition, TSYS gains entry into one of the fastest-growing areas of payments which is expected to double over the next four to five years. The acquisition complements our already strong presence in the prepaid processing space."
Payroll cards have been subject to recent scrutiny over their fees, and NetSpend CEO Dan Henry says he considers that attention a sign of the product category's growth.
"It's almost: here we go again," Henry said during the conference call. "We went through this with prepaid this is just part of the continued process."
Despite the attention, "we don't see it as any significant threat," he said. "Paycard has to meet compliance standards in all 50 states." And the largest payroll card program in the country is the government-run program for distributing Social Security benefits, Henry adds.
Overall, "we're still very positive on the second half of the year," Henry said.