Credit card payment and ATM transaction processor TNS
Revenues were flat over last year. A previously revealed loss of a contract with DirecTV
More than 25% of TNS's revenue comes from just 10 customers. While no one company provides more than 10% of total revenues, the loss of any one company can wreak havoc on its performance. Look no further than the loss of the DirecTV contract, which contributed $1 million each quarter.
TNS had been projecting some pretty hopeful growth numbers -- revenues increasing 7% to 9% for the year, or up to $272 million, and earnings growing 4% at most, to $26.5 million. Yet that earnings expectation included the effects of a 6.3-million-share buyback completed earlier in the year at a cost of $116 million. While the buyback has been touted as being done for shareholders' benefit, 6 million shares of the buyback were tendered by GTCR Golder Rauner, the controlling shareholder in TNS. Buying at $18.50 a share, GTCR certainly benefited; it reaped a $111 million windfall.
The company also had a public offering during the quarter of 8.6 million shares at $23.25 per stub. GTCR again was the winner, as it and its affiliated investment funds sold 6.6 million of those shares. TNS did not receive any of the proceeds from that sale; instead, it used the $46 million it raised to pay down some of its debt.
As a result of the contract setbacks, the company has scrapped its prior guidance and said it expects to see revenues of only $262 million, a little more than half of its previously forecast rate of growth. Sales of equipment were also delayed and have been pushed back to the end of the first quarter of 2006, and some contracts have been renegotiated, with customers receiving price discounts in exchange for guaranteed minimum transactions or revenues.
In all, what had previously looked like a potential growth investment now seems to be struggling to tread water. But there are still some interesting components of this business that are attractive. Its telecommunications division and financial services grew 38% and 24%, respectively, and margins have continued to improve. I'm not willing to make a deposit of my investment dollars yet, but TNS does bear watching in the future.
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