Fidelity National Information Services Inc (FIS) 2007 Q4 法說會逐字稿

Ladies and gentlemen, thank you for standing by. Welcome to the fourth quarter earnings conference call. At this time all participants are in a listen-only mode. Later we will conduct a question and answer session. Instructions will be given at that time. (OPERATOR INSTRUCTIONS) As a reminder this conference is being recorded.

I would now like to turn the conference over to our host, Ms. Mary Waggoner, Senior Vice President of Investor Relations. Please go ahead, ma'am.

Thank you. Good morning everyone. Joining me today to review our fourth quarter and full year results are Bill Foley, Executive Chairman, Lee Kennedy, President and Chief Executive Officer, and Jeff Carbiener, Chief Financial Officer. In addition to being recorded, this call is being audio cast live over the internet. Telephone replay information is included in today's press release and a replay will also be available via our website. Today's discussion will contain references to non-GAAP and pro forma results in order to provide more meaningful comparisons between the periods presented. As in the previous quarters, the 2007 and 2006 GAAP results presented in the press release have been adjusted to improve comparability.

Reconciliations between GAAP and non-GAAP results and schedules showing historical detail are provided in today's press release, which is also available on our website. Before we continue, I would like to remind you that some of the comments made on today's call will contain forward-looking statements. These statements are subject to the risks and uncertainties described in our earnings release and other filings with the SEC. The Company expressly disclaims any duty to update or revise those forward-looking statements, including quarterly and annual guidance. Now I will turn the call over to our our Executive Chairman, Bill Foley.

Thanks, Mary. Good morning, everyone, and thank you for joining us this morning. It was a very good quarter and an excellent year for FIS. Excluding eFunds, FIS generated strong 11% full year revenue growth and 13% EBITDA growth. These excellent results were achieved despite unprecedented turmoil in the real estate market, which demonstrates the strength of our technologies, products and people. Lee and Jeff will provide additional details on the fourth quarter and full year operating results later in the call. This morning I will provide an update on two important strategic initiatives, the integration of eFunds and the spinoff of our Lender Processing business. We believe that the separation of LPS into a standalone public Company and the acquisition of eFunds will strengthen our competitive position, increase operating leverage and drive higher value to our customers and our shareholders.

eFunds adds additional critical scale to our EFT, ATM, and debit card processing businesses and significant new product capability, including prepaid gift card and risk management services. eFunds operating units have been emerged into FIS and we expect to achieve sizable cost synergies over the next two years. The second major initiative is the proposed spinoff of Lender Processing Services. Last quarter we discussed the rational for separating FIS into two publicly traded companies. We believe that is even more compelling today considering the excellent results generated by LPS in the fourth quarter and our strong competitive positions. We are on schedule to complete the spinoff of LPS by the end of June. On January 7th we filed a formal request for a tax-free distribution of LPS and expect to complete and file the form 10 in mid-March. We're working on finalizing the credit and capital structures of both companies. Yesterday we announced the senior level management teams for both organizations. The new lender Company will be called Lender Processing Services or LPS.

LPS is widely recognized by our customers and the market, which should allow for an efficient launch of the new public Company. Jeff Carbiener, who is currently CFO of FIS, will serve as Chief Executive Officer of the lender business and Jeff will remain CFO of FIS until the spin is completed. Jeff has a strong operational and financial background and has demonstrated strong leadership skills since joining FIS in 2006. Jeff will be supported by a highly capable experienced management team. Eric Swenson, Executive Vice President of Mortgage Information Services, and Dan Scheuble, Executive Vice President of Mortgage Processing Services, will report to Jeff and continue in their current roles. Francis Chan, who currently serves as Chief Accounting Officer of FIS, will assume the role of Chief Financial Officer for LPS. Parag Bhansali, who recently joined FIS, will head up Investor Relations. Parag was previously responsible for investor relations at Rayonier. Lee Kennedy will remain as President and CEO of FIS.

George Scanlon, who joined FIS earlier this month, will assume the position of CFO once the spin is complete and will report directly to Lee. George most recently served as CFO for BFC Financial Corporation and has a very strong finance and accounting skills, having served as CFO for Levitt Corporation, Datacore Software Corporation and as controller for Ryder Systems. Gary Norcross, who was previously President of IFS, our community institution business, will serve as Chief Operating Officer for FIS. Gary will be responsible for all global banking businesses, including Integrated Financial Solutions, Enterprise Banking and international. Frank Sanchez will be responsible for all strategic development initiatives worldwide. Frank has an extensive bank technology services background and prior to joining FIS, Frank was CEO of Sanchez Computer Associates, which was acquired by FIS in 2003. Frank and Gary will report to Lee. Mary Waggoner will continue as Senior Vice President of Investor Relations for FIS.

We remain very excited about the future potential of FIS and LPS. Each has generated strong organic growth and excellent financial results. Both businesses have experienced season -- have a seasoned management teams and are leaders in their respective markets. We'll provide additional information on the progress of the spin as soon as it becomes available. Now I will turn the call over to Lee, who will review fourth quarter and full year results. Lee.

Thanks, Bill. Good morning everyone and thanks for joining us this morning. I'll begin today's call with a review and a summary of our fourth quarter results, including an update on key business initiatives. Jeff will follow with a detailed financial report and provide guidance for 2008. Overall, we are pleased with fourth quarter results and the continued strength of new sales and customer implementations. Fourth quarter consolidated revenue increased 20%, EBITDA increased 28.1%, and cash earnings per share came in at $0.68, which is a 17.2% increase over prior year. Excluding eFunds, revenue increased 7.4%, driven by 5.8% growth in transaction processing services and 9.5% growth in Lender Processing Services. EBITDA increased 12.5% and the EBITDA margin was 27.2%. The increase in TPS revenue was driven by strong 21.2% growth in our international business.

Our German core and Brazilian card processing businesses generated excellent double-digit growth. During the quarter we made substantial progress implementing the platforms necessary to process ABN's and Bradesco's card portfolios. We remain on schedule to convert ABN in March and Bradesco in the third quarter of this year. We currently process over 7 million Bradesco cards on our Brazilian processing platform and will convert an additional 10 million accounts in the third quarter, which are processed by Bradesco in-house. We will also provide a wide range of back office services to ABN and Bradesco, including fraud monitoring, customer service, chargebacks, collections and item processing services. The demand for our outsourcing services in other regions of the world is also strong.

I am pleased to announce a new five-year consumer loan outsourcing agreement with a top three tier bank headquartered in the UK with operations in more than 50 countries. The bank's entire UK consumer loan portfolio will be out sourced to FIS and processed on our ALS platform. Our strong system functionality, competitive pricing and regulatory compliance systems contributed to the bank's decision to choose FIS. This is the first time that a bank has outsourced the processing of consumer loans in the UK and we're optimistic that we'll sign additional outsourcing customers in the future. We're also pleased to announce that we've reached an agreement with Ish Bank, Turkey to provide a wide range of core banking services to its Turkish operations. Ish Bank, which has over 15 million customers, is Turkey's second largest bank. This was a great competitive win for our Company. Once installed, our core processing platform will serve as a foundation for transforming the Bank's technology platforms, which will improve the quality of service, reduce time to market for new products, and increase operating efficiencies.

Ish Bank is our first banking customer in Turkey, which is Europe's fastest growing market. During the quarter we completed the installation of our new KORDOBA core processing system for TeamBank Germany. And in December Wal-Mart Mexico began using our integrated profile card and core processing platform. We believe this integrated system, which is the first of its kind, will have strong international appeal. IFS, our community bank and credit union business, continues to generate excellent new sales results. Recent wins include a new item processing contract with Pacific Capital Bank, which is the largest independent bank in central California. We also signed new card processing agreements with Pipeline Data and Canadian based Home Trust. In addition, we expanded our card transaction processing relationship with CMG to include account servicing and collections.

In March, Arizona Federal Credit Union will offer our ScoreCard loyalty program to its 250,000 debit card customers. Our loyalty business continues to generate strong double-digit revenue and operating income growth. In early December, we signed an agreement with Digital Insight to market our newly enhanced Premium Bill Pay service to Digital's internet banking customers. During the past two years we have added significant new functionality to our bill payment product line, which has strengthened our product and service capabilities. More than two-thirds of our existing bill pay institutions had converted to this new platform, which is highly competitive with other leading bill pay products. Although we have traditionally focused on the community bank and credit union markets, we are confident that Premium Bill Pay will compete very well in the mid and upper tier markets as well. The demand for our core processing and delivery platforms also remains strong.

We continue to make progress in marketing our TouchPoint products and services to mid-market and tier one institutions. We're pleased to announce the rollout of our TouchPoint fails and service platform to Bank of America, one of the world's largest financial institutions. In time TouchPoint will provide Bank of America with enhanced service and sales capabilities across delivery channels and lines of business by providing a single consistent view of the customer relationship. TouchPoint will enable the bank to better identify cross selling opportunities, reduce time to market to service new accounts and open new accounts, and enhance the overall banking experience for its more than 59 million consumer and small business relationships. During the quarter we finalized TouchPoint agreements with Bank of the West, and we're completing the rollout of RBC.

In addition, BB&T, the nation's 13 largest bank and standard charter bank, will install our ACBS commercial lending platform to process and support complex loan trading and syndications. ACBS is one of our fastest growing global businesses. ACBS's 2007 revenue and EBITDA grew in the strong double digit range. BB&T demonstrates the depth of the relationships that we have with tier one institutions. In addition to the new commercial lending deal, FIS provides mortgage processing, consumer lending, and card processing services to BB&T. A number of our investors have asked us to comment on our view for 2008 bank technology spend. At this point in time tier one, two and three institutions continue to invest in the maintenance and development and support of core systems, payment products and delivery channels. This is especially true in international markets where we have established leading market positions.

We are confident that we will be able to continue to generate solid revenue and earnings growth, driven by our strong recurring revenue base and the depth of our customer implementation queue. I want to emphasize that the vast majority of our bank and payment service products and support are not discretionary in nature. FIS markets processing and support systems, which enable institutions to accept, transfer, and account for consumer deposits, consumer loans, and transaction accounts. A bank cannot operate without these services. These are not discretionary services, regardless of the size of the institution or the strength of the economy. For IFS clients we're essentially the bank's internal IT department. The majority of EBS's revenue is generated from providing outsource core processing services and not elective project work. We estimate that approximately $50 million, or less than 10%, of EBS's core banking revenue is generated through discretionary software sales and project work.

While it is reasonable to assume that some banks may slow down non-mission critical projects or delay new product development, others will focus on lowering costs through outsourcing development and processing support. For example, we recently signed a large multi-year contract to provide technology infrastructure services for a large midwestern bank. And are engaged in similar discussions with other institutions. The new loan processing agreement, which I previously mentioned in the UK, is another good example of the growing trend toward outsource processing and development. Our newly announced TPS organization structure should drive higher sales and lower costs by creating stronger accountability and more efficient use of sales, operating and development resources across business unit lines and across all geographies. The new bank centric organization includes all TPS businesses worldwide. This new organization will also enable us to manage capital investment more efficiently by further reducing duplicate development efforts.

And finally, we're making good progress integrating eFund sales and operating organizations into FIS. And we are confident that we will achieve at least $65 million in cost savings by the end of 2009. eFunds will add significant product capability in scale to FIS, which will strengthen our competitive position and long-term growth potential. Now I'll move on to LPS. Fourth quarter LPS revenue increased 9.5% over prior year, EBITDA increased 16.2%, and year-over-year margins increased 190 basis points to 33.8%. These results were particularly impressive given the significant weakness in the housing and mortgage markets that persisted throughout the quarter. Exceptional growth and appraisal and default services more than offset lower volumes in title and settlement services. While appraisals are typically tied to new loan origination and refinance activity, the trend towards outsourcing, combined with strong market share gains, drove 17% growth in front-end appraisals during the quarter.

We are encouraged with January's increase in open title and front-end services, which is being driven by lower interest rates. We also believe that the increases in the lending caps for Fannie Mae, Freddie Mac and FHA conforming loans, which were approved yesterday, will drive strong increasing in refinance activity. We are encouraged with the recent strength of the origination and refinancing activity overall. Fourth quarter default services revenue was also very strong, almost doubling over prior year. These excellent results were driven by continued market share gains, increased foreclosure activity and excellent demand for our new desktop technologies. We believe that defaults will continue to increase throughout 2008 and most of 2009 before moderating to more historical levels as we move forward towards 2011.

We are making good progress with the migration of Chase and Wachovia to our MSP platform and are achieving all milestones and benchmarks established by both institutions. We're on track to convert Chase's 500,000 subprime loans in May and we'll convert the remaining loan accounts in early 2009. We expect to complete the conversion of Wachovia HELOC loans also in early 2009. While the conversion dates are slightly later than originally anticipated, it is not unusual for institutions to adjust conversion timelines to accommodate changing institution priorities and initiatives. We are very pleased with the success that we're having selling additional products and services to our existing customer base. During the fourth quarter, additional products were sold to several of the nation's leading lenders, including EMC, IndyMac, Lehman, WaMu, Wachovia, Countrywide and Bank of America.

Last quarter we outlined several key competitive strengths that have enabled FIS to outperform the market and our competition, including the range and depth of our product capabilities, market leading integrated technologies and strong relationships with the nation's leading lenders. We also discussed the growing importance of processing first mortgage and home equity loans on a single platform which enables lenders to improve portfolio risk management, reporting, and securitization capabilities. There are also several significant market factors which are driving additional growth opportunities, including the growing importance of reducing loan servicing costs, the increase in utilization of data and analytics to improve portfolio profitability, and the strong interest in bundled integrated products, which reduce operating costs and allow lenders to provide a higher level of customer service. Our integrated core and ancillary product capability is a significant competitive advantage, which should continue to generate strong growth opportunities for LPS.

An example of this is our new desktop workflow management system, which is a highly efficient imaging. retrieval, expense and communication management system that provides realtime connectivity between lenders, suppliers and portfolio investors. The desktop technology links our default customers to more than 10,000 vendors, service providers and investors through a single user interface. The desktop system streamlines complex work processes by automating labor intensive functions and eliminating the need to build multiple interfaces between various data and service suppliers. The system generates advanced reporting and performance metrics. which significantly reduces the manual effort required to process default files, resulting in a nearly 70% improvement in efficiency. Interest in our desktop system is strong. More than 50 implementations are scheduled throughout 2008 and the sales pipeline is extremely full. While desktop was originally developed for default services, this unique technology will soon support other lender applications.

This proprietary workflow management system is becoming a standard for the industry. Overall, it was a good quarter and a great year for FIS. Excluding eFunds, consolidated full year 2007 revenue increased 11%, driven by 10.5% growth in transaction processing services and 11.2% growth in Lender Processing Services. These strong results exceeded our initial revenue guidance of 7% to 9%. Excluding eFunds, EBITDA increased 13%, which exceeded our guidance of 10% to 12%. Our 2008 guidance of 14% to 16% revenue growth includes solid organic growth of 6% to 8% and cash EPS growth of 12% to 16%. We're making significant progress in integrating eFunds into our core businesses and we're on track to complete the spinoff of our Lender Processing business by mid-year. We believe that both of these strategic initiatives will drive additional value to our customers and also to our shareholders. Now I will turn the call over to Jeff, who will provide a more detailed financial review of fourth quarter results and our outlook and guidance for 2008. Jeff.

Thanks, Lee, and good morning. Our fourth quarter 2007 results include approximately $140 million in revenue and approximately $45 million in EBITDA from eFunds. For comparative purposes my comments pertaining to revenue and EBITDA will focus on standalone FIS excluding eFunds. Also Property Insight, which was previously included in LPS, is now reported as a discontinued operation and earnings are now reported below the line. Excluding eFunds, consolidated fourth quarter revenues increased 7.4% to $1.2 billion driven by 5.8% growth in TPS and 9.5% growth in LPS. For the year consolidated revenue increased 11%, driven by 10.5% growth in TPS and 11.2% growth in LPS. The increase in TPS fourth quarter revenue to $735.3 million was driven by 21.2% growth in international and 5.2% growth in integrated financial solutions. The 21.2% increase in international revenue to $170.8 million was fuelled by strong growth in our payment services businesses, particularly our card operation in Brazil.

Payment services revenues now represent approximately 56% of total international revenues. On an annual basis international revenue increased 33.2%, driven by strong growth across all regions in both card and core processing. The 5.2% increase in IFS fourth quarter revenue to $297.9 million was driven by solid growth in our E business, credit card and item processing product lines. Growth in these same product lines also drove the full year IFS revenue increase of 6.6%. New sales activity remained strong, as the total contract value of new customer signings was up 15% during the fourth quarter and 17% for the year. EBS revenue of $267.1 million decreased 2% compared to the fourth quarter of 2006. Growth in the existing customer base was offset by a reduction in implementation revenue due in part to the startup of the TouchPoint project for B of A in Q4 last year, lower project specific revenue and lower retail volumes in check services.

Excluding check from all periods, fourth quarter EBS revenue was on par with the prior year quarter and $6 million higher than the third quarter of 2007. As we've discussed in previous quarters, when revenue growth was extremely strong EBS is the customer channel most subject to variability in quarterly results. On an annual basis, overall EBS revenue increased 4%, which was inline with our original expectations. Lender Processing revenue increased 9.5% to $454.8 million, driven by 13.4% growth in information services and 8.7% growth in mortgage processing revenues. Strong demand for appraisal and default services again more than offset the declines in origination oriented products, such as tax, 1031 exchange, and title and closing services. LPS revenue increased 11.2% on an annual basis, nearly twice the growth rate we originally anticipated and well above the 14% decline in 2007 origination and refinance activity as reported by the MBA.

Market share gains and the ongoing trend towards outsource generated a 17% increase in traditional appraisal services. A combination of new customer signings, increased foreclosure activity, and strong demand for the desktop services, that Lee described, drove an increase of more than 90% in default and related technology services in the fourth quarter. We continue to see significant volume increases in foreclosure activity where we have more than 40% market share and increasing demand for back hand REO asset management services, where we have relatively low penetration. Based on current market projections demand for our outsource default services is expected to remain strong for the foreseeable future. Mortgage processing revenues $100.5 million increased 8.7% over the fourth quarter of 2006.

Adjusting for non-account base fees, mortgage processing revenue increased by approximately 1%. The average number of loans processed declined to $26.9 million compared to $8 million in the prior year quarter. As we discussed on the third quarter call, the decline was driven by the acquisition of ABN's $1.5 million loan portfolio by Citibank. Although we anticipate that mortgage processing revenues will decline modestly in 2008, market share gains by existing processing customers, a strong pipeline of home equity loan prospects, and the conversion of 6 million loans for Chase and Wachovia are expected to drive strong growth in the number of average loans processed in 2009 and beyond. Additionally it is important to emphasize that much of the growth in our information services businesses continues to be driven by the strong mortgage processing relationships we have with most of the nation's top lenders. Moving to EBITDA.

Excluding eFunds, EBITDA increased 12.5% to $324.4 million and the margin was 27.2%, which is 120 basis point improvement compared to the fourth quarter of 2006. On an annual basis, the consolidated EBITDA margin was 26.2% compared to 25.8% in 2006. Transaction processing EBITDA increased 7.6% to $192.8 million and the EBITDA margin improved 40 basis points to 26.2% compared to 25.8% in the prior year quarter. The margin improvement by driven by better results in our IFS and international businesses, somewhat offset by margin degradation in our retail check business. Excluding check from both periods, TPS margins improved 200 basis points during the quarter. For the full year of 2007, the overall TPS EBITDA margin improved 80 basis points to 25%.

Lender Processing EBITDA of $153.8 million increased 16.2% compared to the fourth quarter of 2006 and the EBITDA margin was 33.8%, a 190 basis point improvement compared to the prior year quarter. Strong revenue growth, along with margin expansion in default, were the most significant factors that drove margin improvement during the quarter, while non-account based fees within mortgage processing also contributed to the increase. EBITDA margin for the year was 33% compared to 33.7% in 2006. Corporate expense totaled $31.1 million compared to $27.9 million in the fourth quarter of 2006. The increase is primarily due to the eFunds acquisition. Now I'll turn to cash earnings. Including eFunds, fourth quarter cash earnings, which we define as net income plus after tax purchase amortization, totaled $133.3 million or $0.68 per diluted share compared to $0.58 in the prior year.

During the quarter we incurred after tax merger integration costs of $1.4 million, which were more than offset by $7.6 million in after tax other income related to the wind down of the former Certegy pension and retirement plan. The net impact of $6.2 million has been excluded from cash earnings. After tax purchase amortization increased to $31.1 million compared to $27.6 million in the prior year quarter, driven primarily by the acquisition of eFunds. Overall eFunds was neutral to fourth quarter cash earnings. Moving on to free cash flow. Free cash flow, which we define as net income plus depreciation and amortization minus capital expenditures, was $141.4 million for the fourth quarter. Capital expenditures totaled $98.6 million, which includes $7 million in capital that we expect to recoup from our bank partners in the Brazilian card joint venture. The capital spend was higher than our anticipated run rate going forward due to investments made to expand capacity in certain of the eFunds businesses and additional investments in advance of our first quarter 2008 conversion of the first Brazilian card portfolio.

The uses of free cash flow during the quarter included $9.7 million in shareholder dividends and debt repayment of $46 million. Working capital and other adjustments to cash provided by operating activities were a net use of $27 million during the quarter, driven primarily by continued strong revenue growth in our default services products. At year-end we had approximately $355 million in cash and $4.3 billion in outstanding debt. In the fourth quarter, we instituted $2 billon in additional interest rate swaps. Currently $3.2 billion of our debt is covered by swaps carrying an average LIBOR rate fixed at 4.5% plus spreads ranging from 125 to 175 basis points. The weighted average effective rate on the outstanding debt during the quarter was 6.4%, including amortization of up-front debt costs. Moving to our outlook for 2008. We anticipate consolidated revenue growth of 14% to 16% and EBITDA growth of 15% to 17%. Excluding eFunds, we expect consolidated revenue growth of 6% to 8%. Growth in both TPS and LPS is expected to fall within this range.

Overall, we expect to generate adjusted earnings of $2.15 to $2.25 per diluted share and adjusted cash earnings of $2.73 to $2.83 per diluted share, which represents an increase of 12% to 16% in cash EPS. This cash EPS guidance includes accretion of approximately $0.05 per diluted share from eFunds. We're also projecting free cash flow of $655 million to $695 million in 2008. This assumes $280 million to $300 million in capital expenditures, which is consistent with our previously disclosed target of $250 million plus ongoing eFunds capital. Working capital needs are estimated at $75 million to $100 million. Our outlook is based on following assumptions. Within TPS, while we are not factoring in a major change in overall bank technology spend, we are taking a more conservative view regarding customized new product launches and non-mission critical project initiatives, as Lee described earlier.

Within LPS we're expecting an overall market decline of 10% to 15% and a refi in origination activity based on the year-end MBA projections, 25% to 30% growth in the overall level of foreclosure activity based on our internal modeling, and a modest decline in mortgage processing revenues, primarily due to the deconversion of ABN's portfolio in the fourth quarter of 2007. We do expect approximately $35 million in cost synergies from the eFunds integration in 2008. This $35 million excludes approximately $25 million of estimated nonrecurring integration costs, which include $14 million in noncash expenses related to the acceleration of stock options. Also excluded is approximately $25 million in one time integration capital. The current timeline for major portfolio conversions is for -- the ABN AMRO Brazilian card conversion to occur in March, followed by Bradesco in the third quarter; the conversion of the Chase subprime mortgage portfolio to occur in May 2008, followed by the larger prime portfolio in 2009; and the Wachovia home equity portfolio conversion to be completed in early 2009.

We're anticipating net interest expense of approximately $237 million based on average debt outstanding of $4 billion and an effective interest rate of 5.9%, which assumes a one month LIBOR rate of 3.75% and approximately $16 million in amortization of up-front debt costs and capital lease expense. Our guidance assumes a lower effective average -- an average effective tax rate of 36.6% in 2008, driven by our increasingly efficient international tax structure. We're estimating average diluted shares outstanding of 197.5 million. And finally, our guidance excludes onetime costs related to the LPS spend, as well as incremental costs associated with operating LPS as a standalone Company. Now while First Call estimates are generally inline with our expectations for revenue and for operating segment EBITDA and EBIT, the cash EPS estimates are higher than our guidance of $2.73 to $2.83 per diluted share.

Higher corporate expense and nonoperating items, such as purchase amortization, minority interest and income taxes, account for the majority of the variance compared to the analyst models. Our assumption for these factors are as follows. Our EBITDA expectations are approximately $9 million or $0.03 per diluted share lower than First Call estimates. This difference is driven by higher corporate expense of $130 million, including a $16 million increase in stock option expense. Combined equity and earnings and minority interest are estimated at a net $8 million expense in 2008, driven primarily by increased operating income from the Brazilian card joint venture. On average, analysts' models include a smaller net reduction resulting in a difference of approximately $0.05 per diluted share.

Total depreciation and amortization is expected to approximate $530 million, including $180 million in pretax purchase amortization. This translates into after tax purchase amortization of $114 million or $0.58 per diluted share. Analysts' models on average estimate a higher level of purchase amortization, resulting in a $0.09 per diluted share difference. These items, which total $0.17 per diluted share, are partially offset by a lower effective tax rate compared to most analysts' models, which equates to $0.03 per diluted share, for an overall net impact of $0.14 per diluted share. So to summarize, the disconnect between our 2008 guidance versus consensus is tied primarily to four line items. The underestimation of stock compensation expense and minority interest expense and the overestimation of purchased amortization and the effective tax rate. The annual impact of these variances on cash EPS is equitable throughout the year.

Although we do not typically provide quarterly guidance, we're making an exception with respect to the first quarter to help establish the starting point for the quarterly cash EPS distribution. For the first quarter of 2008, we expect to generate earnings per diluted share of $0.42 to $0.45 and cash earnings per diluted share of $0.57 to $0.60. This guidance excludes the previously mentioned eFunds integration and LPS spin costs. I'll conclude my remarks by providing a high level summary regarding our outlook for 2009 revenue growth. The pipeline of major customer conversions scheduled throughout 2008 and into early 2009, including ABN AMRO, Bradesco, Chase and Wachovia, will provide incremental revenue of approximately $120 million in 2009. Based on what we see today, these contracts should help drive consolidated revenue growth in the higher single-digits in 2009. And we'll now open it up for questions.

(OPERATOR INSTRUCTIONS) And we do have a question from the line of Julio Quinteros with Goldman Sachs. Please go ahead.

That was close. It's Julio Quinteros from Goldman Sachs. First of all can you just walk us through the check services business and what is happened there. We had previously stripped that out, so I'm trying to understand what the effect of that is across revenues and EBITDA and possibly even EPS. In other words how much drag is in that, as I'm assuming it's still in the numbers for calendar '08 at this point.

Yes, it's still in the numbers for calendar year '08 at this point in time. And what we're seeing in the check business is a faster movement away from check writing into other forms, such as debit and other electronic forms of payment. And what we also saw in the fourth quarter, I think, is often with check writers they're the first to feel the signs of any economic changes. So we'll see check writing pull back. And in Q4 we saw our volume scale back quite a bit from our previous run rates, which impacted revenue. And that has a heavy impact on margins because typically it's the good check writers that are pulling back and you still have your fraud, therefore your operating costs exist and you have margin degradation. That's really what we were hooking at. Now, when we look forward with those trends, Q4 is really where you feel the brunt of it, because if you look at check services profits, nearly 40% of the profit base is in Q4, because of the seasonal volume. So looking forward it doesn't have as much of an impact when you look into '08.

But, I'm sorry, so what is the plan in terms of the divestiture.

Right now we've taken the existing check business and we're evaluating the sale in three pieces. One is our game cash business, one is our Australia business and the rest is our North America core business. We're well down the road on the sales process on the first two pieces I mentioned and we're still in the process on the North America core piece.

Just any sense on timing for any of those.

We expect the first two that I mentioned to close sometime either before the end of the first quarter or slightly there after. And the check business it's still a little bit too early to tell.

It's unclear at this time. It could take a little bit longer for that business to move it forward.

Okay. And then just finally, I guess in the spirit of calling from [abonda] here. What's your plans here on the outsourcing and offshore fund. Just want to get a sense for how much you guys have discovered as you have worked with eFunds in terms of opportunity for cost savings and driving more volumes here.

There is an enormous potential for cost savings within our current operation in utilizing the BPL operation that we now have in place in India to provide processing and support for our US and some of our European operations. So really good upside. The plans aren't finalized yet, Julio, we're still working through those. But clearly if you look on a going forward basis you're looking at 10s of millions of dollars worth of expense savings if we're able to leverage those resources the right way and in a proper manner. As far as operating that business, we've also determined that there is also some pretty good significant opportunities relative to third party relationships that we think we can leverage and bring into the fold, where they buy our BPO services as a result of some of the services attached to some of the services that we currently offer. Overall we're pleased with what we've seen. There is a good management team in place. They have a wide range of capabilities, especially on the payment processing end of the spectrum and we'll use those pretty consistently as we move forward.

Okay. At this point you do not have any specific headcount targets or cost savings targets you think you might be able to generate.

No, we have some normal cost reductions that are in the plan and the guidance that Jeff just presented but that's really just the very front stage of this. We think on an ongoing basis once we get our arms around it more completely, there will be additional savings on top of that.

Great. Thanks, guys.

Your welcome.

And our next question comes from the line of Dave Koning with Baird. Please go ahead.

Hi, guys. And you mentioned that the guidance for the year excludes any incremental corporate expense post spin on the lender business and any dilution from the check business. I am just wondering is there any range we can think of for those pieces to just we could think of maybe kind of a -- .

I think the target that we communicated in last call that we hoped to be on or around the $10 million range and separating the two companies still remains true. Might be a little bit north of that, but not very much. It should be consistent with that number the way things are shaking out today.

In terms of the dilution from the sales of the check businesses, we have to get a little bit firmer on what the potential sales prices are before we can actually quote what that number would be. It's a little bit too early to that talk about that.

I can understand that. On the eFunds business in Q4 is looked like an EBITDA margin around 30%. Is that kind of the baseline and that should actually ramp as you cut some of the costs?

No. Absolutely not. eFunds is a very seasonal, very much a transaction oriented business and their margins tend to -- if you look at their history their margins really spike up in Q4. If you look at their ongoing EBITDA margins or historical EBITDA margins, I should say, they're in the low 20s, maybe around 22%, 23% and that's more what we view as being the carryforward that we'll build the cost synergies on top of.

Okay, great. And then just one quick final one. Did you mention for '08 you expect a working capital drag, did you say 75 to 100 and is that related to mainly the default ramp.

That's a good portion of it, yes.

Great. Thank you.

Welcome.

And our next question comes from the line of Greg Walkon with Banc of America.

Good morning, gentlemen. Can you speak to some of the early traction you are seeing in terms of cross selling opportunities as a result of the eFunds acquisition.

Yes. Absolutely. A lot of opportunities centering around prepaid card coupled with our loyalty products that we have in place, especially on the debit card end. So by packaging eFunds capabilities with our current payment capabilities, we have a much more complete product range than currently exists in the marketplace. So we've seen some really good traction there. We've seen some traction, strong traction on the debit card side of the business. Now that we have additional volume and scale we're able to price more effectively and more competitively. So we've been able to secure accounts that in the past we just were out of our reach because we didn't have the volume and scale available to us.

A wide range of opportunities are starting to jell and materialize on the risk side of the business, taking eFunds check authorization and risk management capability used with financial institutions and coupling that with the analytics that we have in place on a similar product that used to reside within Certegy. That's created a very strong opportunity for us and the volumes are increasing in the pipeline for that particular product, remains very, very full. So overall, good lift, good potential, no surprises on that, and we're tracking as far as synergies and new product sales as a result of the combination.

Great. Very helpful. Thank you.

And our next question comes from the line of Wayne Johnson with Raymond James. Please go ahead.

Yes, good morning. When we look back at '07, what percent of new business wins were the result of cross selling between the traditional FIS business and Certegy and what should we expect that percentage to be in '08?

Wayne, that's -- we do not track it that way. That's a hard number to precisely get to. But I'll kind of put it this way. The vast majority of the revenue lift and sales increase that IFS experienced in the last year was directly related to two things. It was related to the combination of the Certegy sales force and the IFS sales force and better leveraging sales opportunities with more accountability, cross selling, better account responsibility overall. And also it was generated through the integration of payment capabilities into our core processing platforms. So overall, very, very strong lift, majority of new sales were generated from the combination of the two organizations.

Internationally, really, really strong lift in terms of the Brazilian marketplace, the item processing relationships that we've established throughout Brazil were a derivative of the card processing relationships we had. We signed a number of TouchPoint applications internationally, which were leveraged on some of the payment processing relationships we had in place. And also we mentioned earlier, I mentioned the BB&T relationship was a direct result of cross selling. Lots of revenue, lots of new sales. I'll give you just a rough number. Well over $2 billion in contract value was signed throughout 2006 and 2007 directly related to cross selling additional products and services into the base that we had. So big strong lift.

Okay. Great. That's really helpful. And if I could just go back real quick to the bill pay announcement with Digital Insight. That sounds like a great -- like a great opportunity for you guys. Is this the most important take away is the access to all of Digital Insight customers to offer bill pay. Is that the takeaway from that.

That's the take away, Wayne. They obviously have a very, very strong base. They're large in the business. They have a dominant market share position in the mid-market and small market institution base. And yes, they will market our product and that is the takeaway.

And if I understand, if I remember correctly, didn't Digital Insight have a very strong relationship with Metavante.

They actually represent a number of different bill payment providers. So they are not exclusive to any one. We're just added to the mix.

Terrific. Thank you very much.

You're welcome.

And our next question comes from the line of Brent Huff with Stephens, Inc. Please go ahead.

Good morning, everybody.

Morning.

I want to make sure I get the timeline right for the spin. It sounds like the next data point that we're going to get is a filing in March and then after that is there anything before the actual transaction is executed?

Right. What we need to do is we need to finish up the three year look back on it to carve out audit for the LPS organization, which we expect to finish by the end of February, which will then help us finish the filing of form 10 in mid-March. From that point it's waiting for the SEC comments to come back on the filing and waiting for our response back from the IRS. We expect the IRS response to come back by mid-April. We expect the SEC to come back at various points over the next couple of months. Our timeline currently projected we'll complete it by the end of June, so we'll have Q3 be our first clean quarter. There's some cushion built into that.

That's helpful. Thanks. Then in the corporate expense in the guidance you said is $130 million and it sounds like there is an incremental $4 million or $5 million from stock option expense versus last year. Is that the right way to look at that.

No. The increment from the stock comp expense is about $16 million.

So that's incremental over and above last year.

Right. And that's the majority of the increase in corporate expense in the guidance. Just to clarify that. We actually took options down to a much, much lower level because of competitive pressures that we're facing. So it really went three, four levels down into the organization and that's good, obviously, for retention and for competitive purposes.

Okay. And then lastly, you had outlined some of the services that you're expecting the Brazil deals and Brazil clients to bring. It sounded like there may have been some incremental additional things that you're selling to those folks. Are there other incremental things then what we had known about before.

There's a wide range of products and services that we're currently exploring with the partners that we have in Brazil. We're not ready really to talk about those, but I think it's safe to say that as you look on a going forward basis we'll have a full range of card processing back office services available. In fact the two major banks will utilize those all the way from call center handling for the consumer to fraud and risk management to collection services on the back end. Then in addition to it, we're in the process of implementing a wide range of imaging platforms that will be utilized by the banks in processing your checks. That will bring a brand new technology to the banks in Brazil, so we think that is going to create a very strong competitive demand. You can add a lot of incremental revenue opportunities going forward. So very receptive. They view FIS as the right partner. They like our wide range of product capability and we're going to do everything in our power to make sure that we sell additional products into that base.

That's all I had. Thank you.

Thank you.

(OPERATOR INSTRUCTIONS) And we do have a question from Wayne Johnson with Raymond James. Please go ahead.

Yes. Good morning again. Just a quick follow-up. On the check services, what are the plans for eFund's check services? Is that going to be included in the divestiture plans for the check services you guys are already were offering prior to that acquisition.

Yes, the scan piece of it will migrate over with the POS piece that we had within Certegy. So it is all going to be combined, Wayne.

Yes. It's already reporting up through the check services group. Just to put in perspective, that scan piece of business is only about $10 million in revenue by the time we took it over.

Terrific. Okay, great. Thank you very much. Your welcome.

And we do have a question from Roger Smith with Fox-Pitt, Kelton. Please go ahead.

Hi, thanks a lot. I'm just trying to go through the LPS numbers here and it looks like the revenue processing revenues were up by some non-account based revenues termination fees. Can you tell us how much that was. And then the second question that I'm trying to get on in the modeling side is if 10% decline in originations are in the mortgage processing business in 2008, can we sort of back out this termination fee and then use this fourth quarter as a run rate to build ourselves down that level. And then on the information services, would that 25% to 35% -- 25% to 30% increase in default, how should we think about that piece of the LPS growing?

Okay. When you're looking at the non-account base fees, the net impact of those fees in Q4 is about $7 million.

Okay.

That overall growth rate down from 8.7% to around the 1% rate that we were talking about. And I think in our prepared remarks we talked about in looking forward, we would expect the mortgage processing revenues for '08 to be slightly down as we complete out the conversions that will occur in '08 -- '09 excuse me, which will then accelerate growth into '09. So that's the mortgaging processing piece of the business. Our current trends on the information services business, we were at 13.4% in Q4. We expect to be able to maintain low double-digit growth in that sector rolling into 2008 based on the market trends we talked about from a foreclosure standpoint and also based on our ability to not shrink at the same level the market is shrinking from an origination and refi. We expect to continue to gain from the trend to outsource and from our strong customer relationships that continue to take shares. We hope these guys lower their cost base and that's factored into our plan and that's what's helping drive our ability to forecast low double-digit growth in the information services piece.

And we'll give you a further update as we go forward on whether or not the spike or the increase in our front-end origination volumes that we mentioned in January continues. We believe it will and that will obviously be a real benefit to us if it does.

Great. Thanks very much.

You're welcome.

And our last question comes from the line of Dan Perlin with Wachovia. Please go ahead.

Thanks. In the past I think you had broken out, at least directionally, the EBITDA margins within some of the lender businesses. So I think you had said default services EBITDA margins are in the mid-20s% in the previous, in the 3Q. Can you give us an insight of what it looks like this quarter and what you might expect it to be.

I'm sorry.

No, go ahead.

We continue to expand our margins in default service businesses, like I talked about in my remarks. We are approaching 30% from an EBITDA margin standpoint. That's really because we are -- we had mentioned the desktop solution. We're blending technology with data with services and it's the combination of the three that's helping us to expand our margins.

Okay.

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