Fidelity National Information Services Inc (FIS) 2009 Q4 法說會逐字稿

Ladies and gentlemen, thank you for standing by and welcome to the FIS 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 today's conference is being recorded. I would now like to turn the conference over to Mary Waggoner, Senior Vice President of Investor Relations for FIS. Please go ahead.

Thank you, Shannon. And thanks to everyone joining us on the line. Today's earnings press release and supplemental slide presentation have been posted to our website at www.FISglobal.com. A webcast replay of the audio portion of this call will also be available on the website shortly after the call. Bill Foley, Executive Chairman will open today's discussion. President and CEO, Frank Martire, will continue with an overview of fourth quarter results and operational highlights. Mike Hayford, Chief Financial Officer, will follow with the detailed financial report and will provide additional details regarding our outlook for 2010. Joining us for the Q&A portion will be Gary Norcross, Chief Operating Officer and George Scanlon, Executive Vice President of Finance.

Our fourth quarter results include Metavante which FIS acquired on October 1, 2009. Unless otherwise stated, references on this call to revenue and EBITDA growth rates will be on a pro forma basis to include results from Metavante in all series periods. On January 1, 2010, we completed the sale of the ClearPar business. ClearPar's results are reported as discontinued operations for all periods presented.

Today's comments will contain references to non-GAAP results in order to provide more meaningful comparisons between the periods presented. Reconciliations between GAAP and non-GAAP results are provided in the attachments to the press release. The discussion will also contain forward-looking statements. These statements are subject to risks and uncertainties as described in the press release and other filings with the SEC. The Company expressly disclaims any duty to update or revise the forward-looking statements including guidance. I will now turn the call over to our Executive Chairman, Bill Foley.

Thanks, Mary. 2009 was a very successful year for FIS. In addition to delivering strong operating results in a very challenging environment, we successfully completed the most significant acquisition in our Company's history. The combination positions FIS as a global market leader with unmatched scale, product capability and market breadth. We are extremely pleased with the manner and speed with which the integration is progressing, just three months after finalizing the merger. We are off to a great start and we are highly confident that we will achieve our synergy targets.

Importantly our management team and employees around the globe remain highly focused on serving our clients, and contributing to the continued growth and long-term success of FIS. We remain very enthusiastic about the future and our ability to drive value in the marketplace. The new FIS is stronger, more competitive, and better equipped to meet the needs of a changing industry and to take advantage of the resurgence and bank technology spending as market conditions improve throughout the world.

I am also pleased to report that our Board of Directors today approved a three-year stock repurchase program, under which FIS may repurchase up to 15 million shares of its common stock. Purchases may be made from time to time in the open market or in privately negotiated transactions through January 31, 2013. Now, Frank Martire will continue with an overview of the fourth quarter results. Frank?

Thank you, Bill. Good afternoon and thanks to those of you who are joining us on the call. I will keep my remarks brief to allow plenty of time for Mike to cover the financial and also allow -- also to allow time for your questions.

I would like to begin by saying how pleased I am with all that we have accomplished in the short time since bringing our two companies together. There's a strong sense of pride and enthusiasm among our employees, and the response from clients has been equally positive. Overall, FIS delivered solid fourth quarter results, as shown on slide four. We generated more than $1.3 billion in revenue and achieved 240 basis points of EBITDA margin expansion. Adjusted earnings came in at $0.44 per share which was the high end of our guidance, and free cash flow was strong at $237 million for the quarter.

Although many banks deferred buying decisions in 2009 due to increased credit costs and capital constraints, others continue to invest in new technology in anticipation of a return to growth. This is evidenced by increased sales of our core processing solutions throughout the year. While we expect the overall business environment to remain challenging in the near term, we are somewhat encouraged by improving transaction trends and the recent pace of new customer signings. We had several noteworthy sales in the quarter, and I would like to highlight a few of them.

First, Citibank which currently runs our core banking software in 30 countries around the world has expanded its license and maintenance agreement to include its North American banking operations. You may also have seen Citi's recent announcement regarding the launch of new electronic tax payment and bill collection services for the State of California using our pay direct product. Second, the Bank of Oklahoma is upgrading its existing branch sales and service platform to touch point, and is also implementing our express integration platform. In addition, Bank of America expanded its existing touch point license agreement. We signed a new long-term agreement with First National Bank of Omaha to provide outsource trust and wealth management services, and a new agreement with the Capital One for commercial lending services.

Sales in Europe was also strong in the fourth quarter, and included several new core banking licenses for Profile, Core Bank and Express, as well as expanded services to existing, core and card processing clients. In addition, a new client in the Middle East will begin using our debit switching service in the near future. We also achieved solid sales results in our North American payment business where more than 400 new signings completed in the fourth quarter.

We are optimistic about the current sales pipeline as we head into 2010. The tone and the tenor of our meetings with current and prospective clients is much more upbeat relative to what it was a year ago. Many banks that we spoke with believe that the worst is behind them and they're looking forward to business growth in the latter half of the year. At FIS, we are more focused than ever on helping all of our clients to drive greater cost efficiencies, grow revenue and improve their overall operating results.

As Bill mentioned, the integration is progressing nicely, and we are on track to achieve the targeted cost savings. We have committed a significant amount of time and resources to make sure we get it done properly. However, the only way we win in the long run is by maintaining our focus on sales and most important, client satisfaction. Our employees are rising to the challenge and I am very pleased with our progress to date. We are working to optimize our strategic development efforts in 2010, by directing investment spending and new product development to businesses with the highest growth potential. At the same time, we are working to improve internal processes in order to drive additional cost efficiencies.

Next I'd like to provide you with an update on the Brazilian joint venture. As expected, Banco Santander completed the deconversion of its core portfolio in late January. As indicated in our third quarter call, we will continue to provide call center and card holder support services for the remainder of the year. In addition, we recently entered into a separate agreement with the bank to continue providing other back office services in Brazil through 2013.

Turning to Banco Bradesco, when we last spoke to you at the analyst day in December, we indicated that we expected to convert the bank's remaining cards on to our software by the end of the first quarter. However, due to the recent deconversion of Banco Santander's card portfolio in January, we are now working to restructure our ongoing relationship with Banco Bradesco as a commercial arrangement. Based on these negotiations we do not expect to convert the legacy card portfolio in the first quarter as originally planned. But we do expect these cards to be converted onto our software in either a license or an outsourcing environment. We will continue to process the 12 million cards that are already running on our platform, and we will also continue to provide all call center, card holder support and collections services for both card bases. We will definitely and certainly provide more details as they become available.

Now I will turn the call over to Mike who will cover the fourth quarter results. Mike?

Thanks, Frank. As Mary stated, my comments related to year-over-year growth will be on a pro forma basis to include Metavante results in the prior year. Looking at slide five in the supplemental deck, fourth quarter adjusted revenue increased 2.7% to $1,316,000,000 compared to $1,281,000,000 in the prior year, and increased 0.4% in constant currency. This includes an adjustment of $15 million to reflect the deferred revenue that was eliminated in purchase accounting in order to give you a comparable year-over-year number.

Revenue came in slightly higher than we anticipated and compares favorably to our strong performance in the fourth quarter of 2008. Growth and processing revenues combined with higher software and equipment sales offset decline in professional services revenue and lower termination fees. Adjusted EBITDA increased 11.5%, driven primarily by the realization of targeted synergies and improved international performance. Excluding the $5.3 million favorable currency impact, we achieved 10.4% growth in EBITDA. The EBITDA margin expanded 240 basis points to 29.5% in the fourth quarter of '09, compared to 27.1% in the fourth quarter of 2008 as we experienced strong year-over-year improvement in each of our operating segments. Prudent cost management, including the merger related cost initiatives enabled us to achieve higher profitability on modest revenue growth.

If you turn to slide six I will provide additional detail on our fourth quarter segment results. Segment results are presented throughout this material on a pro forma basis as if Metavante acquisition had been completed on January 1, 2008. The financial solutions revenue declined 1.3% to $453 million in the fourth quarter of 2009 compared to $458 million in the fourth quarter of 2008. Higher software and equipment sales. coupled with increased commercial services revenue, helped mitigate a $15 million or 20% decline in professional services. Financial solutions EBITDA was comparable to prior year as cost reduction offset the decline in revenue. The EBITDA margin increased 80 basis points to 43.7% compared to 42.9% in the prior year quarter driven primarily by synergy benefits.

As shown on slide seven, payment solutions revenue totaled $630 million, which is a 1% decline compared to the prior year. Fourth quarter revenue was comparable to prior year, excluding a termination fee. Debit and credit transaction trends finished strong in the fourth quarter and improved sequentially throughout the year. Debit transactions increased 13.6% compared to the fourth quarter in '08, driven in part by incremental client wins while credit transactions increased 3.6%. We also experienced improving trends in our loyalty, network solutions, government payments, and bill to direct product lines in the fourth quarter of 2009. Conversely, our item processing and retail check businesses continued to be negatively impacted by declining revenue -- or declining check usage.

Payment solutions EBITDA increased 0.3% to $219 million and the margin improved 50 basis points to 34.8% compared today 34.3% in the fourth quarter of 2008. Realized cost savings were offset by nonrecurring costs in the quarter and lower termination fees compared to the fourth quarter of 2008. The EBITDA margin was also impacted by seasonally higher volumes in our healthcare business which carry a lower margin.

As you can see on slide eight, international generated top line growth of 24% on a reported basis and 8.4% in constant currency. Strong services revenue coupled with organic account and transaction growth across all regions drove 6.4% growth in financial solutions and 9.7% growth in payments in our international business. International EBITDA increased 90.2% compared to prior year and increased 74.3% in constant currency. The EBITDA margin extended 960 basis points to 27.5% due to higher software sales, seasonally higher volumes and improved operating efficiencies. We have included a slide in the appendix to provide information regarding our foreign currency exposure and exchange rate assumptions.

Please turn to slide nine for a reconciliation of adjusted net earnings. Note that the Metavante operations are included in the fourth quarter results, while the first nine months include FIS on a premerger basis. All in all we are very pleased with the quarter and the strong operating performance. The fourth quarter adjusted net earnings totaled $167 million or $0.44 a share which was on the high end of the guidance that we had given to you on December 7, at Investor Day.

As indicated, these results exclude after tax purchase amortization of $42 million, $82 million in merger related costs and $10 million related to the deferred revenue adjusted, and another $88 million in asset impairment charges. The impairment charges resulted primarily from write down of previously acquired trademarks and our global rebranding initiative. Average shares outstanding increased to 377 million in the fourth quarter, due primarily to shares issued in conjunction with the merger. The effective tax rate was 36%.

Slide 10 illustrates free cash flow which excludes mergers and integration costs and payments -- was $237 million in the fourth quarter and $608 million for the year. During the quarter we received net proceeds of $18 million from the sale -- the remaining receivable from our former Australian check business. Receipts from the sale are included in the cash for investment activities for the fourth quarter of 2009 and not in working capital. Uses of cash, include the payment of shareholder dividends and a reduction in debt outstanding. Capital expenditures totaled $67 million in the fourth quarter and $308 million for the year which is $41 million lower than the combined CapEx in 2008.

On slide 11, we had $3.3 billion in debt outstanding as of December 31, 2009, approximately 78% of the debt is swapped at fixed rates. Net interest expense which totaled $35 million in the quarter was favorably impacted by the termination of higher cost fixed rate swaps. The effective all-in interest rate was 3.6% at quarter end, including the swaps and related spreads as well as amortization of debt issuance costs.

We have included a chart to bring more clarity to our interest expense assumptions for 2010. These assumptions are predicated on the current interest rate environment and the use of free cash flow, primarily to repay debt. As illustrated on this chart, we expect interest expense to decline sequentially from quarter one to quarter two, as lower cost, forward swaps replace existing swaps and then level off in quarter three and quarter four.

Now, for a few additional comments regarding our outlook for 2010. As summarized on slide 12, we are reiterating the guidance we provided on our analyst day on December 7. This guidance includes the information we shared today regarding our Brazilian card operation. We expect reported revenue growth of 2% to 4% and 1% to 3% growth in constant currency. We are projecting margin expansion of more than 300 basis points for the full year 2010, driven primarily by the incremental $150 million to be realized in synergies.

As outlined earlier we expect to benefit from lower borrowing costs in 2010, and expect net interest expenses to approximate $90 million to $100 million for the year. We are projecting adjusted earnings per share of $1.91 to $2.01, which represent an increase of 17% to 23% compared to $1.63 in 2009. And finally, we expect to generate more than $750 million in adjusted free cash flow, which we are assuming will be used primarily to reduce outstanding debt and also to to make periodic share repurchases.

While we do not plan to provide quarterly guidance on a regular basis, we do want to assist in level setting your models as you think about the two companies on a newly combined basis. For the first quarter of 2010 we expect reported revenue to increase 1% to 3% in US dollars, and constant currency revenue do be comparable to Q1 of '09. We expect the EBITDA margin to increase 200 to 250 basis points compared to the 25.4% in the first quarter of 2009. EBITDA margins are typically at their lowest point in the first quarter and increase sequentially throughout the year. Year-over-year margin comparisons can vary from quarter to quarter, primarily due to changes in our revenue mix. Adjusted earnings are expected to approximate $0.37 to $0.40 per diluted share in the first quarter.

Looking to the remainder of the year, we face difficult revenue and EBITDA comparisons in quarter two due to the $23 million in termination fees realized in the second quarter of 2009. And also in quarter four as we anniversary the impact of favorable exchange rates. That concludes our prepared comments. Operator, you may open the line for questions.

Thank you. (Operator Instructions). We have a question from David Koning from Baird.

Good job in your first quarter combined.

Thank you, David. Appreciate it.

First of all with the developments in Brazil, is this a segment that you still feel comfortable can grow double digits even if you don't get the platform conversion this year?

Yes. This is Gary Norcross. We do feel very strong on Brazil. We are pleased with the conversations that we are having with Banco Santandere and Banco Bradesco. And as Frank mentioned, we fully expect a relationship with those financial institutions going forward. But in general we are very -- we are very bullish on Brazil and the things going on in those markets. We see a lot of opportunities for our products and frankly, on an ongoing basis, having full ownership of all of our Brazilian operations in the long term we with think will pay big dividends for us.

The short time I have been involved, this is Frank, I have been encouraged that we have a lot of nice opportunities there for growth.

Good. Just one follow up, is it fair to say that you expect pretty similar growth this year, in both financial and payments. Or should there be some diversion between the two?

David, this is Mike. For 2010, again, we expect the beginning of year to still be a little bit slow. We expect to ramp up in the second half and I think you will see PHG and FSG under similar growth rates.

Great. Thank you.

We have a question from the line of Brett Huff with Stephens. Please go ahead.

Good afternoon. Congrats on a nice quarter.

Thanks, Brett. Appreciate it.

A couple of questions, one, Mike, can you go through the cash flow -- sorry, free cash again? In the Press Release it noted that there were timing issue, can you just dissect that for us a little bit?

A couple of things happened. One was just the improvement in the days outstanding on our AR. We also had some timing related tax payments that hit fourth quarter. Those are the primary two changes that drove higher cash flow.

Okay. That's helpful. Can you tell us about the margin? The margin was better than I expected in international. I know that -- at least I remember that segment had contemplated above 20%, but didn't realize we would get this high. I know there are fluctuations based on the mix, but any commentary on that going forward.

I think a couple things. The team has been focused on a couple of the businesses and has done a tremendous job of improving the margins in the businesses that were underperforming. I also think the margin in the fourth quarter is higher than you would expect on a full-year basis. We had a very strong year. Then we also had timing and some sales that took place at the end of the year that drove the margin very strong. We are very pleased with the margin, but don't expect it to stay that high going into 2010.

Last question is can you talk about the conversation you are having? Why the deals closed in 4Q? What is driving banks to make decisions and comment on that on small, medium large? Or how ever it makes sense?

This is Gary Norcross. What we saw throughout 2009, I think we share it in our investor update in December as well. We saw a lot of frozen activity in the early part of the year. But there were number of financial institutions towards the end of the year as they felt like they had weathering the economic storm, they did start to make buying decisions. We are really seeing that across the board.

There's really two elements of institutions no matter what size, whether it is community, mid tier or large institutions. Those that feel like they have survived this economic crisis, are now really starting to evaluate their long-term strategies and making buying decisions. We certainly saw all of that play out across all of our segments, whether it was community, mid tier or large, or even our international markets in Q4.

Thanks for your time and congrats again.

Thank you, Brett. Appreciate it.

We have a question from Glenn Greene with Oppenheimer. Please go ahead.

Thank you. Good afternoon.

Afternoon.

I also want to focus on the bank spending environment. Clearly the activity levels picked up. Sounds like you closed a lot of deals. Is this a function that you are going to get a conversion time line and the revenue picks up in the back half of the year? Related to that, I noticed you did affirm your constant currency revenue growth of 1% to 3% even in the face of the situation in Brazil. Could you just give us a little color of how you achieved that? Or is it -- is the revenue lost from the change in the relationship not that significant?

This is Mike. Let me start with the Brazil question. Obviously, we were -- as we look at Brazil, we don't have the answers yet in terms of the outcomes. As Frank talked through, we know what we're doing. And we are excited about where it is going.

We are excited about the potential to have a 100%-owned business in Brazil that we can sell into the rest of that market. We have taken into account -- we think there is a potential of some negative revenue. It fits in terms of the size, it fits within that range that we had previously given. And we still clearly plan to be in that range. And as we look forward, we are -- again, a little bit of revenue hit. The profitability will remain strong as we transition that to a wholly-owned entity. Net-net we are optimistic about that business.

Glenn, I will take the question on your sales. As you pointed out -- this is Gary again. We did have very strong sales in Q4. And as you would expect, with any major software purchases or project deployment, there's a period of time for that to come into our revenue stream. Typically, you do see that in the six to nine to twelve month period of time. As we look towards the back half of 2010, we are counting on stronger revenues.

Just to follow up on that, if the activity levels continue to be at a reasonably healthy pace, does it give you increased conviction that the growth levels in 2011, I know it is early, I am not going to pin you down, but would it lead you to believe you can get back to 3% to 5% constant currency growth?

I don't -- we talked yesterday about long-term growth objectives which are obviously high single digits. We are not going to predict 2011 at this stage, where we will be. We do think that the rapid products, the industry reach, both domestically as well as internationally that we are positioned when the banks do start to spend at the historical levels that we've seen in years past. 2009 with the challenges everybody knows and 2010 we with think it is going to be better, but it is still not going to be where we would like to be. We will get the the end of 2010 we will start to getting some -- a view into the latter part. At this stage, we don't know.

Could you tell us what the cost synergies achieved in the quarter were?

Cost synergies in the third quarter were approximately $30 million.

Third quarter or fourth?

Sorry Third quarter was $21 million, fourth quarter was $30 million, full year $62 million.

Okay. Great. Thank you.

We have a question from John Kraft with D. A. Davidson. Please go ahead.

Nice work so far.

Thank you.

I know you are only one quarter into it, but because cross selling is such an important piece of this puzzle and this industry nowadays, can you talk about specifically the cross selling of the Metavante products into the legacy FIS client base and vice versa? Logistically, the timing of the sales rep training and so on. And the progress.

I'll have Gary answer that into detail with a few examples, but here is what I will say to you. Even with all the efforts going on and like you said it is only one quarter on these synergies, which we are doing well on, we maintain a clear focus with our clients on growing the revenue base and cross selling to our clients. And that has worked very well for us to keep that focus along with the synergies that we're doing. I think Gary will give you a few examples.

Yes, John. A couple of things. One we are starting to see some very nice cross sales out of the Metavante products. We have mentioned them in a number of our calls, but certainly in the areas of payments and the nice network, some of or bill payment capabilities. Also some of the things that we're seeing in wealth management, services and the like. There's a lot of potential for those cross sells and we are starting to see that traction.

One of the things you mentioned was where we are with the sales force and the training of the sales force, and obviously to us, we thought that was one of the most key areas we could focus on early on is getting all of our sales force up to speed on the breadth of our products. It's very important to drive that. I am real proud of the job the team has done under Jim Susoreny's leadership. They were able to not only announce and launch our sales force as -- shortly after October 1st, the leadership of those various teams, but they were able to roll those sales reps across the various territories. Since that time, we have been having on going weekly education programs, on the various products, and we -- it culminates next week with a large sales meeting in Orlando where we are bringing the entire sales force together to further educate them on the products and then push into this year. But early signs of cross sales are very positive, and that showed in our Q4 signings and we see a lot of opportunity going forward.

Sounds like it. That's helpful And then one quick one for Mike. You were talking about the decline obviously in check and item volumes, what percent is that now? And is it accelerating?

The annual decline of check items?

Exactly.

I think we are still mid single area. I don't really think it's accelerating. I think we've seen this the last two years. We expect that to continue.

Okay. Sounds good. Thanks, guys.

You're welcome.

We have a question from Dan Perlin with RBC. Please go ahead.

Thanks, guys. Good evening. First of all, thanks for breaking out these difficult comps and anniversaries, but what I want to get to initially was the first quarter. Is the 37 to 41 more a function of seasonally historically we might have seen with the business? Or is it more -- you have higher debt in the first half, you're starting off slow on the revenue growth, maybe there's lack of revenue we thought was coming from Bradesco, and synergies are maybe more flat line throughout the year. Which one is it?

It is much more a reflection of the first quarter's seasonality. I think typically we start off first quarter, and we have some business that's a little lower margin that's coming out of the end of year. But I think that's fairly normal that that the first quarter could be lower earnings.

Okay. That's good. I'm sure you're tired of talking about it. But what exactly is happening at Bradesco so the conversion was planned to -- it seems like a problem child. It has been a long for the sake of being converted and we are still waiting. It was supposed to get converted in the first quarter as originally planned and now it is getting pushed and so where is it getting recognized in revenue? I am just having a little funky on that one.

Again, what we are sharing with you is that Bradesco which we had previously said was going to convert to the JV in the first quarter, is not going to convert to JV in the first quarter. And the reason for that is the joint venture which was something there with Bradesco and ourselves, Santandere as was previously shared, as elected to leave the processing. And that leaves one party. As we talk through this with Bradesco, we are looking at a different structure.

At this stage, we don't expect them to convert in the first quarter. When we talk about the range of revenue, there's outcomes where we expect to get a fair amount of revenue and stay fairly close to what we anticipated. There's also outcomes where we would expect Bradesco to continue to have some relationship with us, but maybe at slightly different form, and the revenue being lower. Because we don't have that answer today, we can't give you much more clarity. But we still have a range of outcomes. We still believe that range is in the range of revenue that we previously anticipated. As soon as we get some clarity, we will definitely share it.

Okay. I think you said this already, but just to be clear, in your revenue guidance and earnings guidance, you have taken into consideration the bracketing of the high end and the low end of that range with Bradesco. Is that correct?

That's correct.

Okay. And then just quickly, as we look at the schedule that you have for your debt or the interest rate pay down -- or interest rate swaps rolling off rather. Is it a function -- I know we we are seeing the swaps roll off, but it is hard to know from the trajectory. Are you still comfortable with the $200 million to $300 million reduction in debt? Or moving more towards $400 million to $500 million reduction of debt for the full year?

I think we have anticipated -- modeled $300 million to $400 million reduction in debt. We had mandatory paydowns and we plan to pay down some additional. Again you saw that we announced today -- share repurchase was approved by our Board.

Sounds great.

In the second half the year, we will look at where is the appropriate action to take, continue to pay down debt or to buy shares. When we do our budget, we have to make an assumption one way or the other.

Okay. You were dead on on the cost savings in this quarter and you gave us a schedule at the analyst day, are those numbers still looking to be the same, $43 million the first and fourth quarter, $31 million of cost savings. Are those still good?

Yes.

Okay. Thank you very much. Good quarter.

Thanks, Dan.

We have a question (inaudible).

Thanks a lot. I will start with a question about the Citi North America win. Can you expand upon that? That's a big core win domestically. What can you share with us, what drove the decision to go with FIS? How capital intensive? How long will the conversion take, et cetera?

This is Gary. I will expand on that. We are excited about the relationship with Citibank and signing that. That's really an expansion of a very global relationship we already have with Citibank. Citibank today actually utilizes our systemic products suite in 30 counties. This is an expansion of a license agreement they already had to use in those counties to now bring that into North America. It's a very exciting strategic win for us. It shows the capabilities of our systemic solution and the abilities in that large financial institution space.

Not sure you can share this, but how deep is your general relationship with Citi within North America? I am asking because I wanted a chance to pick up some another business like bill pay or item processing, et cetera?

Absolutely. We do have a broad relationship with Citi today. We have one of our managing directors fully assigned to that account and we are already doing other businesses with Citibank as we speak. They actually run a number of our payment solutions through one of their companies called Citishare, and we see other opportunities of expanding that relationship in the future.

Okay. I figured I may as well ask a Brazil question, too, then if you don't mind. Just mechanically, how would the Bradesco -- if they choose to move forward with this commercial relationship instead, how would their equity interest be converted? Would FIS need to buy out the stake? I am trying to better understand the mechanics of that.

Until we get to end of end of job, I think it is hard for us even to predict different outcomes for you. But obviously we are very focused on it. As we shared, there's going be some change, but we are optimistic that the outcome will be very, be very good for us down in Brazil. But it is hard for us to say what that would -- what the structure would be until we get to end and get something on a piece of paper.

Understood. Thanks a lot.

You're welcome.

We have a question from Greg Smith with Duncan-Williams. Please go ahead.

Hi, guys. Mike, you said you were encouraged by some of the transaction activity during the quarter. Was that on the credit and debit card side?

Yes. I think we saw throughout '08 in fourth quarter strong debit and transaction volumes increasing.

Okay. Can you give any insight into what's going on in January so far? We have heard from Visa and MasterCard, but wanted to corroborate that with you guys.

I don't know if we want to give numbers and rates. We have to track literally daily and have volumes against our plan on a weekly basis. But you can expect when you get the data from Visa and Mastercard what's going through the networks. We are processing -- the issuing side and the network side, we see those transactions as well. We see similar volumes typically that you hear from the two of them.

We are encouraged by what happened in the fourth quarter and hoping it maintains itself or grows more in the first quarter.

Sure. Okay. On the share buy backs, it sounds like given your mandatory debt pay down, that you are most likely to use those to keep the share count flat. Is that fair? Or would you get more aggressive depending on the stock price?

I think it is fair to say that we would definitely like to keep the share count flat so you can assume that. Whether we do more repurchase, depends on where we want to use our capital. Again the assumption is mandatory, plus some pay down, and I think we want to keep our flexibility in the second half of the year.

Lastly, outside of Bradesco, are there any large deals that you are in discussions with that could move the dial in 2010? Or are you guys just so big and diversified at this point, it is going be hard for any single deal to move the dial dramatically?

Certainly can't talk to specific deals, but clearly we have enough of them on the table and any combination, could move the needle. Right? We just have to see what comes. But yes, just like the Citi Corp deal which was a very nice deal for us. We are excited about the relationships we have with our banks.

Yes, and just to add a little to that, Greg. As you have heard, we had a very strong Q4 in sales and our pipeline is continuing to grow. We have been able to refresh the sales we had in Q4 and in our pipeline and actually grow that. We have a you number of opportunities we are pushing across all of our margins.

As [Tim] the question before, too, we continue to build our relationship with these clients, too, to get larger relationships with them which is a benefit to both of us.

Thanks, guy.

We have a question from Julio Quinteros with Goldman Sachs. Please go ahead.

Good evening, guys. This is John for Julio. Was hoping you might provide a little bit of color, based on what we have seen across the rest of our coverage universe, there seems to be a sense that the bill payment types of businesses haven't necessarily taken off in the way that many acquirers of those businesses potentially thought they would. I was hoping you might be able to give us an update on what you are seeing with the bill payment business, and whether your take on it has changed over the last few months seeing it as a combined company?

I don't know who you are referring to there, but from our perspective bill pay has always been a very solid business. It is a still growing business. Transaction volumes are still growing as banks continue to get online banking adoption and then also, adoption of the bill pay side.

I think if you looked at volumes, you would see that it is still a very steep curve in terms of new names, new end customers, as well as the number of transactions that each do. But we have also seen as providers be able to price down the cost curve as we have gotten volumes and been able to get the scale. We still think it is a great business. We think it has potential. I think we would have a slightly different view of that.

Are you still seeing some degree of after shocks? Over the last two years, it is just -- it is pretty basic people probably haven't been paying bills as often as they were in the past, just generally defaulting, and delinquency rates going up. You are not seeing a fundamental change in your long term view on the business, based on the last two or three years?

No, and you have to remember bill pay is a transaction-based service. We get paid per bill, whether it is somebody sending a $5 check or $5,000 payment electronically. We are paid per transaction. The items, the number of transactions continue to grow very strongly.

Exactly.

Thanks, guys. Appreciate it.

We have a question from James Kissane from Bank of America. Please go ahead.

Thanks. And I hate to beat a dead horse. Can you provide a little more insight into Bradesco's rationale for taking a different path on the JV?

I would be happy to. This is Gary Norcross again.

Hi, Gary.

Basically what the situation was with the joint venture, we had two key partners Banco Santandere and Banco Bradesco. When Banco Santandere made the strategic decision to take their processing in house, Banco Bradesco approached us to discuss converting their arrangement into a commercial agreement because they didn't feel that it made viable sense to be the only bank as a member of the JV.

Based on that, we've had very positive conversations with both of these partners. The conversations have been upbeat. I think everybody feels that we will get a good conclusion at the end of the day, but these conversations continue to go forward. It was less about Bradesco's desire to not do business with FIS, there's nothing further from that. It was more of a desire not to be the only owner in a joint venture. It made more sense to go on a commercial basis.

And the bigger picture question, your philosophy on doing license deals versus more traditional service bureau deals.

As you know, you have looked at our business, we have a high reoccurring revenue rate. Clearly, one of the things that we have had a philosophy of over the years is obviously not the mandate which way our clients take the service. Typically, what you find in a lot of our applications there's just a high, high [perpensity] to outsource that which is why we have such high reoccurring revenue. Certainly payments is a great example of that. But we are also willing to license our products where it makes sense.

We sleep better at night with the high recurring revenue we have. But some of our products gear themselves toward being software licensed or in-house so the clients do it themselves so we made those available. It works for us.

And not -- but as you look at the long-term economics on present value basis, do you find much of a difference?

Again this is Mike. We -- license is a high margin business, you do it up front, it's one-time and it is gone. You really want a recurring revenue stream. You want to build that relationship, not only for that one product you sell, but if you have the outsourcing relationship you will sell more products. When you look at the whole relationship, outsourcing and the deeper relationship is going to have a higher return over time when you look at one transaction of software sales.

It is a very good point here, Jim, is that with many of our clients, we have both. They have the outsource relationship, and then they may have a product, license product that they have along with it.

Thank you very much.

We have a question from Bryan Keane with Credit Suisse. Please go ahead.

Most of my questions have been answered, but just couple of clarifications. On Bradesco, you said the range of revenue outcomes remains the same, can you just remind us what that range is?

It was a total range is 1%%, to 3% on constant currency. It is 2% to 4% as recorded. Again, let's put Brazil and Bradesco in context. Our international revenue stream is approximately 17%. This is '09 numbers, 17% of our total revenue. Brazil is around 37% of that international. When we talk about Bradesco, and you put it in context, it is one relationship out of many. Obviously as we look at it, although you don't want lose any customers or revenue stream, it fits in the scheme of what we are doing that we can still hit our plan we laid out for 2010.

Okay. And the margin implications for going into commercial agreement, did the margins change from what you thought originally with the JV?

A couple of things, one is in the commercial relationship, we've talked about our expectations that we would be 100% owner of the business down there. The business has started to reach scale and turn to profit. If you look at it as a 50% owner, our margins are always going to be reduced because we're only booking half of the profit. We do expect that margins (inaudible) are going to improve under the new structure.

Then just turning to Banco Santandere, just remind us how much revenue it generated in 2009, and then now that they're off the books how much -- or the processing fees, how much will be left in 2010 on annual run rate?

Banco Santandere, we had talked about in the quarter call was about $40 million per year, and that's the $40 million US dollars that we have anticipated coming off in 2010.

Okay. But there's some existing business that stays.

Correct. $12 million ongoing business. That $40 million number is the net loss.

And I couldn't hear you. How much will be continuing with -- ?

$70 million.

$70 million. Okay. And on the last question I had was Banco Santandere, is there a term fee in -- with that relationship breaking up and then will there be a term fee with Bradesco?

We expect as the -- the JV, the joint venture FIS has contributed capital and made investments to get that going. As Banco Santandere and Banco Bradesco exit, we would expect to get repaid and get returned on our investments we made. When we get those things done will announce and share that. But you should expect that we get our capital contributions repaid in some form.

Okay. Was there already a Banco Santandere term fee paid and do we know how big that is?

We haven't reached an agreement with Santandere or Bradesco at this time.

Great. Congratulations on the quarter.

Thank you very much, Brian.

We have got time for one more question.

Thank you. Our final question comes from the line of Andrew Jeffrey with SunTrust.

Just hoping you can have a little more color to the dynamic between debit and credit. Do you have a sense or can you tell from what you are seeing, whether debit is replacing credit or this is just a dynamic where the adoption is higher and experiencing high growth?

One of the phenomenon we have seen is that debit tends to be a necessity, you use it at the grocery store, you pay for gas, et cetera. Credit tends to be be purchasing things. I think with the economy being tighter, the debit trends might be a little stronger. I don't think we would say debit is replacing credit.

We are seeing different types of transactions, different dollar volumes of transactions due to some of the economic issues. But we are not seeing a trend where we feel debit is replacing the credit transaction volume, and we saw nice growth on both of those in Q4.

Okay, then just a follow up on --

That's why it is so important we have all of those products and all of those offerings.

Sure. And the purchasing decision, in your negotiations with them, are the cycle times starting to accelerate as well? Is it taking less time to get deals closed?

I think it is a little too early to start saying whether our cycle times are coming down. Certainly, cycle times elongated in the first half of last year. As I said, we certainly had a very nice Q4 and we've got a strong pipeline. But I would share with you that the activity, the pace is certainly picking up in our sales channels.

Good to know. Thank you very much.

Thank you.

Thank you, everyone for joining us today. As a reminder, a replay of the webcast will be available on our website shortly after the call.

Ladies and gentlemen, this conference will be available for replay beginning today at 7:00 PM Eastern running through February 18th at midnight Eastern Time. You may access the AT&T executive playback service at 800-475-6701 and entering the access code of 141855. International participating dial 320-365-3844 with the access code of 141855. Those numbers again are 800-475-6701 and international participants 320-365-3844 with the access code of 141855. That does conclude our conference for today. Thank you for your participation and for using AT&T executive teleconference. You may now disconnect.