Fidelity National Information Services Inc (FIS) 2010 Q1 法說會逐字稿

Ladies and gentlemen, thank you for standing by. Welcome to the FIS first quarter earnings conference call. At this time all participants are in a listen-only mode. Later we will conduct a question-and-answer session and instructions will be given at that time. (Operator Instructions) And as a reminder today's conference is being recorded. I would now like to turn the conference over to Senior Vice-President of Investor Relations, Mary Waggoner. 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 FISglobal.com. The webcast replay of the audio portion of the call will be also available on the website later this evening. Frank Martire, President and Chief Executive Officer will provide an overview of first quarter results and operational highlights. Mike Hayford, Chief Financial Officer, will follow with a detailed financial report. Joining us for the Q&A portion of the discussion will be Gary Norcross, Chief Operating Officer and George Scanlon, Executive Vice President of Finance.

Unless otherwise stated references to revenue and EBITDA growth rates will be on a pro forma basis to include results from Metavante in all periods. 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 are provided in the attachment 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. The presentation will begin with slide number four. I will now turn the call over to Frank Martire.

Thank you, Mary, good afternoon and thanks to everyone joining us on the call. We are very pleased with the strong first quarter results. Revenue growth and earnings came in better than we had expected thanks to higher software and professional services, solid transaction growth and prudent cost management. First quarter revenue increased 3.8% to $1.3 billion, and grew 1.8% in constant currency. The EBITDA margin expanded 340 basis points to 28.8% driven primarily by merger-related cost savings and a modest improvement in revenue mix. Adjusted earnings came in at $0.41 per share and free cash flow was strong at $241 million for the quarter.

We are meeting or exceeding all of the major integration milestones and are on track to achieve our targeted cost savings of $260 million. We exceeded our expectations for $43 million in realized savings in the first quarter and we are confident that we will achieve the targeted incremental savings of $150 million for 2010. During the quarter we successfully consolidated a number of regional data centers into our strategic command centers in Brownsville, Wisconsin and Little Rock, Arkansas. And, we also completed the disaster recovery in sourcing project as scheduled on April 18. We are particularly pleased with the progress we have made at integrating sales teams and executing our unified go-to-market strategy.

This strong performance demonstrates our ability to integrate and successfully manage all aspects of our business. While we have a full agenda in 2010, our employees are doing a great job staying focussed on serving our clients and driving operational excellence. We continue to see evidence of increased competence among our clients regarding the outlook for bank spending. Sales were strong in the first quarter, particularly for new core processing clients and the community banking and mid-tier space such as Cardinal Bank, First Federal Bank of the Midwest and Boiling Spring Savings Bank of New Jersey.

Our success is being driven by the added value that we deliver to our clients including superior feature functionality, product breadth and a reputation for strong client engagement, all of which help our clients improve customer retention rates and compete more effectively. We continue to expand client relationships in a large and regional bank space including two top 100 banks that have chosen FIS as their new core processing partner. Also, we announced this morning, Cole Taylor Bank a $4 billion bank based in Chicago has selected the IBS core processing platform in addition to our e-banking and bill-payment solutions. These examples clearly demonstrate the excellent job that our sales team is doing to identify and close new opportunities. We look forward to sharing more success stories with you in the future.

We are also excited about the revenue synergies we have obtained as a result of the combination. Approximately 30% of our new contract value in the quarter was generated by merger-related cross-sales. The resulting wins spanned multiple product offerings and include TouchPoint, Nice Network Services, Loan origination software, business e-banking and bill payment.

I would like to highlight a couple more of the cross-sell wins we were able to obtain from the top 50 banks. The first is the long-term systematic users will convert to our bill payment platform in 2011. The second will implement a component of TouchPoint across its branch network over the next 18 months.

On the international front we remain enthusiastic about our new growth opportunities as we continue to leverage our product capabilities across the globe. As an example, we will begin providing prepaid card processing services for our large client in the Asia Pacific region in the near future. And we are planning to further extend our product capabilities outside the US including debit processing and non-client facing back-office support.

As a part of our ongoing effort to better serve our growing global client base, we recently established a new service center in the Philippines. This new facility further expands our capacity to provide back office and technology services to meet growing client demand. We expect to eventually house more than 1,000 people at this new location.

Turning to Brazil. I am pleased to report that in early April, we began processing an additional 2 million cards for Banco Bradesco. These cards are managed to Visa Valley which is another one of our commercial clients. We expect to convert an additional 3 million cards from Visa Valley by the end of the second quarter.

Now I will provide an update on the joint venture. We received a partial payment from Banco Santander toward the settlement of the (inaudible) from the joint venture in January. The remaining payment will be made once all details have been finalized.

We continue to work closely with Banco Bradesco regarding the conversion of it's remaining card portfolio. Importantly, all of the scenarios being discussed include FIS continuing as Bradesco's card technology provider and we fully expect maintain a long-term relationship with the bank. As we previously communicated, revenue will be impacted since the conversion did not occur in the first quarter as expected. However, we still anticipate full year revenue and earnings to fall within our guided range.

Although we are not in a position to provide more specific details at this time, I want to assure you that Banco Bradesco and FIS are working diligently towards a resolution. We remain enthusiastic about the growth potential in Brazil and for our international business overall.

To summarize the quarter, we're off to a great start in 2010, and we are very pleased with our progress in executing on our overall plan. Most importantly, our management team and employees around the globe are doing an excellent job maintaining focus on our existing clients and also on developing new client relationships. Now, I'll turn the call over to Mike who will cover the first quarter results. Mike?

Thanks, Frank. As Mary stated earlier, my comments regarding year-over-year growth were based on pro forma basis to include Metavante results in the prior year. I will begin with slide five. As Frank mentioned, first quarter revenue and earnings came in better than we had anticipated. Adjusted revenue increased 3.8% to $1.26 billion compared to $1.21 billion in the prior year, an increase of 1.8% in constant currency. Higher software sales, special services, combined with solid transactions growth contributed to the strong first quarter results.

Adjusted EBITDA increased 17.6% driven primarily by the realization of targeted synergies. EBITDA margins expanded 340 basis points to 28.8% in the first quarter of 2010, compared to 25.4% in the first quarter of 2009. As we experienced strong year-over-year improvement in FSG and PFC segments including favorable revenue mix in addition to the synergies.

On slide six, the financial solutions segment revenue increased 3.2% to $444 million in the first quarter of 2010, compared to $430 million in the first quarter of 2009. The growth was driven by higher software and professional services revenue.

Financial solutions EBITDA increased 13.9% to $189 million and EBITDA margin increased 390 basis points to 41.8%. This was driven primarily by synergy benefits and the favorable revenue mix.

We are not expecting a similar margin expansion year-over-year in the second quarter due to difficult comparisons from 2009. As shown on slide seven, payment solutions revenue totalled $619 million, which is a 1% increase compared to prior year. If you exclude our paper-based check businesses, payments revenue would have increased 4.2%. The improving transaction trends that we experienced in the fourth quarter of 2009 continued throughout the first quarter of 2010. Debit transactions increased 15.2% compared to the first quarter of 2009, and increased 11% on an organic basis. Credit transactions increased 3.4% compared to prior year. These favorable trends combined with strong growth in our government and healthcare business offset a 10% decline in the paper-based item processing and retail check. These paper-based check businesses which generate approximately $120 million in revenue, in the first quarter of 2010, will continue to negatively impact our payments growth rate by about 2% to 3% due to the secular decline in check usage.

Payment solutions EBITDA increased 11.1% to $230 million and the margin improved 340 basis points to 37.1%, compared to 33.7% in Q1 of 2009. Realized cost savings and more favorable revenue mix and improved profitability within retail check drove the strong margin expansion. As with FSG, we expect less robust margin expansion in PSG in the second quarter due to the prior year comparisons.

On slide eight, international revenue increased 14.9% on a reported basis, and 0.6% in constant currency. As expected, international growth rate was impacted by the loss of processing revenue for Santander in late January and the (inaudible) converting Bradesco's remaining card portfolio in the first quarter. Software sales declined relative to the first quarter 2009 due to the timing.

International EBITDA increased 5% compared to prior year and decreased 2.9% on a constant currency basis. The reported EBITDA margin declined 150 basis points to 16.2% compared to 17.7% in the first quarter of 2009, Due primarily to currency and lower revenue, lower license revenue. As is typical for the international segment, we expect the international margin to ramp sequentially throughout 2010 and expect the full year margin to be in the low 20s.

Now turn to slide nine for a reconciliation of adjusted net earnings. These results exclude after-tax purchase amortization of $41 million, $13 million in merger-related costs and $6 million related to the deferred revenue adjustment. First quarter adjusted net earnings totalled $154 million or $0.41 per share. The improved operating performance and more favorable product mix offset a higher tax rate and higher share comp. As shown on slide ten adjusted free cash flow totalled $241 million in the first quarter driven by strong growth in earnings, higher account receivable collection and lower capital expenditures. CapEx totalled $58 million, or 4.6% of total revenue in the first quarter of 2010 compared to $71 million in the first quarter of 2009.

We expect full-year CapEx including integration capital to be between 5% and 6% of total revenues. Also second quarter free cash flow is expected to be below first quarter due to the timing of our federal tax payments.

As indicated on exhibit C of the press release schedule, other use of the cash in the first quarter included reduction in debt outstanding in the payment of shareholder dividends. In addition, we repurchased 1.4 million shares at an average cost of $22.97 per share. In late march we completed the purchase of a merchant portfolio that we hd previously processed on an agent basis. Other cash in flows during the quarter included proceeds from the sale of our Clear Par business and a $35 million partial settlement from Santander as Frank had referenced earlier in the call.

Now for a few comments regarding our outlook for the remainder of 2010. First we are encouraged by the recent activity in Brazil. On April 10, Visa Valley converted the Bradesco portion of it's portfolio to the FIS platform as Frank had reported. This past week it was announced that Banco Bradesco will be acquiring Santander's portfolio of Visa Valley. And then just today, Banco Bradesco and Banco Brazil have announced signing of an MOU to partially integrate the card operations and launch a new card brand in Brazil. While we still have work to do to formalize the go forward position in Brazil, we view these actions to be positive for FIS.

Second, we continue to be pleased with our sales success in the market. This is the second quarter of good sales following the solid results in the fourth quarter of 2009. Just a reminder, that these sales typically take six to nine months to translate to revenue as the conversion process starts when the contract is signed. And as a reminder, we will face difficult comparisons in the second quarter due primarily to a $23 million buyout that was recorded in the second quarter of 2009 at Metavante. That being said, we expect second quarter revenue to be in the low single-digits with the margin expansion of approximately 100 basis points.

And third, due to the strengthening of the dollar against the euro and the British pound we now expect to reduce currency benefits of approximately $30 million compared to our December guidance of $60 million for the full-year 2010. Assuming exchange rates remain at the current level reported revenue will likely come in closer to the low end of our reported guidance range of 2% to 4% growth with minimal impact on earnings per share. We have included a slide in the appendix that provides additional information regarding foreign currency exposure together with our original and updated foreign exchange rate assumptions. Our full year outlook remains the same at 1% to 3% revenue growth on a constant currency basis and earnings of $1.91 to $2.01 per share. Operator, that concludes our prepared comments.

(Operator Instructions) The first question comes from the line of David Koning with Robert W. Baird. Please go ahead.

Hey guys, great job again. First of all, you mentioned segment margins won't go up quite as much year-over-year in the second quarter given a little tougher comparisons. Is it fair to say that given seasonality and just the cost savings, that continued to ramp that sequentially all margins should be up pretty nicely in all of the segments?

Well, again, yes, year-over-year the comparisons are going to drop a little bit but we would expect the synergies coming on board we would continue to see margins hold steady. I think as we talked about in the past, third and fourth quarter, we're expecting stronger than the first half of the year.

Okay. And then secondly, you mentioned free cash flow not being quite as strong in the second quarter, Q1. It sounds like some accounts receivable questions and a little lower CapEx helps but is it fair to say that given such a strong start to the year that $750 million, I know you said greater than $750 million is your full year guidance. But it seems it would be quite a bit better than that.

Yes, David, I don't know if I would go there, yet. First quarter we did a good job of pulling in AR which helped in working capital. We had timing, positive timing in terms of payment incentives year-over-year. Again then second quarter is going to be a drop just because of tax payment. So I think after second quarter level, first and second quarter have a little lumpiness this year.

OK. Good. And then finally, just in the first quarter you mentioned a payment from Santandere. Was that in revenue and maybe you can give us the amount of revenue in January from that?

No, we received a partial payment, and as you know, we haven't resolved, fully resolved the joint venture down in Brazil, Santandere, Banco Bradesco. It's held up. It's in cash, but it is in escrow until we resolve and get signature and then we'll figure out what does that mean? Does it come in as a gain? We haven't saved a lot of balance sheet down in joint venture. So, we would have to, based on the settlement, determine the accounting at that point. But it is not interest quarter revenue.

Okay. Great. Thanks. Good job.

Thank you, David.

The next question comes from the line of Glenn Greene with Oppenheimer. Please go ahead.

Thank you. Good afternoon. First question. I wanted to drill down on the international margin trends during the quarter. It was a little bit worse than I was thinking but maybe it was in line with your expectations. I don't know how it sort of came in. But just a little bit of color on how you saw the international margins and what will drive the sequential improvement going forward.

Well, I mean, again, we talked a little bit, we had strong margins fourth quarter. And they dropped off in the first quarter. A lot of it due to timing. We had a lot of software and professional services cleared in the fourth quarter, which I think we talked about last call was a really good quarter for us.

The currency is not providing as much lift as we expected because of the strengthening of the dollar. So, beyond that, I just look at timing. International has a little bit more timing impact because of the software professional services. So, I don't think we would have any concern for the first quarter. It's probably lower than we would have like to do see but we expect that to bounce back going forward.

I don't know what kind of color you can give us but it sounds like Banco Bradesco there's a lot of things going on in the memorandum of understanding this morning that was announced. It sounds like you converted or some part of the portfolio, or a new portfolio and another one to come going forward. Can you give us more color on what is happening with Bradesco. Maybe some sense for the timing when you get resolution on the JV and some more overall commentary on your relationship with Bradesco. Because I know it is a concern to a lot of folks.

Yes, this is Gary Norcross. We continue to have very positive conversations with Bradesco as we go forward. The portfolio that was converted was part of our commercial clients, CBSS also known as Visa Valley. And, we converted that portfolio in early April which, we saw as a good sign.

The announcement that you saw today, where Bradesco and Banco de Brazil are pulling together and launching possibly a private brand in Brazil. And then further bringing in possibly CBSS and that overall combination we all view as very positive steps. As I said, we continue to have ongoing conversations with Bradesco in every situation as Frank mentioned. FIS is part of the arrangement. whether they use our software or whether they stay part of the joint venture. We still have to work through those details but we continue to have very positive conversations.

So, you are feeling good overall about the relationship?

Yes, I think we're optimistic with what is going on with Brazil. We like the strategy that Bradesco is pulling together with their overall payments initiatives in the country. The payments continue to grow in Brazil at 20% per year. So we're optimistic that we'll have a very, have a favorable outcome.

And just quickly, can you remind us how much of a drag the Santandere deconversion was in the quarter?

Yes, it is $40 million a year. So Santandere converted at the end of January, so the $10 million a quarter. Banco Bradesco as we originally planned did not come on board, so you can assume it is a portion of that $10 million.

Got it. Great. Thank you very much.

You're welcome .

The next question is from the line of Greg Smith with Duncan Williams. Please go ahead.

Yes, hi, guys. Just hoping to get some comments on the interest expense. It seems like most of the swaps have now been redone, but can we still expect a bit of a sequential decline in the interest expense in 2Q?

Yes, I think we had provided a little bit of that color. But I think we have one more swap then unwind second Q and then we'll flatten out in third and fourth Q. But we'll continue to give you a little bit of highlights into that.

Okay. But so there is still is benefit to come on a sequential basis.

I think you guys have that data, the last swap coming off.

Yes, this is George. I think the swaps have been detailed in the 10-K and we had one expire for $850 million on April 11. And so you're going to see a reduction in interest expense, the balance of the year.

Okay. That's perfect. I just wanted to make sure everything is on track with what original expectations were. And then the internal revenue growth in the quarter, should we take 1.8% the currency adjusted number. Is that essentially what you're using as the internal revenue growth for the quarter?

For organic revenue I would use constant currency. It is cleaner and keep you updated on our assumptions on foreign exchange, but the 1-8 first first quarter is what we experienced.

On the Legacy Metavante side, you guys had a pretty decent tax related payment processing business. Any comments on that. Can you remind me? Did the majority in that business come in 1Q or 2Q?

It is a little bit of both. It is a business that provides prepaid debit cards and tax refunds in the first quarter. And then second quarter, and then the other business we have is to provide facilitate electronic tax payments to the IRS and some municipalities and some states, which there is some in the first quarter and then pretty heavy in the second quarter. So it actually hits the first and second quarter.

Okay. Great. Thank you.

You're welcome.

The next question comes from the line of Dan Perlin with RBC Capital Markets. Please go ahead.

Thanks. And good afternoon. Are you guys still actively looking at selling the majority of your check business?

No, no. We concluded that we could not adequately get a return on that and we feel we can operate it and get a good margin. Ultimately there is some technology we can leverage, such as analytics across the rest of the payments business. So we pulled that back in-house and operating it.

Is there opportunities for incremental cost synergies as a result of doing that, that maybe weren't articulated in the Metavante merger?

No, I would look at it as it has been on the blocks for a period of time. And we're trying to make sure the volumes, the volumes will go down in secular decline in checks. We have to make sure we stay ahead of it and keep the margins. But I would assume there is more synergy.

Sounds like margins in that business are pretty decent. That is just a function of the guarantee portion of the business that's increasing of results of dislocation that we see in the market?

Correct.

Okay. And the cost synergies I think Frank said you exceeded $43 million estimate. Could you tell us what the number was in the quarter.

We talked about $43 million. We exceeded it. We're on track for the year. We talked about the full year, we expect to end right around $212 million, incrementally $150 million.

Okay.

So we're on track for that. We're pleased with the start. The synergies, move around quarter to quarter, so as long as we stay on track I don't think we want to get to precise with you. We're confident as to where we're at this point and time.

The other thing you mentioned was 30%. I missed the actual comment. Sounded like something like 30% of growth same from cross-sales this quarter? I kind of -- I just missed what you said.

It was cross-sales related to the combination -- Gary can probably speak to that.

Yes, Dan, that is what we're trying to, a lot of people focused on the Metavante combination from expense takeout standpoint. We wanted to highlight that we're also seeing some revenue synergies out of the combination. So 30% of our sales in Q1 actually came from former Metavante products being sold into FIS clients, or former FIS products being sold into Metavante clients. So, we really see that as a good sign. We've pulled our sales forces together. And we're executing, we feel we're executing very well and I think Q1 was a good example of that.

Yes, that's a good number. The CBSS deal, Visa valley, was that something you were working on for some time? Or is something that creeped up as a result of this discussion around the JB?

No, we have an ongoing commercial business in Brazil, the joint venture has customers, CBSS is a large one of those. They were owned by Banco de Sandesco and Banco Santadere and Banco de Brazil. As you saw the announcement, Santandere is now coming out of Visa Valley but this was a commercial arm's length we had through joint processing arm and we're through the natural course converting the cards on to our system. And so Banco Brazil -- I'm sorry, Banco Bradesco did convert in early April.

And that was a planned activity.

Yes, that's right, that's right.

Okay. And you said there is another $3 million to come on? Is that next quarter or is that just in the back half of the year?

Correct. We're actually scheduled in Q2 to bring on those additional cards.

Okay. And then just lastly on the international front you mentioned a large, I think you said a large institution, was it a launch prepaid in Asia? Is that also something also scheduled for second quarter or should we wait to second half to get more details around that?

Yes, I think you should look towards the second half of the year as they come on.

Great. Thank you very much.

You're welcome.

The next question comes from Brett Huff with Stephens. Please go ahead.

Good evening and congrats on a nice quarter.

Thank you, Brett.

One thing I'm trying to get a handle on. You talked about the sales momentum. And I want to do understand, was there a particular geography that -- I think you said core sales was upside to what you were expecting or it was accelerating. Was there an equivalent geography focus or was it widely spread?

When you look at our success, we had an FSG in the quarter. Brad, it was really across all of our major segments, especially in the US markets. We saw strong wins in our community markets as Frank referenced. We saw significant wins in the top 100. So, we saw good wins across the board. We also saw a number of key wins in our international markets, so overall we had a very good quarter with regards to FSG sales.

And on the international, can you give us an idea of what the growth was X any of the one-time Banco Santandere stuff? What I look at onetime. Can you give us an underlying growth picture?

As I mentioned, the Santandere partial payment of the settlement is not in the revenue numbers. We're holding that in escrow until we fully negotiate that termination agreement, or that agreement.

Okay. And then the last question I had was in terms of CapEx, it sounds like you're still expecting CapEx to be relatively near where you guys were before. Is this just a timing question, or were there particular investments that just got pushed? What was the reason offer the seasonality of CapEx?

I would say timing. You build up budget going into the year. And then you try to manage to it, and then we just didn't spend the CapEx as fast in the first part of the year as we will for throughout the year. So, I would put it to timing.

Thanks for your help.

You're welcome.

The next question is from the line of Kartik Mehta with Northcoast Research. Please go ahead.

Good evening. One thing that gave you upside this quarter was software sales. I was wondering. That is one of the first things we saw decline as the economy went kind of south. I'm wondering if the increase of software sales as the result of the market getting better or you're just executing better and as a result taking market share?

No, I think there is an improvement. Obviously the market improvement helps us and helps everybody. The reality is we're getting software sales but we're getting outsource sales at the same time. So, I think it's a general improvement.

As Gary talked about, the core processing, the FSG sales, has been really good for us. We get an uptick there in the first quarter that we're pleased about. Both on the sales force and software sales side.

When you look at regional bank and community bank customers, how much worry do you think they have about their real estate portfolio. It is enough of a worry that it's causing them pause or are they starting to feel better about the economy and it's not as much of a concern?

I think you have to ask them the reality. I think they would feel more comfortable in their position today than they clearly did a year ago but it is not on an individual basis. But clearly there is more confidence growing as each quarter goes on.

The last question, Frank, just on that. Do you think any difference in geographic demand as you look at your customers?

Absolutely not. No, it's across the country and it is across all the regions globally.

Thank you very much.

You're welcome.

Our next question comes from the line of Bryan Keane with Credit Suisse. Please go ahead.

Hi. Good afternoon. I just want to follow up on the software and professional services increase. Can you guys quantify that? How much the increase was?

Software was little north of 20% and professional services were south of 20%. So around 20%.

And do you guys continue the strength into Q2.

Software is a little bit timing. So, it is a little bit hard to predict software. Typically first quarter not a super-strong quarter. We had a pretty easy comp last year. And typically build throughout the year and fourth quarter was strong for us in software. Professional services you expect continuity.

So, we expect the professional services to continue. I think to the general tone that Frank spoke to, we're pleased that we've seen a couple quarters now of buying and that there is a little more confidence in our customer base to buy. But, we continue to monitor that. And again software I don't think we map out a trend yet until we see it really snap all the way back.

Okay. And the overall financial solutions revenue increased 3.2%. That was a little better than we expected. Should we continue to see that kind of strength in that segment?

Second quarter is going to be tough. Year over year second quarter we're not expecting that, simply because of the comparisons to last year. We were pleased with the growth. I think we're still looking at third and fourth quarter as we bring on the sales, how fast we can get them converted and turn them into revenue. So we'll continue to watch that and see whether we can keep that trend going. But that is a good start to the year for us.

Okay. And just last or two more questions. One on just the international segment. I think you guys were expecting that to be constant currency mid to high single-digits. Should we still expect that for the year?

Yes, again we've, that was our expectation. We still think we can get there. We've talked about the Santandere hole with Sanadere going away and Bradesco not converting. So it is a $40 million hole. We still think we can get that growth out of there.

Depending what happens with Brazil, we have the Visa Valley business coming on. I think we're still very optimistic long-term on the international front.

Okay. And then, finally, just on 2Q guidance I think you said low single-digit revenue about 100 basis points in margin expansion. Do you have an EPS range you can help us with?

I think if you kind of look at the two of those, you can kind of get to where we're at. I don't want to get into the habit of Q to Q EPS guidance.

Okay. Thanks a lot.

Our next question comes from John Kraft with DA Davidson. Please go ahead.

Hi, guys.

Hi, John.

Just a few clarifications left. Mike, regarding the debit transaction. I'm looking last quarter Q4, you said it was up 13%. Is that comparable to the 15% you saw in this quarter or the 11%? Are we seeing acceleration or are we seeing it flip again?

It's 15%. We're seeing it pick up.

Pick up. Okay. Good. And going back to the conference call you had when first announced the Metavante acquisition. I think at one point you thought you could get as high as 70% cross sale growth from Metavante acquisition. Is that achievable?

First I would say -- you might have misunderstood. We would say that both companies were seeing strong cross-sale as the 12% of sales. So I think FIS was 70%, 75% and Metavante, we were in the same area, 60%, 70%. So cross-selling into an existing customer is always a better place to get new sales than going green fields. I think that is what the 70% refers to.

We talked specifically about firming up our long-term revenue growth guidance by 2 percentage points. So we had said long term expect growth to be 6% to 9%. And rather than raising that 8% to 11%, we said we're going to stay at 6% to 9%. And we think that cross-sale lift of the two companies coming together will add in and fill in, in those ranges. And we estimated two percentage points a year.

Okay. That's fair. I guess what I was kind of getting that, that 30% that was seen this quarter, I mean , that's just part of the way of what you think you can get

Well the 30% is specific to synergies where we're selling a product into the other company's base. So cross-sale total is much much higher than that as we sale products across the board.

Got you. I see.

Three out of four of our sales or 75% of our sales are cross sales or add-on products into existing clients. What we were highlighting is that we're seeing revenue synergies out of the combination where we're taking products that the other company did not have, and selling those products into their client bases. So that is a real positive trend that we're seeing, that we saw in Q1.

Sure. Thanks for the clarification there. And then just lastly on the Citi contract, can you give us an update on the timing of implementation of the status there?

Well, I mean, again, Citi was a transaction. Citi is an in-house customer. It is a nice deal because Citi is obviously a big name. But it is not a number that is going to move -- that is going to move us.

So we're helping them. We're helping them get ready. But you won't see anything moving the needle in terms of our quarterly results.

Thanks guys.

You're welcome.

The next question comes from the line of James Kissane with Bank of America. Please go ahead.

Yes, thanks and good job, guys. Mike, do you break out what this software contribution was in the quarter? I think you told Bryan it was up 20%. But maybe can you size the contribution? Thanks.

Let me see if I can get that.

Give us a second here.

Yes. And then I think since you're looking, I think, Mike, you also sized the check business in your comments? Can you size the check and item processing business combined?

That was the combined. The $120 million was combined. (inaudible). We just gave you a little clarity there because that is in the secular decline. Obviously it is check is going down.

What's the rate of decline there?

We think 8% to 10% a year as tax is going down.

Yes. That does have some kind of regional impact, but pretty traditionally you can model around 8% to 10% of decline.

Okay.

So software year-over-year increased to $5 million. And that was 20%.

And any termination fees in the quarter material at all?

No, we called out last we're we had a significant one at 23%, and so this year we didn't have anything material to compare.

And just as the FDIC goes over and takes over banks, how are you guys fairing relative to the competition?

Well, as the middle ones, small one roll up into middle ones, we have a stronger position we think in the middle mid-tier banks. So it is up to the large top 30 banks.

And so we've picked up more of those accounts and transactions. I think as we described in the past, if you lose a name, if you lose a customer, even if another customer picks up the account, you still come out negative on the revenue. So I think we have picked up our share of the accounts in transactions, but this is the general closure is our challenge to all of us.

Yes. Okay. Thank you very much.

You're welcome .

The next question comes from the line of Tien-Tsin Huang from JPMorgan. Please go ahead.

Thanks so much. I want to do ask about the constant currency revenue growth. I think it was 1/8 this quarter. If I recall, you got it to about flat revenue growth from a guided standpoint this quarter. What is the delta there? It sounds like software and professional services, or some of it. What was the rest of the delta?

We did, as I said, we came in a little higher than we expected. We had software, professional services. We had the transaction side and the payment side came in strong as we discussed. So, quite literally across the board, PCFSC, international wasn't quite as strong as the other two, but we came in higher than we anticipated.

Right. And then keeping the full-year guidance the same despite the Q1, is that conservatism, or are you expecting some weakness in some of the Visa businesses going forward?

No, I mean, we got a 1% to 3% range out there. We had a little stronger first quarter start.

We think we've talked about the second quarter can be a little more challenging year-over-year. We've talked about Brazil and headwinds that causes against our plans. So, I think we're trying to, giving you realistic expectations as opposed to either being conservative or aggressive.

Two more quick ones, if you don't mind. Just the bank spending overall. It sounds like software is coming through. I'm curious as based on your conversations with the banks, do you think bank spending as picked up a little bit relative to what you were communicating maybe a quarter ago?

Well, again we've seen two good quarters of sales. I think we've repeatedly said the confidence in the banks, the confidence in the people that we work with, whether they're on the technology side or whether on the business side is much stronger today than it was a year ago. And, we're seeing some of it come through as a trend. Again, we would like to continue to watch and see is base trending back to what level. But we're encouraged by the last two quarters, at least to where we stand today.

Okay. Okay. And then on the software, do you think you're taking some share there from a competitive standpoint or is it really coming from your install base?

I don't know if we're taking share. We're winning our share of the deals. I think we're doing maybe a better job winning, taking share in the top 100 banks on outsourcing deals. We seem to be signing a pretty good number I think on the software side. We're winning our share. It is a little bit harder to tell whether you're taking it away or not. I think we've been pleased competitively with how we've doing the last two quarters.

Yes, but it's the work to see how it's going the last couple of quarters.

Maybe can I can sneak in one quick one. From the Brazil side, the number of cards on your systems now, can you update us on the number of cards and maybe the mix? I believe there is a lot of private label. I just wanted to make sure.

Yes, there is quite a lot of private label on that portfolio. It's about 25 million cards, in general. 23 million, 25 million in general, processing in the joint venture today. About half of those are Bradesco related at this point.

Perfect. Thanks.

You're welcome.

The next question comes from the line of David Parker with Lazard Capital Markets. Please go ahead.

Thank you. Good afternoon. Just wondering if you could address pricing in general? Have you seen any change over the last quarter or two, especially just on your renewals and with the mid-sized clients? Thanks.

Yes, pricing continues to be a challenge for us. When you renew the core deals, they have a longer tail. You know you're going to be challenged price. And Gary and his team work hard to maintain pricing or up-sell new product.

But I don't see that letting up at all. I think on the payment side we continue to see lot of pricing challenge, particularly from Visa and MasterCard out there. We feel good about our product capability, but is a challenge you don't compete against Visa MasterCard. We don't see pricing pressures slowing down. It is something we live with and we think we have a scale to compete in the market.

We're not sure it is any worse than it was. Certainly not any better, and we expect it to say there.

I think just to build on that, pricing compression is part of the business. It is our product portfolio set that allows us to offset that by, to Mike's point, bringing in more products into the renewal.

Right. Okay. Great. Thank you on that. And then just, if you could address the bill payment products, what type of growth you're seeing with the transactions. And also just specifically that the competition. We had NACHA that released EBITs from a pilot to a commercial product. Do you see that as competition going forward? And just the rest of your competitors. Thanks.

We continue to see strong growth in our bill payment channel. We think, Frank referenced in the call a very nice sale in the top 100 space of our bill payment solution. The NACHA release frankly, we're also going to see new competitions in the payment space. We think we got the scale necessary to compete. And we're rolling out new capabilities all the time as well. So we feel very good about that business.

Great. Thank you.

You're welcome.

The next question comes from the line of Julio Quintero with Goldman-Sachs. Please go ahead.

Hey guys. Good afternoon. I wanted to go back to some of the questions that I think Kartik was asking about, the drivers of growth and how do we think about the health of the end market that you guys are selling into? Maybe approach it a little bit differently. If you guys stepped back today and looked at that client base, what are the priorities for spending? And ultimately for the services that you guys have? What are they going to come back to the table with first and say we need a new, fill in the blank? Is it a core system, is it a ATM system, is it a mortgage system? Where are the priorities in terms of spending as you talk to your clients. If you can sort of segment that between the large financials and the small ones, that would be helpful.

Well, Julio, this is Gary. I think the first thing you have to do is separate between clients who are still working through economic challenges and struggling with survival, and ones who think they've weathered that storm and are now looking to invest in technology. So, when you look at those two buckets of clients, the ones who are starting to spend and starting to look at technology improvements, really across the board, whether it is large financial institutional space, as Frank mentioned, several two top 100 wins on core processing and even mid-tiers and smaller institutions, we are seeing quite a bit of demand on the core processing front.

And I think it is not totally surprising for us, but it is a little more demand on core processing than that when he expected. So, I think a number of our clients are looking to improve their foundational elements, putting in the next-generation of technology to be able to take share in this market. But we also continue to see strong demand across our debit channels as well. I mean, across our payment channels as well.

And so those core wins it sounds like they were on the large financial side. What about on the small community bank side?

Well, we actually had a number of them and we highlighted two in the top 100. We highlighted Coal Taylor in the release today, which is a nice mid-tier win. We had several in the mid-tier. And we had a lot of competitive takeaways in the community marketplace as well. So I would tell you across the board we saw some nice wins there.

Does it feel, Gary, does it feel to you like at this point, given just the dynamics of technology and what we're seeing in terms of changes, everything from cloud computing and virtualization, et cetera else, that it is trickling all the way through and perhaps forcing guys to start thinking about if we really want to be effective going forward, we need better legs to stand on, which means the core has to be kind of looked at finally or is this too early to begin thinking that way?

Well, I think to Mike's point, we've had two strong quarters of sales. Obviously we want to continue to monitor it and see if these trends continue. But I do think in general financial institutions, after they have come through this economic crisis, the ones that have come through it, are taking a very hard look at their technology and wanting to improve their infrastructure and technology layers so they can compete more effectively in the market.

And maybe just to kind of sort of go back to the two-bucket commentary. Is there any way to generally put some parameter around what percentage are put in the bucket still challenged versus the ones that have come through it?

No, there is really not. In fair n we've seen two strong quarters of sales. And as I said, there is a lot of speculation on how many institutions are going to be failed by FDIC, but to Frank's point you need to talk to the financial institutions about that. We continue to serve all of our clients. I think we're stacking up well against our competition in executing well on our sales channel at this point.

All right. Guys, great. Good luck.

Thank you.

Operator we have time for one more question.

And the final question comes from the line of Karl Keirstead with Kaufman Brothers, please go ahead.

Hi, thanks, I had a question about the bookings conversion rate. Two quarters in a row of apparently good new sales, it doesn't seem to be having an expected dent in your second half constant-currency growth rate. And I would like to go back to the question of why? Is it that there are offsets in the second half? Or are you seeing any kind of change or slow-down in the rate at which new sales convert to revenues? Thank you.

No, I mean, again, I think that we need those sales. We need them in the first quarter, because again we've talked about if you looked at our plan for the year, our numbers ramp up in the third and fourth quarter. And so we expect that to be, as I said, six to nine months to bring those sales on board. Start to get revenue, we get a portion of it that we booked in revenue, if it is software-related or professional services. But a lot is conversion process.

So I think it it is coming on board as we expect. We obviously have impacts of consolidation and in this case some of the FDIC actions, and have impact to pricing. You map that together, we're right where we want to be. We would like to see, as we said, sales continue for some more quarters and get a ramp built up going into next year.

So, Karl, I think it is reflected in our forecasting when budget for third and fourth quarter and certainly into 2011.

Okay. Thank you very much.

You're welcome.

Thanks, everyone, for joining us this afternoon. Please feel free to give us a call should you have any additional questions.

Ladies and gentlemen, this conference will be available for replay beginning today at seven PM Eastern running through Tuesday, May 11th at midnight Eastern time. You may access the ATT executive take, dialing 800-475-6701 and entering access code of 1522477. International participants, 320-365-3844 with access code of 152477. Once again, those numbers again, participants within the United States, please dial 800-475-6701. International participants 320-365-3844. Both with the access code of 152477. That does conclude our conference for today. Thank you for your participation and for using AT&T Executive Teleconference. You may now disconnect.