Fidelity National Information Services Inc (FIS) 2010 Q3 法說會逐字稿

Welcome to the FIS third quarter earnings 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) As a reminder, this conference is being recorded. I would now like to turn the conference over to our host, Ms. Mary Waggoner. Please go ahead.

Thank you Brad. Welcome to everyone joining us this morning. For those who have not already done so, I would like to remind you to register for our Annual Investor Day, which is scheduled for Monday, December 6, at the New York Stock Exchange. Now we will proceed with the third quarter earnings report. Today's release and supplemental slide presentation have been posted to our website at www.FISglobal.com. A webcast replay of the audio portion will also be available on the website shortly after the call. Joining us this morning are Frank Martire, President and Chief Executive Officer, Gary Norcross, Chief Operating Officer, and Mike Hayford, Chief Financial Officer.

Frank will lead today's discussion with the third quarter highlights and an overview of the recently announced Capco acquisition. Gary will follow with the operations review and Mike will conclude with a detailed financial report. Please refer to the Safe Harbor language on page two of the presentation. Today's discussion will 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 undertakes no obligation to update any forward-looking statements whether as a result of new information, future events or otherwise except as required by law.

As always, our discussion will pertain to results from continuing operations. In addition, today's comments will include 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. Unless otherwise stated, reference on this call to revenue and EBITDA growth rates will be on a pro forma basis to include results from Metavante in all periods. The presentation will begin with slide four. I will now turn the call over to Frank Martire.

Thanks, Mary. Good morning, everyone, and thank you for joining us on today's call. October 1 marked a one-year anniversary of the merger between FIS and Metavante. By all measures, the combination has exceeded my expectation. The team has done an outstanding job of staying focused on serving our clients while delivering on our commitment to great value for shareholders. We are very proud of the manner in which our employees have come together as one Company. It has been impressive to say the least and speaks to the high quality of our management and employees.

I will begin today's business review with a summary of financial results followed by key developments during the quarter and an overview of the pending Capco acquisition. Third quarter revenue increased 3.3% to $1.3 billion, driven by excellent results in Financial Solutions, which grew 10.5% compared to the third quarter of 2009. The strong performance was driven primarily by high discretionary spending, strong demand for integration services and growth in the existing base. This is our fourth consecutive quarter of top line growth and we are very encouraged by the increasing momentum and renewed confidence and buying decisions. The EBITDA margin expanded 320 basis points to 33.1% in the quarter and adjusted earnings came in at $0.52 per share.

Free cash flow was again strong at $220 million. The integration is progressing on schedule and we are confident that we will achieve the targeted cost savings. There were a number of key developments in the third quarter, each of which will drive long term benefits for our Company. In early August we completed the $2.5 billion leverage recapitalization and share repurchase plan. We also announced a signing of a memorandum of understanding with Banco Bradesco to continue the joint venture in Brazil. Most importantly, I am pleased to report that we successfully converted Bradesco's 14 million bank card portfolio to our platform in early October. Our respective teams did an outstanding job bringing the project to completion. And we are now providing card processing and back office support for Bradesco's credit card portfolios. We are very excited about the growth prospects for the joint venture and the opportunity to further expand our card processing operations.

Separately, as noted in this morning's press release, we are reviewing strategic alternatives for the Proservvi business in Brazil which FIS acquired in 2006. Here we will talk more about this business later in the call. And last, we announced a definitive agreement to acquire Capco, a global business and technology consultant company. Capco, which focuses solely on the financial service industry, will significantly strengthen our consulting service capabilities and provide a strategic extension of our core and payment processing solutions. Capco has relationships with many of the largest banks in the world, and is highly respected as far as thought leadership, deep domain expertise and client-centric approach. The transaction supports our domestic and international growth strategy and positions us to further expand our footprint across large US and global financial institutions.

Capco, with its strong brand industry expertise, is an excellent addition to FIS's portfolio of services and we are very excited to welcome the entire team of Capco professionals to FIS. Rob Heyvaert, the Company's Founder and Chief Executive Officer has more than 25 years of industry knowledge and experience in building and managing consulting companies. All in all, it has been a very good year for FIS. We continue to make significant progress towards completing the integration project and are on track to achieve the targeted cost savings. We are very pleased with our solid financial results for the first nine months of the year and the improved sales performance and as always, we remain focused on our client relationships, growing the business and further expanding our market leadership. Now I will turn it over to Gary for the business report. Gary?

Thank you, Frankm and thanks to everybody on the call. I'm pleased to be joining you today to provide an overview of the third quarter operating highlights. I will begin my remarks with an update on the Metavante integration followed by the -- an overview of the current sales environment and key business initiatives. The response from the market has been overwhelmingly positive since we announced the combination of FIS and Metavante. Our combined strength and product capabilities are beginning to drive tangible benefits for our clients.

As Frank mentioned, the integration project is going very well and we are on track to deliver our committed financial targets. Many of the data center and strategic command center moves have been completed. As I'm sure you can appreciate, this is a highly complex, large-scale effort and our employees are doing a phenomenal job. Our dedicated integration teams and client support staff are to be commended for their success in executing the project while maintaining production quality and high standard of service to our clients.

Sales activity remains solid in the third quarter as new contract value increased sequentially and also relative to third quarter of 2009. Even as our clients navigate their way through the myriad of regulatory changes that have occurred in 2010, we see them pursuing more buying decisions and the emphasis is shifting towards growth and expansion compared to 2009 when many banks are focused primarily on managing expenses and survival. Demand for core system replacements continued into the second half of the year. Lake City Bank, a long time client of a competitor, recently selected the FIS core processing platform and will also convert to our eBanking, bill payment and debit card solutions as well as the NYCE Payments Network.

We also continue to see pull through sales from our existing client base. In fact, more than 50% of our core clients in North America have purchased additional services from us in 2010. As evidenced by accelerated growth in financial solutions, which grew more than 10% in the third quarter and 5.6% year-to-date. Many banks are also leveraging the current environment to grow through acquisition, which is driving increased demand for implementation and integration services and driving additional cross-sell opportunities for all of our products. We recently announced plans to provide outsourced application management services to ING Direct in France, a user of our Profile core processing solution. We are very pleased to expand our decade-long relationship of ING Direct which is viewed by many in the industry as the best-in-class model for retail banking.

As in early October, we completed -- also in early October, we completed the installation of our profile core processing system for the Bank of Pakistan, which is the largest bank in Pakistan and one of the largest banks in Asia. Sales of our payment solutions also increased in the third quarter. Suncoast Schools Federal Credit Union, the seventh largest credit union in the country, will soon convert its debit card portfolio to the FIS platform and will also begin utilizing the NYCE Payments Network. Suncoast has been a long-time credit card client and we are very excited to broaden our relationship.

We continue to make progress in leveraging our payment products into our international growth strategy. I am pleased to report that two clients in South America including the Bank of Venezuela and ReadyCARD, a well-known third party processor, have selected our ATM switching services. We also recently expanded our outsourced ATM management relationship with the Bank of India, one of the top banks in that country. As Frank mentioned, we successfully converted Bradesco's remaining card portfolios the weekend of October 2. We are now processing Bradesco's private label, MasterCard and Visa branded cards as well as their complete commercial card portfolio. The conversion went extremely well and feedback from the bank has been very positive. We remain very enthusiastic about the Brazilian market and the strong growth potential in the region.

We are also excited about the expanded capabilities that Capco brings to FIS. Capco is a very strategic investment which truly sets FIS apart from other providers in the industry. Capco's thought leadership and consulting expertise are strong complements to our existing suite of core and payment products and their client-centric approach is strongly aligned with our integrated go-to-market strategy. We believe that the transaction will further differentiate FIS in the market and strengthen our value proposition as a provider of transformation solutions to large banks and financial services companies around the world. Now I will provide some additional color about our Brazilian item processing and remittance business, formerly known as Proservvi, which we acquired in 2006 and it was generating approximately $15 million per quarter. After a comprehensive evaluation, we have concluded that this predominantly paper-based business which is not part of our Brazilian joint venture is not a strategic fit for FIS and we are actively pursuing a buyer or other alternatives.

In closing, the main points I would like to leave you with today are as follows. We are executing the integration plan and delivering the synergy targets while staying focused on maintaining high client satisfaction levels. We continue to closely monitor the regulatory environment and generally speaking, change provides opportunities for us to engage even more closely with our clients. We are encouraged by renewed confidence on buying decisions in the market and feel that we are competing very well in winning more than our fair share of deals. And like our clients, we re investing for growth and working hard to aggressively outperform the market. Now, I'll turn it over to Mike for the financial report.

Thank you, Gary. As a reminder, my comments related to revenue, EBITDA and year-to-year growth rates will be on a pro forma basis to include Metavante results from the prior year. In addition, as outlined in the press release, the Proservvi and ClearPar businesses are included in discontinued operations. I will begin with slide five. Adjusted revenue increased 3.3% to $1.29 billion compared to $1.25 billion in the prior year. The growth was driven by higher license sales, professional services revenue, which in aggregate increased 23% compared to the third quarter of 2009. Debit and credit transactions also continue to trend favorably. Adjusted EBITDA increased 14.7% to $427 million. The increase was driven by the achievement of targeted cost savings, revenue growth and recovered legal expenses that were incurred in prior quarters. EBITDA margin expanded 320 basis points to 33.1%.

Slide six provides segment data on FSG. Financial Solutions revenue increased 10.5% to $486 million in the third quarter of 2010 compared to $439 million in the third quarter of 2009. The growth was driven primarily by strong growth in professional services and higher license and outsourcing revenue. Financial Solutions EBITDA increased 16.9% to $219 million and EBITDA margin increased 250 basis points to 45.1% compared to 42.6% in the prior year quarter. On slide 7, payment solutions revenue totaled $601 million, a 1.9% decrease compared to prior year as growth in electronic payments was offset by declines in check verification and item processing revenue. Payment Solutions revenue increased 1.8% excluding our paper-based check businesses. Payments Solutions EBITDA increased 2.3% to $231 million and the margin improved 100 basis points to 38.4% compared to 36.9% in quarter three of 2009 driven by synergy attainment.

Turning to slide eight. International revenue increased 2.3% compared to third quarter of 2009. The foreign currency benefit added approximately 20 basis points to our reported growth rate. EBITDA was $47 million compared to $49 million in the prior year. International margin was 23.3%, compared to 24.9% in 2009. As you are aware, quarterly results can vary due to timing of software sales. Revenue growth was also negatively impacted in the second and third quarters of 2010 by the delay in the Bradesco conversion. Now that Bradesco has converted, we expect our international business to return to double-digit revenue growth beginning in quarter four.

Please turn to slide nine for a reconciliation of adjusted net earnings. Third quarter adjusted net earnings from continuing operations totaled $177 million or $0.52 per share compared to $89 million or $0.46 per share in the third quarter of 2009. The adjustments to GAAP earnings include the following. First, the $83 million Santander termination fee on the restructuring of the joint venture have been excluded from our adjusted operating results. The net impact -- the net income of $17 million or $0.05 per share. Also included were costs associated with the leverage recapitalization and integration costs totaling $16 million after-tax. The deferred revenue adjustment of $2 million, the after-tax amortization of $42 million and again shares outstanding averaged 339.2 million in the third quarter.

As shown on slide ten, we generated free cash flow of $220 million in the quarter. Capital expenditures totaled $93 million compared to $91 million in the third quarter of 2009. We began the quarter with approximately $3 billion in debt and incurred an additional $2.5 billion related to the leverage recapitalization. We completed a share repurchase in August acquiring 86.2 million shares at $29 per share. We subsequently repaid approximately $400 million of our debt resulting in $5.1 billion of debt outstanding as of September 30. The debt includes $1.1 billion of senior notes which are issued through a private offering.

We expect to begin the registration process for these notes in the near future. Additional detail on our debt is provided in the Appendix. The Capco transaction which we announced last week is an all cash deal with approximately $292 million payable at close. We will use a combination of cash currently held outside of the US and draw against the revolver for the remainder. Total purchase price will include an earnout which will be payable of upon achievement of future earnings and EBITDA goals. The acquisition is expected to be accretive to organic revenue growth and slightly accretive to earnings in 2011.

Now if you turn to slide 11, I will provide a few comments about our full year 2010 outlook. Given the positive momentum heading into the fourth quarter, we expect constant currency revenue growth to be at the upper end of our 1% to 3% guidance range for the full year 2010. We began 2010 expecting a $60 million benefit from foreign currency and are now estimating that benefit to be about 50% of that. We continue to expect EBITDA margin expansion of approximately 300 basis points for the year. We are reiterating our guidance for adjusted earning from continuing operations of $1.91 to $2.01 per share for the full year 2010 and are tightening the range to $1.95 to $1.99 per share as we head into the fourth quarter. The guidance does assume a 36% tax rate and 353 million shares count for the full year. We are forecasting average shares of 307 million in the fourth quarter and while we have not completed a planning process for it next year, we are anticipating average shares of approximately 310 million in 2011. Free cash flow is expected to exceed $700 million in 2010, in line with our previous guidance which has been adjusted for the increased interest costs.

Before we take questions, I would like to make a few closing comments to summarize our progress to date in key developments in the third quarter. First, we are very pleased with the solid year-to-date performance, particularly the increased sales performance and are confident that we will achieve our financial objectives for the year. We are excited about Banco Bradesco's long term commitment to the joint venture and most importantly, the successful conversion of the bank card portfolio. The integration project is proceeding on schedule and we are on track to achieve the $260 million synergy target including $150 million in incremental savings over 2009.

The addition of Capco supports our domestic and international growth strategy and positions us to further expand a footprint across large US and global financial institutions. We are seeing renewed spending in the market and are increasingly optimistic about the momentum as we head into the fourth quarter and into 2011. Last but not least, we will provide additional detail regarding our 2011 outlook, our business strategy and the capital acquisition at our Annual Investor Conference, which is scheduled for December 6, in New York. We look forward to seeing all of you there.

Operator, that concludes my prepared comments. You can please open the line for questions.

Thank you. (Operator Instructions) And our first question is going to come from Dave Koning with Baird. Please go ahead.

Nice job.

Thank you, Dave. Good morning.

I guess first of all, the guidance for the full year now implies 3% to 4% growth at a minimum in Q4. It sounds like one of the key benefits here is that international is going pick up the portfolio. But I'm wondering if the core business, even excluding that and with a tough comp in Q4, will continue its same momentum. I guess maybe just walk through how you think a Q4 -- you get the benefit obviously internationally but the core business underlying that also continuing to be stable and continuing to improve?

David, I think that's a good point. Obviously, international we'll see some growth because of the October 2 Bradesco Bank conversion. And as we talked about in the past it's about we had to say about $10 million a quarter based on that. The core business (inaudible) is a very, very strong third quarter. It's been very strong all year. Little stronger than we anticipated. We talked about the strength coming back in that market. And we don't see that changing in the fourth quarter and as we said, we are excited about the momentum we are building on sales as we head into next year.

All right. One other question I wanted to ask. You brought back the 86 million shares. Your guidance for next year and what we can see the rest of this year implies that the share count will be down about 75 million from the peak in Q2. And I guess I'm wondering why we won't see more of a decline in the share count relative to where we were at, at the peak.

Well, the share count as we said we repurchased a total of 86.2 million. If you look at the pure shares, part of the weighted average was due to the stock options. So some of those 86.2 million shares were already counted in weighted average share count as part of the option exercise. So I think if you net it all out, it's going to end up being 86.2 million, but as you look at stock share count, I think it was closer to 79 million going down.

Okay. And finally just one last thing I guess, you are excluding now that, that item processing income. I mean, is it fair to say the guidance might have been a little lower if you would have continued to include the item processing operations throughout the full year?

Are you referring to the Brazilian [BPO]

The amount that's now excluded?

Yes. I think you can't -- you've got to look at it is what it is relative to -- we set our plan last year and looked at it and where we anticipated that business could be. And I think we looked down at Brazil and we obviously spent a lot of time, a lot of management time last year and very focused on the joint venture. A lot of time and effort in the item processing business and our conclusion was that the time and efforts spent in continuing to invest in the item processing business down there which is paper intensive check-based. We don't have the scale and leverage that we do in the States in terms of declining check volume and being able to maintain margin and profit.

And as we looked at where we are at and what it would take to take that forward, we just concluded we would be better off finding a different solution and someone else could be better utilize that market. So I don't know that I would say -- as you look at where we were and the way the numbers worked out. There's a lot of puts and takes throughout the calendar year that get it -- and we're pretty excited that we're still within our range and at the upper range of where we thought we were going to be at the beginning of the year. And some things went very positive and some things we struggled through during the year and I think it's hard to say when you set a guidance a year ago, what are all of the things that are plus and minus that are going to impact it.

We also were counting on the card joint venture Bradesco converting in February in the first quarter as well. So to Mike's point, there's just so many moving pieces here. We are real happy where we are today.

Nice job. Keep it up. Thanks.

Thank you.

Our next question comes from the line of Glenn -- excuse me, Glenn Greene with Oppenheimer.

Thank you. Good morning. I wanted to just look at a little bit more color maybe on the sales environment -- the activity level. It sounds like your tone is improving a bit. If I heard you right Q to Q, the contract activity picked up some. Could you just give us a little bit more color where you are seeing the sales strength? Financial revenue looked good but I know there is a lag in terms of recognizing revenue related to sales. Payments, I wanted to drill down on that but it looked a little soft to me. In the broader context, what are you thinking about the fiscal 2011 financial technology spending? I will ask it in the context of one of your peers suggested 3% market growth for 2011.

Yes, Glenn, this is Gary. I will take some of those and then others can chime in. We are pleased where we saw our sales in Q3. We saw good strong sequential quarter growth. We also saw strong growth year-over-year. We continue to see strong growth in FSG in our sales not only in core takeaways but in our professional services business. Also we saw some increased sales in our software license fees. So we are real pleased. While payments have been a little lighter this year than what we have seen in the past, we saw a very nice growth in our payments business in Q3 and sales as well. So we highlighted a couple in our prepared remarks with Suncoast Federal. We also had some nice sales internationally on payments.

So --

And Glenn, we -- to stress Gary's point, we are really very pleased and (inaudible) a little surprised by the strong core sales about the strong core sales that we've had and that the momentum continues into the fourth quarter.

One of the things that's driving our FSG success is this continued demand for professional services activity. A lot of our clients are now acquiring other financial institutions. We were benefiting from that because we are helping them work through the integration, the conversion of those financial institutions.

Glenn, on the full year question for 2011, we will hold off on that until we do our Analyst Day on December 6. As you can see, our original guidance for 2010 was 1% to 3% organic growth rate and we obviously revised it and so we're going to be in the upper end of that range. And we expect in 2010 and fairly close to that 3% level. So as we look into 2011, we will get more clarity where we expect that to be. But I think we were encouraged by the progress in 2010 and the increased momentum in the buy-in environment from our customers throughout the year.

All right. Let me just ask one more. On the international side, the margins actually looked pretty favorable in my mind and I gather from some of your comments here, you had some conversion costs in here. Bradesco's going to add $10 million in the fourth quarter. How should we see the international margin profile in 4Q?

Well, again for the full year, we talked about it in mid-20%. Mid- to-low 20% and I think last year we had a pretty decent margin year. Most of those conversion costs we carry throughout most of 2010. As we were working on the Bradesco conversion and again, that delayed the first quarter into the fourth quarter. So that was a cost a little bit of a drag throughout the year. But international margins are always going to lag a little bit the US margins because we don't have the leverage and scale in any single economy or any single market that we do in the US. But we are pleased with the results. Fourth quarter is always generally a good quarter in international because of the a little bit stronger license sales so we anticipate that.

Okay. Thanks.

You're welcome.

And our next question will come from Ashwin Shirvaikar with Citigroup. Please go ahead.

Thank you. Good quarter guys.

Thank you.

I guess first question I'm trying to size the Proservvi business that you are divesting. It seems to be based on a run rate of $80 million, $85 million revenue business with a full year loss of maybe $8 million or $9 million. Is that about ballpark?

It's -- as Gary referenced, about $15 million a quarter, so $60 million a year. The run rate -- I don't think I would put it quite that high. We had a little bit more in the third quarter which we obviously is part of the discontinued. But I think it's probably a little lower than that.

Okay. I thought the $15 million (inaudible) impairment that was one time in nature.

No, no. It's about $15 million a quarter.

Okay, got it.

Revenues, right.

Revenue.

Okay. And FSG, is there any way to break out the -- and maybe you said this but is there any way to break out the software component?

Well, again, I think software we talked about has come back little stronger in 2010. I think we talked about that each quarter that the discretionary spending in 2009, particularly in software and special services is where we saw the slow down. So I think we continue to see in 2010 a little bit renewed interest in software, a little bit renewed interest in professional services.

Okay. One last question. Any early comments [from many clients] with regards to the impact of new financial regulation, what they are thinking about what they will do with regards to exclusivity and so on and so forth?

We continue to look at that Ashwin and we continue to work with our clients and as I stated in the prepared remarks, typically these changes are positive thing for FIS. Our clients are looking for us to help them through that process. We think when you start looking at areas of exclusivity we will be the benefactor of that. We see a lot of indications of that. But the reality is we are seeing a lot of regulatory change go on. And our clients continue to reach out to us for help. Frankly, we did a very small acquisition and compliance coach and that's been a very nice tuck-in for us to allow training on these regulatory changes and help our institutions. So the net of it is we are having positive conversations and helping our clients work through these changes.

Okay. Thanks. See you in December.

Thank you.

See you then.

And our next question will come from Greg Smith, Duncan-Williams. Please go ahead.

Hi, guys.

Good morning.

Mike, you said Capco would be accretive to organic revenue growth. Does that mean it will just be positive or it will be better than FIS as a whole?

I think actually both of those things. So as we add approximately a little over $200 million of revenue in 2009 is what is based at the end of the year. Sorry, 2010, the growth into 2011, we expect them to be a pretty strong organic growth engine. And we expect their growth to be higher than the corporate FIS overall growth.

Okay, perfect. What margins are they generating? EBITDA or op income?

I think that industry has run 10% to 15% -- I think they've run probably at the lower end of that range. And obviously our expectations we bring them on board, the type of business they do, their phenomenal industry leadership, business thought leadership, so they are in at the executive suite helping to formulate strategies. Helping to make those strategies a reality in terms of execution. So that connectivity between the [C] suite and business strategies down in to execution we think is a great complement. So while their margins are going to be lower, obviously than the overall lower FIS margins, we do think they will pull through some business across the board for us.

Is there any significant seasonality in their business on a quarterly basis?

I wouldn't say seasonality. Obviously we're going to have little more variability as their business goes up and down and as they probably go through some cycles which will be more on a year basis than a quarterly basis. I don't think there is a seasonality other than we -- normally people might be flushing out budgets at the end of the year.

Okay. And then just lastly, can you say what your -- the year-over-year growth in your credit debit volumes in the US were?

And we will give an update in December on that. But again, I think we will continue to see decent growth north of 10% on the transaction volumes. And our credit has come back fairly decent. Our credit card portfolio is retail banks who use a card as part of a retail strategy for their customers. So we didn't get hit as bad as some of the other providers because we are not focused on the card issuers solely. It's the retail institution that issues card as an adjunct. So credit and credit volumes have held solid for us.

Excellent, thank you.

Throughout the year.

You're welcome Greg.

We will move on to the next question. It will come from Brett Huff with Stephens. Please go ahead.

Good morning and congrats on a nice quarter.

Thank you.

Couple of questions. First, you guys have had strong growth or strong sales 4Q, 1Q, 2Q and you mentioned sequential 3Q sales were good contractually. You said in the past I think six months to 12 months is the lag time until we see some real juice from those. Is 3Q, did we see some of that and is that one reason why we can feel confident in 4Q as well as heading into the first half of next year? Can you just give us color on that?

Absolutely. The guidance is sales do ramp on over the first six, 12, 18 months depending on the size of the project. As you are bringing on the sales, a portion of those sales do come in quarter because they will be -- could be software components, could be professional services components that we're booking revenue as we deliver it. But you are seeing some benefits this quarter of some of the deals we sold at the end of last year and start of this year coming online and we are excited about that. and we are excited about what we are seeing going on in the pipeline and the continuing booking across the board whether it's payments, core signings or professional services continue to be strong.

I think represented as Mike talked about early and Gary mentioned when we talked about 1% to 3% that will be more towards that 3% number. So it is reflected there in the actual results.

And then, just as you look into -- you saw this quarter and you look into 4Q, you sometimes give us color on the cross sales or synergy revenue or whatever we want to call it between Metavante and FIS. Can you give us an update on that? Is it better? Worse? The same as the past few quarters?

I will tell you, Brett. We have done so well on the integration. We really look at ourselves as just one Company now so we're not really tracking. What we continue to track are cross sales. Our cross sales continue to be very strong as I highlighted earlier in the call. Over 50% of our clients have purchased additional software. We highlighted Suncoast in this example. We highlighted the very large core takeaway at Lake City, so we were having good cross sales penetration. And they're really coming across the board. We were selling a lot of our bill payment capabilities which was a former Metavante product solution. We're selling a lot of our other payments and core solutions as well that were FIS based. So I guess the message would be we see very strong cross sales across the board.

And then one last question. You mentioned ReadyCARD switching and that sounds like an important deal. Can you tell us -- can you size that at all and timing -- give us timing when we might start to see some revenue from that?

Well, we will see ReadyCARD come on in 2011. Once again, it is a very high profile nice third-party switching company. We really can't disclose the dollars on that, but it was a very nice win for us in Latin America.

That's what I needed. Thank you.

You're welcome.

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

Hi, good morning. I wanted to ask about the professional services and software sales. I think it was up 23% overall for the Company. Did you give that number for the financial segment, how much it was up there?

No, I don't think we will break down specifically what that is. You can probably anticipate that we will have a higher growth rate in FSG. A lot of our consulting services do come through the FSG segment because that's where the core relationships and that's where higher percent of our professional services run. But again, we view that as more of an indication market starting due to discretionary projects. That's the first thing to go when they tighten the belts and when they start to spend, it comes back. Good growth year-over-year for us there.

Yes, number was 10.5% was much stronger than we had anticipated. Is that something that you think carries forward or was there one-time things in there?

Again, there was a professional services we are little more cautious about whether those are one time or recurring in nature we tend to get them quarter-to-quarter but they're not the same as processing. I wouldn't anticipate FSG growth at 10% per quarter. We were pleased with the growth. We have been pleased with the growth of FSG throughout the year. Again, financial services has come back pretty solid. Couple of things we have talked about in the past. First of all, the impact of consolidation of market has been very minimal. Even though there is a lot of institutions that are being closed this year, they are smaller. We tend to actually win some of those. We've had some consulting fees that's helping support the migration of others that even we might not be bringing to our platform. So I think that coupled with strong license sales from professional services and then the backlog that Gary talked about, good sales starting fourth quarter last year is starting coming on board is all coupled to make it very strong growth in FSG this year.

To answer your specific -- it was a clean quarter. There weren't any significant one times in there.

It looked really strong. On the flip side though, payments looked a little softer. Is that business going to rebound going forward and what's causing -- I mean, I know the item processing and the check business but is there something else causing that business not to grow in line to what we've seen historically?

Well, I think the big issue there, Bryan, is the paper-based business. We continue to see a headwind there. That paper-based business is not just about volumes but the papers are converting to electronic very rapidly. We are seeing a huge conversion rate there. And as you expect, when it converts to electronic and we aren't actually capturing those checks or running them down through the transport you're going to have -- it's going to hit your revenues side. It helps on the EBITDA side. But we continue to see that as a headwind. The base payments business we are actually seeing some nice growth in most of our electronic payments business and we're real pleased with where that is but primarily it's the check based business.

What I suggest though is just like I wouldn't suggest you model FSG as a 10% growth segment. I would not model PSG's (inaudible) 1.8% segment. And again, we will give some clarity on December 6. Payments had a challenging third quarter. Payments had some challenges structurally in the paper businesses. We do expect it to do better in the future. And FSG, we'd love to have it run at that level. I don't think it will run at 10% going forward.

Right, right. That makes sense. Two clarifications. Capco acquisition is supposed to close in the fourth quarter, is that right?

Yes. We would anticipate this year sometime.

Is there any Capco revenue in the guidance?

No.

Okay. And then just last question for me. There was a $10 million legal fee. It's hard to know if that was included in the adjusted $0.52 in earnings or not.

Yes, that was included. That was a -- we captured some prior expenses we had in the legal settlement and so some of those got booked this quarter.

And that's in the adjusted $0.52 number.

That's in the $0.52.

Thanks so much.

Thank you.

You're welcome.

Our next question comes from Jim Kissane with Bank of America Merrill Lynch. Please go ahead.

Thanks. Frank, can you elaborate on the strategic rational to acquire Capco? I mean this is to drive more processing revenue or is this a bit of a shift in strategy focusing more on software? Thanks.

Sure. Jim. I don't know about shifting strategy but support our strategy that we have as a corporation. And that's to have deeper penetration, especially internationally with the large financial institutions and even some of the mid-tier, where we could give them additional services that we have some capabilities but minimal. Capco (inaudible) tremendous reputation and marketplace. Obviously we did a lot of check up on clients and talked to them and they come with tremendous comments about how good they are and the services they do. So we are looking to expand our services, do more for our clients and add more value to our clients and I think it very much fits in with our growth strategy.

Yes, Jim --

Go ahead, Gary.

I was just going to add a comment there. It actually is direct with our strategy if you think over the years, we've always looked for opportunities that expand new solutions or new capabilities in existing markets we serve and Capco is a perfect fit in that area. They are split between both Europe and the domestic US, which is great markets for us. And they break us into a different type of consulting transformation services and as we disclosed on multiple calls and last year's Investor Day, we are very focused on continuing to grow and expand in large financial institutions and this is where Capco does most of their work. It's very strategic acquisition for us. And as Mike mentioned earlier, it fits very well to not only help transform these large institutions to work through these large transformational projects. But we believe will actually allow us to sell services and do the implementation -- over time, help do some implementation work on these projects.

They have very much a client-centric approach which is key and culture they have and how they deal and work with their clients and partners and their through leadership capability, that will be a tremendous value-added to FIS.

Is most of their business with mega-banks and what's the split international and domestic?

It's -- I would say it's primarily -- I don't know mega-banks but it's the top banks and tier 1 banks. And they're 50/50. EMEA, primarily Europe and the US split 50/50.

Okay. And just last question and not asking about fiscal 2011 guidance but there's been a lot of moving parts in the international business. What's a reasonable long term target for international margins?

Again, think we will probably lay out a little more clarity on December 6. But as we add in some of the Capco which -- they'll run a little bit lower margin than the rest of our business runs. I think we talked historically in that mid-20% it's probably an appropriate range for the international business. Again, it's going to run a little bit behind our domestic business.

And just for modeling purposes, Proservvi was -- you showed us a $7.3 million loss in this quarter in discontinued OPs. Where has it running in terms of EBITDA margins in the past?

Proservvi, without getting into all the specificity around it, we've operated that business. Obviously, we're not happy with the results with the business that's why we made a decision that we either needed to invest more time, money and management effort in that. And we concluded that we would be better to serve our focus on our joint venture and let somebody else take and drive that. You can see the operating results in the third quarter, again, quarter-to-quarter, it moves around a little bit and again, we're just not happy with where that thing is at today and have chosen to take a different path.

Okay. Great. Thank you.

You're welcome, Jim.

Your next question comes from David Parker with Lazard. Please go ahead.

Yes, good morning.

Good morning.

You announced a number of impressive wins this quarter. Was wondering if you could drill down maybe into two of them specifically just Citibank, that competitive takeaway. Just some of the reasons why you were able to win that business. Then also with Bank of India. Some of the things you are doing in that market.

I'll clarify and Gary can get into detail. Talk about Citi - I think first quarter of this year which was a licensed sale. So we don't have a new Citi sale. It's bank called Lake City in the midwest. And it's a core deal that we won against a competitor. Gary, I don't know if you could add any color to --

It's just one of many -- significant core wins we've had this year. We have seen a lot of activity in core processing and core competitive takeaways as we've mentioned on earlier calls and this was a good example where they have been with their current provider for a number of years. And they not only went with our core processing solution but went with a number of our key payment solutions as well. So it's a very nice win for us. When you look at Bank of India, that's more -- that's also a very nice business but on the payment side Bank of India obviously one of the top banks in that country. We continue to broaden our relationships providing ATM and driving in settlement services for them on their ATM platform.

Great. Thank you. And then as part of the recap or shortly afterwards you already paid down $400 million in debt. Can you just talk about your plans going forward and just general uses of capital?

Yes, we talked about the recap and the tender offer, we do anticipate to pay down some of the debt. We set a target to get from about 3.5% back down to 2.5% and saw we made some progress down that already this quarter. We continue to look at deals. We saw that we went out and are using cash in hand and obviously, we will use some of our revolver to do the Capco deal. Where we can find a strategic deal that has a fit that will continue to drive organic growth aligned with our strategy, we will certainly take that opportunity and expend our cash flow to do that. We're going to maintain the dividend we have. We're not -- we don't anticipate changing that and as always, you saw that we are not reluctant at all jumping to buy back shares when it's the appropriate thing to. We still have, I think a little over 15 million shares authorized as part of the authorization we had earlier this year. So we will continue to monitor that but we do -- again, as you still have to anticipate pay down shares and look for deals and use our cash appropriately.

Great. Thanks. Good quarter.

Thank you. Appreciate it.

And our next question comes from Tien-Tsin Huang with JPMorgan. Please go ahead.

Thanks. Just a few follow-up questions. Just wanted to ask on the Capco side, I'm curious, did you lock-in the people and the key producers there and structurally, how did that work and I'm curious if there's any customer concentration and how you plan to swat the impact onto the face of the P&L from a modeling standpoint?

I think we can all share on some of this answer but I will tell you business is all about the people and the quality of the people. We sure did lock them in and I will say lock them in with a lot of excitement and enthusiasm. They are very, very pleased to be joining the FIS team and what we could do together as partners and coming together. So we have a bright future with them and clearly to your question, we did lock in the key people.

I will add in on the customer question. While there was some overlap in the client base, what we found, Tien-Tsin, when we worked through the due diligence and talked to their clients is frankly they were -- while we might be serving a common client, we were interfacing into the organization either, A, at different levels or, B, just around different types of projects in delivery. So where there was some overlap and there wasn't a lot but where there was some overlap, it was very complementary in nature and really just extends us further into those clients in a bit more meaningful way.

Tien-Tsin, on the segments, I'm going to defer that to the December 6 meeting, but obviously that's something that we are looking at how this fits in from a reporting perspective. I will echo and emphasize what Frank talked about on the people so it was a cash payment upfront to existing shareholders. And then the earnout is targeted predominantly at the partners and management and the employees of Capco, again, because it's a service-based company, very strong intellectual property tied to the people that are driving it. So that earnout is tied to keeping those people as Frank said, it's not just to keep them here but it's to keep them excited about the business to grow and it's tied to growth and it's tied to return in earnings. And they get pretty good return the higher the thing goes. I think we structured it to hold team intact and to make the team excited part of FIS.

Okay. Good. Glad to hear that. I guess on December 6, you mentioned that we will get more information there. I'm curious, are we going to get fiscal 2011 guidance and I guess long term guidance at that event?

Yes, it's basically what we did last year and last year we did a number of things coming out of the combination. We certainly laid out our plans for the next year which we do anticipate we will do this year as well. We will give some outlook into 2011 and then as we did last year we will talk about our strategic plan. Our outlook of where we believe we are positioned to compete and win in marketplace and what long term growth we would expect that to drive for FIS.

Okay, perfect. I guess on the item processing side you mentioned it's not a strategic fit in Brazil. Makes sense. I'm curious. Does that signal a similar view on your paper-based check businesses in the US?

Well, I think you -- again, paper check business is purely a scale play particularly as the volumes go down. And in the US, we have a very, very strong footprint. We have a lot of scale, a lot of leverage so as the volumes go down we can collapse and maintain margins in the business for declining revenue. We didn't feel in Brazil again that for us, given the scale we had down there which we had a decent position but to continue to invest time, effort and management, we just didn't think that was a best use of our capital or our management team.

And also keep in mind in the US markets this is -- these relationships are tied into a much broader relationship with these clients as well. So once again, back to our overall strategy of offering the most complete solutions set in the industry in our US markets, the item processing business is far more strategic for us in this country that's a complement, a much broader relationship.

Okay. Perfect. Thank you so much.

Thank you.

And our next question will come from the line of John T. Williams with Goldman Sachs.

Good morning, guys. Thanks for taking my questions. Very quickly. Obviously you guys are focused on the issue of processing business and we are trying to get a sense of how scalable and how movable is that to other markets in your view? Is that something that we can potentially look to being a growth area over the next few years for you in markets certainly other than the US and Brazil?

Well, I mean, John, yes. We do have great presence here in the US in that business line and as I mentioned in the call earlier, we signed some nice wins in South America on some of those projects. So our continued strategy and our international expansion is not only to take those products but to take the products that we have in the US that are applicable and to push those into our international markets. And this year we have seen nice cross sales of those solutions in both Europe, Asia and in South America. Yes, you will continue to see us do that.

And I think your question, clearly part of our strategy we have a strong [processing] platform in both debit and credit. We have a great footprint in the US. We have a great footprint in Latin America and Brazil. We have a number of great relationships in Europe although we see potential there. We have great footprint in Australia. So we clearly think that, that's a product that will travel in other economies.

Is it fair to say when you present that to potential clients while your platform may not offer the most bells and whistles, it's appealing to them because it's the most integrated potentially with the other products that you are trying to sell them? Do you think that's fair to say?

I mean in the domestic US, one of the things we sell all of our solutions on are being not only best-of-breed but most integrated because of our capabilities across the board. But I would tell you in the international markets it is more of a monoline sale and we would tell you we are best-of-breed and it does have more bells and whistles as evidenced by we are the largest processor of credit transactions in Brazil now. Mike referenced Australia, which we have huge market share. Doing very well in Europe on these platforms. So they are very, very competitive platforms. When you start getting in the US markets because of our relationship is so broad with our clients, we also push on the tight integration across our suite as well.

And frankly that will be something that we'll continue to push in international markets because we fundamentally believe that the international markets over time will start looking to the leverage broader relationships with service providers like ourselves as well. So today we are competing on best-of-breed product. We think in the future, we will continue to cross sell and build integration across that international markets.

And that's helpful. Thanks. One quick other question. We've talking to a lot of clients about the idea that Durbin and PIN debit exclusivity coming to an end can have a positive impact on you. Certainly from a revenue and earnings perspective, it's probably not needle moving just because of those transactions typically aren't the highest margin in the world. But what does it take for you to actually have that be a potentially needle moving impact? Is it that you could potentially go into other clients and sell them the product a little mover effectively given that you have the opportunity that this presents? I guess what is it going to take to see that become a bigger impact for you?

I think it's just like anything else, John. We are -- look, at the end of day, we were looking to sell as much of our capability and solution in the market as we can. And certainly the Durbin Amendment is causing our clients to look and to move to and offer additional networks. So we are stacking up against those -- against our clients in those issues with our go-to-market strategy but with our account managers in those clients and we were talking to them about them. So what is it take for it to be needle moving? Obviously, we're going to continue to focus across the board. Our network, the NYCE Network, works very well for both large and small institutions. And so what we're going to do is just execute on as many of those sales as we can. We highlighted a few this quarter that we had very nice wins. And so as this continues to evolve, we think we will get some nice penetration with people coming on to NYCE and offering it as an alternative.

You still have parody to Visa and MasterCard or as close to it as you possibly can, right, in terms of acceptance?

Yes, absolutely.

And in the debit side, I would say at least one of those names probably would be better acceptance. But I think to Gary's point, there is some still some discussion dialogue about what is exclusivity clause and a couple of different avenues where if people interpret it. In some ways it's a very strong benefit to FIS and the NYCE Network. I think we, again, going out to financial institutions and be very focused on our clients and supporting them and maintaining as much interchange and discretion that they can possibly do, I think we've got a great value proposition for our customers.

Great. Thank you. Appreciate it.

You're welcome.

And that's all the time we have for questions today. I will hand the call back to our speakers for closing comments.

Thank you very much for joining us today. And we look forward to seeing you on December 6 in New York. Please remain on the line for further replay instructions.

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