Fidelity National Information Services Inc (FIS) 2010 Q4 法說會逐字稿

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

I would now like to turn the conference over to Mary Waggoner. Please go ahead.

Thank you, Mary, and welcome to everyone joining us this morning. Today's news 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.

Please refer to the Safe Harbor language on page 2 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.

Today's comments will focus on results from continuing operations and will include references to non-GAAP measures 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 and the supplemental slide presentation.

In addition, references to revenue and EBITDA for the full-year 2009 will be on a pro forma basis to include results from Metavante.

I will now turn the call over to Frank Martire.

Thanks, Mary, and good morning, everyone, and thank you for joining us on today's call. I'll begin today's business review with a summary of our financial results and business highlights for 2010. Gary will follow with the operations report and Mike will provide additional insight into our financial results and outlook for 2011.

It was a strong quarter and a very good year for our Company. Revenue growth, earnings per share and free cash flow exceeded our expectations.

For the full year, revenue increased 4.2% to $5.2 billion and increased 3.2% on an organic basis. Earnings per share came in at $2.02 and we generated $791 million in free cash flow.

We had many notable achievements in 2010 including the successful execution of the Metavante integration plan and global rebranding initiatives. We are most proud of the fact that our employees remained focused on serving our clients during a transitional year.

I'm also pleased with how the entire global organization has come together and that we are working as one integrated company. The sales team did an outstanding job closing new deals and driving cross-sales in 2010 as evidenced by the acceleration in revenue growth.

We returned additional value to our shareholders with a $2.5 billion leverage recapitalization and share repurchase program. And we also made good progress building out our global market strategy. We successfully converted the Visa Vale and Bradesco portfolios to our Brazilian card operations. We improved our competitive positioning with the acquisition of Capco and we also established a new strategic call center in the Philippines to support our growing global client base.

We enter 2011 as a much stronger company and we are very excited about the future. We continue to invest for growth and we are well positioned to participate in the ongoing market recovery. As always, we remain focused on our client relationships and further expanding our market leadership.

Last, but not least, I would like to thank our employees for their hard work and dedication and our shareholders for your ongoing support. Now Gary will continue with the business report. Gary?

Thank you, Frank, and thanks to everyone on the call. I am pleased to be joining you today. I will begin today's review with a few comments on the Metavante integration plan followed by an update on our competitive positioning and a few comments regarding our outlook for the banking industry in 2011.

As Frank mentioned, our employees have done a phenomenal job executing the integration plan and accomplishing our planned synergy objectives while minimizing any distractions in the market. While the integration is not 100% complete, the remaining projects are now being managed as part of our ongoing business plan.

Our primary focus in 2011 will be to drive higher organic revenue growth and continue the strong sales momentum we had in 2010.

Looking back on 2010, we saw a meaningful increase in investment decisions. It was an especially good year for core platform decisions, as well as professional services engagements. This is in contrast to 2009 when most financial institutions focused primarily on managing risk and strengthening their balance sheets.

We were excited to have Capco join FIS during the fourth quarter of 2010. Capco's consulting expertise and focus on large US and global financial institutions are critical components of our growth strategy in those markets. The Capco team has been on board for a short period of time and we are already having joint FIS and Capco discussions for opportunities that neither company could pursue independently.

This reinforces our belief that having domain expertise and relationships with top-tier managements in large institutions in the US and globally will drive pullthrough revenue in other business lines.

In looking at our International business, we continue to expand our presence in emerging markets and recently added new clients in China and Southeast Asia. The Bank of Hebei deployed our real-time core processing solution, which is specifically designed to meet the unique technology and double byte language requirements for Chinese banks.

China is a small but growing market for us, with 13 banks currently running on the FIS platform. We also added a new payments client in Singapore where we will begin providing third-party switching services in the near future.

In addition, we continue to win our share of large transformational deals and we are encouraged with the continued success of Profile, our fully integrated, real-time, next generation global core processing platform. We signed four new clients in 2010 and are excited about the growing sales pipeline. Profile is now the system of record for more than 200 banks in 25 countries.

Turning to our Payments business. We continue to face challenges due to ongoing declining check usage, competitive pressures and regulatory uncertainty. The proposed interchange rules announced in December are more onerous than the market was anticipating. Our clients and prospects are still attempting to build their strategy on how to operate under the new rules. And we are still trying to understand the impact, if any, on our business.

In closing, I would like to leave you with a few thoughts. We believe the banking industry as a whole is on much more solid footing than in the recent past and we look for the recovery to continue. Regulatory changes are creating uncertainty in the market and it is still too early to determine what changes our clients will make and how those changes will impact FIS.

Based on what we've seen over the past few weeks, we believe that bank consolidation could accelerate in 2011 as evidenced by the pending combinations of Hancock Bank and Whitney Bank, People's United and Danvers Bancorp, and Bank of Montreal and M&I Bank. We provide services to all of these banks including both M&I Bank and the Bank of Montreal through its US subsidiary, Harris Bank.

We expect to have ongoing technology relationships with all of the banks. However, as with any consolidation, our relationships could undergo changes.

Finally, we are optimistic that banks will continue to invest in new technology and remain encouraged by the strength in the sales pipeline. We feel very good about our competitive positioning, expanded product capabilities and sales distribution network, and are focused on continuing the sales momentum and driving higher organic revenue growth in 2011.

Now I will turn it over to Mike for the financial report.

Thanks, Gary. I will begin on slide four.

Fourth-quarter revenues increased 7.6% to $1.4 billion on a reported basis. Organic revenue growth, which excludes acquisitions and currency, accelerated to 6.1%. Fourth-quarter adjusted EBITDA increased 14.4% to $445 million.

The increase in EBITDA was driven primarily by the achievement of targeted cost savings. The EBITDA margin was 31.8% which is 190 basis points higher than the fourth quarter of 2009. The fourth quarter of 2010 compared to the third quarter of 2010 reflects the impact of seasonally high volumes in lower margin business lines such as health care and card production, the addition of services revenues from Capco and the reimbursement of legal fees in the third quarter of 2010.

Slides five through seven provide some additional detail on the operating segments. Financial Solutions revenue increased 11.3% to $504 million in the fourth quarter. This increase was driven by strong demand for professional services, higher outsourcing revenue associated with new client implementations, and one month of revenue from Capco's North American operations. License fees were comparable to prior year.

Financial Solutions EBITDA increased 11% to $219 million. The EBITDA margin was 43.6% compared to 43.7% in the prior year quarter as the benefit of cost savings was offset by the higher mix of services revenue in 2010.

As shown on slide six, Payment Solutions revenue at $628 million was relatively flat compared to the fourth quarter of 2009, as growth in electronic payments was offset by declines in check verification and item processing revenue. Additionally, consolidation of our merchant processing platforms resulted in the net method of accounting for merchant interchange fees.

Excluding these items, Payment Solutions organic revenue increased 3.8% compared to the prior year quarter. Payment Solutions EBITDA increased 9.5% to $240 million and the margin improved 340 basis points to 38.2% compared to 38.8% (sic - see slide 6) in the fourth quarter of '09, driven primarily by the realization of synergy cost savings.

Turning to slide 7, International revenue increased 25% compared to the fourth quarter of 2009, driven by the growth in the Brazil card operations, higher professional services and license revenue and one month of revenue from Capco's international operations. International EBITDA increased 25.3% to $81 million in the fourth quarter.

The International margin was 30.3% and consistent with the fourth quarter of 2009, reflecting the seasonally higher mix of software and license revenues which is consistent with prior years. The fourth quarter's International margin is significantly higher than the first three quarters and higher than the full year average.

Please turn to slide 8 for a reconciliation of adjusted net earnings. Fourth-quarter adjusted net earnings from continuing operations totaled $197 million or $0.64 per share compared to $169 million or $0.45 per share in the fourth quarter of '09. The after-tax adjustments to GAAP earning in the quarter include the following.

Merger and integration costs were $34 million including a write-down of an investment acquired in the Metavante transaction. The deferred revenue adjustment of $1 million which is also related to the Metavante acquisition. A debt extinguishment gain of $4 million for the remaining notes payable to the Brazilian joint venture. And the purchase price amortization of intangibles of $44 million.

Average shares outstanding declined to 305.4 million in the fourth quarter of 2010 compared to 377 million in the prior year quarter as a result of the recapitalization completed in August 2010.

As shown on slide 9, we generated free cash flow of $222 million in the fourth quarter of 2010 compared to $237 million in the fourth quarter of '09. Capital expenditures totaled $87 million compared to $67 million in the prior year quarter. This increase is due primarily to the timing of CapEx throughout 2010 and includes the integration capital.

The full-year 2010 financial results are summarized on slide 10. Revenue increased 4.2% to $5.2 billion and grew 3.2% organically. EBITDA increased 13.9% to $1.628 billion and the EBITDA margin expanded by 270 basis points to 31.3%.

Adjusted net earnings from continuing operations totaled $711 million or $2.02 per share for the year. These earnings reflect the full-year tax rate of 35%, which includes the passage of tax legislation late in December. This full-year rate was also slightly below our expectations due to the utilization of foreign tax credits and some ongoing tax planning strategies.

Average shares outstanding totaled 352 million in 2010 compared to 239 million in 2009. This higher share count is based on the timing of the Metavante acquisition in 2009 and partially offset by the leverage recapitalization in 2010.

Free cash flow of $791 million also exceeded our expectation, primarily due to the timing differences and lower-than-anticipated cash taxes. Capital expenditures came in at $314 million or approximately 6% of revenue for the full year.

Debt outstanding was $5.2 billion as of December 31, 2010; and then, weighted average interest rate was approximately 5.1% at quarter end. Additional detail on our debt is provided in the Appendix.

The Capco acquisition, which closed on December 2, was funded with a combination of overseas cash and the revolving credit facility. The estimated purchase price is approximately $300 million plus an earn-out based on the performance of the business over the next five years.

We are very pleased with the progress on the FIS and Metavante integration. Gary and his team have done a great job of pulling the businesses together and driving cost savings.

The teams have focused on integration and cost savings. These synergy cost savings include avoidance of cost, elimination of overlapping products, reduction of capital expenditures, and expense take-out. To date, these synergy cost savings have exceeded $300 million, resulting in attainment of the planned $212 million out of the $260 million of EBITDA reduction.

As you will recall, we laid out a plan to attain the $260 million EBITDA savings at our 2009 investor day, including $62 million that was realized in 2009 and an incremental $150 million of savings expected in 2010. We have achieved the first two benchmarks and have $48 million to go which is embedded in our 2011 guidance.

Now if you would turn to slide 11, I will provide a few comments on our full-year 2011 outlook. We are reiterating the guidance that we previewed at our December 6 analyst day. We expect reported revenue to increase 9% to 11%, and organic revenue to increase 4% to 6%. The definition of organic revenue growth we have provided on slide 17.

We anticipate 7% to 9% growth in EBITDA. As discussed at the analyst day, we are projecting EBITDA margin to decline by 50 to 100 basis points in 2011, due primarily to two factors.

First, with the addition of Capco, we are adding a higher proportion of services revenue. Second, as we discussed at analyst day, we are no longer excluding integration costs from our reported numbers. These costs, which are expected to total between $10 million to $20 million in 2011, will be more heavily weighted in the first half of the year, including approximately $10 million to $15 million in the first quarter.

We have included a chart on slide 12 that illustrates the quarterly revenue trends for the past two years and the expected trajectory for 2011. As you can see, there is a seasonal decline in revenue and EBITDA between the fourth quarter and the first quarter of each year, and then higher growth in the second half of the year. We feel this is a typical trajectory for our organization.

Also as we shared at investor day, we are projecting adjusted net earnings from continuing operations of $2.24 to $2.34 per share for the full-year 2011. Our guidance assumes a tax rate of 35% to 36% and approximately 310 million average shares outstanding.

Just as a reminder, adjusted net earnings in 2011 will exclude only the purchase price amortization of intangibles, which is a change from how we reported adjusted net earnings in the past.

As we shared at investor day, this impact is approximately $0.02 to $0.04 off our 2011 guidance for integration costs and an additional $0.03 to $0.04 for Capco purchase accounting.

Free cash flow should approximate adjusted net earnings in 2011. Our priorities for cash deployment are consistent with prior years and include funding of internal growth initiatives, servicing our debt obligations, and shareholder dividends. We also plan to maintain some level of flexibility to allow for potential M&A activity.

In addition, we have 13.6 million shares remaining under the purchase program authorized by our Board in early 2010. And as always, we will consider making opportunistic share purchases based on market conditions to offset any dilution from stock options.

In closing, I'd like to leave you with the following takeaway.

First of all we are very pleased with the 2010 financial results and the very strong fourth-quarter finish. While we don't want to understate the remaining projects related to the Metavante integration, which Gary talked about, we are going to include it as part of our normal business plan in 2011 and we are very confident that we will achieve the remaining targets, targeted savings by the end of 2011.

As Gary mentioned, we believe market conditions could fuel increased bank consolidation in 2011 which could have a more negative impact on our business than it did in 2010. We continue to anticipate a challenging environment for the Payments business due to the continued decline in check volumes and the impact that regulatory uncertainty is having on our clients' investment decisions.

Aside from these potential headwinds, we expect banks to continue investing in new technology and believe we are well positioned to capitalize as the overall market conditions continue to recover.

And lastly, our primary focus on 2011 will be to continue driving higher organic revenue growth and continue the sales momentum we achieved in 2010.

This concludes my prepared comments. Thank you for your time this morning and, operator, you may open the lines for questions.

(Operator Instructions). Dave Koning from Baird.

Hey, guys. Great job. And I guess, first of all, just International, I mean the growth has gotten much, much better and I know a lot of that is the conversion of the card platforms.

But I guess I'm wondering is the kind of growth you saw in Q4, is that sustainable over the next few quarters given some of these? Or are there even additional projects that are coming on that could accelerate that? Or maybe you could just talk through this, it looks like 20% or so organic growth probably in that line.

Well, David, thanks. Yes, I mean fourth quarter is very strong and you hit the key points. As you remember last year in '09, we had a very strong fourth quarter in our International business, particular in services and sales -- or services and software license. And we saw that same phenomena fourth-quarter 2010.

And then the other major activity was the Brazilian card business. And as we've talked about in the past with the conversion in October, we had a very strong fourth quarter. That is obviously going to carry into 2011.

So we expect International to have a solid 2011. So I think that will be the accelerator to the growth in '11 versus '10. And then, again, we would expect the calendarization of International to be similar where it is going to ramp up throughout the year and then we expect fourth quarter to be very solid in the International business just like the last two years.

Okay. Great. And then I guess the one other thing in Financial, I mean, the back half was so much stronger. I think the back half grew about 10% relative to low single digits in the first half.

I'm wondering just again if you could talk through -- was that mostly environment, is that easy comps against last year? I guess is that sustainable?

And as we get to the back half of '11, we hit those tough comps, so maybe it feels like the first half of '11 is still strong in Financial, but then it tails off a little in the back half. Maybe just talk through some of the points around how Financial got so good so quickly.

Certainly what we're seeing on the Financial side is in the second half of the year, we saw a stronger growth in our professional services business. We started seeing more of our customers engaging in that segment on projects that, frankly, they had on hold during the economic crisis.

We also saw a number of our key clients do some significant acquisitions in this space and, obviously, we benefit that from professional services. We think that, you know, what we look forward to is that trend is going to continue in the near term.

We also have had a lot of success in our sales engine bringing on new core clients. And as we have discussed in the past on these calls, that takes typically 12 to 18 months to really get those customers on board and generating revenue for us. So we are starting to see some benefits from those conversions and implementations as well.

I do think you hit the key point though right. Gary talked about it, we've talked about it in the past calls. Our strong sales started in the fourth quarter of '09 right after the combination of the two companies and then with the six- to nine-month lag, we started to see that come on in the second half of 2010.

We had talked about that. We expected the growth to come in the second half. We saw the growth.

Your point on, you know, year-over-year comparisons, obviously when you look at second half of '10 versus the second half of '09, that showed up as very strong growth. We wouldn't anticipate those kind of double-digit growth numbers for FSG going forward, but we still expect to have pretty good growth in FSG.

I think what we were most pleased about was that with all the synergy activity going on, we were able to continue the sales momentum through that whole process.

Great. Thanks. Great job.

Glenn Greene from Oppenheimer.

Thank you. Good morning. And good results as well.

I guess the first question, both Mike and Gary sort of talked about sort of the consolidation impacts. Maybe you could just give us a little bit more color. Was that things that you know about, just being a little bit cautionary?

And also embedded within the 4% to 6% organic, have you reflected a certain amount of headwind within there for consolidation activity?

First of all, what we are trying to just do is highlight. Gary talked about three of the deals that we've seen happen in the market and we are trying to differentiate and highlight that. 2011, you know, going into 2011 versus the impacts we had in '10 -- we had very little impact from consolidation in '10.

Even though there were a lot of institutions that were taken over or shut down by the FDIC, they were generally smaller organizations. And as we discussed on other calls, we actually feel we came out neutral maybe even slightly ahead last year because our customers were picking up a lot of those account volumes and that helped our growth.

Heading into '11, we've seen some consolidation in the mid-tier market and some of the larger organizations like M&I. And obviously those customers, there's a little bit more uncertainty as to what ends up as an ongoing relationship and how much of that revenue you preserve.

At this time, we don't know those numbers. And we are working -- as Gary said, we have relationships with all the institutions involved. We are working with them. And so at some point, we will figure out pluses and minuses. We would expect in some cases to come out ahead. In some cases we would expect to come out behind as it relates to ongoing revenue.

We have looked at, in anticipation of level of consolidation in the marketplace as we looked at our guidance of 4% to 6%. So yes, that is anticipated. But we are -- that is something we are watching to see whether it accelerates or whether it stays at a consistent level to what we saw the last portion of 2010.

Okay, thanks. And then just it sounds like the sales activity, some of the organic growth in payments or pickup in payments in the back half with some of the sales activity in the back half, you know, latter part of '09 into the early part of '10, which is sort of a comment on the sales activity.

It sounds like the tone and decision-making is improving. But maybe, Gary, a little bit more color on what you saw in the back half in terms of deal closures.

Yes, no, we saw -- we saw very nice momentum in our sales channel. We talked about in prior calls we started seeing it pick up in the first half of the year in our sales activity. Not only our pipeline, but our deal closing strengthened in the back half of the year.

We had a very, very strong third quarter and had a very nice fourth quarter as well. So we feel very good about our sales engine.

We have seen certain markets actually return slower than others. You know, when I look at Europe, for example, we continue to see that market is actually returning a little slower for us than some of our other markets. But all in all, we are very pleased with our sales performance. And we are very pleased with where our pipeline is and the deal flow activity.

Okay, great. Thank you.

William [Mena] from Citi.

This is actually Ashwin Shirvaikar. Nice results here.

My question is on the regulatory uncertainty that you have. As, I mean, what are you assuming with regard to the quantification of that regulatory uncertainty? Obviously on the Payment side there is a specific date beyond which some of that uncertainty hopefully eases.

Well, I think the key thing there is as we've talked about in the past, we don't have, we don't make money on interchange. So we pass some interchange through on behalf of the clients that we issue cards for. So the interchange itself is not a direct impact to us, or at least not a major impact. We have a small portion in our health care business.

But based on the preliminary outline of the regulatory change, it's, as Gary mentioned, a little more onerous than people had anticipated. So what we are waiting for a little bit is what is the downstream consequences?

So, if debit interchange remains as low as has been proposed -- and I would say that we think there will be some changes before it actually gets codified. But if it remains that low, what does that mean to debit programs that institutions have? How many cards are they going to continue to issue?

We have seen just some of the uncertainty between when the law got inked and between when it actually gets -- the rules get put out around --. You know there's people waiting on debit programs. I think even prepaid which we expect to potentially have a benefit, I think people are waiting to see what to do with prepaid. Credit card which is not impacted by the current rules, but there's noise. Loyalty programs are impacted.

So there's just a lot of wait and see to see how this rolls out. We think the rollout, if it rolls out the way it's defined today, there's pluses and minuses. I would say we are a little bit less optimistic. We think some parts of our business will see some pickup.

But again, if it comes out this onerous, relative to financial institutions in the amount that they can take from interchange, we expect there to be some changes and we don't know the extent of that yet. We don't know what that means, relative to numbers for us in our businesses.

Okay. That's fair. I also wanted to ask you if you could maybe size the total impact of everything you do with paper checks, including processing, verification, all of those different things. Is it roughly 15% to 17% of revenues?

We actually have -- in the slide deck, slide six. We define that the check-related businesses were $135 million in the fourth quarter of '09 and $121.8 million in the fourth quarter of '10. Gives you a magnitude of what the revenues are.

But does that include all of the check-related stuff including verification and all those things? I would assume some (multiple speakers).

Yes, we put two businesses in there. The check verification and check guarantee business that we run and also the item processing which are both check volume-dependent.

Great. Last question. Capco and GIFT that you announced yesterday. It seems as though you are broadening out your portfolio of what you can offer your clients. Especially with GIFT seems to be going a little bit more towards, I would say wholesale banking and universal banking and those kind of commercial banking type of things. Is that sort of a trend we should expect with regards to use of cash going forward?

Well, I think the thing you should expect from us is we are going to continue to look for ways to broaden our portfolio and further penetrate our clients and drive value for them. And really, Capco, as I mentioned in our prepared remarks, Capco really drives a much more strategic relationship at the top levels of very large US and global financial institutions.

When you look at GIFT, GIFT really translates to a true product need and product gap. And like we typically do and a lot of these smaller acquisitions, we will do a partnership first. See if there's applicability in our base; and if we see that, we tend to have a bias to want to take ownership of these type of products and solutions to further penetrate.

So GIFT brings us a lot of wire transfer capabilities, international commercial treasury capabilities, which I wouldn't say it's a swing of focus. It is more just continuing to identify things that our clients need to broaden our solution set within that base and further penetrate.

Great. Thank you, Gary.

David Togut from Evercore Partners.

Thank you very much. It looks like adjusted free cash flow was down $15 million year over year, primarily due to higher CapEx. Can you drill down into what some of the increasing uses were for CapEx and what is your expectation for capital spending in 2011?

Well, again, I wouldn't read too much into the fourth quarter year-over-year CapEx. As you probably know it's somewhat lumpy depending on when we actually put equipment or when we spend money to buy a software product from outside of the organization.

So I think if you look at the fourth-quarter year-over-year increase which as you pointed out is what is driving some of the change in the cash flow, it's really just timing. It's the fact that we in the end of '10 versus the end of '09 put some more CapEx to work. Whether it is building product or whether it is buying equipment or buying software to operate. Part of that is just a reflection on the growth of the business.

Our expectations going forward for '11, we said about 6% of our revenue for CapEx.

And just finally, on Durbin. Are you seeing any impact on your prepaid business as financial institutions perhaps look to expand in prepaid, since that is exempt from Durbin?

We are certainly seeing a lot more activity. We announced recently about our EFA account -- electronic funding account -- that is all based around a reloadable prepaid offering. And we are certainly having more and more conversations around that.

You know, I think in general, our clients continue to look to FIS on ways to help solve pending regulatory change. Given the fact that Durbin is not going to be finalized till April and then implemented in July, we are still in a commentary period. And frankly, there is a lot -- there's a fairly strong argument that what that amendment was hoping to accomplish is actually going to do the inverse and actually hurt consumers instead of benefit them.

So a lot of our customers -- but the answer to your question is yes. We are seeing more activity around, not only our prepaid solutions, but some of our other capabilities to help drive revenue and profits for our financial institutions.

So is the primary question really around what will happen with the final rules or is it just the negative anticipated impact on debit or both?

Yes. I think right now everybody is trying to figure out exactly where it is going to end up and what the final rules are going to be and how it is going to be implemented. A lot of people are taking positions.

I think no matter where the amendment ends up being finalized, we are going to see a shift in solution in banking practices away from some of these other channels, but I do believe FIS will be the benefactor of that. As you have seen, we have got very, very strong scale in prepaid. The EFA account is a very powerful offering in the market in how it can drive benefit to the financial institutions and consumers.

But we really need to wait and see what the final outcome of that amendment is going to be.

Thank you.

There's a little bit of uncertainty and a wait and see attitude out there.

Brett Huff from Stephens.

Good morning and congrats on a nice quarter.

Thank you, Brett.

Thank you, Brett.

A couple follow-up questions on some details. Can you give us the credit and debit transactions for the quarter year over year?

And then give us your thoughts on per Durbin? Have you had conversations such that you think that banks will do what they can to drive things to credit or PIN debit or you know kind of --? Can you give us your sense -- or prepaid? I mean a little bit of a follow-up to the last question.

Well, we don't typically disclose our transaction volumes. But we did see nice growth in both debit and credit in Q4. We have actually been a little bit surprised by the resurgence of some of our credit volumes, which is very positive. And we have a lot of reasons why we think that's occurring.

I think when it comes to Durbin, to my point with David earlier, really what we are seeing -- and it depends on the financial institution we are dealing with -- but all of our financial institutions are looking for alternative ways to drive electronic payments, transactions that obviously benefit them and their end customers.

And so we are having a lot of conversations around pre-paid today. We are still having quite a bit of conversations as well around debit. Some of our network things we're doing, some of our P2P type payments. So we are seeing a lot of activity in the whole payment space. And I think a lot of that is being spurred around Durbin.

One thing, I keep pointing out, we are seeing a lot of conversations. I do think to Frank's earlier point, there is a wait-and-see attitude. So we are not going to see a lot of signings here in the very short term until we figure out exactly how the regulatory change is going to shake out.

Okay. That's helpful. And then on bill pay, how is that cross-sale activity going now? I know cross-sales were a big part of 2010 and that 6% organic growth number you guys put up this quarter. But can you give us a sense of how bill pay played into that?

Yes. We actually had very, very strong bill payment sales. We were very successful selling in the large financial institutions in 2010 and saw good penetration there. We actually saw over 100 bill payment sales for the year.

So we are very pleased with our cross-sales on that product and very pleased with the ongoing activity we are seeing around that product as well.

We feel we got a very strong competitive product in the market and that is evidenced by our signings and evidenced by a number of our large financial institutions who recently signed. One of which -- most financial institutions don't like us mentioning their name, obviously. But Harris Bank in Chicago, who is owned by Bank of Montreal, signed up for our bill payment capabilities at the end of the year. So we are very excited about the activity we are seeing there.

And then on license, I think from '08 to '09, license was down 40%. Obviously license was up last year from '09 to 10, but do you have a sense of what that percentage was up versus '09? So we kind of know, are we back to normal yet or back to precrisis levels, or do we still have some room to go on just back to normal levels of license?

Well, what I would say is, I don't know what normal is right now. We saw license rebound somewhat in '10. I think we had a pretty good year in the International market.

I think in the domestic market and some of the license marketplaces, as we see the shifts particularly in payments, with check image and what is going on with check capture, we've seen some shifts there. We have seen some trends on the software side there where I'm not sure it's a market economy or a cyclical trend. I think it might be a long-term systemic trend, relative to just the change in checks.

So we have seen the decline in checks. We talked about it as an overall decline. It hits processing, but it also hits software.

So I think is some of the domestic markets on software, we are just trying to look and see what is the normal, what comes back. I think we've talked in the past, we still think some of these large-scale transformative deals are out there to be had yet.

We think there's domestic banks as well as we have seen a lot of activity in international banks who are looking at updating their channels and integrating their channel strategies and also making the transition on the core side. So we do expect that to continue to pick up in the near future.

Great. That's what I needed. Appreciate your time.

David Parker from Lazard Capital.

Yes, thank you. You have a very highly diversified customer base, but you did mention some of this M&A activity that you are seeing. Are any of the three deals that you talked about, are they significant customers, say, 1% to 2% of revenue?

Well, as we have shared in the past, M&I has been a large client in the past. I think we talked about it being around 2% of our total revenues historically. So that's one that's of size and scale.

And as Gary referenced, Harris Bank is very large client of ours, or a very good client of ours, happens to be a pretty large client of ours in the US. Bank of Montreal is also a client of ours in Canada.

So we have got relationships with all three of those institutions. We do not know what the outcome is going to be. We don't know the timing. We don't know, quite frankly, where we end up in terms of growth or revenue related to that or any contraction of revenue related to that combination.

So we -- as we learn more and if it's material, we will certainly share that. But that is the only one that has a size and scale that we've ever talked about.

In a typical transaction like this, I mean, when you are combining volumes from two different banks and they potentially hit a different threshold, what type of pricing pressure do you normally see in this type of experience?

Well, normal is kind of hard to predict, right, in terms of you look at different portfolios of products that each institution might be using; and sometimes you combine two institutions that are customers and you end up with the same revenue. Or sometimes you can end up with a little more because you can upsell some products.

I would say we generally look at it and say if there's two customers using our products and they combine, the two customers combined are going to expect some leverage out of the relationship so that revenue stream is going to go down. And then the magnitude at which it goes down really depends on the deal.

Okay. Great. And then just moving on to a different subject, just looking at mobile payments and mobile banking in general, are you --? What are you guys doing in terms of your strategy in that area and what are you hearing from your premier clients in terms of demand?

We are certainly seeing a lot of activity around both mobile banking and mobile payments. We have chosen at this point in time to partner. We have got two very strong partnerships in the market.

But we are also seeing a lot of cross-sales around that, around both of those offerings to our clients. The question is going to be, when will the adoption reach a point that we can generate real revenues.

So we are seeing a lot of activity. I would share with you it doesn't -- it has not translated yet into a lot of revenue and I think that is just a general state of those particular offerings in the industry today.

But we -- the quick answer is a lot of conversations, a lot of people signing up for it. There's, you know, as we see intelligent handsets continue to be broadly adopted, then obviously we continue to see increased demands for that. But we are waiting for the adoption to reach an inflection point where we actually start seeing some real revenues come out of it.

But David, we are well positioned when it does come. We did the product investment to make sure we are positioned for it.

Great. Thanks, guys. Very nice quarter.

John Kraft from D.A. Davidson.

Good morning, gentlemen, and congratulations on the progress.

Thank you.

Just a couple last here, and just some clarifications. I am not sure if you've mentioned these. Gary, you suggested that GIFTS was a smaller acquisition. Can you give us a revenue run rate or growth rate?

And then second was, did you mention the termination fees in the quarter? Was there anything material?

You know I mean I will go back with any questions. Termination fees, no. I mean obviously what we have tried to do is if there's something of magnitude, we have called those out. We don't have anything of magnitude in the fourth quarter.

You know, GIFTS, we don't have the number; we didn't disclose the size of the business. But to Gary's point, it's a small niche business. It is an extension of what we've done. We've had a partnership where it's been integrated with our eBanking product.

Because clients when they go to the eBanking platform, they want to build, transact these type of functions; so in this case, wire is something that is very important to eBanking platform. It was just a nice fit that we saw an opportunity and went out and did it.

It's a relatively small company, it's small transaction. But we think a nice fit to cross sell into our client base.

And we have seen a lot of demand as I mentioned in our prepared comments. We have seen a lot of demand from our client base for this functionality.

So it was a classic could we go buy something or do we go build it? And it was clear that buying it at this point in time made more sense. Got us speed to the market and once again benefited our clients to meet a need.

But we -- what we did if you look at the deck out there, we gave the little accounting for how we do organic growth. So all the deals that we do, we have excluded their revenue; and you can see a magnitude of all the deals we have done in 2010 and the impact of revenue in the fourth quarter. So you can get a sense that, all together, it's not a lot of material revenue.

Great. Thanks, guys.

Bryan Keane from Credit Suisse.

It sounds like there has been a little bit of a pickup in core deals. So I guess if you could talk a little bit about is that just a change in the environment? And then what does the pipeline look like for core?

We actually had talked about on a number of calls, we actually saw a very nice increase in our core activity throughout the year; and yes, I would suggest it has accelerated in the third and fourth quarter.

We have also seen some very nice mid-tier institutions. So financial institutions greater than say $2 billion to $3 billion in asset size. We have seen a very nice increase in decisions in that space and we have been the benefactor of those decisions.

So when we look forward, we continue to see a lot of activity. Again as I think as we shared on prior calls, this was one area that kind of surprised us coming out of the economic issues. We didn't expect this area to rebound quite as rapidly.

But once again, I think that the issue is a number of our financial institutions really struggled with their technologies to get through this economic collapse. And they are at a point where they want to fix all their foundational elements so in the event they have to go through this process again, they are on a much more stable platform.

So we saw great growth throughout the year as our sales team led by Jim Susoreny did a great job domestically. We are starting to see those activities return through -- in our international markets as well. I would say the core activity returned a little slower in international markets than it did in the US.

But we are looking forward when we see looking at our pipeline activity in first, second, and beyond. We are still seeing good strong opportunity out there.

Yes we are very pleased with the core sales results. Keep in mind, Gary made the point earlier, that it takes 12 to 18 months to get those converted and to get the impact revenue.

Okay. Yes, that sounds good. Just wanted to ask about pricing. What is the pricing environment like? I think Mike called out a little bit of pricing pressure inside of Payment. So I would just like to get the color there.

Yes, I mean we didn't talk a lot this call. I think we've talked on prior calls about pricing and pricing pressures. There's always the question how is it today versus last quarter, a year ago, or five years ago or 10 years ago.

And I would tell you we continue to monitor it. It is always a challenge, it is part of our business that as we get larger, as we get more scale, our customers expect us to pass some of those benefits on to them. They expect our competitors to pass them on.

So I think the market continues to be competitive. We don't see it or sense it as any different today as it had been in the past. Every once in a while you get a particular area that has maybe a little bit more competitive pressure.

But I think that we would view [price impression] in the marketplace as a normal part of the business. I think we look at that in conjunction with consolidation. And consolidation is something that is a little bit harder to predict and a little harder to manage. And that's the part that we watch more closely for the trends.

Okay but nothing unusual inside of Payments or anything else?

No.

Okay. Last two quick ones. Just corporate expense sequentially look like it increased a little more than we expected. Was there anything in there that caused the big increase sequentially?

And then lastly Capco, I might have missed it, but do we know how much Capco contributed of revenue in the quarter? Thanks so much and congratulations.

Thank you.

On the corporate numbers quarter over quarter, I mean it didn't really increase. The bottom line is we had a big benefit in the third quarter which we called out on the last call, a settlement on a legal dispute with a former client. And it was about a $10 million swing so we had a $10 million benefit in the third quarter which did not recur. We had called it out; we did not expect it.

So corporate expenses are higher but costs are really not any higher, but we don't have that benefit. What was the other part of the question? (multiple speakers)

Just Capco.

(multiple speakers). So Capco again go to that same slide. We carve out all the acquired revenues if you will into our organic growth calculations on page 15. So you can look at our total for current period acquisitions, the revenue in the fourth quarter of '10 was $17.9 million. So that includes Capco and a number of these other smaller deals we have done throughout the year.

So you can assume that that's -- you know, a big chunk of that is Capco in December. It's just one month.

Okay. Thanks so much.

Andrew Jeffrey from SunTrust.

Good morning. Appreciate the detail on acquired revenue contribution. Just to drill down a little bit more on Bryan's question. Can you talk about how much of the Capco revenue was in your International segment versus domestic?

Yes. They are about half and half. Capco is -- it's EMEA-based or Europe-based and US. So it's about split 50-50.

Is there any difference in the growth rates or the profitability of the domestic versus the International operations?

No. Again we are two months into the transaction of the company, as Gary talked. The conversations and dialogue and what we had strategically expected out of the deal, we are seeing all the right signs early on.

But in terms of the type of businesses they are doing, the types of customers, it's a service-based company. It is consulting, it's project, it's time and material. The margins are very similar in both regions.

Okay. That's helpful. And then from a high level, some of the comments that you are making contrast a little bit with those that Fiserv made last week regarding core demand. It sounds like maybe you are a little more optimistic than they.

Do you think that is a function of share or customer mix? Or I'm sure you probably heard what Jeff had to say. How would you compare and contrast your view of the market?

I don't think we want to compare or contrast. I just want to deal with historically and reality of what we are seeing. We have been -- Gary mentioned it very well. We have been very successful on core deals and we have seen that over the last 12 to 18 months. We have been very pleased and to some degree a little bit surprised as to how well we are doing.

So that is the reason why you hear the comments. Will it continue? We hope so. Do we know that for a fact? No.

But we have done well. So that is what we are saying. That is the point we are making. We would prefer not to compare or contrast (multiple speakers).

And the pipeline continues to be strong.

And the pipeline is still there for us and hopefully we will continue to close deals and win more than our share.

Great. Thanks.

Tien-Tsin Huang from JPMorgan.

Great. Thanks so much for taking my question. I actually got disconnected, so forgive me if this was asked. But on the Capco side, any surprises in terms of client or employee retention?

And also, I have been getting this question, how much of the work that they do on the project side is in the areas of reg compliance? I ask because, obviously, they could see a lift in project work related to that. I didn't know if that was the specific carved out practice for Capco.

I think I will answer the first part of it and then Mike or Gary will answer the rest. As it relates to the employees and the clients and prospects, we have been quite pleased. The employees are staying. Rob has done a great job, the CEO, of retaining the staff.

We have been very engaged. Very engaged on all levels of both organizations because we see tremendous opportunity there.

As far as the client reaction, I've got to tell you, talking to the FIS clients in particular and now to some other of the Capco clients, who in many cases are the same, very positive reaction. Very positive and they see a lot of opportunity there. Now we have to make that opportunity all real but we feel good about it.

Yes. On the question on the practice areas, they do some compliance work. They are a practice area around risk and compliance which actually aligns nicely with what we have at FIS.

I would say that the greater opportunities for them in the compliance arena -- some of the things we are talking about on payments, they do a lot more transformational strategy work, consulting work, how a financial institution might address some of the changes, the regulatory compliance changes that are driving payments.

And those are much bigger projects, and they are much more impactful and that's really where their sweet spot is helping an institution. How do you change your business model? How do you make sure your driving the fee income? How do you make sure you are managing cost-effectively? So I think that is where they have seen a lot of dialogue and uptick.

That's good to know. Then, just real quick on Brazil. I know there's been a lot of good volume news down there. You gave some updates before. But just in terms of the direction of the pipeline from non-bank entities and maybe some new entrants on the client and on the competition side.

Have you seen any real movement there in the last three months? Because it seems like it is getting a little bit more complex down in Brazil and you are well positioned there. So has that opened up, would you say the last three months?

And as a follow-on to that would you consider now moving more into the merchant processing side as opposed to just the card processing?

Yes, a couple of questions there. Let's go with the first one. Are we seeing a change in our pipeline activity in Brazil in recent months? The answer is yes.

I think it's not related. For us, we are not seeing new incumbents is what's changing it. We are seeing the success of our large conversions throughout 2010 driving activity of other products FIS has to offer in that market. So we are actually excited about some of the conversations we are having.

From a true card processing standpoint, we continue to see very nice growth in our pipeline regarding doing these types of services for other large issuers in Brazil, whether that's a high-end retail with a private-label portfolio or someone with branded Visa and MasterCard. So we are very pleased with that.

We are not seeing -- we have always seen challenges with people trying to break into the country and we have always competed against those, we think, very effectively. So we are pleased with the activities going on in Brazil.

Great. That's consistent with what we've heard. Nice job. Thank you.

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