Fidelity National Information Services Inc (FIS) 2011 Q1 法說會逐字稿

Ladies and gentlemen, we would like to thank you for standing by and welcome to the FIS first-quarter earnings teleconference 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, today's call will be recorded.

I would now like to turn the conference over to your hostess and facilitator, as well as Senior Vice President of Investor Relations, Ms. Mary Waggoner. Please go ahead, ma'am.

Thank you, Stephen, and welcome to everyone joining us this morning. Today's news release and supplemental slide presentation have been posted to our website. A webcast replay of the audio portion of this call will also be available on the website shortly after the call.

With us today are Frank Martire, President and Chief Executive Officer; Gary Norcross, Chief Operating Officer; and Mike Hayford, Chief Financial Officer.

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

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 news 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.

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. I will begin today's business review with a brief summary of financial results and business highlights for the first quarter of 2011. Gary will follow with the operations report and then Mike will provide additional insight into our financial results and outlook for 2011.

Revenue increased to $1.4 billion in the quarter, which represents organic growth of 6.2%, driven by excellent results within our Financial Solutions and International segments. Growth within Capco also contributed to the strong top-line performance.

Earnings per share came in at $0.45 for the quarter, and free cash flow totaled $189 million. We are pleased with the progress we are making in our strategy to drive higher organic revenue growth, to cross-selling existing clients and expanding into higher opportunity markets, such as large FIs and international markets, which we believe will drive sustainable earnings growth and greater value for our shareholders over the long run.

In April, we hosted one of several client conferences scheduled for 2011. The feedback from this meeting was very positive and we feel good about the strength of our client relationships. The conference was well-attended, and we continue to see increased interest in our solutions to our client base, which further supports our belief that the recovery is continuing.

We are looking forward to hosting our first international client conference in Dubai next month. Global expansion is one of our key growth initiatives, and we are making good progress in improving our visibility in high-growth international markets that we are currently serving. These client conferences help us to continue to be the best -- to build the best relationships in the industry and expand our cross-sell success.

Although we are only a few months into the transaction, we are pleased with the increased exposure that Capco offers in the large US and international banking markets. The combination is performing in line with our expectations. The European practice in particular is having a very strong start to the year. During the first quarter, approximately 60% of Capco's revenue was generated in Europe, and the remaining 40% was generated in North America.

The working relationship between the FIS and Capco teams is excellent, and we are very excited about discussions that are taking place with respect to business transformation, IT outsourcing and application management opportunities.

Before I turn the call over to Gary, I would like to provide additional detail regarding certain recent unauthorized activities that occurred on our Sunrise prepaid card platform, as described in this morning's earnings release. I will describe what happened, and will also discuss actions we have taken to improve the layers of security surrounding our Sunrise platform.

As we disclosed, we incurred a loss of approximately $13 million as a result of unauthorized activities that took place on 22 prepaid card accounts involving one client running on our Sunrise platform. We have identified that a total of 7170 active prepaid accounts may have been at risk, and that personal information involving three individual cardholders may have been disclosed as a result of these activities.

We immediately notified the affected clients, as well as the card associations, and implemented additional security controls around our platforms. We also worked with our clients to take appropriate actions, including blocking and reissuing cards on the impacted accounts and establishing identity theft protection for the impacted cardholders.

The security of our systems and the confidence of our clients are of upmost importance to this company. While we believe that our security is industry-leading, the increasing sophistication and the frequency of unauthorized activities in our industry require that we become even more diligent in strengthening our environments to mitigate risk. We continue to work with federal law enforcement officials to identify those responsible for the unauthorized activities.

We are pleased with our first-quarter results. Revenue growth is off to a solid start, which demonstrates our strong competitive positioning and reputation in the marketplace. We are particularly pleased with the strong growth in our International segment, including the Brazilian joint venture, the launch of the ELO credit card, as well as the expansion of Capco's European practice.

As always, our management team and employees are focused on our client relationships, continuing to grow the business and driving operational excellence across our Company. Now Gary will continue with the business report. Gary?

Thank you, Frank, and thanks to everyone on the call. I will begin today's review with a few comments on the business environment, followed by the operating segment highlights.

The resurgence in core upgrade decisions and strong new signings across all of our segments in 2010 has created a robust implementation pipeline that extends throughout the remainder of this year. In addition to the implementation pipeline, we have seen significant demand for professional services to support our clients' business and growth strategies. In order to support this demand, we have added resources and redirected a number of our employees to better serve our clients' needs. This strong demand increases our confidence in achieving our revenue target for the year.

Before I get into specific sales and project accomplishments for the quarter, I would like to describe the global sales climate for FIS. In general, the sales pipeline continues to expand on a consecutive quarter basis. The time to close new sales is trending down, which points to a continuing economic recovery.

While the ongoing regulatory uncertainty has caused some delay in the closing of deals for payment solutions, the demand for outsourcing services continues to grow, which plays to our strengths and leadership position in application outsourcing and back office and professional services. These trends should generate higher recurring revenue for us, but obviously, the revenue comes on at lower margins than licensed sales.

Next, I will highlight some of our recent sales wins. In March, we announced that the Bank of Oklahoma, with more than $24 billion in assets, has completed the first phase of implementing TouchPoint Teller across its 180-branch network. Based on this implementation, TouchPoint is running at approximately 10% of the bank branches in the United States. Given this scale, ongoing demand for TouchPoint continues to be strong in the large financial institution space.

We continue to win in the very competitive mid-tier and community markets on the strength of our solution capabilities. For example, American Chartered Bank, with $2.4 billion in assets, selected FIS as its new core processing partner and will also begin using our Integrated Payment Solutions, including the NYCE debit network.

In addition, Country Club Bank and Rockland Federal Credit Union, each with approximately $1 billion in assets, also selected us for core processing, as well as many other ancillary systems.

We are very pleased to announce that Credit Union 24 has selected FIS to deliver switching and network services to its participating credit unions. This further extends our leadership position in debit and credit processing within the credit union marketplace.

Our investments in integration, new technology and product development are driving benefits to our clients. This is demonstrated by our ongoing cross-sell successes. In January, we announced that Ready Financial Group, which offers the READYdebit prepaid Visa card, will add mobile account access and bill payment capabilities provided by FIS to their cards.

In addition, our recent acquisition of GIFTS Software further expands our business-to-business funds transfer and commercial Treasury offerings. We have seen a number of new signings for this solution throughout the quarter, and based on the response we received during our recent client conference, demand for this product continues to grow.

As Frank mentioned, expanding our International business is one of our key growth initiatives. Last quarter, we discussed our growing presence in the Asia-Pacific region with the addition of new clients in China and Singapore. In Australia, we have expanded our product capabilities to include core processing services.

ANZ, which is one of Australia's largest banking groups, is in the process of consolidating its New Zealand subsidiaries onto our core platform. FIS has provided card processing in the region since 2001, and we are now the leading third-party card processor in Australia. Based on this position and the logical tie between payments and our core systems, we see good opportunity within this important region.

Turning to Latin America, we are very pleased to announce that the newly-launched ELO-branded credit cards issued by Banco Bradesco are being processed through our card operation in Brazil. The Bank launched a pilot program on April 4, and since that launch, the average issuance rate has been approximately 1000 credit cards per day. We will also process ELO-branded prepaid cards, which are scheduled to launch in June.

Based on this, as well as our other continued sales engagements, we remain very excited about the growth opportunities in this market.

Consistent with trends in North America, we are seeing a clear shift away from in-house software installations toward hosted or outsourced application processing. We are also seeing a growing trend by our clients to outsource process reengineering, software development and back-office functions. Our services capabilities are a differentiating strength for FIS, and with more than 18,000 FIS-badged services professionals around the world, we are very well positioned to benefit from these trends.

Before turning the call over to Mike, I would like to leave you with the following thoughts. There is no question that the prolonged uncertainty surrounding the regulatory environment has resulted in delayed product launches and investment decisions by financial institutions, and the majority of these delays have been within our payments franchise. We continue to monitor all regulatory actions to assess the potential impact on our business, and we believe that some of these regulatory changes, when enacted, will benefit FIS. Although new regulation is a challenge for our clients, it tends to drive higher demand for our core processing, risk management and payment solutions in the long run.

We anticipate that consolidation within the financial services industry will continue and potentially accelerate in 2011. In those instances where we are providing multiple services to both merging entities, as is the case with the BMO Harris acquisition of M&I, our future revenue streams will likely decline as the entities migrate to common platforms.

Overall, however, our client base is well-diversified and is not concentrated in any one market segment. Based on this, we feel our exposure is less than others within the industry. We remain optimistic regarding the improving outlook for the industry and are encouraged by our strong sales pipeline. As I mentioned earlier, a lot of the demand is fueled by lower-margin components, like professional services.

Last, but not least, we feel very good about our client relationships, our products and services and the reputation of the entire team, all of which position us very well versus the competition.

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

Thanks, Gary. I will begin on slide 4 of the supplemental materials. Adjusted revenue growth was 11.2% for the quarter. Organic revenue growth, which is normalized for acquisitions and currency, was 6.2%, driven by strong results in Financial Solutions and our International business.

First-quarter EBITDA totaled $368 million compared to $365 million in the first quarter of 2010. EBITDA margin was 26.6% compared to 29.4% in the prior year.

If you turn to slide 5, we have provided a bridge that illustrates the impact of acquisitions and the one-time items on our margin in the first quarter. Starting on the left-hand side with reported margin of 26.6% in the first quarter of 2010, we adjust for the margin impact of the Capco acquisition, which we had shared with you at Investor Day last December.

Next is the $13 million Sunrise incident that Frank described and $7 million in integration and severance costs that are included in the first-quarter results. As you recall, those integration service costs were not included in the margins for 2010.

If you look at those, this brings you to a normalized margin that is comparable to the prior-year quarter, even slightly larger.

Next, I'll provide additional detail on the operating segments, starting on slide 6 with FSG. Financial Solutions revenue increased 13.6% to $504 million and grew 7.1% organically. The increase was driven by continued strong demand for professional services, higher outsourcing revenue, including new client implementations, and the growth within Capco's North American operations, which are included in the FSG segment.

Financial Solutions EBITDA increased 4.6% to $195 million. The EBITDA margin was 38.7% compared to 42% in the prior-year quarter, reflecting the higher mix of professional services revenue.

On slide 7, Payment Solutions revenue totaled $615 million compared to $619 million in the first quarter of 2010. Payment Solutions revenue increased 4.5% when you exclude the check businesses and the impact of the merchant platform consolidation, which was recorded at gross in 2010 in the first quarter and is now being booked at net after we have integrated our two merchant platforms.

We remain somewhat cautious on the payment business due to the ongoing competitive pressure and the impact that regulatory uncertainty is having on our clients' investment decisions. We are hopeful that some of the pressure will subside as we gain more clarity on the Durbin Amendment and the transaction volumes increase.

Payment Solutions EBITDA totaled $219 million compared to $230 million in the first quarter of 2010. This includes -- in the first quarter of 2011 are approximately $4 million in integration and severance costs. The first-quarter EBITDA margin was 35.7% compared to 37.1% in the prior year. The decline reflects the inclusion of the $4 million of integration and severance costs in the current period. Also a less favorable revenue mix and lower license revenue and growth in the lower-margin products, including Card Production and Print and Mail.

International revenue increased 48.6% to $268 million compared to $180 million in the first quarter of 2010. Revenue grew 27.5% on an organic basis. Higher processing volumes in Brazil, increased license revenue and professional services, including strong growth within Capco's International Operations, contributed to the strong performance.

International EBITDA increased 44.7% to $49 million compared to $34 million in the first quarter of 2010. The margin was 18.2% compared to 18.8% in the prior year, reflecting the addition of Capco.

Corporate expense was $95 million in the first quarter of 2011 compared to $85 million in the prior-year quarter. The current-year quarter includes the $13 million Sunrise loss that Frank described earlier.

Corporate expense, which includes sales and marketing, can vary between quarters. Our projected run rate is between $90 million and $95 million per quarter for the remainder of 2011. This increase is primarily due to increased stock-based compensation, increased employee benefit costs and investments in sales and marketing.

On slide 9 is a reconciliation of net earnings. First-quarter net earnings from continuing operations totaled $138 million compared to $157 million in the first quarter of 2010. The decline in net earnings compared to the first quarter of 2010 is due primarily to the higher interest expense associated with the leveraged recapitalization which we completed in August of 2010.

The resulting share count declined to 309 million in the first quarter of 2011 compared to 380 million in the first quarter of 2010, an increase on a sequential basis, primarily due to the increase in our stock price.

Earnings per share from continuing operations increased 9.8% to $0.45 per share compared to $0.41 per share in the first quarter of 2010. The only adjustment to our reported GAAP numbers in the current quarter is the after-tax impact of purchase price amortization of $42 million or $0.14 per share.

The Sunrise loss and the integration and severance costs are included in the 2011 results and reduced earnings per share by a total of $0.04, after tax, in the first quarter of 2011. The Sunrise loss was not contemplated in our first-quarter guidance or full-year guidance.

As shown on slide 10, we generated free cash flow of $189 million compared to $241 million in the first quarter of 2010. The decline was due primarily to the timing of interest payments and the annual incentive payment.

Capital expenditures totaled $72 million compared to $58 million in the prior-year quarter. Debt outstanding declined to $5 billion as of March 31, 2011, and the weighted average interest rate was approximately 5.2% at quarter-end. Additional detail on our debt is provided in the appendix.

Now I will provide a few comments before we open the lines for Q&A. While we are affirming our full-year outlook, as stated in this morning's news release, we are bullish on our revenue growth, given the strong first-quarter results in our Financial and International segments. However, depending on the overall mix, the new revenue could convert at a lower rate than we originally expected.

Although we did not anticipate the $0.03 loss related to the Sunrise platform, we continue to expect full-year earnings to be within the range of $2.24 to $2.34 per share, as we've previously stated.

Growth in our Payments business will continue to be challenging due to the declining check volumes, the competitive environment and the uncertainty regarding the impact of regulatory change. While comparisons should ease in the second half of the year, and we are hoping to get more clarity around Durbin, we remain somewhat cautious in the near term.

Overall, we are pleased by the improving organic growth trends, and we believe that we are well-positioned to compete and grow our business as the overall market continues to recover.

That concludes our prepared comments. Operator, you may open the line for questions.

(Operator Instructions) Dave Koning, Baird.

Nice job again. I guess, first of all, just with the Sunrise incident, it sounds like you mentioned that was not included in original guidance. So nice job, considering that. But is there any ongoing risk regarding that? Or is the $13 million that you took in charges or expenses this quarter kind of fully factoring in any ongoing legal costs or anything like that?

We do believe that $13 million is the amount of the incident, so we don't expect any additional costs related to that.

Okay. And then on the growth side, I think it's right to say that organic growth would have been 7% to 8%, excluding the accounting adjustment. Is that fair to say?

If you looked at gross versus net, that would be correct.

Okay. And I guess there would be no reason that -- if you did make that change, growth would have been a little better. And I guess is that sort of the ongoing, more underlying growth that seems to be generated -- maybe over the next several quarters. Or what -- was there something in this quarter that seemed unsustainably high, or is this quarter a pretty good representation?

I think as you know, our long-term goal is 6% to 9%. And we've stated coming out of '08 and '09, as we've kind of seen the market recover, that we certainly believe in the long term we can get there. For 2011, we've said 4% to 6%.

So I think you would say that we are very pleased with the revenue growth. Gary and Frank both spoke to the strength of the market. You can see a little bit we are getting more professional services, which is how we would expect growth to come out of a slowdown, as people initiate new projects and hire our resources to help them drive those projects.

So A, we are very pleased with the growth, and I think, B, it does confirm that our long-term guidance is something we are very comfortable we can get to,

Great, and then just one final one, is just interest expense seemed a little lower than what we had thought. Was there anything nonrecurring in that line, or is that a pretty good kind of ongoing rate?

I think we've stated full-year 270 to 280. I think that is kind of what we expected it to be. There is nothing unusual in that number.

Okay, great. Good job again.

Brett Huff, Stephens.

Good morning and congratulations on a nice quarter. A couple of things. On ELO, have you guys shared just kind of the size -- or just any kind of color commentary that you can give us on when that is going to come on in earnest, and what kind of difference that can make to the International growth rate and/or margin?

We haven't really provided guidance on that. I think you've read a lot of information around what's going on in ELO in Brazil. It is clearly targeted at the Tier 3, Tier 4 consumers in that country.

Banco do Brasil is also bringing out ELO right now. We have confirmed that we will be processing for Bradesco. They wanted to do a pilot launch first. And then, as I shared in my comments, in June they will be bringing on a prepaid offering. But during the summer, they will be ramping this up very quickly.

We think it will add to our growth. We are continuing to be very bullish on Brazil. Our growth in cards per month each month is exceeding our expectations. So we think that ELO will continue to add to that.

Okay, thank you. And then on the Sunrise issue, I know you talked about the expense hit. Was there any impact that had on revenue?

No, that would have no impact on revenue.

Okay. And then last question for me is on the payment segment, right now, we all know that the check business is really creating a drag. Any additional thoughts on what we can do there? I believe the last thing you guys were talking about and the way you are operating it now is primarily just to really try and keep the cost down, drive some cash flow and go from there. Is our strategy on that any different right now?

I think, Brett, when you look at it, there are several things going on here, right? So we've got a conversion from paper to electronic, and we are cycling through that. We also have declining check volumes. So we really have two significant headwinds. We really rationalized through a lot of the conversion from paper to electronic, which is positive for us. During that time, we've consolidated a lot of our centers. We are leveraging a lot of our services capabilities to get scale across it.

And we are still competing in the market. We continue to sign a number of clients. Because as scale declines, keep in mind, institutions are no longer to be able to cost-effectively deliver this. So, really our strategy hasn't changed. We are continuing to ramp down costs and continuing to focus on sales to make up for volume reductions.

I will just add to that that I would expect a change in that business, both item processing and the check guarantee, check verification business. As Gary said, we are going to continue to operate and we're going to continue to focus on efficiency.

I would say the team has done a very good job of maintaining our margins and our profits in those businesses. Some of the margin drag is from some of the other businesses. But they've done a pretty good job in a declining market. So it is impacting revenue more than it is impacting our earnings.

Great. That's what I needed. I appreciate your time this morning.

John T. Williams, Goldman Sachs.

Good morning. Thanks for taking my question. Really quickly, your competitor -- your bigger competitor -- biggest competitor has said a good amount about bill payment on their earnings call. I was curious, you guys don't really talk about that, but it's a pretty big business for you.

What are you seeing now? Are you seeing more intense competition in bill payment and are you expecting an inflection point as you sort of head back towards a higher growth rate, or is there not really a turn quite yet?

In general, we continue to see competition across the enterprise. So it is a very competitive market. During this recovery, you know, everybody is executing the best they can with their sales forces.

Bill payment specifically, we've won a number of significant transactions so far this year, and so we are very pleased with our signings. We continue to see our volumes come up and our adoption come up. So we feel very good about our bill payment business overall.

As you said, it is a very competitive market, and so we have to compete in the market and win those new transactions or win that new business.

But we have other products that are just as competitive. As Gary just stated, we've been pleased with our performance in signing new clients recently and in recent past.

Frank, I guess that's actually a good segue to my next question, which was back in the old Metavante days, you used to talking a lot about the emerging formats, like the health care payments. Obviously the NYCE network kind of fits in there nicely as well.

But what other emerging catalysts do you see in the payments businesses that could start to show up and be relevant in the next -- I don't know -- call it 6 to 12 months?

We care about relevant. But obviously, with the health care payments and the initiatives we took there that we talked about in the past. But mobile -- you hear so much about mobile, right? Large transaction volumes with mobile. How much revenue it is going to generate, time will tell, and the adoption that will take place. But clearly, there is a big initiative on mobile payments, and you see that by a lot of the large -- the top-tier banks, the money and the investment they are putting into it.

Just to build on that, we also continue to see strong growth in demand for our prepaid. There is a lot of things that we are seeing in the market that the regulatory changes could actually drive more prepaid volume, so we're excited about that. We're seeing it in our sales activities around that product line.

We are also seeing -- I mentioned GIFTS. We are starting to see far more demand for ACH and other types of payment processing across the enterprise. So there is a lot of areas, like Frank mentioned. He mentioned mobile; we are seeing a tremendous amount of demand. We're waiting for a tremendous amount of volume to flow through that. But we've got to get our clients first. So that is all -- all that is very positive for us.

And the good news is we are well-positioned with those different product initiatives.

One last question, I guess, just quickly, on your customer conversations that you have on the payment side. What are the two or three things that your customers are focused on? Obviously, it is a different discussion with the small and midsize versus, say, the regional banks. But are you leading with the NYCE Network product and then selling everything else in? Or is it other things that you are finding the clients are generally more interested in, like bill payments and other things?

Well, it is a great question. I will tell you, depending on the customer, we try to lead with the breadth of our solution, with our services capabilities wrapped around that. So we are seeing a lot of demand for those kind of things.

But clearly, NYCE is at the forefront of our discussions. Especially with the Durbin Amendment, people are looking for alternative networks. And so we are having a tremendous amount of conversations around NYCE. We've also had a tremendous number of signings on the NYCE offering as well.

So frankly, it doesn't really break across institution size. In general, people are looking at more cost-effective and creative ways to deliver their payment processing.

Great. Thank you, guys. I appreciate it.

David Togut, Evercore Partners.

Thanks and good morning. Gary, you highlighted an expanding pipeline in Financial Solutions and also reduction in implementation times. Could you differentiate among the different segments within Financial Solutions, starting with credit unions and community banks, up to megas, to give us a sense of what's happening from a demand and a pricing standpoint?

Let me clarify one comment. We are seeing an expanding pipeline on sequential quarters, and we are actually seeing the time to close that pipeline descend. Our implementation pipeline is as full as I've seen it in recent years. So -- which is a great, great situation; just shows the success of our sales channel and our solutions.

To get to your specific question, I think you went in this order. If we start in community banks, we are seeing -- community banks and credit unions -- we are still seeing strong demand for our core processing and payment solutions. There is clear evidence that those type of -- size of institutions are looking for a single-source provider to help drive their costs to the lowest possible amount they can by leveraging their overall relationship. We're having very strong success in that market and continue to see not only good sales closings, but good financial growth in those markets as well.

When we go up into the mid-tier banking marketplace, I think we shared last year the strong demand in the mid-tier for our core banking systems. We continue to see demand there around core. But what we are also seeing there is more and more people are looking for a broader solution as well. So we are starting to see those guys embrace payments, bill payment, et cetera, as well.

When we get up into the very large financial institutions, we end up doing more point-related sales activity. So depending on what projects are being driven in those large institutions, the nice thing about FIS is we have the capabilities to square off against those projects. Capco has been very helpful here in the early part of our relationship, where they are bringing in these transformational discussions and then we are able to provide subject matter expertise around a particular need.

So that is really how the market is breaking down for us in the US.

When we get over into our international markets, we can't discount that. We are seeing tremendous opportunities in Asia around both payments and core processing. Still more demand around core processing and services in Europe than we see payments related. And then we've talked about South America and our payments capabilities and the growth in those payments.

Could you comment, Gary, on pricing trends broadly in the Financial Solutions business?

Well, pricing -- we always have to compete on price. So at the end of the day, we have to provide an excellent product, an excellent service, and we have to be price competitive.

Depending on what type of solution that we are competing with or for, if it is a single-point solution, like an individual payment product, as an example, you tend to see more pricing compression, because you are typically competing more against with a monoline player, where this is their only product or service they have to open the market.

When we are really dealing with breadth of solution, we are not seeing as much compression. But still, price, as I said, you always have to be competitive to win.

Thank you very much.

Peter Heckmann, Avondale Partners.

I wanted to follow up on a couple questions. Could you talk a little bit more, revisiting the Sunrise issue, on the prepaid platforms? What are the different prepaid platforms that you have in the US and who might be some of the representative clients for them? Is the Sunrise platform the platform that American Express is using?

We have two primary prepaid platforms. We label Sunrise, obviously, the location; but we sometimes call them Prepaid North and Prepaid south.

They are both very large. They serve the market somewhat different. One is more of a high-efficiency, focused, kind of shared platform. The other one is a little bit more customized. We do provide the service to American Express. They were not impacted directly by the incident.

And, you know, we continue to have -- we went very aggressively with our communication out to the clients who were on the affected Sunrise platform. And the interactions that Gary had and Frank D'Angelo, who heads up payments, talking to clients, they were very appreciative that we communicated.

And again, the impact was limited to one client, a very small number of accounts. The financial impact was limited to FIS. So I think we were very proactive in addressing this issue.

Okay, so the Sunrise is more of the turnkey platform?

Sunrise is actually more of the customizable platform, so some of the different clients have their own custom platform and are isolated.

We actually run multiple instances down in Sunrise.

Okay. And so to the extent that banks are looking at adopting general-purpose, reloadable prepaid cards, they would probably look at the -- well, I guess they could look at either one, right?

Correct. We evaluate through the sales cycle, Peter, what is the appropriate solution. So as Mike mentioned, if you are looking for a highly-customized solution, we will typically go in with one solution set. If you are looking for more low-volume card issuance and a more packaged capability, then we will go with a different one.

Okay, and then just one last question. I'm starting to see a little bit more instances -- and maybe it is perhaps just the media coverage -- but of some of these large software integrators, large offshore providers, starting to win some domestic core upgrades. And we've seen some of those from Oracle and Accenture, Infosys and Tata. Can you talk about how you view those competitors, as well as how the balance of most of your customers view those competitors?

Clearly, we view them as competitors, and we do see them from time to time in the market. We have to be real clear on some of the winnings. I can think of only two off the top of my head that are dealing around core. One is not -- my understanding -- is not going very well. One is related to a more broader global instances, where an international financial institution acquired a domestic financial institution and they are rolling their international solution set that they built through one of those providers into the States.

So do we see them as competition? Yes. I will tell you, we see them probably more, it is safe to say, in our international markets today than we do in our domestic markets. But we are very, very careful. We realize they are formidable competitors, and we have to make sure that -- that is why it is so important that we built out our services practice and we continue to build out our services practice. We now have more than 18,000 FIS badge resources to help us compete with those kind of providers in and around our intellectual property.

So are they competitors? Yes, but we continue to be cautiously optimistic for the States. International markets, we continue to run into them much more. And obviously, as you move up into the larger financial institutions, they are going to be more of a competitive presence than in other areas.

Okay. That's fair. Thank you.

Wayne Johnson, Raymond James.

Just a quick follow-up here on the Durbin amendment. So how is FIS proceeding? Are you assuming that the amendment is going to be implemented as it is written by the Fed to date by July 21? How do you approach that, given the delay and the finality of the specifics that Bernanke was supposed to come out with last month? How do you approach that limbo status, if you will?

Obviously, we are waiting for some clarity on the amendment first. But at this point in time, we can only assume that the way it was drafted is the way it is going to be implemented. But we continue to work with our clients on this. We continue to -- as you are probably very aware, there was a tremendous amount of feedback on the amendment given to the Fed, and they've had to postpone their final decision as they review all of that.

But we are assuming that the general construct of how that amendment is drafted today, it will be implemented, and we are working with our clients around that front. Clearly one of the benefits we would see to Durbin is there are a lot of financial institutions greater than $10 billion that have a single network presence. Obviously, we see benefit to that with our NYCE Network. But we are continuing to monitor and watch for clarity, like others in the industry.

Okay, terrific. I appreciate that color. And just one quick follow-up on a different topic. The check volumes, which continue to attrite, and that is not a surprise, but what should we be thinking about in terms of the rate of decline? Should we be thinking like a volume decline of 8%, 9%? How should we be thinking about that going forward?

Yes, I think that's pretty fair. Given our scale in that business, we pretty much decline at about the same rate, maybe a little slower, than what the national average is. Because, keep in mind, we are bringing on new sales that offsets some of that decline. But depending on the region of the country, we tend to look and model about that rate of decline.

All right. Terrific. Thank you.

Ashwin Shirvaikar, Citigroup.

Good quarter, guys, especially adjusted for the one-timers. Since this is a relatively recent change from a reporting perspective, I just wanted to first confirm -- are there any other one-time factors that are included in your EPS guidance?

Again, what we said, Ashwin, starting this year we are going to, for adjusted earnings only, include the amortization of intangibles related to acquisitions. So everything else is embedded in there. And we will call those out, but they are in the numbers first quarter and they will be in the numbers throughout the year.

Okay. And with regards to revenue mix factor, that we are seeing more and more, obviously, international growth, professional services growth, within professional services, want kind of projects are being executed? What are your clients asking you to do, and does it lead down the road to product sales?

It is a great question. We are really seeing across-the-board type professional services engagements. So we are obviously seeing a lot of demand for enhancement and customization services around not only our products, but third-party offerings, where we can bring development and application management expertise. We are seeing strong demand in our project management resources.

On the Capco side, our consulting engagements, Frank mentioned the growth in Europe. We are seeing a lot of demand around transformational services, especially on the capital markets side. And then that is also coming over into retail banking.

In all instances, professional services is either augmenting a product we've already served, or in many instances, it does allow us to bring in other solutions into that engagement. So we see it as a very good relationship and a very important piece of our business going forward.

Okay. The second part of that same question, international, down the road does it have an impact on your tax rate as international grows faster?

Yes, it will. You can see that our rate is down a little bit this quarter. We guided 35% to 36%; we're at the low end of that range. That is where we ended up last year, and the tax team has done a nice job of some tax planning.

But as we get a higher percentage -- and we brought on a fair amount of revenue internationally with the Capco transaction, as well as you see the growth in Brazil, so that does help the rate go down.

Okay, but you are still comfortable at the same range though -- the low end?

For '11, 35% to 36%, correct.

Okay, thank you.

Kartik Mehta, Northcoast Research.

Good morning. Gary, I think in your prepared remarks you talked about expecting increased consolidation in the industry in 2011. And I'm just wondering as you model or provide guidance, how much revenue attrition you've built in for consolidation (multiple speakers).

It is a good question. We continue to feel that there is going to be somewhere between 3% to 5% of the industry attrit through any given year.

What we are seeing is -- while we are still seeing some failed institutions, we are seeing a higher appetite for acquisitions as well. Frankly, given the diversification of our revenue, we've kind of been the net benefactor of a lot of these acquisitions activities, because we have volume, as it typically is larger financial institutions that are doing that acquiring, and we tend to have broad relationships in those areas. So the volume's actually coming on. But we -- all of the -- any acquisition impact, any failure impact is fully within our guidance.

I think what we have historically said is about 150 to 250 basis points is the total impact on consolidation of the industry. 2010, as we talked about it, we had minimal impact so we were on the low end of that. Based on what Gary said, that as institutions have failed, they've been taken over by mid-tier institutions, and our market share in mid-tier is very strong, we've picked up accounts.

We expect that to be similar in '11, that the type of consolidation we've seen at the end of '10 and into early '11 we don't see a big impact. I think we are a little more cautious about going forward because we are seeing some larger institutions through traditional M&A starting here at the end of '10 and into early '11. So I think we'll have to watch that going into '12, but for 2011, minimal impact on consolidation.

On the FSG side, you put up a really strong organic growth number. And I'm wondering is this just pent-up demand that is catching up, or it was just a sales cycle and a lot of sales fell in this quarter? And just trying to figure out why this quarter was so strong. Because you said that, hey, for the remainder of the year, I don't know if you anticipate it to be this strong going throughout the full year.

You can have, I think, three things. One is, as Gary talked about in the past, we've had very solid sales success all the way back to fourth quarter of '09. So that sales success translates into revenue on a lag basis anywhere from six to nine months, maybe even 12 months in FSG, when we convert some of the larger core transactions.

So you have that phenomenon coming on board. And, as Gary said, our backlog in conversions is still pretty solid going out through the year, so we expect that to continue.

And then we've seen projects pick up. So we've seen just some project conversion activity, we've seen work with the FDIC, we've seen work with just institutions who are now starting to spend money on projects as much as even software, so more of a customization.

And then the third thing is with the addition of Capco, Capco is split between International and North America. And so Capco year-over-year has had tremendous growth, and that is also included in FSG growth.

And then just one last question. You talked a little bit about Sunrise. I'm wondering -- has there been a loss of business or have any customers come back because of what has happened, that they need to revisit the business they are doing with you or planning to do with you?

No, not at this time. I think all of our clients were very pleased with how responsive we were. Everybody is always concerned. I felt -- they felt like we've been very proactive on this front and been very transparent and worked through those issues in a very positive way.

Again, the key here is that our customers have not sustained an impact or a loss. It's very, very narrowly focused on the cards that were compromised. Again, we were just very proactive in notifying everybody that we had an incident and there might have been some exposure. But to Gary's point, the clients have been very appreciative of the fact that we've reached out to them in a proactive manner.

We've had heavy communication with our clients since day one, and they've been very confident in the approach we've taken and the process we've gone through and the communication we've had with them.

Thank you very much. I appreciate it.

Bryan Keane, Credit Suisse.

Hi, this is Ashish Sabadra on behalf of Bryan Keane. Congratulations on a solid quarter. I had a couple of quick questions, and these are mostly follow-ups to the answers that you might have given.

Specifically around the good growth in the Financial -- FSG segment, just want to understand, what are the drivers for the professional services? Like why are the banks spending money on professional services? Is it M&A or regulatory or any color on that? And a follow-up question to that would be are these share gains or just an increase in demand?

Well, the professional services activities are around a number of things. So especially in our large and mid-tier financial institutions in North America, we are seeing a lot of demand around not only installing our products, but integrating those into other solution sets within the financial institution. We are seeing strong demand around M&A. Mike touted we had a number of large clients do some fairly significant M&A towards the end of last year, and we think that trend will continue.

We are also seeing project work in and around enhancements and management around non-FIS solutions. So really, it's around all those components, but most of our professional services growth is occurring in that mid to large financial institution space.

I would say versus -- share growth versus just increased relationship, Frank spoke to the strategy of having strong relationships and then being able to cross-sell products. Services is a big piece of that, so we are very focused on having very deep relationships and then continuing to drive more product solution and services to the existing clients. So that has been a very big piece of it. As they have started to be more confident about their business and about the recovery, they've started to invest in more projects. So I think we saw a slowdown starting in the fourth quarter of '08 that lasted literally for 12 months, and I think we are continuing to see people become more confident and maybe spend on some projects that they had held off on the last couple of years.

Yes, we have clearly seen that the banks are feeling much more comfortable and confident in the future in the short-term and in the long-term. The ones who have done well and survived and recovered well are now confident of their long-term plans and the long-term projections for their institutions.

Thanks for the color. Just a follow-up to the question. Have you seen an increase in IT budgets, or is it just more spending on third-party services -- or a combination of both?

I think, to Mike's point, we are seeing an increase in project funding in our large institution and mid-tier marketplace. And so that IT dollars, we're being the benefactor of those project activities in those banks.

I think you have to be a little careful. Overall, IT budgeting, I think you can, to some degree, split the market. I think there are some entities who came through the environment the last couple years very strong, and they see opportunities to grow market share and they are increasing their spend, increasing their budgets.

You see other entities with the challenges they've had on the balance sheet, coupled with some of the payment regulations, probably more challenged to cut costs. And actually, both of those help us. The entities that need to do some transformation or maybe restructure their internal costs tend to look a little bit more to outsourcing, tend to look at someone who has got scale and leverage. So we've seen actually benefits on both sides of that side.

Okay. A quick question on the FX. Considering International has been one of the fastest-growing segments and the US dollar has been weakening, can you just provide some color on the impact of FX deal wins on the model?

For first quarter, it was approximately $10 million, was the FX. And of course, we pull that out when we do our organic growth calculation.

I think for the year, again, we are probably going to have a little higher FX impact. You can assume that '10 going forward. I think the international growth continuing to grow is probably going to have -- in a couple of the markets that we are seeing the growth in are having positive effect on currency, based on the dollar weakening. So both Latin America and Europe, that is occurring. So I think the $10 million is probably a good go-forward; it might bump up even a little bit from that each quarter.

Okay, thanks. That's it for me and congratulations once again.

Due to time constraints, I would like to turn the conference back over to Ms. Waggoner and the panelists.

Thank you for your time this morning. We look forward to speaking with you again soon.

Ladies and gentlemen, that does conclude our conference call for today. On behalf of today's panel, I would like to thank you for your participation and thank you for using AT&T. Have a wonderful day. You may now disconnect.