Fidelity National Information Services Inc (FIS) 2012 Q1 法說會逐字稿

Ladies and gentlemen, thank you for standing by, and welcome to the FIS first-quarter earnings call. For the conference, all of our participants are in a listen only mode. There will be an opportunity for your questions, instructions will be given at that time. (Operator Instructions). As a reminder, today's call is being recorded. With that being said, I will turn the conference now to Ms. Mary Waggoner. Please go ahead.

Thank you, John, good morning welcome to everyone joining us on the call. Joining me today are Frank Martire, Chairman and Chief Executive Officer, Gary Norcross, President and Chief Operating Officer, and Mike Hayford, Chief Financial Officer. Today's news release and supplemental slide presentation have been posted to our website at FISGlobal.com. A replay of this morning's call will be available shortly.

Please refer to the Safe Harbor language on slide 3 of the presentation. Our comments today 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 it's result of new information, future events or otherwise, except as required by law.

Today's discussion 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 as outlined on slide 4. Reconciliations between GAAP and non-GAAP results are provided in the attachment to the press release, and the supplemental slide presentation. The presentation will begin on slide 6. I will now turn the call over to Frank Martire for an overview of first-quarter results. Frank?

Thank you, 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 our financial performance and business highlights for the first quarter of 2012. Gary will follow with the operations report, and Mike will provide additional insight into our financial results and our outlook for the remainder of the year.

We are very pleased with our strong first-quarter results. Organic revenue growth improved to 5.3% in the first quarter, driven by solid performance across all businesses. EBITDA increased 10.3%, and the EBITDA margin expanded 150 basis points to 28.1%. Earnings per share totaled $0.55, which represents a 22% increase compared to the first quarter of 2011. These results reflect our ongoing focus on increasing organic growth, driving margin expansion, and delivering double-digit growth in earnings per share. The team is doing a great job executing the strategy that we described at the investor day.

I will now continue with slide 7. We are making solid progress in expanding client relationships and all of the markets that we serve. Last week, we hosted the first of several client conferences scheduled for 2012. The discussions we are having with clients indicate they are increasingly focused on driving future growth given the progress they have made to improve profitability and strengthen their balance sheets. I was also very pleased with the positive feedback regarding our product offering and integrated solutions. We feel good about the strength of our client relationships.

We recently completed two solution-enhancing acquisitions, to further expand our risk, fraud and compliance offerings, which are key areas of focus for financial institutions. These acquisitions support our strategy to buy, build, and invest in new products to cross-sell to our clients. Gary and Mike will provide additional details regarding these investments later on the call. Throughout 2011 and 2012, we have made and will continue to make significant investments to improve our overall information security and risk management functions.

For example, on March 9 we announced the hiring of Greg Schaffer, as our new Chief Information Security Officer. Greg briefly worked as Assistant Secretary For Cyber Security and Communications for the Department of Homeland Security. On April 17, we announced the hiring of Greg Montana, as our new Chief Risk Officer. Greg previously worked as Senior Operational Risk Executive for Bank of America. Both positions report directly to me. We look forward to the additional experience that these two new executives bring to FIS.

Overall, I am very encouraged with our strong start to the year and the progress we are making towards achieving our 2012 objectives. We are working hard to maintain this momentum and are committed to executing a strategy that we communicated at our investor day. As always, our management team and employees are focused on serving our clients, growing the business, and driving value for our shareholders.

One last thing before I turn the call over to Gary. Our ranking as the world-leading provider FinTech is due in large part to the execution of a disciplined, highly successful acquisition strategy. Bill Foley began laying the foundation for FIS in 2003 with the acquisition of ALLTEL Information Services, and served as Board Chairman since taking the Company public in 2006 through March 2012. On behalf of our board, our management team, and our employees around the world, we would like to extend our sincere appreciation to Bill for the outstanding vision and leadership he has contributed in the creation and evolution of our Company. We look forward to this ongoing involvement with FIS as Vice Chairman of the Board. Now, I will turn the call over to Gary for the business report. Gary?

Thanks, Frank, and thanks to everyone for being with us today. My presentation begins on slide 9. I will begin with an update on the global sales client, followed by a summary of business highlights for the quarter. Although the regulatory environment has created challenges for financial institutions, they are moving forward, developing and executing new revenue strategies. We are encouraged by the renewed focus on growth and investing for the future. Ongoing initiatives to improve efficiencies continued to favor outsourcing over in-house solutions. While we anticipate that 2012 will continue to be a time of transition for the financial industry, we believe that the outlook for the banking sector and the economy as a whole is improving.

If you would turn to slide 10, I will cover some of the business highlights for the quarter, beginning with North America. As Frank mentioned, we hosted the first of four annual client conferences last week. The conference was very successful, with more than 1,000 clients in attendance, which is a significant increase compared to last year. Activity surrounding the more than 100 FIS products and services being demoed was high, as was participation in the 130 breakout sessions which included topics ranging from merchant-funded rewards to chip-based technology, to mobile solutions. In addition to being a great opportunity for our entire team to interact face to face with clients, the annual conferences provide valuable insight into how we can best allocate our investment dollars to generate additional cross-selling opportunities.

For example, two product acquisitions that we discussed earlier this year at investor day, GIFTS and Compliance Coach, and the ongoing enhancements we are making to integrate them with the core are great examples of how our investments are filling product gaps for our clients and driving incremental growth for our company. GIFTS, which is an integrated wire transfer and money management solution, has grown more than 30% through cross sales to new and existing clients. Compliance Coach, which is a regulatory training and compliance tool, has grown by more than 50% since we acquired the company. We are also seeing good growth in professional services, channel solutions, and our global commercial business. We are very pleased with the solid results in our payments business, which grew 4.2%, excluding the check-related businesses.

We continue to analyze transaction trends, including the impact of the Durbin Amendment, now that the three major milestones are behind us. These milestones and results are first, volumes have held up well since the end of priority routing, which was effective October 1, 2011. Second, transactions have remained consistent post April 1, 2012, which is when the restrictions on network exclusivity went into effect. And third, we are closely monitoring volumes to assess the potential impact on the pricing changes that were implemented by Visa on April 14, 2012.

Next, I will provide an update on our international business on slide 11. International continues to be a growth driver for our company. While organic growth of 7% in the first quarter was below our full-year target, we expect double-digit growth in 2012. Brazil remains a great market for us, with strong growth in card volumes and back-office services. Growth in Europe is being driven primarily by the Capco Consulting business. However, we are also seeing ongoing demand for discretionary professional services, including the enterprise core platform upgrade for ING that we discussed at investor day.

The Asia-Pacific region also continues to provide growth opportunities for our Company. As we have discussed on prior calls, a number of banks in Asia utilize FIS as their core processing partner. We are seeing increased demand for our comprehensive integrated branch channel solutions, and we were very excited to announce our first TouchPoint deal in Thailand earlier this week. We are also very pleased with the success we are having with our payment solutions throughout the region.

Moving to slide 12. Organic growth of 5.3% in the first quarter improved sequentially compared to the fourth quarter of 2011, and was driven by solid performance across each of our operating segments. Growth in the higher-margin businesses including payments, coupled with an ongoing focus on managing cost contributed to the 150 basis points improvement in the margin. Our shift in strategy from large transformative acquisitions is allowing us to focus on driving organic growth and optimizing performance across our company. As we discussed at our annual investor day, we are targeting three areas to drive improvement. Including revenue growth, focusing resources on high-growth businesses, and strong cost management. And we are executing on that strategy.

Turning to slide 13. Similar to the GIFTS and Compliance Coach deals that I discussed earlier, ongoing investment in targeted product acquisitions are key components of our plan to sell more solutions across our extensive client network. This past Monday we announced two product-focused acquisitions that support our strategy to provide end-to-end fraud, risk and compliance solutions to our clients. The first acquisition, ICS Risk Advisors, provides outsourced risk management and regulatory compliance programs to community institutions as well as several top-tier banks. The second, Memento, provides enterprise fraud solution to global financial institutions including 7 of the top 25 banks in the US. These products, which complement our earlier Compliance Coach acquisition, are great examples of investments we are making to help our clients address some of their most pressing challenges, including managing through an increasingly more complex regulatory environment.

Next, a few will turn to slide 14, I will provide an update on the investments we are making to improve information security across FIS. As you recall, FIS experienced a cyber attack on our Sunrise platform in the first quarter of 2011. The financial impact related to the breach was borne solely by FIS, as previously reported. At that time, we took immediate steps to notify the affected clients and to remediate the problem. We also hired two third-party firms to conduct an independent review of our information security. Our executive management team and our Board of Directors have been actively engaged in the Company's information security and risk management functions before, during and after the Sunrise event.

Based on the nature of our business, FIS is periodically reviewed by the regulatory agencies that govern financial institutions. Upon completion of an interim review in late 2011, the regulators issued a confidential examination report to a FIS related to information security and risk management. We responded to this report and described the actions that we had taken and will take to address the requested enhancements. The regulatory agencies distributed a letter to our clients in March of 2012, describing the requested improvement, along with acknowledging FIS' commitment to make the improvements. We're working closely with our customers to respond to their questions and update them on our progress. Our conversations have been very productive, and importantly, we did not see any significant impact on results in the first quarter. Overall, we believe the steps we have already taken to improve information security, together with the additional investment that we are making in 2012 will result in FIS been an even better, stronger company.

In closing, I would like to leave you with the following key take aways, which are outlined on slide 15. We are very pleased with our strong first-quarter performance and the progress we are making to improve organic growth and drive margin expansion. We are delivering on our product-focused M&A strategy. Information security remains a top priority at FIS, and we've made substantial progress against our planned enhancements. We remain focused on serving our clients and executing our business strategy. Again, thank you for joining us this morning. I will now turn it over to Mike for the financial report.

Thanks, Gary. I will begin on slide 17 with a summary of our first-quarter results. Revenue increased 4.6% to $1.4 billion in the first quarter. Organic growth, after being normalized for currency, was 5.3%, driven by growth in processing volumes, transaction growth and higher professional services revenue.

First-quarter EBITDA increased 10.3% to $406 million. EBITDA margin expanded 150 basis points to 28.1%, reflecting growth in account processing, payment transactions, disciplined cost management and lower severance and integration costs compared to the first-quarter 2011. Also, as you will recall, the prior-year quarter included a $13 million loss related to the Sunrise platform. In 2012, we are making significant investments to enhance overall security and risk management, as Gary and Frank described earlier. These incremental investments were included in the guidance that we provided at our investor day.

Detail on the operating segments, starting with FSG, begins on slide 18. Financial Solutions Revenue increased 7% to $539 million, compared to the first quarter of 2011, driven by growth in data processing, professional services and global commercial services. Financial solutions EBITDA increased 7.1% to $209 million, compared to $195 million in 2011's first quarter. EBITDA margin increased slightly compared to the prior year.

As shown on slide 19, payment solutions revenue increased 2.6% to $631 million, and increased 4.2%, excluding the check businesses. We're seeing nice growth across our electronic payments businesses, which are partially offset by lower volumes in the check business. Payment solutions EBITDA increased 13.7% to $249 million, compared to $219 million in the first quarter of 2011. EBITDA margin increased 380 basis points to 39.5% in the first quarter of 2012, compared to 35.7% in the first quarter of 2011, due to growth in transaction volumes and an ongoing focus on cost management.

Turning to international on slide 20, international revenue increased 3.2% to $277 million, and grew 7.1% on an organic basis, excluding a $10 million currency headwind. As Gary mentioned, we benefited from strong transaction and services growth in Brazil, as well as growth in Europe, driven primarily by Capco. International EBITDA increased 5.1% to $51 million, compared to $49 million in the prior year quarter. The margin increased 40 basis points to 18.6%. On slide 21, corporate overhead totaled $104 million in the first quarter of 2012. These results exclude approximately $19 million for the accelerated vesting of equity grants and the non-compete payment related to change in Board responsibilities and executive roles. We expect corporate overhead to average approximately $95 million per quarter for the remainder of 2012.

Slide 22 provides a reconciliation of net earnings. First-quarter net earnings from continuing operations increased 17.8%, to $162 million, compared to $138 million in the first quarter of 2011. Earnings per share from continuing operations, as adjusted, increased 22.2% to $0.55 per share compared with $0.45 per share in the first quarter of 2011. Our reported GAAP numbers are adjusted for the after-tax impact of purchase price amortization, $42 million or $0.14 per share. Also, excluded from our adjusted results are after-tax costs of $12 million or $0.04 per share in debt refinancing costs and $12 million or $0.04 per share related to the accelerated equity compensation and non-compete costs that I described earlier. Weighted average shares totaled 295 million in the first quarter of 2012, down from approximately 309 million shares in the first quarter of 2011. The effective tax rate was approximately 34%.

As shown on slide 23, cash flow from operations totaled $204 million in the first quarter of 2012, compared to $260 million in the prior year. The decline was largely due to a final payment of $42 million related to an interest rate swap assumed in the Metavante acquisition. As a reminder, we expect to make a payment of approximately $28 million to our Brazil joint venture partner in the second quarter of 2012. Capital expenditures totaled $65 million in the first quarter, which resulted in free cash flow of $136 million compared to $130 million in the prior-year quarter. Beginning this quarter, we have modified our definition of free cash flow to exclude the impact of net changes in settlement assets and liabilities. These timing differences, associated with the movement of customer funds and our payment business, that generally clear the following day, we believe that excluding these timing differences provides a better measure of our abilities to convert earnings to cash, and is a measurement that we will use going forward.

On slide 24, we have received very positive feedback regarding the strategy that we presented at investor day and are executing to that plan. As illustrated in this slide, we are investing for growth including the $65 million in CapEx that I mentioned earlier. We continue to focus on strengthening the balance sheet. Mandatory debt payments totaled approximately $59 million in the first quarter. Debt outstanding was $4.8 billion, and the weighted average interest rate was 4.7% at quarter-end, as summarized in the appendix. Debt to EBITDA was unchanged at 2.8 times.

In February, our Board approved a 4-fold increase in the dividend to $0.20 per quarter, which resulted in $59 million in shareholder dividends in the first quarter of 2012, compared to $15 million in the first quarter of 2011. We repurchased approximately 3.7 million shares during the first quarter or a total cost of $101 million. Also in February we announced a new $1 billion purchase authorization, and we anticipate executing approximately $250 million in share repurchases on an annual basis.

If you will turn to slide 25, we will provide an overview of our recent debt refinancing. In March we issued an additional $700 million in 10-year unsecured notes at 5%, and used the net proceeds to reduce the term loan B. We also extended the maturities on our term loan A and revolver to 2017 and reduced the spread by 25 basis points. We are making good process towards achieving investment grade credit ratings. In March, Fitch increased our rating to BBB-minus and S&P increased our rating to BB-plus. S&P subsequently revised its outlook for FIS from stable to positive. In summary, the recent actions, first, extended the overall duration by approximately two years, second, reduced the weighted average interest rate to 4.7%, and third, substantially advanced our progress towards achieving an investment grade rating.

Now, turning to slide 26. As Gary and Frank mentioned, as part of our new strategy that we discussed at investor day, we are focusing our M&A activity on buying, building or investing in products to cross-sell across our distribution network. The ICS and the Memento deals, which have a combined purchase price of approximately $40 million, complements our existing risk and compliance products and are part of our strategy to provide end-to-end risk management solutions to our clients. Similar to the small product deals that we have done in the past, we believe these new offerings will pay ongoing dividends for FIS and our clients. We continue to look for opportunities like these to further build out our overall product offerings.

Before I open the line for questions, I will provide a few take-away points from today's overview, as summarized on slide 27. We are encouraged by the strong first-quarter operating results and the progress we are making to achieve our full-year objectives. We take information security very seriously. The additional cost of the investments we are making are included in the guidance as we discussed during our investor day in February. As Gary mentioned, we did not see a significant negative impact on first-quarter results as a result of the regulatory letter.

We continue to communicate with our clients regarding our progress, and are closely monitoring sales activity for any potential future impact. We are executing the business strategy we communicated at investor day, including first of all, driving organic growth and margin expansion. Second, we are making progress in executing our capital allocation plan, including extending the duration of our debt, reducing the weighted average interest rate, and working towards achieving an investment grade rating on our debt. Third, we returned $160 million in cash to shareholders through dividends and share repurchases in the first quarter, and we completed two small product acquisitions aimed at driving future cross sales, which is consistent with the M&A strategy we presented during our investor day. Operator, we can now open the line for questions.

Certainly. (Operator Instructions). First, we'll go to the line of Glenn Greene with Oppenheimer. Please go ahead.

I guess the first question, maybe for Gary, if there's any way to give us a little bit more color on the sales activity and new bookings activity in the quarter, either from a year-over-year, maybe even sequential perspective? Any way to sort of quantify the overall market and how you've been doing?

Yes, Glenn. No, it's a great question. We typically don't disclose what our actual sales details are, but our sales for the quarter were strong. The nice thing about our Company is we've got a very diversified product portfolio so, where we see some maybe lumpiness in international, we see a pickup in global commercial services or if we see a slowdown in other areas, but the quarter we had strong results, they were ahead of what they were in Q1 of last year, and so based on the feedback that we got through our investor show and others, we felt confident about the year. The team is very focused and we are starting to see people talk a lot about coming out of this regulatory issue, this economy and how to get back to growing their financial institutions, and their other businesses we serve.

Any sense of discretionary sort of spending decisions? How it's improved or loosened a bit?

Well, I think it's too early to say. Certainly, as we shared in our prepared remarks, we see some positive trends around spending. Certainly, the increase in conference attendance I think it's an indication that people are getting back out in the market and wanting to start understanding ways they can grow their financial institutions, and as I said, we've got a lot of activity in the sales force.

Okay, and then Mike, on the EBITDA margin up 150 basis points, obviously tracking well above your full-year 40 to 80 basis point expectation, short of how should we think about it? Was there some timing of expenses? Obviously you had the Sunrise grow over, which helped a little bit but not a lot. Maybe just a little bit more color on the 150 basis points relative to the 40-80 guide for the year?

First, I would say we are very pleased with that, with the number, obviously it a good start of the year. It is, for the full year, we're still very comfortable with the expectations we set. The first year, the first quarter year-over-year obviously had -- the comp from last year had Sunrise in it, so if you normalize out Sunrise, we are in the bandwidth that you would expect for the full year. Now, again, when we give expectations we didn't strip Sunrise out, but I think on a quarter-to-quarter it's a little bit more impact. Full year, again, we're pleased with the start. We are particularly pleased, we had a very strong quarter in payments, the work that Gary's team has done to really drive the cost, and then you have a business like that which has a much leverage and the volumes come back, they drop right to the bottom line. So, we are encouraged by that start.

I will leave it at that. I will jump back in. Thank you.

Next we will go to Dave Koning with Robert W. Baird. Please go ahead.

This is Nathan Novak on the line for Dave Koning. Could you expand a little bit on the lumpiness that you are seeing in international? What's causing that? Are you seeing still fairly normalized accounts being added in Brazil?

Yes, Nate, I will take that one. Our international business always has a little lumpiness on the sales side, so I wouldn't read anything into it. We've got actually one of the largest pipelines we've had in international. We had a very strong sales quarter. The reality is, we are going to start seeing a lot of lumpiness, is whether that's more license-oriented or more services-oriented. The first quarter, we had a lot of services-oriented business which obviously we get that revenue over the term of the agreement. Brazil was very strong. I mean, we are continuing to see nice growth in both not only accounts, but also transactions. We are also seeing nice growth in our EBITDA margins as we are bringing on more scale to those environments. So, yes, we are still very bullish on our international markets, and we think will have a good year.

Nate, the only thing I see in Brazil, agreements and strong Capco, Europe is very strong, but we had a very strong fourth quarter in international and sometimes you will see that, where people will flush out their budgets at the end of the year, and starting the next year is little slower. So, again, I think to Gary's point for the full year, we are still very confident about business. The first quarter, with a strong fourth quarter not necessarily unexpected.

Great. Gary, could you expand on any types of impact you are seeing on the NYCE network from Durbin, now that the interchange taken place for a couple quarters now? And the dual brand requirement up for about a month now? Anything specifically you are seeing there?

Honestly, Nate, we are not. We are actually continuing to see very good volumes in our NYCE network, we're seeing nice growth there. It's too early to tell on the Visa pricing changes, they have just recently gone in. But as I shared earlier, with those first two milestones, actually we've seen no impact and that business continues to grow for us very nicely. So, the team has done well executing the selling of NYCE across our financial institutions. We are seeing, just like Mike mentioned, good, strong transaction growth in the first quarter across all of our payments businesses and of course NYCE is going to be the recipient of that, being the network for a lot of those transactions.

Excellent, excellent, good to hear and just housekeeping one for me, you have an assumption on the R&D tax rate credit implied with your 34% tax rate assumption? I mean if that does not get passed, if that does not get renewed, does your tax rate guidance have to change?

Yes. I think we anticipate and plan for -- it's not a huge impact for us, the R&D tax credit, but I would say our team continues to look for other ways to get benefits so, I think we are comfortable with the 34%.

All right, thanks very much. Great quarter.

And next we'll go to David Togut with Evercore Partners. Please go ahead.

Gary, congratulations on your promotion.

Thank you very much, I appreciate that.

Could you sort of walk us through, as you usually do, the unit pricing trends in financial solutions going from community banks to mega banks? Unit pricing and demand trends, and have you seen any change on a quarter-over-quarter basis?

Dave, we really haven't. We watch this very closely. It's a very competitive environment out there. In the community bank markets we continue to see the person with the most broadest, comprehensive solution suite. We see that as a competitive advantage. But, with that being said, as you move up market, you get into more pricing compression and more competitive, because more competitors start coming into the mix.

So honestly, we're not seeing any material change in that. We continue to see good growth in our sales pipeline. We are seeing good results out of our sales engine. The interactions we are having, not only with our clients, but our prospects are all positive. At the end of the day, it's still a competitive market out there. So, we are not seeing any material change.

Have you seen any pickup in spending of the mega banks, just given the increased focus on growth that you highlighted earlier?

We are. Our conversations are increasing in that area as well. As we've shared on prior calls, we certainly, through this economic crisis, are now having conversations with the very large financial institutions that were different prior to the economic collapse. They were much more mono-line engaged, we were seeing where they would do a lot of their services in-house, and so as the result of that, we've seen a very nice increase in our professional services business through the LFI base, and we are also seeing our conversations broaden with regards to the type of solutions we are targeting. So we are very positive on what is going on in LFI.

I think we've shared before, we got a dedicated team in that market, which has helped a lot. Capco has helped a lot as they come in and they are opening a lot of doors so, those moves, the move of Capco, the move of a dedicated sales force, the economic impact of LFIs, the conversations have definitely changed. And I think you are seeing it in the last several quarters in how much our professional services business has been growing. And you will see in the future in our other sales as well.

Thank you very much.

Our next question is from Brett Huff with Stephens. Please go ahead.

Congrats on a nice quarter, guys. One question, can you just go through the security issue again? I know you outlined a pretty nicely but, I'm confused about sort of what triggered the investigation, what the findings were and what the remediation, if there was remediation that needed to occur or is this -- can you just go through that again for us in more detail?

Sure. I will be happy to do that, Brett. We have always taken security at FIS very seriously. As you know, we are regulated by the same government bodies that regulate financial institutions. Our review cycle is every two years, but in the interim year they will have an interim review, and so based on the Sunrise event, management -- we had two different third parties come in and review of our whole enterprise, because frankly, being the largest FinTech provider, we felt if we could be exposed, honestly, anybody could be. And so we realized the significance of this as an industry issue. We realized that we are helping our clients each and every day deal with these situations, so we wanted to bring in two comprehensive third-party reviews. We did that.

As we have shared with you, we are implementing a lot of changes, we think they are all very positive. Some of them around staffing, some of them are around architecture. These are things that you are going to have to have ongoing. As we came through our interim review cycle, the regulatory body agreed that we need to make some changes. They decided to communicate that to our clients. We have been in really constant communication with our clients on this topic. We were very proactive, we've been very transparent about all of these issues. The conversations have been very positive. Our clients appreciate all we are doing. They realize the severity of what is going on in the industry, and they appreciate us stepping up and taking care of these things. So we are continuing to work with the regulatory body as we always have, and we are going to continue to implement our plans, as we discussed at investor day and earlier.

Well we just finished a client conference, and we spent a lot of time with over 1,000 clients. We talk to them on this subject and all, and they just feel really good about the communication we've had with them, the progress we are making, the working relationship we have with them, and so that's going very, very well. We have another client conference coming up soon, and we expect the same results out of that.

That's helpful, thank you. And just one last issue, a little bit on the NYCE network again. Have you had any PIN debit wins, now that the network exclusivity has come into effect? Anything that you can tell us about?

As I mentioned earlier, we have. The sales team has just done an excellent job promoting our NYCE network, not only across our client base, but because other financial institutions that we don't have major core, major debit engagement with. So we have had some NYCE wins, and we continue to see good growth out of that business. We are also excited about some of the innovation that we are doing in that group as well, that we talked a little bit about investor day and there will be more things coming. So all-in-all, we feel very great about that business.

Okay, that's what I needed. Thanks for your time.

And next we'll go to Greg Smith with Sterne Agee. Please go ahead.

Gary, can you talk a little bit about the card processing business in the US? Are you guys moving up market at all? And competing for maybe some larger portfolios with pieces and First Data or are you kind of staying in the smaller end as far as size of institutions?

Greg, it's a good question. We've always had some sizable institutions, especially on our debit card business, and we continue to sell very effectively in that market. Our credit card business, we've got a number of large institutions. We are not seeing as much movement on credit card. Frankly, that's a pretty stable market. The clients we have, we are seeing growth on, and so that business had a good year last year, and we expect to have a good year this year. But, we absolutely believe we have a very, very competitive footprint in credit on the card side. So as we move, if and when that market starts evaluating alternatives we will certainly be positioned to take advantage of that. Of course, that has done very well in our international markets, as highlighted by the Brazil joint venture and some of the other announcements we've made.

Debit, as I said, we've always been strong in what we would consider larger institutions, and we continue to compete and win business there. Our prepaid business also, we can't lose sight of that. We've got a nice balance of prepaid, and we really have two platforms. We have a platform that is focused on community institutions and a platform that is really focused on very, very large issuers, and we have a huge position in that space. So across the board, the sales team I think -- we think continues to do a good job maximizing those opportunities.

Great. And then, Mike, on the two acquisitions, I apologize if I missed this, but have you given the revenue contribution we should expect, and have those deals closed at this point?

They have both closed. We did not share the revenue expectation. I think, again on those deals you can see the magnitude, $40 million in purchase price, they are smaller deals. They are specifically focused on private companies that have -- they are in areas we expect to see a fair amount of growth. You can see risks in compliance, as Gary talked about, is a fairly hot area for the marketplace. And the team there has built a nice strategy, they've identified a comprehensive solution, and these are two things they wanted to go fill in, fill out their product suite. The goal is to get in the relatively early stage and then to grow them aggressively, using our distribution.

Okay so just your standard good product, limited distribution, pump it through your destination channel, grow it dramatically?

Yes, solid products in high demand by our clients, also. Also.

Yes.

Perfect. And then just lastly, as we are looking to model 2Q, just anything special we should think about 2Q relative to 1Q? We've got the normal, seasonal uptick, we expect in your business, but any other items in the year-ago quarter? Anything else we should be thinking about?

The only thing we called out was the cash payment to our JV partner in Brazil, which affected cash flow. But other than that, again I referenced that first quarter was a really strong clean financial result. There wasn't anything unique or of one-time nature in there, real strong performance in payment so we're encouraged by that as we head into the second quarter, but there's nothing second quarter, particularly year-over-year that would be of a nature to call out.

Okay, thanks.

Our next question is from Julio Quinteros with Goldman Sachs. Please go ahead.

Hi, it's actually Roman Leal in for Julio. Thanks for taking my question. First, I wanted to follow-up on the M&A theme. What are some other product sets that you would like to enhance or add to your suite of offerings, or what are some of these other hot topics, hot areas in international solutions?

Roman, this is Gary, I'll start, and then I'm sure the other team, the guys will want to chime in. But at the end of the day, what is nice about our transition to more product-focused acquisition is the business lines are now reaching out and driving through their strategy, a lot of these opportunities. But as we mentioned earlier, risk, fraud and compliance is a very exciting area. You already have seen us do two here. When you start thinking about some of the innovation that is going on around payments, innovation that's going on around mobile, there is some exciting concepts around that. So it's really based on our client demand. So as we talked about, when we were at our last conference, one of the great things is really getting that feedback from our clients. And we want these product acquisitions not only to be geared toward what are business lines want to see the growth, but also where our clients want us to take them. It's a real nice mix across risk, across payments, across delivery, we've got some opportunities that we think would help grow some of our international businesses, so along those lines.

Roman, as we look at it, we just step back, we listen carefully to our clients. So we may decide to build to our investment, as you know, for the future of our clients, or if in fact, the right thing is to acquire, that is what we'll do. But it's always by listening to what the clients needs are.

Okay. And I was slightly surprise in your commentary about the lack of activity in credit. Was that comment more specifically related to the large banks, are you seeing that in large financial institutions, or is that across the board?

Yes, that was dealing specifically on credit card new sales. I thought that was the question. Obviously, there is a lot of strong demand among some of the credit offerings on lending, consumer, commercial, especially small business, seeing a lot of activity in that area. So, I was directing the comment strictly towards credit card sales in the large bank market, and we haven't seen much movement in that area in recent years, where people are moving from one solution to another. But, we do have a very, very competitive platform for credit card processing and actually have some large institutions.

Great. And just one last one on the international side. Can you just give any, anything you want to share in the pipeline, how strong that looks versus a year ago?

Well, the pipeline is very strong. We had a good quarter. As I said, it is always hard to predict, because we have a higher percentage in international of license fees, more software sales. So, that is what gets some of the lumpiness in the quarters. We had a good, strong quarter in sales. We've got a good, strong pipeline, we feel good about our double-digit growth going into the year, and so we feel good about it.

Our next question is from the line of Tien-Tsin Huang with JPMorgan. Please go ahead.

Great, good morning. I want to ask about Europe. Some of the IT services firms have been talking about some of the European firms being more open to outsourcing. I'm curious if you're seeing that at all and if so, would the newer deals change in the way of mix shift between license sales to maybe more traditional processing or would you look to take over assets? I'm just curious what is happening on the ground, because it seems like a lot is changing.

We are still fairly bullish on Europe, notwithstanding the challenges that the economies have as well, as the FIs. We've seen the discretionary spend, particularly around Capco continue to be very strong. So, we look at that, when institutions are spending on professional services, that's an indication that they are using discretionary dollars. Those are typically the first things they cut back on, and as we referenced that, a very strong quarter in that area. But, we would agree with that sentiment, that as the European banks continue to add pressure and financial pressures and have to look at ways to cut costs, and do things differently, they will be more open to outsourcing, more open using a leverage model. We've seen that in our FIS and Capco teams working jointly over in Europe, sourcing a lot of opportunities. We haven't seen a lot -- we've got a couple of relationships over there that we've had that are outsourced. I would say the pipeline in activity is very active. We would like to see some of those hit, but we think those institutions have to reconsider the model, look more out externally and look at a leveraged provider like FIS.

We strongly believe that's the case, and what makes us feel good is we are well-positioned for it as Mike just talked about, both for our current offerings and with the addition of Capco and the capabilities they have.

Good. It sound like that's the case. And on the Sunrise issue, just to clarify, I know there's been a lot of questions on that now. Could this have any impact on your client prospecting? I mean I get that there's going to be more cost and things to deal with but just on the prospecting side, how is that going to change?

Well, at this point in time we haven't seen any change in that. I mean, as far as the costs, we had it built into our guidance for the full year, we've talked about that. We think you are going to have to have an ongoing diligence to these types of issues going forward, but as we mentioned, we had a very large conference last week. We had a lot of prospects there, the engagement was very, very strong. And so as I said the pipeline indicators, the sales results for Q1, we are confident in the year.

I think, the reality is, institutions, they have to ask questions, they have to follow up as part of their vendor management plan. They are doing that. Our teams have to be more active, communicating, as Frank and Gary both talked about we are out, very transparent, proactive with them on the issue, and then more importantly, what we are doing. There is good and bad, and it's a lot of work, a lot more communication that we have to do, the sales teams have to work a lot harder. The good thing is we get in front of those clients and get in front of the executive more frequent late than we otherwise would. And as Gary mentioned, those conversations, you spend a portion of the conversation explaining what we're doing, and spend a portion of the conversation talking about what else we can do for you. So, but it is more work, it is hard work, and we've got to keep hammering through that, throughout the year.

And what you see is course of business, things we have to do and we will continue to do.

Got it. Got it, sorry you have to deal with it. The last one, and then I will jump off. I've got a lot of questions on Durbin, too. I know the Visa pricing strategy looks pretty aggressive to win the merchant business. I'm curious at a high level without giving details, what else can you do beyond cutting price to protect your base? I mean is there a chance of maybe bundle more network services with your quarter? I'm just curious if there's other creative ways to sort of deal with that situation?

That's exactly what we are doing. We have had great growth in that business over the last year, and we are doing a lot of bundling today. We bundled it with their debit offerings, we bundled with our core offerings, we are doing some innovation or self across that, that we are talking to clients about. And so, as I have said, we've monitored it very close, because I think this question has come up on a number of calls and as you would expect, we don't know what the impact of some of these things are going to be, you just have to monitor it. But, so far, we've actually seen no impact through this process. And at the end of the day, it still comes back to offering the most comprehensive solution you can in the market. And, those things work to our advantage given the fact that we have that.

Great, I appreciate that. Good quarter, and congrats, Gary on the promotion as well.

Thank you.

Next, we go to Ashwin Shirvaikar with Citi. Please go ahead.

Good quarter. I guess my first question is the trend towards outsourcing increasing, that's obviously good news. You said the pipeline as strong a couple of times. I wanted to ask more about, if there is anything in the pipeline that's different in terms of size or complexity or margin profile? Or pretty much a normal looking pipeline?

We have a good solid pipeline across all of our markets. I will tell you we are seeing, back to our outsourcing, we're seeing stronger demand in global commercial services that what we've seen in the past. Once again, I think that's just our ability to leverage our scale on an outsourcing basis. So, that's a positive. Our focus with Capco in the LFI space is starting to produce results as well. That's driving more services businesses. And, that will truly trend over time to more outsourcing as well. So, we feel good about all of the segments. The companies have come together very cleanly, we've got a very focused sales engine, and the moves we feel we have made in the last year are starting to pay benefits across all those segment

Okay. And I can understand the beneficial EBITDA grow-over related to the Sunrise event last year. But, your revenue growth also is above range, and that guidance has not changed. Is that just being conservative with the outlook or is it anything in the timing of upcoming conversions?

No. I mean, we were just slightly over 5, our range was 3 to 5, we had a great start to the year. I mean, we will see how we do second, third quarter. But it's early in the year. We were very excited about the strong start, as you referenced, both revenue and earnings. We'd rather start this way obviously then be having the other discussion. But it's a great start. It is in the band width we expect.

Got it. And the other expense of I think $20.9 million, what's in there? I apologize if you've already addressed that one.

There's two things. One was refinancing costs where we issued the bonds, $7 million of 5% bonds, and then we redid our bank facility, our TLA and our revolver, and that's just financing debt or financing costs.

Okay, that's one-time in nature?

Absolutely.

Okay. Last, I guess the Capco, can you just remind me of when the large client loss will happen, or has that already happened?

There was first and second quarter last year, they had the revenue so it started hitting in the third quarter so right now is the peak of where they had strong numbers last year that we're hitting, and they are doing a nice job.

We're very pleased, this is Frank, on the Capco front, both on the European side and North America.

Great. Good quarter guys, thank you.

And next we go to Kartik Mehta with Northcoast Research. Please go ahead.

Just trying to understand maybe where bank spending is today versus it was last year. We've done a really good job, you look at the organic growth this quarter and it was very strong. And I am trying to parse out execution versus market. I know this is a difficult question, but, any thoughts on where maybe the market is growing, relative to how you are doing?

Well, if you break it up and kind of the things we talked about, professional services continues to be very strong. We like that as an indicator that banks are spending discretionary dollars again. With the market went down, it went down fast, professional services went away quickly. So, we continue to see strength in that, which is an indication that banks are looking forward, doing projects, spending money. Payments, as you can see strong, pretty good organic, adjusted for organic growth if you strip out the paper north of 4% which is pretty strong compared to last two quarters. Importantly, the profit is there so we think that volumes coming back. And then again Europe has continued to do quite well. Again, the market that the economy and banks are challenged, but we think that is forcing change in forcing spending with companies like us. So I think it's probably the same message we've had the last couple of years, steady, incremental improvement we don't expect it to take a big jump at any point but we are encouraged that it continues to move forward.

Yes, to build on that, if you look at our sales success throughout 2011, obviously we've had good, steady execution from our business lines implementing those sales. Obviously, more outsourcing engagements take time to go through the implementation, and there is a lag effect as these sales come online, and so we continue to see good movement in our sales engine, and as Mike said that services engine, and all that continues to positive, good steady growth.

And then just Gary, on the payment side, we see all that national banks offering mobile banking and wanting some of the other products. As far as community and regional banks are you seeing the same type of demand for other products on the payment side as well? Or are they still being a little cautious on wanting to spend money on kind of ancillary products in that area?

Not at all. We're seeing strong demand across all of our markets in the US around mobile, around which we have a full solution set around our mobile, not only payments but also mobile banking. We are seeing strong demand around some of the innovative products around payment wallets, et cetera, and all of those things we're well-positioned on. So, the community markets are starting, as we've shared in the past, there were really two types of institutions. There were institutions that were hanging on, and there were institutions that had worked through their either their regulatory challenges and/or their economic challenges, and they were looking to spend. And naturally, they are looking at some of the new innovation coming online to help them compete. So because they're a small institution, that doesn't eliminate their need to compete with the large institutions. And so, we are seeing good demand there.

Thank you very much.

Our next question is from Peter Heckmann with Avondale Partners. Please go ahead.

Can you talk about again, with this letter from the regulatory bodies. You had talked about it being distributed to clients. Some of the media reports I read indicated it was distributed to all domestic and credit unions, is that correct?

Well, we actually don't know. You would have to ask the regulatory agencies around who they sent it to. We believe most of our clients got, we have not been contacted by all of our clients. We are proactively sent out letters to our clients talking about this, so based on interaction we have, we can't confirm that every single client we have has actually received the letter, and certainly we don't know if all FIs have received that letter.

And I guess the implication, while it's a confidential letter, some of the language indicated, I guess what I inferred was that the regulators were unhappy with the speed of your response to the October letter. Is that an accurate assessment?

Well, I would actually say no, it was probably slightly different. Again, to put it in the context that we had a breach a year ago, a little over a year ago, we discussed our breach, we have notified all of the clients impacted, we were the only ones that had a financial loss, we talked about it on our call. And as Gary said, we took numerous steps, because as good as you think you are in security, once you have a breach, you realize you have to get better.

Exactly.

So, we hired two different outside firms, we spent money and focused on improving the security throughout 2011. The regulators came in as part of the normal process to come in and do an interim review in the fall of last year. They referenced to something they had recommended we do, organizationally. We had looked at that, we had done that, but the reference we would like you have was really recording sector site was so they suggested we do it. Again, we complied with that at this point. We hadn't done it in October, because we had been very focused on addressing and improving security up to that point.

Okay. And then moving over to the discontinued operations and item processing. Going about two years since you put that in just discontinued operations. What do you think is the eventual outcome there? Is that something you might see wind down in the near future?

Yes. Well, that's the Brazilian BPO, we call it or Brazilian item processing, and actually, the back office lockbox down in Brazil. That business is effectively shut down. We are working to a labor claim down there, so it's employee claims that are just driving the cost. But the business itself, we divested some, the client took pieces back in house and we shut others down. But the business operations are effectively shut down, we're simply dealing with claims out of the labor dispute.

In the labor rules in Brazil take typically about three years to work through, so it's a fairly long process in Brazil. And as Mike said, we're just working through that as normal course.

Okay, that's helpful, thank you.

And we'll go to Dan Perlin with RBC Capital Markets. Please go ahead.

So I just wanted to try and reconcile some commentary around the international business. You talk about being lumpy, but then you've got a mix towards services, so I would -- it seems like it's pretty positive. I'm wondering, if we think about pulling Capco into that equation and the mandates or the discussions that you are having, is the conviction that you have with those discussions and Capco that are giving you the confidence that the international can get to the long-term number that you gave for the full-year guide, or do you see mandates in software that we can't see from here that are also giving you that conviction? I'm just trying to see if they tie together at all?

Dan, we look at international holistically including Capco, and consulting is growing very nicely in the European market. But our overall business on software and services is growing very nicely as well. So, frankly what gives us confidence is looking at the joint pipeline of both, and we are seeing strong demand, and we're having a lot of strong sales conversations today across both not only consulting but also professional services, as Mike mentioned, as also software sales as indicated of TouchPoint success in Thailand this quarter.

So, it's really just looking at the pipeline, looking at how the sales teams are executing across the board, looking at our volumes growth. It actually is positive that we are seeing more swing towards more outsourcing and more services because that does give a much more stable base and easier to predict. But, as you can see in that business, if a license fee slides from one quarter to the next, it can provide a lumpiness. So, we're very confident in our double-digit growth for international, and that's all based on the combined pipelines of all of our businesses.

Okay. And, just not to beat this thing to death but with Capco, are you -- I'm just trying to think through the mandates that you would expect. Part of the reason you got this thing was you have a much higher level discussion, and it sounds like you're having those. So are these more holistic mandates that you are having at these discussion levels, or are they still kind of piece-mealing these things together?

Not at all. We're having some very, very broad discussions with a lot of our clients, very holistically, on how to materially transform these institutions and allow them to be on a much more competitive basis. And I would tell you those conversations have very strong. As you would expect, these are big, conflicts deals. And we continue to work through them, but level of conversation we are having is exactly what we expected. We have had some success as well along those lines, and so we believe that the fundamental reason why we bought Capco still exists today, to drive broader conversations in the LFI market space in both Europe and North America and so we feel confident.

Dan, that is working for us, and as we look at capital, we look at it 2-fold, one is the visibility and exposure it gives us at very senior level into all institutions globally in conjunction with FIS, and secondly, don't forget Capco has its own independent plans in what it is doing as a business that we're very pleased with as we are going forward, so on both fronts, we're feeling good about it.

It sounds like it's been a good asset for you guys. On the payment of margin being so much shorter, trying to balance how much of that should we be thinking is really volumes coming back, relative to cost take-out? Because I am just wondering, if it is cost take-out, is that something that we could see accelerate in terms of margin expansion on top of the year, almost equal in volumes?

As we shared at investor day, we took some strong initiatives to address our cost. Third and fourth quarter we are seeing the results of that. We're also seeing good, strong transaction volumes as well, and you're seeing the leverage that comes out of a business like that. So we're very confident in the payments business, we're very pleased with the leadership we have there and what the result of that business is showing. We don't believe that the transaction volumes that you're seeing is going to require us to put those costs back in. I think it was a more -- we made some changes to more effectively optimize those businesses, and so it shows not only the leverage of our operating model, which we talked about at investor day, but also the leverage of our revenue model, as additional growth comes on.

I think, Dan just kind of seeing the numbers in terms of the overall revenue growth versus the earnings just on a dollar, so -- the simple lever is those businesses have a high degree of leverage, and so that incremental dollar revenue coming on --

Not very high margin.

Not a good margin. And so, the paper revenue is going away, as you can see. And the team has done a phenomenal job of managing profitability in the paper business, even as some of that revenue declines. But then, the electronic transactions are coming on board and that is driving very high margin for us, so it's electronic business coming on board, with the cost management driving very good profit.

Yes, incremental margins are really good. So, while thank you. Good quarter.

Thanks. I think we have one person waiting.

That will be Bryan Keane with Deutsche Bank. Please go ahead.

The financial segment, that's what surprised me the most this quarter. I think third-quarter maybe it was up 1%, fourth quarter maybe up 2%, now up 7%. I just want to be sure, what's driving that acceleration, and how sustainable is that?

Well, Bryan it's a good question. Once again, sounds like a broken record, but we are kind of seeing it across all segments. We are having good growth in professional services, which is really hitting our financial institution business there. We are also seeing nice processing wins all throughout last year, so we're seeing onboarding there. We are seeing global commercial services, which rolls into that business, we've seen some very nice uptick of IT outsourcing for a number of existing customers and expansion of those responsibilities, and then the final area is we are seeing Capco come through their grow over with their loss of that significant client. So really all three of those areas are working very well to help with the revenue. Based on what we see in our pipeline, based on our activities, we feel good about that business going forward. Or that segment going forward.

Bryan, I think we talked about this in the third and fourth-quarter calls, the third and fourth quarter have very challenging grow-overs, license businesses, license deals that we had in 2010 that didn't materialize in 2011, big license deals. And so I think even on third and fourth quarter, when the growth wasn't as strong as we would like to see, we talked about not being concerned, but that was more of a grow over challenge. You can see that bouncing back in first quarter, so, again we are pleased with the started the year really across-the-board.

Okay. And can you quantify the increase you saw year-over-year in license sales and professional services?

In first quarter, you're talking about? The grow over, the third and fourth quarter is a challenge in license, that we had, which took the growth down. First quarter, professional services was 11% growth year-over-year. I don't think first-quarter license was materially different than last year, but again it was more that the third and fourth quarter have a drop in license versus 2010, that made those growth numbers lower.

Okay, great, solid quarter. Thanks, guys.

Thanks, and we're out of time this morning. Thank you by much for joining us, we appreciate your participation.

Ladies and gentlemen that does conclude your conference. You may now disconnect.