Fidelity National Information Services Inc (FIS) 2012 Q3 法說會逐字稿

Ladies and gentlemen, thank you very much for standing by. Welcome to today's FIS third-quarter earnings conference call. At this time, all participants are in a listen-only mode. Later we will conduct a question-and-answer session with instructions given at that time. (Operator Instructions).

As a reminder, today's conference is being recorded, and I would now like to turn the conference over to our host today Senior Vice President, Investor Relations, Ms. Mary Waggoner. Please go ahead, ma'am.

Thank you Dave. We'd like to welcome everyone joining us this afternoon for the third quarter earnings report. With me today are Frank Martire, Chairman and Chief Executive Officer; Gary Norcross, President and Chief Operating Officer; and Mike Hayford, Chief Financial Officer.

Before we get started, I would like to ask you to please mark your calendars for our 2013 investor day which is scheduled for Tuesday, February 12 in New York. Similar to our 2012 event, we will begin the day with a discussion of our fourth-quarter and full-year results followed by the business outlook and financial guidance for 2013. We look forward to seeing you there.

Now on to the third-quarter earnings report. Today's news release and supplemental slide presentation have been posted to our website at fisglobal.com. A replay of today's presentation will be available shortly after the call.

Please refer to the Safe Harbor language on slide 3 of the presentation. Today's discussion will contain forward-looking statements. These statements are subject to risks and uncertainties as described in the press release and other filings with the SEC. The Company undertakes no obligation to update any forward-looking statements whether as a result of new information, future events or otherwise, except as required by law.

As a reminder, we will focus on results from continuing operations reflecting the reclassification of our healthcare business as a discontinued operation. Also included in discontinued operations are expenses related to our former BPO operations in Brazil.

Please turn to slide 4. Our commentary 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 press release and the supplemental slide presentation. Now if you'll turn to slide 6, I will turn the call over to Frank Martire. Frank?

Thanks, Mary. Good afternoon, everyone, and thank you for joining us on today's call. I'll begin today's business review with a brief summary of our financial performance and business highlights for the third quarter. Gary will follow with the operations report and Mike will provide additional insight into our financial performance and our outlook for the remainder of the year.

Our third quarter results were very strong, including organic revenue which grew 5%. We are consistently delivering on our strategic commitments to maximize performance through organic revenue growth, margin expansion and returning cash to shareholders. As we move away from acquiring and integrating large companies, our results underscore that our change in strategy is working.

As shown on slide 7, organic growth has rebounded nicely since 2009, fueled by strong sales execution and the ongoing market recovery. As you can see on the right, we have maintained our momentum and consistently delivered organic growth of 5% or higher in 7 of the last 8 quarters.

Turn to slide 8. We are achieving the financial targets that we communicated earlier this year. They included organic revenue growth of 3% to 5%, EBITDA growth of 5% to 7%, margin expansion of 40 to 80 basis points and double-digit growth in earnings per share. Through the first nine months of 2012, besides generating 5% organic revenue growth, we registered a 7% rise in EBITDA, expanded the margin by 90 basis points and increased earnings per share by 15%. These results position us very well to achieve our goals for the year.

Additionally, our strong cash flow and disciplined capital management enabled us to return $427 million to our shareholders in the form of dividends and shareholder repurchases through the first nine months of the year.

Now on slide 9, our strong third-quarter performance reflected 12% organic growth in our international business and 7% organic growth in Financial Solutions. The EBITDA margin was 30.8% and adjusted earnings per share increased to $0.63 from $0.60 in the prior year. In mid-August, we completed the previously announced sale of our healthcare business which is aligned with our primary focus to serve financial institutions and operate in markets where we have meaningful scale. Mike will provide additional details regarding this transaction later on the call.

Continue with slide 10. I will highlight a few additional accomplishments. Long-standing client relationships that grow over time serve as the foundation of our business. Earlier today, we announced the completion of a new and expanded five-year agreement with BMO Harris. FIS and BMO Harris have maintained an excellent relationship for many years and we are pleased to continue our strategic partnership. We will provide more detail on the new agreement later on the call.

In addition last week, Gary and I met with the most senior executives from Bank of Montreal. The discussion was positive and we are very optimistic that we will have opportunities to further grow our relationship with Bank of Montreal.

We continue to invest for growth with a strong focus on innovation, including supporting American Express on this new Bluebird initiative. We're also focused on increasing our footprint in high potential markets, including India, where we are significantly expanding our existing ATM operations.

Market leadership serves as a guiding principle of our Company, and we are very proud to again rank number one on the FinTech 100. Our success is a result of a deliberate strategy that enables our clients to achieve success by providing them with industry-leading solutions and thought leadership; leverage our size and global scale to deliver cost-effective solutions; continually fosters innovation by developing or acquiring new products and services in addition to integrating our existing solutions; and a strategy that is reinforced by higher hiring and retaining the most talented employees in the industry. Our top ranking serves as a testament to the ongoing confidence that our clients have in us and it validates our winning strategy.

Overall, I'm very pleased with our continued strong performance. We are confident we will deliver on the near- and long-term financial objectives we communicated in February. As always, we remain steadfast in our commitment to serve our clients well and drive higher value for our shareholders.

Now I'll turn the call over to Gary for the business report, Gary?

Thank you, Frank, and thanks to everyone for being with us today. FIS is building the future of financial services and our latest quarterly performance substantiates our continued role leading the industry. As Frank mentioned, we recorded another very strong quarter for our Company. The current results continue to build on our solid operational performance across all financial metrics. My presentation will focus on three main highlights. First, I will cover our revenue accomplishments with emphasis on our strong year-to-date global sales performance and our third quarter rebound in sales to North American financial institutions specifically.

Next, I'll provide an update on where we are expanding our value propositions and investing for growth, emphasizing new solution innovation and providing client examples of continued demand for our integrated solutions.

Last, I will provide a greater understanding of our new five-year agreement with BMO Harris which will continue to be a top-five revenue client for us. This agreement virtually eliminates the negative EBITDA impact in 2013.

Please turn to slide 12 to begin my review where I will start with a review of our sales performance. Our global sales performance continues its solid year-to-date growth. We saw strong year-over-year and sequential increases in total contract value where we are up 30% year-to-date. These new wins will drive future revenue growth for our Company.

This sales expansion signifies that overall investment spending continues to improve as our clients focus on driving greater efficiency and adapting their business models to align with the evolving paradigm shift in banking. We're seeing an ongoing shift towards outsourced services and integrated solutions for more traditional single-product purchases.

Overall, we feel good about the strength of the total global sales pipeline and expect new contract value in 2012 to exceed our 2011 results. I will continue with North America on slide 13.

As expected, we registered a strong rebound in new sales to North American financial institutions in the third quarter from the second period, and sales also increased year over year. We have a robust pipeline heading into the fourth quarter and we feel good about our continued sales success for the remainder of the year.

Continuing in my sales performance review, slide 14 provides an update on our international business. During the quarter, we closed significant sales outside of North America where larger opportunities are developing for payments, software and outsourced services. Organic revenue growth in our international business accelerated to 12% in the third quarter driven by solid results in all major regions.

In emerging markets, growth continues to outpace that of Europe and North America. For example, when you exclude currency, revenue grew 14% in Brazil propelled by higher card volumes and more favorable pricing. While growth in Europe is less robust than in emerging markets, our European business continues to perform very well. Challenging market conditions are driving strong demand for Capco's consulting services as clients seek to improve overall performance. And on the professional services front, we continue to see strong demand, especially for core banking platform enhancements throughout the region.

Turning to Asia, which is an important market for our international strategy, we continue to pursue many opportunities. We recently added our first ATM switching client in Thailand where a majority of the top banks run on an FIS core solution, and we also added our first core processing client in Vietnam.

In August, we announced a significant expansion of our footprint in India. Over the next two years, we will increase the number of ATMs that we support in India to more than 9000. For the next seven years, we'll also provide ongoing outsourced services, including supplies, setup and ATM operations. This is a tremendous win for FIS which once at full scale is expected to generate nearly $100 million in additional revenue per year at a margin that is accretive to our international business.

All in all, I'm very pleased with our third quarter sales performance in both North America and our international markets and am encouraged by a robust pipeline heading into our final quarter of the year.

Switching topics, I will continue on slide 15 with an overview of a few selected business expansion initiatives which emphasize our new solution innovation and demand for our integrated solution offerings.

Financial institutions continue to concentrate on replacing lost fee income in identifying new efficiencies. This is driving demand for a broader set of circumstances that include outsourced technology, business process services and consulting expertise. We also are seeing strong interest in mobile access and delivery, new payment technologies and regulatory compliance. Consequently, we're expanding our investments in these areas to meet the growing demand.

For example, we continue to focus on solution innovation and higher growth areas, expanding our offerings and capabilities in such areas as mobile and real-time payment solutions. As a result, we have experienced a significant increase in our mobile banking client base in 2012 with the launch of our tablet and mobile wallet and business mobile banking offerings. Nearly 450 financial institutions and 3 million consumers now use mobile solutions powered by FIS. This represents increases of 150% and 200%, respectively, in 2012. And we expect growth to remain strong as consumer adoptions and our sales momentum continues.

Additionally, we recently launched PayNet, the industry's first real-time non-card-based global payments network. It enables instant authorization of payment transactions in seconds or less; expediting payments for e-commerce, P2P, bill pay, mobile and emerging digital payments.

PayNet supports our strategy to remain at the forefront of real-time and global movement of money and serves as a great example of our ability to leverage existing capabilities and global scale, including the NYCE network. This broad market presence combined with new capability enables us to continue to drive new, innovative solutions for our clients.

PayNet is currently in pilot with the 145 financial institutions and we will be working with additional clients to increase network participation and market share throughout 2013.

Also exemplifying our solution innovation is our very exciting announcement that we've been selected by American Express to support certain components of its new Bluebird initiative, as Frank mentioned earlier. Our innovative mobile solutions lets consumers use their smart phones to scan a check and load funds into their Bluebird account, limiting fraud by leveraging our analytics and payment guaranteed technologies.

For these and other industry-changing offers, FIS continues to be the partner of choice where depth of experience, proven solution capability and delivery innovation intersect, providing clients an unmatched breadth and depth of global capability.

Further reflecting our strategy to supplement organic growth through small acquisitions, we recently acquired ProNet Solutions, expanding our outsourcing and advisory capabilities. This provider of managed IT solutions for banks complements our leveraged outsourcing capabilities. ProNet also offers a proprietary information management tracking system which further expands our regulatory compliance and advisory product suite. These new capabilities allow us to leverage our existing client base and unified sales force to drive higher cross-sales. Early sales results have been positive since the acquisition.

Continuing the overview of our business expansion opportunities, I will highlight new examples for our integrated solution offering. Over the years, FIS has made substantial investments to develop and integrate a full array of industry-leading solutions across every transaction and touch point within a financial commerce. These bundled solutions reduce the number of systems that our clients have to manage and enable them to deliver a more seamless experience to their customers at a lower cost.

FIS core banking solutions were recently recognized by ITAGroup for leadership in feature functionality, vendor experience, as well as ease of integration. These attributes enable a strong selling proposition and help to drive client demand.

In August, we announced that Bremer Financial, an $8 billion holding company, selected FIS as its core technology partner. As a part of their implementation, the bank will deploy additional FIS solutions, including item processing and imaging, treasury and cash management, ACH, branch automation and analytics. The tight integration of these components with our core platform, together with our ability to support the bank's growth strategy were key factors in the selection of FIS as its new core banking provider

Also during the quarter, we announced that Barclays has deployed our core banking solution to support the launch of its direct bank in the US. And we are pleased to report that Capital One also has expanded their relationship with FIS as the go-forward partner for its new direct bank.

These are just a few examples of where our solution integration and industry-leading technology helped us drive growth.

Next, if you'll turn to slide 16, I'm very pleased to share with you today an update on BMO Harris and our new five-year agreement which virtually eliminates the negative EBITDA impact in 2013 that we discussed last quarter.

We're also making good progress towards replacing some of the lost M&I revenue through a broader relationship with Bank of Montreal and other news sales wins.

In early October, we completed the migration of the legacy M&I accounts to the BMO Harris in-house platform and, as we announced this morning, FIS will continue as the bank's partner. In addition to extension of the core application management agreement, we also expect to provide additional IT professional services on an annual basis. Further, we will continue providing a number of ancillary solutions to the bank, such as EFT, online bill pay, institutional wealth management services, image and output solutions and mobile banking, all on an outsourced basis.

We're very pleased with our relationship with BMO Harris is progressing and we consider the new agreement which solidifies BMO Harris as a top five revenue client to be a great outcome for FIS and the bank. Mike will provide a financial overview of the new agreement later on the call.

In closing, let me leave you with the following key take-aways outlined on slide 17. First, we're delivering on our plan to drive profitable revenue growth and margin expansion as evidenced by our strong global performance through the first nine months of the year. We're encouraged with the rebound in North American financial institution sales in the third quarter as well as the continued strength of our global sales through the first nine months of the year. We also are very pleased with the strength of our pipeline as we head into the end of the year. The extension of BMO Harris is an important milestone for 2012 and puts us in a strong position to deliver on the remainder of the year, and we remain optimistic about the opportunity to further expand our relationship in the future.

We feel extremely good about our strong competitive position as we continue to invest for growth. We remain focused on generating new sales and driving value to our clients through solution and service innovation and integrated delivery of our deep and broad global offering. These healthy results demonstrate our ongoing success as we continue to build on our consecutive quarters of strong operational performance. Again, thank you for joining us this afternoon. I'll now turn it over to Mike for the financial report.

Thanks, Gary. I will continue the presentation with slide 19.

Consolidated revenue increased 2.8% to $1.437 billion in the third quarter. After normalizing for the impacts of acquisitions and currency, organic growth was 5% driven by 7% growth in Financial Solutions and 12% growth in International.

Third-quarter EBITDA increased 2.8% to $442 million. The EBITDA margin was 30.8% which is comparable to the third quarter of 2011. As we discussed at the February investor day, in 2012 we are reinvesting some of our underlying margin improvements back into infrastructure and security. These investments are timed more heavily in the back half of the year, including information security spending which negatively impacted the margin by 120 basis in the third quarter.

The operating segments start on slide 20 with FSG. Financial Solutions revenue increased 8.1% to $566 million and grew 7% organically, driven by growth in account processing, consulting and services revenue. Financial Solutions EBITDA totaled $224 million which is comparable to the 2011 quarter. The EBITDA margin was 39.7% compared to 42.8% in the prior year. The decline is primarily attributable to increased investments in information security and a change in revenue mix.

On slide 21, Payment Solutions revenue totaled $576 million in the third quarter which is comparable to the third quarter of 2011. Consistent with prior years, Payments revenue declined sequentially due primarily to peak tax processing revenue in the second quarter. Growth within our Payments business was negatively impacted by approximately 90 basis points relative to the third quarter of 2011 due to the de-conversion of a large former eFunds debit issuing client that we referenced on our second-quarter call.

Excluding the check businesses, Payments revenue increased approximately 2% driven by continued growth in electronic payments, including the NYCE PIN debit network which grew 11% compared to the third quarter of 2011.

Payment Solutions EBITDA increased 6.1% to $235 million. The EBITDA margin increased 230 basis points to 40.7%, reflecting ongoing expense management. As a reminder, we are facing a difficult comparison in our Payments business in the fourth quarter due primarily to higher revenue growth and margin expansion in the fourth quarter of last year. For the full year 2012, we expect revenue within our Payments business to be comparable to 2011 revenue with strong margin expansion.

Turning to International on slide 22, International revenues declined 0.7% on a reported basis. Organic growth was 11.9% in the third quarter excluding the $38 million of currency impact. The increase was driven by growth across all regions, our Brazilian card operations, Capco's European consulting practice and Asia.

International EBITDA increased 6.6% to $71 million. The margin improved 170 basis points to 24.7% compared to 22.5% in the prior year due to greater scale and leverage as this business continues to grow.

Turn to slide 23, I'll summarize the financial impact of the M&I core migration project and our ongoing relationship with BMO Harris. On our last call, we sure that we anticipated a $60 million annual run rate EBITDA impact related to M&I migration and that the termination fees would offset approximately half of that impact in 2013. With the signing of the new agreement, we now expect that the negative EBITDA impact in 2013 will be virtually eliminated by, first, a $40 million one-time termination and settlement fees; second, additional professional services we expect to provide to BMO as part of this new agreement; and lastly, we are in the process of finalizing additional deals that will provide approximately $10 million in new recurring EBITDA for FIS.

Similar to the process we file during every planning cycle to manage the impact of client losses through market consolidation, we're working aggressively to eliminate the impact of the M&I migration beyond 2013. The Bremer bank win that Gary referenced earlier and our ongoing discussions the Bank of Montreal are good first steps towards achieving that goal.

Please turn to slide 24 for a reconciliation of net earnings. GAAP net earnings from continuing operations totaled $148 million in the third quarter. Adding back the $40 million in after-tax purchase amortization results in adjusted earnings from continuing operations of $188 million. Weighted average shares totaled 298 million in the third quarter of 2012 compared to 307 million in third quarter of 2011. Adjusted earnings per share from continuing operations increased 5% to $0.63 compared to $0.60 in the third quarter of 2011. Last year's number included $0.04 of benefit from tax due to some favorable tax outcomes in the third quarter of 2011.

The impact of foreign currency on earnings per share was nonmaterial due to our natural hedging by region and the lower cost of our Indian captive.

As we expected, the effective tax rate increased to 34% in the third quarter of 2012 compared to 29% in the second quarter of 2012 and 30% in the prior-year quarter. The effective tax rates in the prior periods were reduced by favorable resolution of certain tax provisions taken by the Company. We continue to anticipate a full-year tax rate of 33% in 2012.

On slide 25, cash flow from operations totaled $255 million in the third quarter of 2012 with capital expenditures totaling $71 million resulting in free cash flow of $193 million for the quarter.

Next I will provide an overview of our sale of our healthcare business on slide 26. The sale was completed on August 15 in an all-cash transaction valued at approximately $335 million with net proceeds of approximately $220 million after tax. We recognized an after-tax GAAP loss of $56 million related to the sale, which is included in the discontinued operations. Consistent with our capital allocation strategy and the terms of our credit agreement, the after-tax proceeds will be used to reinvest in the business although these proceeds from the healthcare divestiture will provide us with greater flexibility regarding the use of operating cash, including potential additional share repurchases.

Slide 27 -- on February 14, we outlined our capital allocation strategy that focused on three specific areas, namely investing in our business, strengthening the balance sheet and returning cash to shareholders. We continue to execute on that plan. Gary provided several examples of where we're investing to expand our solution suite new product development and tuck-in acquisitions that leverage our existing capabilities and global distribution channels. On September 30, we completed the ProNet transaction for approximately $24 million in cash. In 2012, we have completed a total of three acquisitions at a combined cost of less than $70 million. The nature and size of these deals clearly reflect a strategic shift in our M&A focus.

We continue to strengthen the balance sheet and are working towards our goal to obtain investment-grade rating. Total debt outstanding declined by $332 million in the quarter to $4.5 billion. The weighted average interest rate was 4.7% as of September 30 and debt to EBITDA improved to 2.6 times at quarter end.

In February, we also aligned our plan to return excess cash to shareholders to a fourfold increase in the dividend and a $1 billion stock buyback program which targets $250 million in base line annual share repurchases over the next four years. In the third quarter, we purchased 3.1 million shares at a total cost of $100 million which includes approximately $50 million with the cash proceeds of options exercises. Dividends totaled $59 million in the quarter.

Through the first nine months of the year, we have repurchased $251 million of our stock, or 8.3 million shares, and paid $176 million in dividends for a total cash of $427 million return to our shareholders. Approximately $850 million in share repurchase authority remains under the existing plan.

Before I open the lines for questions, I will provide a few key take-aways from today's overview, as summarized on slide 28. We continue to execute the strategic shift we communicated to shareholders in February. We're delivering on our financial commitments and capital allocation plan, more specifically, 5% organic growth, 90 basis points of margin expansion and a 15% increase in earnings per share through the first nine months of the year, and we have returned $427 million to shareholders through dividends and share repurchases. We are encouraged by the year-to-date increase in global sales activity, including the third quarter rebound in sales to North America financial institutions. We anticipate a new contract value across all of our business lines in 2012 will exceed our new contract value from 2011.

We have solidified our relationship with BMO Harris as a top-five client. In addition, we have virtually eliminated the 2013 EBITDA impact of the M&I migration and are working aggressively to eliminate the impact beyond 2013. Our focus on information security is ongoing and we will continue to invest to further improve security and risk management across the Company.

In closing, we feel good about our execution through the first three quarters of 2012. For the full year, we expect revenue to come in at the high end of our range of 3% to 5% organic growth, margins to be in our expected range of a 40- to 80-basis-point expansion over 2011 and earnings per share from continuing operations in the middle of our range of $2.45 to $2.55 per share.

That concludes our prepared statements for today. Operator, you can now open the line for questions.

(Operator Instructions) Dave Koning, Baird.

Hey guys, great job.

Thank you.

Thank you.

Yes, and I guess first of all, just on M&I, just to make sure we're clear on it, last quarter you basically said there was the $60 million hold. Now you're basically saying, given some of the wins you've got there is a $40 million hole, but it will be offset next year by a term fee. And then going into 2014, hopefully, you'll sign more stuff to offset the $40 million? Is that a good way to characterize it?

Yes, David, I think that's a very good way to look at it. And, again, last quarter, we were in a situation where we had M&I getting ready to migrate over in October and felt we should share with the street where we were at with that, but we did not have that agreement signed. So as you can see, the outcome of that agreement came out better than we anticipated. You know, the 40 is 2013 one-times; the rest of it we anticipate going forward. But as we stated, we lose clients through consolidation of the marketplace every year, and every year we have to refill those buckets. So we feel pretty good about the time we have left to get ready for beyond 2013.

David, this is Frank. We're very pleased with the results, but as important, with our strong relationship with Bank of Montreal. We're pretty excited about the future.

Yes, that's great news, definitely. And then the second thing, I didn't realize how big the India win was. How long do you think it will take to get to the $100 million revenue run rate?

Dave, this is Gary, we're very excited about that. That was a very competitive win. There was a formal auction process. We won two large circles at really premium rates. Those will be coming over -- the overall deal is seven years in nature. Keep in mind -- we have an existing business there that's already growing very nicely, so this layers on. But we'll be coming up to speed over the next several years installing those ATMs, and then the adoption will come around, but -- and we'll see growth over the next 3 to 4 years of those numbers.

Okay, that's great news, too. And then, finally, last quarter, there was some uncertainty about some of Visa's pricing strategy and a little bit of fear around NYCE, but that was great to hear 11% year-over-year growth in NYCE. Maybe you could give just a quick summary of kind of the competitive dynamics in that business right now?

Well, as you can see, NYCE continues to perform very strong for us. I'd say we still are monitoring what's going on with Visa and some of the actions that they have taken, but the network we have is very competitive. It's very integrated to our product set and, you know, we continue to get a lot of questions about how NYCE is performing, and NYCE is performing very well.

That's exactly right, David. I mean, we're seeing strong transaction growth, but as Mike points out, keep in mind our sales are up significantly for the year, and so -- across the entire company. And when you think about NYCE, we're seeing good cross-sales into our existing customers and so we're seeing nice growth for it. As we've shared with you in past quarters, VPIN has been an issue, but we have some strategies as well that helps address that. So we're confident in that group continuing to perform.

Great, well good job overall all around on the quarter. Thanks.

Thank you.

Ashwin Shirvaikar, Citi.

Yes, congratulations on the quarter again.

Thank you.

Thank you.

So, one question I have is you are tracking to the upper end of the range, sometimes even a little bit higher on most of your metrics even when I considered the information security spending. So would you say you've kind of for 4Q leaning more towards maybe the upper end of the range? And why wouldn't you raise guidance, at least to say that you are at the upper end of the range?

Well, again, Ashwin, we -- our revenue is tracking very strong, as you can see through three quarters with the high end of our 3% to 5% range. I think if you keep in mind, in last quarter we adjusted our EPS for the divestiture of healthcare, so that $0.07 came out, and then we turned around and bumped it up for -- primarily for some tax. So we've already bumped it up $0.05, if you look at it that way.

I think we feel good about where we're going to be on earnings in the middle of the range. You can see us putting some money back into the business, but we're pretty excited about the revenue strength that we've seen now for eight quarters, and again, we've got a good head start on where we're going to end up for the full year.

Okay, and that information security spending that kind of spikes up in 3Q and 4Q here, does that begin to taper off early part of next year? Or how much of that is ongoing, I guess is my question.

Well, it comes in two components. One is, there is some project work related to some of the activities that we are undertaking. And then we do believe that on an ongoing basis, our level of spending for information security and to some degree as well the risk management area will be higher going forward than it has been in the past. I think when we finalize our budget and sit down and talk about 2013 will give you a sense of where that spend will be for 2013. But we've got, as you can see, a lot of activities going on in that area and we anticipated that spend in the second half of the year being a little higher than the first half.

Okay. Last question, just a clarification -- the North America FI sales rebound. Is that broad based? And does that include already the BMO deal, or is that more of a Q4 event. When was that completely finalized I guess?

Yes, Ashwin, well, keep in mind the number we gave you would be new sales of new revenue, not renewals. So it would include the new sales within BMO. So the reality is, we saw a strong rebound in the quarter. We told you in the second quarter we thought we would have some bleed-over from the second quarter. We saw those deals get signed and we saw a very, very nice rebound over the second quarter and then year-over-year.

(multiple speakers) the more I think about it, I think BMO signed an early October, so it would not include -- now that I think about it, it would not include that number. So you know, it was a very strong quarter for sales, not only in North America, but across the spectrum.

And, Ashwin, our strong pipeline going forward also.

Yes.

That's great, good deal guys.

Thank you.

Brett Huff, Stephens Inc.

Hi, can you hear me okay?

Yes we can, Brett.

Okay, congrats on a nice quarter and we're glad to hear about BMO Harris.

Oh, thank you.

Thanks, Brett.

As you guys -- one of the things that sort of stuck out to me was your investment in the security stuff, and I understand why you're doing it. Some of it, I think like you said, is project, and some of it is I think your positioning to be sort of a market leader.

When we look out next year and you think about your long-term guidance for margin expansion, is that long-term guidance still accurate relative to the incremental investments you all think you need to make in that securities stuff next year? Or what kind of color can you give us as we think forward for the long-term model?

Yes, again, our long-term expectation in that range that we had laid out 36 basis points of margin expansion, we would anticipate we will continue to execute against that. You can see this year, we're still 40 to 80, and you can see the level of spending we're putting back into that particular area. But our long-term numbers are still intact.

And Brett, as you mentioned, you know, we are very focused on being best in class in this area, and we think it's going to be the new normal and it's going to be required in order to compete in the market. And we've always taken a long-term view of the market, and we've always invested heavily to be able to be as competitive as possible. So we think it will be a differentiator for us in the future.

Great, and one follow-up question. In Europe, obviously, it sounds like Capco continues to carry a lot of water there, which is great. I know one of the things that we've been hoping to see at some point in the medium term is Capco helping generate a big core win, or a similar win in Europe or in other regions where they have operations. Can you give us any qualitative thoughts about how conversations for those larger deals are going and what we might expect here in the medium term?

Yes, Brett, I mean we've talked about this on a number of calls. I'll tell you -- Capco is really paying off for us across all fronts, as you said. They're performing exceptionally well, both in Europe and in North America. So the growth is there, their margin expansion is there. All I can say is the level of conversations we're having this year at this point in time are far greater than where we were a year ago. The types of conversations we're having in very large financial institutions, not only around core banking, but services and payments and how to bring our capabilities are exciting. So we think Capco has already turned out to be a success for us, and we think in the near term, you're going to see us sign some business that are very complementary as a result of this combination.

Yes, as Gary said, capital is performing very strong stand-alone, just by itself. And now we just see the significant opportunities we have as being part of the total FIS family.

Great, that's what I needed, thanks again.

Thank you.

Glenn Greene, Oppenheimer.

Thank you, good afternoon. The first question, probably for Gary, sort of looking at the slide 12, the 30% increase in new contract value sold, and I think you said year-to-date. And then you suggested BMO, the incremental part of it, would sort of role into the fourth quarter and it sounds like the pipeline is robust, but then you suggested the new contract value in 2012 could basically be kind of like almost flattish to 2011.

No, I'm sorry; if I did, I misspoke. Absolutely, we're very comfortable that 2012 total contract value in new sales will exceed 2011. We're up through the first nine months globally. We brought an issue in the second quarter because we saw a dip in North America financial institutions. We saw that recover in Q3 which was what we expected. As you can see, we've already signed BMO in the quarter in October, so we're very comfortable that our total contract sales will exceed our 2011 results.

Okay, and then just a little bit more color on the North America. Was it just sort of timing of deals that slipped from Q2 to Q3? And related to that, just want to get a sense for the environment. Are banks making more decisions, or what sort of happened 3Q relative to Q2?

Well, I can tell you, we've said this on a number of calls; we're definitely seeing deal elongation. It takes longer to get these deals closed. So, yes, we did see slippage in Q2 and the results of that were quickly in Q3 we were able to pick up a number of those. So the decisions are being made as evidenced by our sales success, not only within North America but abroad. But it is taking longer to get these deals done. They're more complex, they're bigger, but as we shared in the opening comments, we are seeing our clients look to leverage innovative solutions to help drive their costs down and become more efficient and compete. So the decisions are out there, but, definitely, we see some slippage from time to time, and that's what happened in Q2.

And then for Mike, just sort of given that you've successfully filled the hole on BMO, any reason to think you'll be outside of your long-term EPS targets in 2013?

No, we'll still be -- I would expect that when we sit down and talk about 2013, we'll give you specific numbers. But the long-term, long-term being the four-year means that we gave you back in February, is kind of our look at what the current environment will give us in terms of top-line growth, margin expansion and EPS growth. And as I said before, we're still very comfortable that we'll continue to be in those ranges. You know, when you give a kind of long-term outlook like that, nothing ever happens exactly how you'd expect it. But given the size and the diversity of our Company, we're able to adjust and make up any challenges that we have. So sitting here today as we said, we're still very comfortable with where we're going to be.

Okay, thank you.

Thank you.

Bryan Keane, Deutsche Bank.

Hi guys, how are you doing? I wanted to ask about the payment solutions business. I know it's been sluggish for a couple of quarters. When do you guys see on the horizon that that business might turn? Is that some point in 2013?

Well, Bryan, yes, as we adjust every quarter, we adjust out our paper-based businesses, so we are seeing some growth in the business. We're seeing great margin expansion, which shows the flexibility of our model. We have a huge payment business, so the reality is a number of our areas like bill payment and some of those areas are seeing very good growth some of the things that we're doing around mobile payments. But we feel like our payments business going forward is going to be, at least for the next year or so, a mid- to low-single-digit top line, but we think we'll get very strong organic growth. So we're pleased with how the business is performing, and -- when you see some of the examples of like the growth that Mike highlighted around NYCE this quarter.

And I assume that PayNet might start contributing to revenue in that business segment, probably '13 and '14. I guess that's the first question.

Then second question, how does that compare to something like a pop money? How do you guys think it compares? And one last piece to that, do you guys see yourselves competing directly with the networks, like Visa and MasterCard, with PayNet?

Well, let's take your first question. PayNet, as we shared with you, we've already got over 100 clients running in pilot today. We'll roll additional functionality through that solution. We'll continue to have -- bring on customers and expand the network through 2013. And yes, we'll start seeing some revenue contribution in 2013, and that's going to grow in 2014 and beyond. We think it's got potential to produce some fairly sizable revenue.

As far as the comparisons to other solutions, we think we have a very competitive offering. We're very confident the things that we're going to be able to do with PayNet, and so we think we'll be very competitive in the industry.

As far as competing with Visa and some of the schemes, you know we are, once again, not sure. The reality is we'll continue to compete on the strength of our product and through our sales engine and cross-sell and drive value to our clients, and that's frankly how we think about all of our solutions that we roll out.

Would you think about selling PayNet directly to the merchants, or was it just -- will it be mostly to be the FI's?

It's going to be an FI-centric solution, but they will have some merchant components to it as well. So we are pleased with what we have developed.

Okay, and then a last question for me, just on the -- what we talk about the BMO Harris, the $40 million of term fees, term and settlement fees, does that show up in any one given quarter, or is that spread throughout equally through the four quarters of 2013?

Yes, I mean, you should anticipate that being spread fairly evenly throughout the year.

And did you guys also say that $10 million to $20 million of that -- you said something about not all that $40 million is onetime; I just want to make sure I heard that correctly.

Right, so the $40 million of the term and settlement fees, I don't think it will be evenly spread throughout four quarters, but you'll see it hit all four quarters across 2013.

No, I guess my question is just -- is that a -- is that $40 million all kind of -- do we have any effect carry forward into 2014?

No, that is a 2013 event.

Okay super, thanks so much for answering my questions.

Thank you.

Julio Quinteros, Goldman Sachs.

Great, it's Roman Leal in for Julio. First, on the sales growth, maybe -- can you help us out and just kind of walk us through -- where is most of the growth coming from? I know you say it's pretty broad-based, but perhaps what segments are beating your expectations versus just meeting them?

Yes, well, as we shared with you in North American financial institutions, we saw a rebound from second quarter to third. We saw year-over-year growth and also sequential quarter growth, and that really was on the strength of a lot of our core banking and payments technologies in the US. In the international markets, depending on what region of the world you're talking about, we're seeing good sales and expansion through core, through payments like the India is a huge win for us and so that's driving a lot of revenue growth. We are also seeing some nice expansion around our services businesses, you know, IT services in North America. So really, those are the primary areas that are ahead for the year.

Okay, and then just based on your commentary and your confidence that total contract value for the year would be ahead of last year, is it fair to say that, heading into 4Q 2012 and 2013, you are more comfortable at this point than you were a year ago heading into 2012?

Obviously, we'll give you 2013 guidance later, but we're very confident with our pipeline. We had a strong sales year last year. We are exceeding that growth this year as far as new sales go. Obviously, we need that level of sales to continue to push the Company and drive on the top end, you know, high recurring revenue and organic growth. So we're confident that we'll be able to push into next year like we did last year.

So you know we're confident because we've got nice growth in '12 over '11, so it makes you feel more optimistic going forward.

Got it, thank you.

Tim Willi, Wells Fargo.

Yes, thanks, good afternoon. I just had a question that I guess probably applies to sort of the topic of PayNet, or just payments overall. Could you talk about how you think about PayNet, or any of your other payment-related assets in the business-to-business world, not just necessarily the consumer-to-consumer or consumer-to-business?

Well, when we're looking out to build out capabilities, Tim, obviously we're wanting to hit the multiple markets that exist. So we certainly want to think about our payments and our innovation to drive not only personal, but also business electronic adoption. And as -- one of the nice things about our Company is we've built such a breath of portfolio of solution that we are able to package more creatively and address those markets. So we think about them differently because they do take different solutions. PayNet is certainly an opportunity for us to move, as I shared with you, some of the ideas around P2P and some of the things we're doing to transfer over that network, but we're also doing a lot of payment activities around B2B as well. So we think about our capabilities depending on the market we're going on and make the investments where we think we can get the most growth that's also not only going to drive the most revenue, but also the most profit expansion for us.

Do you think as you -- and I know nothing here or necessarily is material in the near term, given the breadth of the Company, but as you think about the B2B market, which I think is still, you know, much more paper intensive than consumer, do you feel like you have the assets or the bandwidth internally to continue to evolve and develop that marketplace when you believe the time is right. or would that actually be an avenue where a targeted acquisition might make more sense for you?

Tell, tuck-in acquisitions will always play in our strategy. As Mike mentioned, we've done three acquisitions this year. We think it's an important component. But do we have the ability to expand the markets? We always evaluate markets to see is there really a potential to monetize our sales force. We have one of the largest sales forces in the industry. We also have one of the largest investments from a capital standpoint back into our products each and every year. So those two come together in concert and we make sure we're making the investments where we think we can drive the most growth for the Company. So we can go tackle B2B? We would agree with you; it's a very paper-intensive market. Certainly as we see that market evolve, we will certainly, if there is a business -- if there's an opportunity for us to take advantage of it, we will, as we've shown over the last several quarters of performance.

Tim, you might see us do more buildout and/or partnership in this space, and one of the reasons why it's probably underinvest as a whole is it's harder to make money in the B2B space; that's why you don't see as many competitors. So I think we have some very good underlying technology to get back to a real-time transaction, and whether we would look at acquiring or building, or maybe even more like, like I said, partnering with people, but this is an area that we think is going to have some investment dollars over the next few years.

Absolutely.

Yes, sounds great, thanks very much.

Stephanie Davis, JPMorgan.

Hey, it's actually Tien-Tsin; I hope you can hear me. I'm calling from overseas.

We can hear you.

Thanks, just a good quarter here for sure, a lot of good news on the sales front.

Thank you.

I just wanted to just make sure I heard this correct. If TCB is up, new bookings and sales are up, is it fair to say that the reg letter issues from before are sort of behind you and sort of yesterday's news at this point?

Well, we certainly, you know, we certainly had a confidential regulatory letter go out. We certainly feel like we've addressed or are addressing that process with our clients. We're communicating very openly with them. We continue to work with our clients, and I would say the results speak for themselves from a sales standpoint.

We were concerned in Q2 that it might be having some impact. We saw that rebound nicely in Q3. So, at this point in time, we're continuing to move forward and just work with our clients and sell the best solution we can.

Okay good, good. So then separately the debit issuer de-conversion that was mentioned on the release -- sorry of I missed it -- in your prepared remarks, what was that, and what was the size?

Well, we had called out last call, in the second-quarter call, that we had a large client, happens to be large legacy funds client that we had with us for a long period of time, and they quite frankly had been in the process of de-converting for literally years, and they left our platform in the second quarter. So we knew that would be a hit for us in the third and fourth quarter, so we didn't give a specific number, but you can see that in the results that the growth went down a little bit at linked quarters.

Okay, understood, last one. Just the India timing -- I know Dave Koning asked it before, but how should that progress -- I mean, is that a signed managed services outsourcing contract, or there's some deliverables and assumed transactions to get there? I'm just curious what the (multiple speakers)

Yes, no, that's a great question. This is part of all the financial inclusion that's going on within India. The good news is, Tien-Tsin, we've got a very strong business that exists in India today that has shown very nice growth over the last several years. So we're not stepping into this with -- we would consider incorrect expectations. There are some assumptions on transaction and volume growth, but we think that the multiple years of experience we have that we certainly can hit our financial numbers that we talked about on the call.

As I shared, the contracts are done. We'll be rolling that out over the next couple of years on top of our existing business, and so we're very comfortable the growth factor we disclosed will be there.

That's great, thank you so much.

Thank you.

David Togut, Evercore Partners.

Thanks for taking my questions.

Sure.

On the Payments business, Mike, you highlighted a tough compare coming up in Q4 on the margin front, but you did have 230 basis points of EBITDA margin expansion there despite flat revenue. How should we think about the margin trends in Payments as we look to 2013? Are there additional major costs takeout actions that we should expect?

Yes, I don't know if I can get too much into '13 at this time. You can see the last two years, the team has done a really good job with margins in PSG in an environment that has a relatively low growth. So as I look at how we end up '12, you can see as we look at the second half, it's a little more challenging than the first half on the revenue, but the earnings are still pretty solid in there. And, as we look at 2013, we'll have to go through that business and see what kind of growth we can get. And then, as you've seen Gary and the team do in past years, if we don't have the top-line growth, I'm sure we'll find ways to get the bottom-line expansion.

And, David, that's something we do every year. Gary does that consistently year after year. We look at our growth potential and we're realistic about it. And then, if we have to optimize or do something on the expense side, we take action and we do it.

Definitely good to see progress there. Gary, your thoughts on the new business pipeline in Brazil -- should we expect some significant new additions to the Banco Bradesco card processing JV?

Well, you know, we've got a fantastic relationship down there, David, and it continues to perform very nicely. We saw some nice growth there this quarter and we highlighted it in the call. You know, I would tell you the relationship can't be stronger. As Bradesco continues to grow, the joint venture, we'll definitely be the recipient of that. The question is whether ELO is going to take off. There's a number of interesting things going on in Brazil, and it's hard to predict what the adoption rate of some of those are going to be, but we're very comfortable with the position we have in Brazil. We're the largest third-party processor in the country and we're very pleased with that business.

We're just well-positioned now.

I'm sorry, just a quick final question, if I could speak sneak one in. On September 30 share count, Mike, basic and fully diluted?

Yes, I think you'll get all the detail in the Q when it comes out later this week. But it's -- 298 million is where we ended up the count, fully diluted.

Thanks very much.

Thank you.

Greg Smith, Sterne Agee.

Hi, thanks. Just a quick one. The minority interest increasing, that's just increased profitability in the Brazilian JV; is that correct?

That's correct.

Okay, so that's probably sustainable. There was nothing one time in the quarter per se, right?

No, no that's discontinued growth of that business.

Yes, that business is just a pure processing business based on volume.

Okay, and then just your outsourced prepaid card processing -- it sounds like you're working with Amex, but I don't think you're doing the actual processing on that. My question is what's the demand like both in the US for other banks kind of entering the prepaid card space? And then, also, do you have international processing capabilities for prepaid cards?

We do, a lot there. I mean, with the first, no, we're not actually doing the card processing for Bluebird for Amex. We are doing, as we shared a lot of the mobile capabilities and doing a lot of the back-office BPO type services work around that.

When you think about prepaid both within North America and abroad, we do have extensive capabilities for prepaid outside of the US, and we're seeing very strong growth of that business in Europe. We're also partnered with American Express on a number of their gift card programs. So we're seeing good solid growth within North America as far as demand goes, but also in the international markets as well.

Okay, great. And then just one last one, the legacy check business, the check risk management business, the old Certegy business -- any potential for a transaction there? I know you've exported it a number of times, or should we just expect it to kind of continue to bleed lower?

You know, it is a business, got the secular decline in the payments, which we see both in the check verification business, as well as our item processing. But you know, there's -- it's a business that, as you know, we've looked in the past. We continue to get pretty good margins out of it. And, even though the revenues have continued to decline, the team has been able to just improving the algorithms and improving the process to maintain the profit. So it's one of those situations where I don't think someone's going to come in and look at writing a big enough check based on the money we're going to take out of that the next few years.

Yes, yes, no, you're certainly doing a good job on the market side, there.

Right, we're focused on running the business, optimizing the business and making sales where we could.

Excellent, well thank you.

John Kraft, D.A. Davidson.

Hey guys.

Hi.

Just a couple of follow-ups here. Mike, I thought in response to just the last couple of questions, you said something about that large conversion actually happening in Q4 as well. Was that not completed in Q3?

No, no that was -- I think the related payments was a de-conversion that occurred towards the end of the second quarter and impacted third quarter and will also impact fourth quarter-end payments.

But it's completely done?

Yes.

Correct.

And then, also, you called out the strength in NYCE a couple of times, but in the press release you mentioned strength in bill pay. Would you say things were accelerating there or you're gaining some share? Can you talk a little bit about the market there?

Yes, we're having some very nice wins in bill payment and we're seeing good growth not only in top and bottom line, but also in transaction volume. So that's driven not only from adoption with existing clients, but also good cross-sales. We shared with you guys over the last couple of years, we've made a lot of investments in bill payment over the years. We've got a very competitive offering there. And we're real pleased what the team is accomplishing this year.

Great, that's all I've got, thanks guys.

Peter Heckmann, Avondale Partners.

Good afternoon, most of my questions have been answered, but I just wanted to clarify on some of the revenue impact that we're talking about from BMO Harris and M&I. My assumption is with the termination fee and some of the additional professional services, we might have the revenue headwind for 2013 down to perhaps less than 50 basis points, but then it would move up to another 100 basis points in 2014. Is that about the right way to look at it?

It might be a little bit higher than 50 basis points on the revenue side, but probably in that neighborhood.

Okay.

Between 50 and 100 would be the revenue impact, depending on how much professional services we pull through.

Okay, okay, that's helpful. And then, are there any capital requirements on the expansion of those ATMs in India, or is that on a third party?

No, we'll see some capital requirements. That's pretty typical of that business, but as we've shared in the comments, we think it's very accretive to our overall international business in the way it's operating today.

Sure, sure, okay. And then, I'm sorry -- back to BMO Harris, final question there is that you were clear on the last call that you were consolidating the core, and in today's press release you referenced bill pay and debit and some other tangential services. Are you consolidating all of those services in the US with FIS?

We did. We have already completed that. We completed not only the core conversion, which is an application management engagement, but we also completed all of those ancillary services that we talked about in the script. We've converted those as well on a combined basis.

Okay great, thank you very much.

Thank you.

Kartik Mehta, Northcoast Research.

Yes, good afternoon. Gary, when you were talking about new sales, you had said the sales cycle is lengthening. I'm wondering, are you seeing anything in the new sales you are doing, whether it's India, whether it's the professional services, where it would lead you to believe that the revenue cycle will be different as well versus what it's been in the past?

No, not at all. The reality is, we've talked about this on multiple calls. The swing towards not only outsourcing, but the packaging of services to augment a particular product through an outsource engagement is really occurring in quite a dramatic way. So, that revenue comes online, however, in some instances even faster if it's some type of service engagement. But, you know, the on-boarding of that revenue is typically about the same length.

The reality is, our clients we saw some pent-up demand because of the economy. We're now seeing that free up. They're making some decisions, but I would say, obviously, the economy is pushing some of the elongation out, but frankly, just the complexity of the overall solution when you look at some of those things we referenced like Bremer. There's not too many banks that size in North America that are going to make a decision to convert off their income at core and then bring all of those additional services in a big bang approach. BMO Harris is a great example as well. We converted all of that single system. It took us a long time to negotiate that agreement right up to the time we actually did the conversion. So, you know, at the end of the day, I think the revenue comes on in very much the same way.

And then, Gary, just a last question. You're seeing some really good organic growth, especially on the financial institution side. What do you think the market is growing at? And I guess the reason I ask is your ability to continue this momentum, you've done it for a long period time now and it seems as though with the sales momentum you have, you should be able to continue putting up these kind of numbers.

Well, we're pretty pleased with the team. I think all of us are. We think the opportunity to continue to grow is there. Frankly, when you look at the assets that we assembled over the last, oh, 10 years, how we brought together those assets, the innovation that we've wrapped around them and invested in them, we think it puts us in a very different place. When you augment that with what we're doing abroad in our international markets, it's a very complementary mix that has allowed, as Frank and Mike highlighted, very nice organic growth 7 out of the last 8 quarters, so over 5%. So, at the end of the day, we're comfortable that we can continue to grow the business. We're comfortable that we've got the team that can execute, the sales team and the operational team. We have obviously got to keep innovating and keep making sure we're making the investments, do tuck-in acquisitions that make sense and allow it to come through our sales force.

And then, finally, how we integrated all the products; that was key to our success, how well we're integrated on all our product lines.

Okay, that concludes today's call, and thanks everyone for joining us today. Please remain on the line for the replay instructions.

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