Fidelity National Information Services Inc (FIS) 2013 Q1 法說會逐字稿

Ladies and gentlemen, good morning. Thank you for standing by and welcome to the FIS first-quarter earnings conference call. At this time, all lines are in a listen-only mode. Later, there will be an opportunity for your questions and instructions will be given at that time.

(Operator Instructions)

As a reminder, this conference is being recorded. I would you now like to turn the conference over to our host, Senior Vice President, Ms. Mary Waggoner. Please go ahead.

Thank you, Tom. And thanks to everyone joining us this morning for our first-quarter earnings report. With me to discuss our first-quarter results are Frank Martire, Chairman and Chief Executive Officer; Gary Norcross, President and Chief Operating Officer; and Woody Woodall, Chief Financial Officer. In addition, Mike Hayford will join us for the Q&A portion of the call. Today's news release and supplemental slide presentation have been posted to our website at www.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.

Today's remarks will also 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 attachments to the press release and the supplemental slides. I will now turn the call over to Frank Martire. Frank?

Thanks, Mary. Good morning everyone and thank you for joining us on today's call. I'll begin today's business review with a summary of our financial performance and business highlights for the first quarter. Gary will follow with the business strategy and operations report, and Woody will provide additional insight into our first-quarter financial performance and our outlook for the remainder of 2013.

As shown on Slide 6, our first-quarter result was very strong, including organic revenue, which increased 5%, compared to the first quarter of 2012. We continue to deliver on our financial targets and execute our strategy to maximize performance. This is evidenced by organic growth of 5% or better in 8 of the last 10 quarters. Our first-quarter top line growth was driven by solid results across all businesses. Consolidated EBITDA grew 8%, and our margin expanded 110 basis points. Adjusted earnings per share rose to $0.62, up 17% from the first quarter of 2012. This is a tremendous accomplishment on all fronts. We are encouraged by this healthy start to the year and our progress towards achieving our 2013 goals.

Turning to Slide 7. I will highlight a few key accomplishments for the quarter. We continued to solidify our market leadership position, as we leverage our global client base and the breadth and depth our solutions. Our best-in-class solutions are producing tangible benefits as illustrated by our growing global scale and expanding client relationships. Additionally, we continue to make steady gains in expanding our share of wallet in the large North American and international financial institution sector. These in-roads reflect new outsourcing agreements with GE Capital Bank and the First Bank of Puerto Rico, along with strong growth within our consulting business.

Continuing on Slide 8. We remain highly focused on driving shareholder value through a combination of continued strong financial performance and disciplined capital allocation. First, we continue to invest for growth with a focus on innovation. We have worked diligently over the last year to reduce debt, further strengthening our balance sheet, and achieve investment grade ratings. Last, we returned $165 million to our shareholders through share repurchases and dividends, including a 10% increase in the quarterly dividend to $0.22 per share.

In summary, our strong start to 2013 is very encouraging. It reinforces our strong operating model and ability to execute. It also bodes well for our continued success as we concentrate on serving our clients, enhancing the business globally, and driving value for our shareholders.

Before I close, I would like to congratulate Woody Woodall on his promotion to Chief Financial Officer. Woody has provided strong financial leadership since joining FIS in 2008 and he has played a key role in developing and executing our financial strategy. Woody will continue to help drive the success of FIS.

I also wish to congratulate Mike Hayford on his retirement in June. Mike has made significant contributions to our Company's success through his 21 year tenure. We are fortunate to have benefited from his dedication, his leadership, and we wish him well and all the very best. Now I will turn the call over to Gary for the business summary and operations report. Gary?

Thanks, Frank. Thanks again to everyone for joining us this morning. As Frank mentioned, we are off to a very strong start for the year. Our continued sales execution and our ongoing focus on operational efficiency translate into consistent execution, including solid top line growth and margin expansion.

My remarks this morning will cover several key topics. First, I will cover global sales execution and provide examples of continued demand for our full breadth of solutions. Second, I will discuss trends and new opportunities in each of our key markets. Last, I will highlight key innovation, underpinning trends across all markets.

I will begin with our global sales performance on Slide 10. Ongoing investment spending by our clients coupled with strong sales execution drove a strong increase in new sales to financial institutions in the first quarter. The pipeline continues to grow and we see opportunities across all the markets that we serve. As we highlighted last quarter, deal scope and size are expanding. This quarter we continued to see larger transaction opportunities as we signed several significant deals greater than $25 million in contract value.

This continues to amplify our success in meeting client needs through our innovative solution combinations, not only in our community markets but in the larger financial institution market as well. These trends are driving consistent top line growth in EBITDA for FIS. Thanks to our solution depth and breadth, market diversity and global scale.

Next, I'll discuss trends and new opportunities in each of our key market segments, beginning with North America on Slide 11. The overall spending outlook continues to improve despite ongoing regulatory scrutiny, as clients center on growing their businesses and optimizing their cost structures. Changing consumer preferences, including how they engage their financial services providers has accelerated the pace of solution innovation adoption by our North American clients. Increased investment spending, coupled with the need to drive efficiency gains is resulting in a greater portion of total spend shifting to third-party providers like FIS.

We see continued strength around core solutions. We are winning new deals and have a record number of opportunities in the pipeline. We are very pleased to welcome Milwaukee based Guaranty Bank as a new core processing client. They will also deploy FIS's full suite of ancillary core and payment solutions. Continued core sales are important because these relationships drive significant cross-sell opportunities and additional pull-through revenue.

We also continued to extend our leadership position among direct banks in the US, including the upcoming launch of GE Capital Bank, which is expected to go live later this year. As part of the agreement, GE capital will leverage our outsource core processing system as well as other ancillary FIS solutions. This engagement follows similar implementations of our core solutions by RBC Bank and Barclays Bank over the past year.

Additionally, we are seeing a steady trend by clients to outsource more of their technology, development and back office functions. The shift is occurring across all markets and geographies as financial institutions recognize the strategic value of outsourcing. As an example, we acquired ProNet Solutions last fall, a leading provider of technology management solutions. The additional capabilities provided by ProNet were instrumental in securing a new outsourcing relationship with Beneficial Bank, a large community institution.

We continue to execute our strategy to increase our share of wallet in the above $10 billion market where our service offering, scale, and years of experience are key differentiators. In contrast to smaller institutions which lever our full-solution suite, mid and top tier institutions may opt to run a mix of in-house and outsource solutions while leveraging our professional services capabilities. For example, USAA Federal Savings Bank, a top 25 institution, recently signed a multiyear agreement with FIS to manage the continual upgrade of our core processing platform.

Next I will cover our international market on Slide 12. Our successful expansion in key international markets and our growing global scale count among the important differentiators for FIS. In Europe we experienced solid demand for core enhancements and consulting expertise. Given the economic backdrop and regulatory constraints, innovation in this market predominantly centers on the need to improve efficiencies. As a result, we are having more discussions around our outsource, processing, and service capabilities. Although an elongated sales cycle persists, we are encouraged by the strength in the new sales pipeline and we remain excited about the potential for accelerated growth in the region.

In the developing regions we are seeing significant momentum in Asia and Latin America, which continue to register double-digit organic growth. Product innovation in both of these markets is being driven to a large degree by a focus on capturing more share of the growing bankable population as well as government initiatives to expand banking services in underserved markets. Growth in Asia is broad-based, including our payments business in India as well as ongoing expansion of our core and payment solutions throughout southeast Asia.

Turning to Latin America. Brazil remains a strong growth market for us. Increased card usage and adoption is driving transaction growth and higher demand for card holder support. New solution launches such as the ELO card along with Banco Bradesco's plans to issue American Express cards are generating new opportunities while leveraging our full-service card operation.

The success of the joint venture has resulted in strong brand identity for FIS and is driving expansion of our client base. We are pleased to announce a new seven-year card processing agreement with [cincosuit], the fourth largest retailer in Brazil. By outsourcing its card operations, cincosuit will benefit from our robust and scalable solution, which is well-suited to support their existing business needs and aggressive growth plans.

We are also excited about opportunities to expand our Caribbean footprint. In March, we announced a new facilities management agreement with the First Bank of Puerto Rico. As part of the agreement, First Bank will outsource its core processing function to FIS and will deploy our business e-banking solution. In addition, FIS will manage the bank's IT infrastructure, including network support. This expanded relationship leverages our more than 40 year record in facilities management and on-site client support.

Next I'd like to discuss some of the opportunities we are seeing in the global financial institution market. Please turn to Slide 13. Our existing client base within this group includes more than 25 of the largest global and multinational financial institutions with assets ranging from $300 billion to nearly $3 trillion. The addressable spend for these clients is substantially higher than our current share of wallet.

The needs of institutions within this sector are unique to specific business strategies that require a highly sophisticated skill set, and complex solutions where deep industry knowledge and a consultative approach are required. Innovation is driven by the need to adapt to new business models, transform business processes, and enhance delivery execution. These were the driving factors behind the transformational change sourcing initiative for the large investment bank that we discussed at our recent investor update in New York.

FIS identified these market trends early on. We began preparing for the shift nearly a decade ago by investing in next generation technology, expanding our depth of consulting expertise, and building out our service capabilities on a global scale. We believe that this powerful combination offers a value proposition that is unmatched in the market.

Finally, please turn to Slide 14. Underpinning these market-specific trends are strong trends driving our solution innovation. Earlier this month we highlighted our latest innovations in solution integration at our largest ever client conference. In addition to relationship and sales expansion, these events allow us to showcase innovation in a hands-on way and helps us shape our growth investments. Our new solution launches, including our enhanced mobile suite and real-time payment capabilities, resonated very well with our clients that attended.

These innovations are supported through our recent acquisition of mFoundry, which positions FIS as the leading provider of mobile solutions. We now service nearly 19 million mobile banking users and 3 million remote deposit capture users, making us nearly three times the scale and market reach of our next largest competitor. And payment solutions such as our recently launch FIS People Pay and PayNet solutions combined with consumer mobility requirements drive new solution integration opportunities in our market. These investments are further bolstered by the fact that mobile banking apps now surpass online banking website as consumers preferred method of remote access, prompting financial institutions to increase their investment in these areas.

In closing, consider the key take-aways outlined on Slide 15. We continue to deliver on plan to drive strong organic revenue growth, which increased 5% year over year, and 5% or more in 8 of the last 10 quarters. We continued to deliver on our plan to drive margin expansion with consolidated EBITDA growing 8% in the quarter, expanding margins 110 basis points. We are very encouraged by the continued momentum of our business across all market segments, and the increasing demand globally for transformative solutions as evidenced by our strong sales pipeline and our increase in large transaction signings, all of which are driving consistent top line growth in EBITDA.

We feel very confident about our strong competitive position. We believe that the powerful combination of FIS technology solutions, service capabilities, consulting expertise, combined with our innovation investments in global scale offers a value proposition that is unmatched in the market. And finally, these strengths combined with our strong track record of consistent execution provide an excellent foundation for continued strong performance. Again, thank you for joining us this morning. Woody will now highlight our financial report.

Thanks, Gary. I'll begin on Slide 17 with a summary of our consolidated results. Consolidated revenue increased 4.6% to $1.5 billion, and grew 4.8% on an organic basis after normalizing for currency and acquisitions. EBITDA grew 8.5% to $428 million, and the margin improved 110 basis points to 29%. Adjusted net earnings from continuing operations increased to $182 million, and adjusted earnings per share increased 17% to $0.62, compared to $0.53 in the prior year. These results include approximately $14 million in previously disclosed termination fees, which partially offset the related loss of high margin account processing revenue. As previously discussed, the fees are more heavily weighted in the first half of the year. These as well as other fees contributed to the margin expansion in the first quarter.

Next I will continue on Slide 18 with the segment review. Financial Solutions revenue increased 6.8% to $575 million in the first quarter, and grew 4.6% organically, driven by growth in consulting, global commercial services, mobile, and e-banking solutions. Financial Solutions EBITDA increased 9.5% to $228 million, and the EBITDA margin expanded 100 basis points to 39.6%.

Turning to Slide 19. Payment Solutions revenue increased 2.5% to $612 million, and increased 3.8% excluding the check businesses. We experienced continued growth in the NYCE PIN debit network and bill payment solutions following strong volumes in the first quarter of 2012. The current quarter also benefited from higher volumes in our output solutions business. Payment Solutions' EBITDA increased 8.6% to $258 million in the quarter, and the margin increased 240 basis points to 42.2%.

Now I'll cover our International business on Slide 20. Organic revenue growth accelerated to 10.8% in the first quarter, in line with our expectations, led by double-digit increases in Latin America and Asia-Pacific. We continue to benefit from strong transaction volumes in Brazil and new client implementations in Asia. In addition, ongoing demand for professional services coupled with continued strong performance in our consulting practice is driving growth in Europe. International revenue increased 5.3% on a reported basis, which included a $15 million currency headwind. International EBITDA increased 15% to $59 million, and the margin expanded 170 basis points to 20.3%.

Next I'll provide a reconciliation of GAAP to non-GAAP earnings per share on Slide 21. GAAP earnings per share totaled $0.50 compared to $0.31 in the first quarter of 2012. Our first-quarter 2013 GAAP results are adjusted to exclude $0.14 of acquisition related amortization, and a $0.02 gain resulting from the purchase of the remaining interest in mFoundry. The gain represents the difference between the fair value and the carrying value of the previously held minority interest investment in mFoundry.

This brings us to adjusted earnings per share of $0.62, which is a 17% increase compared to $0.53 in the prior-year quarter. The average diluted share count for the first quarter of 2013 was 295.5 million. Basic shares outstanding declined 1.5 million sequentially to 292.6 million as of March 31, compared to 294.1 million outstanding at the end of 2012.

Moving on to cash flow on Slide 22. Cash flow from operations totaled $221 million in the first quarter of 2013, after adjusting for the net change in settlement activity. Capital expenditures totaled $74 million, or approximately 5% of revenue, which brings us to free cash flow of $148 million.

As depicted on Slide 23, the uses of cash flow during the first quarter are consistent with our capital allocation priorities of investing for growth, strengthening the balance sheet, and returning cash to shareholders. In March, we completed the acquisition of mFoundry, for approximately $115 million net of cash acquired. As Gary discussed, mFoundry enhances our strategic positioning in the mobile channel and supports our strategy to deploy capital in high growth businesses.

We returned $165 million to shareholders through dividends and share repurchases in the first quarter 2013. We repurchased 2.7 million shares in the open market for a total cost of approximately $100 million, or an average cost of $37.17 per share. Approximately $550 million remains available under the existing repurchase authorization and we anticipate repurchasing additional shares throughout the year. Dividends total $65 million or $0.22 per share in the first quarter, reflecting the 10% per share increase that we announced in February.

Debt outstanding increased to $4.6 billion as of March 31, compared to $4.4 billion at the end of 2012. The increase was related to the mFoundry purchase and seasonal borrowings on the revolver. The weighted average rate was 4.4% as of March 31, and total debt to EBITDA was 2.6 times.

Looking ahead with regard to leverage, our goal is to target debt to EBITDA at or slightly below 2.5 times. Over the past year, we've made significant progress in strengthening our balance sheet, including reducing and refinancing our debt. When combined with our disciplined capital allocation strategy, these actions have resulted in the attainment of investment grade ratings, which have enabled us to issue long-term debt at very attractive borrowing rates and to modify our credit facility to include more favorable terms.

Now if you will turn to Slide 24, I will summarize the recently completed refinancing activity. Earlier this month we issued $1.25 billion of new senior notes consisting of a $250 million 5-year tranche at 2%, and a $1 billion, 10-year tranche at 3.5%. We will use a portion of the net proceeds to redeem $750 million of 7.625% senior notes due in 2017, and the remaining proceeds to reduce borrowings on our revolver. To add a little more color on interest costs, when we put our plan together and gave you guidance for 2013, we assumed we would be doing a refinancing that would include the issuance of new bonds and the redemption of our 7.625% bonds. We also knew that we had one upgrade that would result in interest savings under our credit facility.

Since we gave you guidance for 2013 back in February, there have been a number of pluses and minuses regarding interest costs. On the plus side, we were able to issue bonds at lower rates than we expected, and in March we received another credit rating upgrade that results in additional interest savings under our credit facility. On the minus side, we used a portion of the proceeds from our bond issuance to pay down revolver borrowings, which carry a variable interest rate that is currently lower than the bonds. We have a 30-day period where we have the interest on both the new bonds issued and the bonds that we are redeeming and we have an unused commitment fee on the $850 million increase in our revolver that we achieved in the amendment of our credit facility.

The net impact of these pluses and minuses is a benefit of approximately $0.01 per share compared to our original plan for interest expense. To help you with your models, we now anticipate net interest expense in the range of $185 million to $195 million for the full year. We expect to book a pretax charge of approximately $60 million related to the new debt issuance and refinancing activity in the second quarter of 2013. These costs will be excluded from adjusted net earnings.

Turning to Slide 25, I'll review our outlook for the remainder of the year. We're making good progress against our full-year 2013 objectives, which continue to be 4% to 6% reported revenue growth, 3% to 5% organic revenue growth, 30 to 50 basis points of margin expansion, adjusted earnings per share of $2.77 to $2.87, which equates to an increase of 11% to 15% over 2012, and we continue to anticipate that free cash flow will convert at approximately 100% of adjusted net earnings for the full year.

Before opening the line for questions, I'll summarize a few key take-aways for the quarter on Slide 26. We are pleased with our first-quarter performance, which continues a trend of consistent execution and provides a strong foundation for the remainder of the year. We're encouraged by the level of investment spending by our clients and the growing sales pipeline. We remain focused on deploying cash in value-enhancing ways, including investing for future growth, maintaining a strong balance sheet, and returning cash to shareholders. That concludes our review of the first-quarter results. Operator, we can now open the line for questions.

(Operator Instructions)

Our first question today comes from the line of Glenn Greene representing Oppenheimer. Please go ahead.

Thank you. Good morning. Nice results. I guess the first one for Gary. Just wanted to drill down on some of the sales trends, maybe first of all you could give us a frame of reference for sort of aggregate sales growth year over year, and you gave a lot of color on sort of the various piece parts, North America, international, some of the global FIs. Could you talk about the specific sales growth trends within those subcategories?

First, thanks for the notice on the quarter. The team really worked hard and we're getting some strong results. We have seen strong results across all of our markets, so if you look at community markets, large financial, or international markets, we continue to see strong growth in all those categories around outsourcing type services and consulting related services.

If you look -- if you remember, we had a slow start last year in our North American financial institutions specifically, so we were very pleased to see that return and show nice growth year over year and we highlighted that in the script. We're not going to every quarter give percentage increases year over year. We think that's a little less relevant than more just direction of how the business is performing. Suffice it to say in all of our markets we're seeing good growth around outsourcing, a good nice mix between core banking and payments. As we move up market heavily augmented with consulting and professional services and our international market is converting heavily towards outsourcing at a pretty rapid rate. So everything's very positive for the quarter from a sales standpoint.

Okay. And then on the margin side looked like every segment had pretty solid year-over-year margin expansion, most notably the Payment Solutions, I think that's a few quarters in a row, at least two, that's despite still okay growth but not great growth. Are sort of the EBITDA margins within Payment Solutions sustainable, and what's kind of driving the margin expansion in the context of still sort of soft growth there?

Yes, well, a couple things. We talked about it in the past. We have such significant scale in North America around our payments, you see incremental revenue growth come on at very high margins. So are the margins going to be sustainable? Yes, as long as we have that growth. The team does an excellent job of controlling their costs.

And it goes back to our leverage processing environment, so as you bring these incremental transactions, whether it's on NYCE, whether it's on bill payment, whether it's on debit or credit, you're seeing those incremental fees. We also have some layering in around term fees from M&I that we talked about in the investor update as well. But all in all, we're very pleased with payment performance. NYCE has continued to perform very well as Woody highlighted. Bill payments continues to highlight very well, and you're just seeing the scale of that processing environment.

Some of those term fees that I mentioned in the call really align into both FSG and PSG, and gave a bit of a tailwind in the quarter.

Alright, thanks Woody. I was just going to ask where it sort of was reported. But it sounds like it was across both FI and payment.

That's correct.

Alright, thanks a lot. I'll jump back in.

Next question comes from Brett Huff with Stephens Incorporated. Please go ahead.

Good morning and congrats on a nice quarter.

Good morning. Thank you.

Can you talk a little about the security spend? I know you detailed some of this last year and on your Investor Day in positioning that as something that you need to do but also potentially a competitive advantage. You mentioned in the release that that was something that would continue, but you also noted it seems like maybe $15 million year over year in corporate was largely driven by that. Should we expect that same level going forward or does it increase or moderate, A? And then B, is that driving incremental competitive advantage as you close deals?

I'll talk about kind of the numbers and then let Gary kind of highlight what competitive distinction there. The increase in the first quarter was almost entirely related to incremental security and risk management initiatives. We've talked about spending a lot of resource in both those areas. If you look at full year, we kind of anticipate corporate cost to run a little more in the $100 million to $105 million a quarter, Brett. So a little lower as we go along throughout the year. But we're going to continue to invest in risk management and security in 2013 and beyond.

Yes, from a strategic advantage standpoint, Brett, I mean, we talked about this in the past. I really believe we're looking at the new normal here, and so when you think about it, are we going to drive business through our investments? I think the result of this is everybody's going to need to make these level of investments in order to compete.

Our customers are looking for this level of security and risk management. As we've highlighted in the past, we hired two very significant leaders over in that area, Greg Montana and Greg Schaffer. They're both doing an outstanding job driving our security and risk management protocols, and it's resonating in our conversations.

I will tell you, we don't have -- especially in the large financial institution market, we really don't have a conversation where at some point in time we don't get into what are the best practices that we're pursuing around risk and security. And so I do think under the new normal this will pay dividends for us in the future.

Brett, I would suggest that these type of investments are being made by our competitors and certainly by our clients, right. So our clients are doing the exact same thing as they firm up their security.

And then second question, on gross margins, they expanded more than we thought. Woody, maybe this is a question for you. But how much would the gross margin expansion would that have been ex the term fees, just to give us a sense of that more maybe organic or sustainable or however we want to call it. Could you give us any color on that?

Yes, I mean, as we go through the planning process every year we plan for some level of term fees as you can imagine. We did anticipate 2013 was going to be a little bit heavier based on the deconversion activity from the fall of last year that we previously disclosed to you. So not only were they a little heavy in the first quarter. We knew that first half of the year was even going to be a little heavy.

Then beyond that, the timing is a little lumpy. Sometimes you can't exactly predict when the actual deconversion or term fees will actually flow. All that said, if you kind of pull out the balance of the term fees, we were more in line with that 30 to 50 basis points of margin expansion we've been talking about.

Okay. That's what I needed. Thanks again.

Our next question comes from David Togut with Evercore Partners. Please go ahead.

Thank you. And congratulations, Woody, on your promotion.

Thanks, David.

Gary, could you comment on unit pricing trends in North America Community Bank, large North America FIs, and international?

Yes, David. Be happy to. We've talked about this in the past. And we're really not seeing any change, definitely in community markets. Do we see some pricing compression? Yes. But we're not seeing any increase in the rate of that compression, so it seems to be fairly consistent.

What we do see in community banks, though, is as we go through those sales processes, the fact that the breadth of our solution allows us to garner much higher wallet share, and therefore, our revenue is able to well overdrive anything in the pricing compression marketplace. When you start moving up into the large financial institutions or the international markets, those are much more complex, heavily services-loaded type engagements and so we don't see as much pricing compression there.

The reality is where we get differentiated around our services components is the financial knowledge that we bring around financial services, but also the knowledge, the intellectual property knowledge we bring around our products allow us to differentiate there and really we don't see as much pricing compression going on in those markets.

Thank you for that. Could you give us some insight into the ramp-up of the two big contracts, the India ATM contract, and also the big change management consulting contract with a large New York bank?

Yes, the quick answer is they're both in green status and both going very well. I was just over in India recently and met with the team and we're doing exceptionally well on our launch. We're right on target across all of our key metrics, and the same thing is going on with the large investment institution. The team's doing an excellent job of deploying against that contract. So currently everything's in green status and we feel great about those two engagements.

Great. And just a final housekeeping question. Woody, what was the share count as of March 31?

I think you're looking for basic shares?

If you have basic and fully diluted.

I think fully diluted -- bear with me. Fully diluted was 295.5 million, and basic was 292.6 million as of March.

Great. Thank you very much.

And next we'll go to the line of Ashwin Shrivaikar with Citi. Please go ahead.

Thank you. Good quarter.

Thank you.

Congratulations, Woody, from me as well. I guess my first question is as I look at the ramp of margins, typically you guys do have margins going up sequentially from 1Q to 4Q. And given the lumpiness associated with the term fees this year, you still expect that trend and then specifically 2Q last year was rather strong. Do you expect still a year-over-year increase in margins for 2Q?

Well, try and answer your first question first. If you kind of pull the term fees out as we talked about you'd be more in line with that 30 to 50 basis points of expansion we talked about. We anticipate a similar level of business flow over the course of the year, which typically puts a little higher margin towards the back end of the year. That may not hold 100% true this year because of the weighting of term fees that we've got in the first half related to the M&I deconversion.

As you remember, about 70% of those term fees related to M&I were going to be in the first half of the year. So it may put a little bit of a skewing in the traditional margin expansion Ashwin you talked about over the course of the year. But we still feel good about the overall 30 to 50 basis points for the full year.

In the second quarter we still feel okay about where we're headed, but we've got some difficult comps as we saw some really strong growth in the payments business in the second quarter last year. So there's some more difficult comps in Q2 to continue to grow that expansion sequentially.

Got it. And then on the -- your comment on deal scope and size increasing, is this coming from both existing and from new clients? And when scope and size increases, we note that mobility obviously is an important solution, but could you sort of walk through a couple of the other solutions that are driving the deal scope increases?

Yes, Ashwin. This is Gary. When you look at what we accumulated from an asset pool standpoint over the last 10 years with acquisitions, when you look at what we've launched with just new development, what we're seeing is as our customers or as our prospects are trying to drive down their cost and be more competitive in this market, they're broadening their spending with single solution providers.

So to answer your question specifically, we're seeing it across all of our markets. We're seeing a much broader solution set that we're selling at the time, whether that's in renewal, so that we're gaining more wallet share through the renewal process, and frankly throughout the term of the agreement. But even on our new sales where we don't have any pre-existing relationship like the example we highlighted with Guaranty Bank, we're seeing those guys take a much, much broader set of our capabilities.

And then that goes on beyond just product. We're also seeing a lot of services demands and a lot of outsourcing demand, which translates into larger and larger deals we're signing.

And I guess last question. Cincosuit, good agreement there. When does it kick in? Is this a multi-quarter ramp or is there sort of a one-time cutover?

It will be a multi-quarter ramp that we'll be ramping on throughout this year, later this year.

Okay. Thank you.

Our next question comes from Ramsey El-Assal with Jefferies. Please go ahead.

Hi, guys. One of the drivers you cited for your solid performance in the Payments segment is network solutions, which I assume is mostly NYCE. But was PayNet at all a contributor in the quarter and do you have any updated thinking on when PayNet might develop into a meaningful revenue contributor?

First thing, the network solutions example that we highlighted was really geared around the outsourcing of the full complement of the IP network within financial institutions, and so that's a key area as people's securities, responsibilities, and availability continues to increase, customers are looking for more sophisticated offerings in there and that was the example we gave.

Your second question around PayNet, we continue to see good momentum in PayNet. We continue to sign up customers. It's a really unique value proposition, so we're seeing good growth in transaction, good growth in clients, but it's still small to be contributing any meaningful dollars to the revenue, top or bottom line.

As we highlighted when we announced it, these types of innovations ramp up over a couple of years and then start generating meaningful dollars in that two and three year out period, but good results. I talked about our client conference that we had. We had phenomenal attendance, and certainly PayNet was a key centerpiece of that conference and a lot of demand for it there.

Great. Great. Okay. Fiserv has announced quite a few decent sized deal wins in the bill pay space in the last several months or so. Can you give us -- you cited that as a factor in your outperformance in your Payment segment also this quarter. Can you give us an update of the kind of competitive environment with bill pay, how does your pipeline look and how do you feel -- do you feel well positioned to win business going forward?

We do. Our bill payment group's doing an excellent job. We've launched P2P product, FIS People Pay out of that group. We continue to see strong demand in the open market for our bill payment capabilities, and as evidenced by consistent quarters of good, solid growth. And so the sales pipeline is strong around bill payment and we continue to feel like we've got a very competitive offering in the market.

All right. Great. Thanks a lot, guys.

You have a question from John Williams with UBS. Please go ahead.

Hi. Good morning, thanks for taking my question.

Good morning.

So very quickly, on the International side, it seems like you've got pretty solid momentum there. It almost seems like pretty good acceleration. Are you seeing a shift in the tone or the priorities that you're hearing from the FI customers in the global markets. I thought you did a good breakdown of what you're seeing in Europe and Asia, and Brazil. But is there something that you could point to that's maybe changed in the last few months?

I think there's a couple of things. I think one thing we're seeing is -- and we saw it all throughout 2012 and it's continued into 2013. We've really seen a shift towards much broader outsourcing and much broader services around product. Historically, we've had a lot of business around license fees and actually product licensing and then some short-term professional services for installation or customization, but we've seen that move in a much more material way as highlighted by the First National Bank of Puerto Rico, as highlighted by the India deal. We're seeing a lot more transactions moving towards outsourcing.

We're also throughout Europe are seeing customers really start to engage our consulting practice because they've got to figure out how to get costs out of their environment, and that's really the first step where you'll start seeing clients ask for help, engage to do a consulting engagement, to figure out how you transform the institution. So that's a good sign for us as well. And we think that will -- that always precedes certainly then more talk around outsourcing and actually delivering the product as they go through the transformation process.

John, this is Frank. We're seeing that movement to outsourcing as Gary's mentioning from the community banks to the top tier banks in the country. So it's clearly going in that direction in all the market segments.

So it's interesting, that's actually very helpful. It's interesting that you led in the press release with talking about consulting. I was just curious to get an update on the momentum in the Capco business and what you've seen over the last few months there.

Yes, continues to do very well. It's been a great acquisition for us. It's really falling in with exactly what our expectations were around the strategy of why we did the deal. We're seeing strong growth. As you guys know, Capco's predominantly in Europe and the US. We're seeing growth in both Europe and the US, and really in that large financial institution marketplace where Capco can lead with their industry expertise. We've hired a lot of really, really strong talent in the retail banking side as well, which is helping with the growth and complements our FIS product solution suite. So as I shared earlier, continued strength in the consulting business.

John, as you do acquisitions you look at least to meet the expectations or exceed and Capco's been on the exceed side of the ledger.

Would you guys say the profile of that business in terms of the high end nature and the margin profile have stayed similar, post the integration into FIS?

We've actually seen -- if you remember, when we originally bought Capco, we actually lost one of the largest clients due to the economic collapse and we had a decision to make, do you actually take out headcount or do you sell through that. We chose to sell through that and that ended up being a very good decision.

As a result of that, as we've sold through it we've seen our margins actually increase substantially from that low point and they've been a very nice tailwind for us. Keep in mind, we've said this before, our consulting business will never approach the margins of our processing business. It just can't. That's not the nature of those businesses. And so really the secret sauce so-to-speak is how do you leverage that consulting to drive transformative services and processing into FIS and we're starting to see the results of that and we've highlighted a few on prior calls. But good margin momentum. It will definitely attain -- that group will definitely attain margins equal to or greater than some of the larger consulting practices in the industry.

Okay. Thanks for the color. Appreciate it.

Next question comes from the line of Tien-Tsin Huang with JPMorgan. Please go ahead.

Great. Thanks. Good clean results here. Just want to clarify a couple things. Any surprises in the quarter related to BMO Harris and M&I and the deconversion and replenishment of the pipeline, anything to call out there?

No, I don't think so. We kind of outlined the deconversion fees and how they would lay out kind of heavier in the front half of the year. That laid out pretty close to exactly what our expectations were. We continue to work with them closely and they're a great client for us.

From an operations standpoint it went very well and the client's been very pleased.

Okay. Just to make sure, anything we should consider for 2Q related to BMO specifically?

No, no, I think it's going to be pretty much as we laid out. You continue to see our sales execution, which continues to allow us to sell through that situation. But as Frank mentioned, we've got a great relationship with them, continue to do business together, and the sales team continues to execute and for 2014 as we bring on new clients.

Understood. Understood. Just wanted to make sure we had that modeled right. Free cash flow front, I know that came in a little below the adjusted earnings. Anything -- when could we see that actually come in above the normalize to in line with earnings for the full year? For example in 2Q could we see a little bit of an uptick there?

Couple of thoughts, one, we really don't try to model quarterly cash flow. We really look at really more of the full year. Last few years we've been able to overdrive adjusted net earnings conversion into cash. We had some working capital items in Q1 that shifted a little bit, but we are very close to our plan, our internal plan with regard to free cash flow in Q1, and still feel very good about the full-year guidance regarding free cash flow.

Okay. Good. Just wanted to make sure. I figured that was the case. Just last one, I'll let you guys move on. Just an update on Brazil and the ELO card and sort of the issuance trends. We've heard a lot of different things in the marketplace. I'm curious if you've seen any change in trajectory down in Brazil.

The ELO card has actually come online a little slower than what I think we originally thought, and I think you guys have seen some of the same thing. There continues to be steady growth in that but I would tell you overall our overall card business is growing very, very nicely down there. We continue to see the portfolio of cards we offer grow substantially. So we're still bullish on Brazil.

We're excited about the opportunity of bringing on American Express. We're excited about new customers we're on-boarding. I would say ELO's been more of a slow -- slower on the ramp-up than what we originally expected. I do think that there will be a point where that program will break and we'll see good, strong growth out of it.

All right. Great. That's good to know. I know your dependency is low on that. But I figured I'd ask anyway. Appreciate it.

Next question comes from Bryan Keane with Deutsche Bank. Please go ahead.

Wanted to ask about the organic growth that came in at 5% in the quarter and the guidance is 3% to 5%. So what do you expect as we go throughout the year? Do you expect that to moderate a little bit or potentially stay at that level, accelerate? Just trying to get a sense of how it goes throughout 2013.

I think we were pleased with the growth in the first quarter. And we laid out our guidance back in February as we finished up our plan at the end of last year. We anticipate a little bit of dilution from some of that deconversion activity that we talked about last year. But we saw solid results and are very encouraged by where organic growth flowed through in the first quarter, particularly with the acceleration in international, them getting back to where our expectations were. Beyond that, I think the full year's still kind of going to outline within that guidance range but very encouraged by first-quarter results.

Yes, Bryan, we're encouraged by first quarter. We're also encouraged by the pipeline which is very strong for us. And now it's just a question of execution and getting the sales to close. Clearly Woody used the right word. We are encouraged.

Wanted to ask about the Payment business. I think last year it kind of popped a little bit in the first quarter and then moderated throughout the year. And then it sounded like, Woody, you were making some comments that it's probably going to moderate on a year-over-year basis as well in the second quarter. So just want to make sure I understand that. Is there some seasonality that's driving that in the Payment business?

That's right. We've got some seasonality in the Payments business and some more difficult comps. We saw significant growth in 2012 as you annualize kind of some of the Durbin benefit that we saw. So we saw really good growth last year. So we've got more challenging grow-over if you will flowing into 2013.

Okay. Then just last question from me. Any thoughts on what will replace some of the higher term fees as we head into 2014 and we model that out?

I think you kind of look at some of these larger deals, right. We signed Webster. We got the India ATM. We've got First Bank of Puerto Rico. We've got GE Capital. Guaranty Bank, Bremer Bank, all these high, high sales execution activities that we are seeing and have seen are going to push us through 2014 and really openly cover where we were from the M&I loss.

Okay. Well, congrats on a great start to the year.

Next our question is from Peter Heckmann with Avondale. Please go ahead.

Just to make sure I'm clear, so you had $14 million of term fees in the first quarter, and if my mapping is correct, you'd expect roughly $14 million in the second quarter and then about $12 million in the second half for $40 million for the full year, is that still roughly accurate?

Well, the $14 million was related to the M&I deconversion specifically. We had some additional term fees in the first quarter and those were a little lumpier than we anticipated. We do anticipate that $14 million level in Q2 and then it tailing off as we described in previous calls. We're about 70% of the M&I term fees were going to be in the first half of the year.

Okay. And then could you provide total term fees then for the first quarter of '13 as well as what they were in the year-ago period?

We're not going to give you full year, I mean first-quarter term fees year over year. Again, they were a little lumpy. We try not to budget them in a quarter. We try to look at them as where we anticipate the full year will be. So that's kind of where we're going to land. We think the full year is going to be heavier than in the past really driven because of M&I termination.

Okay. Okay. And then little bit about mFoundry, now that that transaction is closed, can you give us a little bit of an idea what type of revenue we should be adding in on an acquired basis and whether that transaction can be neutral? I would assume based on the size of the Company we're losing a little bit of money, but wondering if you can get that acquisition to neutral for the year.

We previously guided to it being slightly dilutive in 2013 but we're not going to give specific guidance on the revenue base. We can tell you that the mobile numbers in the first quarter were significant growers, but in the big scheme of thing they're not needle movers yet.

Yes, Peter, this is Gary. As I shared on another question, these innovations stuff whether it's PayNet, whether it's People Pay, whether it's mobile, these are things that you invest today to really be material growers two or three years out. We think it's relevant that we have 19 million users on mobile now. We think it's relevant we've got 3 million remote deposit capture customers. As Woody said we're seeing great growth, great sales momentum.

But these are things like five years ago when we were investing in next generation core, and now you see the benefits of that investment through a lot of our profile announcements and all that growth. You're going to see similar results of that around mobility and around next generation payments.

I will say our clients are very pleased with the functionality of mFoundry.

This one's been a nice one for us. The integration's gone very smoothly because we actually had a partnership prior to the acquisition that started in roughly 2008, and we've seen that grow quite a bit. So this one's been a very smooth integration for us and our customers see that.

Okay, I appreciate the feedback. Thank you.

We have a question from George Mihalos with Credit Suisse. Please go ahead.

Hey, guys. Thanks for taking my question. Just wanted to delve in on the international side a bit more. You mentioned some very solid growth trends and a good pipeline. But specifically as you look at Europe, has the growth there been steady or has there been any sort of slowdown, and just the pipeline is starting to build. Just any color you could provide there would be helpful.

George, we actually have seen solid growth, actually strong growth in our consulting business. Where we've seen our growth slow would be around some of the product sales and some of the more product-oriented solution set. But as I shared with you, we see that as a precursor. The consulting business and working through the transformation road maps are a precursor of what we believe will translate into solid processing growth.

With that being said we've still seen Europe grow. It hasn't been -- it still has shown growth throughout the quarters, but we've seen more growth on the consulting side for sure.

Okay. Great. And then on the community bank side, has your win rate been improving relative to your other two competitors there?

Well, win rate's hard to measure but we would tell you we've definitely been taking share. We've definitely been seeing good, solid growth in our total contract value. The sales team's been executing exceptionally well in those markets. We're seeing it not only on the renewal front but also in competitive take-away in the community banking space.

Okay, great. Just last question from me on a housekeeping note just the breakdown of the $14 million termination fee between Financial and Payment, if you could provide that?

I don't have that one handy. I'll have to get back with you on that one.

Okay. Thank you.

And our last question in queue comes from the line of Glenn Greene with Oppenheimer. Please go ahead.

Woody, just a quick follow-up on the Payment Solutions commentary related to 2Q. I'm a little confused, just looking at the model, but it looked like the revenue comp wasn't all that difficult in 2Q but the margin comp difficult, margins expanded like 300 bips year over year, and revenue was kind of modest year over year. So I just want to make sure we're thinking about that right.

I think it's on the margin side. We saw some of the cost take-out flowing through that was a benefit in Q2 and that's where I'm talking more of the difficult comp.

Okay. Great. Thanks.

There are no other questions at this time.

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