Fidelity National Information Services Inc (FIS) 2013 Q3 法說會逐字稿

Ladies and gentlemen, thank you very much for standing by and welcome to the 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; instructions will be given to you at that time. (Operator Instructions). Also as a reminder, today's conference is being recorded. I would now like to turn the call over to your host, Ms. Mary Wagner, Senior Vice President of Investor Relations. Please go ahead.

Thank you, Perky, and thanks to everyone joining us this morning for our third-quarter earnings report. Frank Martire, Chairman and Chief Executive Officer, will begin today's discussion with a summary of our Q3 and year-to-date financial performance. Gary Norcross, President and Chief Operating Officer, will follow with the business summary and operations report. Then Woody Woodall, Chief Financial Officer, will continue with a detailed financial review, including our outlook for the remainder of 2013.

Before we begin I would like to cover a few housekeeping items. First, today's news release and the supplemental slide presentation are available on our website at FISGlobal.com. Next, please refer to the safe harbor language on slide 3 of the presentation.

Today's remarks 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. These non-GAAP measures are outlined on slide 4. Reconciliations between that the GAAP and non-GAAP results are provided in the attachments to the press release.

Now we will continue with the earnings report which begins on slide 6. 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. FIS' third-quarter performance was strong by all measures as we delivered on all key metrics of growth, profitability and cash generation. Organic revenue growth accelerated to 5% driven by strong performance within our international business which grew 12%. EBITDA margin increased 50 basis points and adjusted EPS rose 17% to $0.74 per share, while free cash flow increased to $229 million in the quarter.

For the nine months ended September 30 we delivered organic revenue growth of more than 4%, margin expansion of 40 basis points and 14% growth in earnings per share. Our cash generation and disciplined capital management have enabled us to return more than $500 million to our shareholders since the beginning of the year through a combination of share repurchases and dividends.

I am pleased with our solid results this quarter. Based on our performance through the first nine months and our expectations of a continued healthy demand environment for the remainder of the year, we are confident that 2013 will be another good year for FIS, which is evident in our updated guidance. Woody will provide more details regarding our guidance later in the call.

Looking ahead we are excited about the future of the Company. We are committed to delivering value creation through continued strong financial performance coupled with a consistent return of cash to our shareholders. On behalf of the management team I would like to thank our clients and our shareholders for their ongoing support and our employees for their dedication and commitment to driving our continued success. Now I will turn the call over to Gary to share more about our performance and business strategy. Gary?

Thanks, Frank. And thanks again to everyone for joining us this morning. We continue to drive solid results demonstrating our ability to deliver consistent performance and execute our strategic plan. We are particularly pleased with the growth in our international business and we are on track to achieve our full-year financial objectives.

My remarks today will focus on two areas, the first being key sales highlights which are driving organic growth and performance results, including in-quarter highlights from each of our three markets. The second area is a global market trends that reinforce our innovation investments and are driving demand for FIS solutions.

Turning to slide 8, I will begin with an overview of key sales highlights. We see ongoing demand in all the markets that we serve. We continue to add new clients and expand existing relationships through new logo sales and cross-selling to existing clients. We are also seeing continued opportunities around large and complex deals in the international and global financial institution markets where FIS is uniquely positioned to deliver comprehensive consulting, technology and outsourcing service and support. We feel good about the strength of the sales pipeline and expect new sales contract value in 2013 to exceed our 2012 results.

Next I will provide sales highlights for each of our three key markets, North America, international and global, beginning with our international business given their accelerated progress this quarter.

Echoing Frank's comments, we are very pleased with the momentum in our international business. Organic growth accelerated to 12% in the quarter with double-digit growth across all geographic regions. We are executing against our sales plan and remain encouraged with the strength and quality of the sales pipeline. We continue to see increased opportunities around long-term outsourcing arrangements which provide more predictable revenue and profit streams.

There is great growth potential in Europe given client demand for solutions and improve their efficiency and profitability which play to our strengths. As an example, Barclays Bank recently renewed its existing core processing relationship and in doing so will upgrade to the latest release of our core banking platform, giving them access to a much broader solution set and functionality.

In addition, we are seeing opportunities to penetrate the mid-tier market in Central and Eastern Europe where we recently launched a new real-time cloud-based core banking utility solution with our hosting partner.

Turning to Asia, we continue to see strong demand for core processing upgrades including [HeiHan] credit union in China and [K Bank] in Thailand. In addition, we are having tremendous success deploying our switching technology in new markets throughout Asia which further signifies the success we are having to leverage our technology capabilities across our global business.

As we announced earlier this month, FIS has been selected by eftpos to build a new centralized payments hub in Australia replacing the existing bilateral networks. This is an important signing as approximately 70% of Australia's debit transactions are processed through eftpos. FIS will provide ongoing processing under a multi-year agreement.

Moving next to our global financial institutions market, we are making focused investments to expand -- further expand and grow our relationships within GFI. As we have discussed in prior calls, this market consists of the largest financial institutions in the world doing business across broad geographic areas. Demand is active in this market for a strong partner to help free up resources and capital to achieve transformative profit producing customer centric innovation.

We are currently involved in active discussions with several prospects involving large multi-year transformational outsourcing projects around global wealth, commercial and retail banking operations. These dynamics are also driving very good growth in our consulting business both in North America and Europe.

Finally, in our North America market we see continued opportunities around our full range of solutions. While there is a consistent bias towards outsourcing, we are also seeing activity around in-house platform upgrades. There are several examples of key cross-sell activity in the quarter including the Bank of Montreal, which will deploy our best-in-class check imaging software, and with Northern Trust and Bremer Bank who will deploy our mobile and consumer ebanking solutions.

Bremer, as you may recall, recently migrated to our FIS core solution. We also saw continued demand for our services and infrastructure support capabilities, including expanded agreements with SunTrust and ING direct. Additionally, we are very pleased to announce a new call center agreement with MCX where we will help bring their mobile commerce solution to market through a suite of FIS solutions and services supplementing our existing relationship.

Across all these markets financial institutions continue to shift investment dollars away from internal cost centers and redirected their spending toward growth by improving integration across channels and driving new ways to interact with their customers. The desire by consumers globally to bank any time everywhere is fueling important change around the delivery of financial services which is accelerating interest in our broad range of digital channels. This leads to my second discussion area, FIS solution innovation.

We are very pleased that our investments in solution and service innovations are hitting the focal point of market demand. Driven by consumers' centric use of mobility, social channels and the opportunity in analytics, the financial services industry is in the midst of the most significant evolution involving customer delivery in 40 years. This evolution drives financial institutions, retailers and alternative payment providers to engage with consumers in new ways and to build customer loyalty through digital channels, which is fueling new opportunities for partnership and collaboration.

Our long-standing relationships in the core banking, payments and resale space place FIS in a unique position to help move the industry forward. As a result we are seeing very strong interest around our FIS money movement solutions, including our mobile wallet with cardless cash access.

Many of you had the opportunity to preview this solution at our investor update. It was also recently showcased at the Money2020 conference which garnered significant national TV and syndicated news coverage and very positive feedback with conference attendees. Including the newly planned launch by City National Bank which we announced in early October, FIS cardless cash access will be deployed in Los Angeles, San Francisco and New York City over the next few quarters.

Additionally, this quarter we introduced our new FIS Active Analytics suite which helps financial institutions tap into new revenue streams through more precise segmentation and dynamic cross-sell capabilities. FIS Active Analytics is built using our extensive data analytic capabilities which include market leading merchant authors, loyalty and rewards programs as well as segmentation and tailored pricing capabilities.

This suite and our digital solution investment underscores FIS' commitment to lead the industry in delivering innovative solutions that drive new revenue, expanded wallet share and expense efficiencies and create deeper more profitable relationships for our clients.

Turning to slide 9, in summary, we feel good about our competitive position in all three of our markets and our ability to generate new sales as evidenced by our continued growth and strong overall performance. We continue to advance our business objectives to accelerate growth in our international market and invest to further expand and grow our relationships within global financial institutions.

We are seeing strong market interest in our innovation, especially in solutions that are modernizing customer interaction models such as cardless cash access solution and Active Analytics suite. Finally, we are very pleased with our progress and results. Our momentum is strong, demand for our solutions remain substantial -- all of these are very good indicators that 2013 will be another year of strong predictable performance from FIS. Now I'd like to turn things over to Woody for the financial update.

Thanks, Gary. I will begin on slide 11 with a summary of our consolidated results. Consolidated revenue increased 5% from both a reported and organic basis after normalizing for currency and acquisitions. EBITDA growth outpaced revenue growth with an increase of 6% to $470 million. As a result EBITDA margin expanded 50 basis points to 31.3% from 30.8% in the third quarter of 2012, reflecting favorable revenue mix and disciplined cost management.

It is not on this slide, but other income and expense was $7 million favorable to last year's third quarter primarily due to investment gains that were realized on the sale of marketable securities and foreign currency gains. The investment gains were contemplated when we put our plan together for 2013. Adjusted net earnings from continuing operations increased to $218 million and adjusted earnings per share increased 17% to $0.74 from $0.63 in the 2012 quarter.

As Frank said, it was a very good quarter anyway you look at it. Year to date revenue increased 4% on both a reported and organic basis. Adjusted EBITDA increased 6% to $1.35 billion and the margin expanded 40 basis points to 30%. Adjusted earnings per share rose 14% to $2.07 per share.

Next I will continue on slide 12 with the review of segment results. Financial Solutions revenue increased 2% to $579 million in the third quarter and grew 1% organically driven by the growth in consulting and digital delivery channels. Financial Solutions EBITDA increased 7% to $239 million and EBITDA margin expanded 170 basis points to 41.4% driven by disciplined cost management and increased termination fees compared to the prior year quarter.

As anticipated and communicated on prior quarters' calls, Financial Solutions had had particularly difficult comparisons related to prior year de-conversions which affected growth in current year processing and professional services revenues.

Turning to slide 13, Payment Solutions revenue increased 4% to $602 million reflecting growth in document output solutions, card loyalty programs and network solutions. Strong software license sales and higher termination fees also contributed to the revenue growth.

In the third quarter our check related business experienced growth due to strong license sales which resulted in an increase in revenue to $115 million from $107 million last year. Year to date revenue from these businesses was $324 million, consistent with the same period last year. Payment Solutions' EBITDA increased 9% to $255 million in the quarter and the margin increased 170 basis points to 42.4% driven primarily by favorable revenue mix.

Now I will cover an international business on slide 14. Organic revenue growth in our international business accelerated to 12% in the third quarter driven by double-digit organic growth in all regions. The growth is being driven by strong sales execution, implementation of deals previously sold, and ongoing demand for consulting services.

International EBITDA increased 14% to $81 million in the third quarter. EBITDA margin expanded 110 basis points to 25.3%. Corporate expense increased $18 million to $106 million in the quarter driven by higher incentive compensation and the healthcare -- and healthcare costs. This is consistent with the level I guided on last quarter's call.

Moving on to cash flow on slide 15. Cash flow from operations totaled $311 million in the third quarter 2013. Capital expenditures totaled $82 million or approximately 5.4% of revenue, which brings us to free cash flow of $229 million compared to $193 million in the prior year quarter. We continue to anticipate free cash flow for the year to be in line with adjusted earnings. Our uses of free cash flow during the third quarter remain consistent with our capital allocation priorities of investing for future growth, maintaining a strong balance sheet and returning cash to shareholders.

As depicted on slide 16, we returned $189 million to shareholders in the third quarter, including $64 million in dividends and $125 million in share repurchases. We repurchased 2.7 million shares in the open market at an average cost of $46.69 per share. Year to date we have repurchased 8.2 million shares at a cost of approximately $350 million. The share repurchase program drove a decrease in our diluted share count to 293.2 million in the quarter from 297.9 million last year.

At the end of the quarter basic shares outstanding were 291.1 million. Approximately $300 million remains available under the existing share repurchase authorization. Debt outstanding totaled $4.8 billion as of September 30. The weighted average interest rate was 3.8% at quarter end. Total debt to EBITDA was 2.7 times. This is slightly above our targeted debt to EBITDA ratio, which is at or slightly below 2.5 turns. We anticipate reaching our target by the end of the year.

Moving on to slide 17, we are updating our outlook for the full year. We now expect reported and organic revenue growth of 4% to 5%, an increase from our previous range of 3% to 5% for organic growth. We continue to expect margin expansion to be towards the lower end of our original 30 to 50 basis point range for the full year due to revenue mix.

We have narrowed our range for adjusted earnings per share to $2.80 to $2.87 per share which represents growth of 12% to 15%. This compares to our prior guidance of $2.77 to $2.87. Finally, we continue to expect free cash flow to approximate adjusted net earnings.

Before I open the line for questions I would summarize a few key takeaways for the quarter. The third quarter was a very strong quarter by all measures. We are encouraged by the accelerating organic revenue growth rate in our international business. We are updating our guidance to increase the lower end of our guidance ranges for organic revenue growth and earnings per share. And 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 third-quarter results. Operator, we can now open the line for questions.

(Operator Instructions). Ashwin Shirvaikar, Citibank.

Good quarter here. I guess my first question is with regards to the large deals that you continue to sign and have signed already. Can you provide us with an update on how some of them are progressing? You know, deals like Sainsbury and India and I know the eftpos thing is new, but on that. And related -- I wasn't clear if the BMO check imaging thing is incremental to what you had or were you just announcing like a milestone or something like that?

Yes, Ashwin, this is Gary. Let me hit these and then the guys can add anything they want. The BMO one, the check imaging deal was incremental. That was a new win for us and we have obviously got substantial presence in the check imaging business and so that is a very nice win by the team in North America selling that product to BMO.

Sainsbury is doing very well, we are still in the process of finalizing the agreements, but, as we announced last quarter, we are actively already engaged with the client on deployment. And that bank will be ramping up a throughout 2014 and they are already paying for the services that we are providing today on a professional services front. So Sainsbury is going very well from a project standpoint, implementation standpoint and even sales standpoint.

You also highlighted the India ATM business. That project is going very well. I was over there earlier this year; I am scheduled to go back over there in the next month. But that project is progressing on target, on budget, on schedule so we are very pleased with the results. And we are starting to see obviously some of the results of these projects flow through the financial results of our international business.

The eftpos deal just got signed so it is just getting started. But once again, will be a very significant project once we get that fully deployed throughout 2014.

Okay and your comment with regards to 2013 bookings being better than 2012, should we expect that to have a corresponding benefit on revenue growth in 2014? Was that the implication or is there something different about the nature or term or ramps associated with these contracts that you have been signing that can affect that?

Well, we will certainly talk and provide guidance for 2014 at the start of next year. But we do believe that our total contract value metric that we follow internally is a good indicator of our sales engine. And we do look for that sales engine to push more sales results than the prior year.

And as you would expect, that is a good contributor for us for the future. These contracts come on in different timeframes, some of the projects are longer in nature and some of them are short like the BMO license deal on the check imaging. So we will provide guidance early next year. But we think the sales engine is performing very well in the markets.

But, Ashwin, to restate the obvious, right, the more of the larger deals we get signed and sort of in our backlog the better visibility we have into our revenue growth in the out years.

Yes, you look at that, Ashwin, you look at the larger deals and some of them take a while to come on completely. But when you look at the years 2014, 2015, 2016 they have significant impact.

Understood. Okay, thank you, guys.

Dave Koning, Baird.

Great job again. Yes and I guess the segments are all doing quite well. The one that slowed down a little bit is financial. I know through 2012 it grew kind of 6% to 8% through the year and this year it has decelerated a bit. Maybe you can give a little more color on that and if this is kind of a short-term slowdown. It sounds like the pipeline is so good that we shouldn't really worry about it much, but just wondering what has progressed kind of in the last six quarters or so.

Yes I think we tried to kind of give you some color around that last quarter and this quarter in that. We had a large de-conversion last year so we had processing through the third quarter last year around that, as well as services connected to the de-conversion. We also had a full ramp up of another global commercial services deal in the third quarter. So had some pretty challenging comps in the third quarter. Tried to give you guys some color around that. I think it is more short-term in nature than long-term in nature.

Okay, great, great. And then I guess the one other thing I just wanted to ask a little more about is I know this year I think the M&I termination fees are going to be in the ballpark of $40 million. Just if that is kind of on track and that is kind of the headwind that we could expect into 2014, is that still pretty fair?

Yes. No shift in the BMO termination fees, that $40 million of the timing of that $40 million is exactly what we've been talking about for a number of quarters now.

Okay, great, thanks. Great job.

Brett Huff, Stephens, Inc.

Good morning and congrats on a nice quarter. A couple questions. One, as we think about -- and I know you are not giving guidance for 2014, but I just want to make sure that as we think about the 30 to 50 basis point margin expansion this year -- and we are coming at the lower end I think because of some of the mix.

As we look to next year I think everybody is trying to figure out have we sold enough this year in the bookings to help the grow over in EBITDA next year from M&I. But just given the margin profile this year at the lower end of the range, how should we think -- what are the benefits that are going to get us potential margin expansion next year as we look forward?

Yes, good question. I think a couple of things. One we have been talking and seeing a good bit of change in mix. We continue to see less and less software sales as a part of our overall revenue composition compared to the relative size of professional services. Those professional services are adding overall growth in revenue and producing good profit dollars, but they don't come on at the same margin rate as a processing dollar. So we've seen sort of some expectation around the lower end of our range there.

Those term fees come on at a 100% margin, so they are challenging to replace that profit. But we have seen very good growth in professional services; we've seen very good growth in a number of our different new innovative type services. So we feel really good about the revenue side of the equation for next year.

Margin, we continue to look at cost every year. We continue to make sure we take a turn at the dial and get as efficient as possible every year and we will give further guidance in 2014. But we feel good about the profile we have laid out for you guys, that sort of four-year profile on 4% to 7% revenue growth and 30 to 50 basis points of margin expansion. So we are still hanging on that guidance.

Yes, I think that is right, Brett. I mean when you look I mean obviously we said very early on when you start looking at replacing M&I it is going to come on in a number of different forms and a number of different areas, whether we highlighted some of the international success of India ATMs and Sainsbury.

But frankly even some of the electronic delivery channels that I highlighted in my prepared remarks, when you look at the volume adoption there as well those products come on at very high margins as they can continue to grow. So to Woody's point, there's going to be a different mix but we are very comfortable with our guidance for the future and obviously we will be sharing more about that in 2014.

That is great. Just one follow-up. Can you give us a TCV for the Australia eftpos? I think that we were all pleased with how large the India ATM deal. And I'm trying to figure out is the TCV sort of that size or can you give us any color on that?

Yes. No, we are going to try to stay away from individual deals. It would be considered in our pipeline a very large transaction for us, but it is smaller than the India ATM transaction. But it is definitely a very noteworthy signing for us in Australia.

Great. Congrats on that and thanks for the time.

David Togut, Evercore.

Good to see the acceleration in international organic revenue growth and thanks for the helpful details on that. Can you update us on the growth in the Banco Bradesco joint venture in Brazil, specifically what type of year-over-year account growth you saw in Q3 and what sort of growth you expect over the next 12 months or so?

Yes, I think as we talked about full color on international, we saw double-digit organic growth in all regions, that would be Asia-Pacific, Europe as well as Latin America. Looking at the rest of Latin America outside the joint venture we saw very significant growth and saw double-digit growth in overall Latin America including right at double-digit growth in the joint venture.

We continue to see good adoption there. We continue to see additional services and add-on's there. So very pleased with how the venture continues to perform. We wouldn't change any of our outlook, we continue to believe we are going to get double-digit growth out of that entity for the foreseeable future, David.

David, what we like is that all the regions grew internationally for us, so we were pleased with that.

Can you sustain double-digit revenue growth in Brazil despite the slowing in the economy?

Right now, yes, I think for the for seeable future, as Woody said, I think we do believe we can. The joint venture is bigger than just Bradesco, but all of our partners continue to operate well in that market. Payments are growing very, very rapidly. As we all know, we have got the World Cup and Olympics coming.

And so there is a lot of big catalysts that we think will further propel the payments market for us. And so we do, we feel good about Brazil. And all indicators are across the board for us in that market is we are not going to see significant impact in the foreseeable future.

Check imaging business grew for the first time in has to be many years. I guess if we take out the BMO check imaging deal what do the underlying trends in that business look like and how should we think about that business let's say over the next year or so?

Well, as we talked about in the past, David, check imaging -- this is one of those businesses that you wouldn't get into in 2013, but we have been in it for a substantial amount of time. And frankly our leadership in that group has done a phenomenal job. We actually saw growth in our processing business as well, just not the large software license deal.

And as we talked about in the past, what is occurring is the volumes continue to drop in financial institutions and they are now across the board getting to a level where people are looking to outsource that. And so, our sales success has been strong in that market. Obviously our leverage and scale is very strong as well. So it comes on at good revenues and good profit for us. So we think it is going to continue for a couple of years at least with being a positive contributor.

And, David, there is a movement toward outsourcing because a lot of these who do it on their own because of the volumes going down can't do it cost-effective anymore because of the unit cost. So there is movement toward outsourcing for those who were doing it themselves and obviously that is an opportunity for us.

So, David, if you go back the last couple of quarters we had seen the rate of decline in that business beginning to slow. We said a couple of quarters doesn't necessarily make a trend. Even if you pull the licensing deal out that rate of decline continues to slow. So we've got three quarters in a row of good performance out of that business unit.

And that is as much -- we are also bringing on new customers all the time in that business. So it's a combination of those two things impacting those numbers.

Final question -- quick final question for me. Woody, you kind of reiterated the long-term model of 4% to 7% organic revenue growth. You are at the lower to midpoint of that range for this year. What would it take you to get up toward the higher end of that organic growth target over the next 12 to 24 months?

Well first, remember this year had about 100 basis points of headwind from the BMO de-conversion. So looking at it in a more normalized view we were more in that 4% to 5% already. We continue to see the larger transformation deals, we continue to see heavy consulting, but these larger transformative deals could definitely accelerate growth for us.

Yes, I think David, if you watch for the pipeline on the larger deals as we watch it closely and as that continues to grow we become more confident of our organic growth and what it could be.

Thank you very much.

Glenn Greene, Oppenheimer.

I guess the first question may be a financial for Woody. But specifically on the financial margins, despite the somewhat soft revenue growth which I know you sort of anticipated and called out. But maybe you can sort of help us understand how you got 170 basis points. And just broadly, I mean you have been talking about the revenue mix not helping you but the margins actually look really strong this quarter across segments. Seemed like a major drag was the corporate.

Yes, we saw some higher license fees in the third quarter than anticipated. We have kind of planned for them for full year, but think they may have flowed into the third quarter. We have seen a little higher termination fees in the course of the year as well as through the third quarter. So we had a couple of higher-margin items that we had sort of planned for full-year that flowed into Q3 versus Q4, Glenn.

Any impact of 4Q that we should be thinking about as that relates to that?

Well, you know, overall still looking at the guidance we kind of moved up the 4% to 5% on the revenue side of it. But we can't -- we don't anticipate having that same level of licensing in the fourth quarter.

Okay. And then maybe for Gary, just a quick update on the Capco traction you are seeing both in the US and Europe and maybe an update on MCX progress?

Yes, on Capco we continue to execute very, very well. Our consulting business both in US and Europe, it continues to perform at double digits. The engagement in the global financial institutions, as I talked about in my prepared remarks, I mean we are really continuing to see great traction around consulting. So we are very pleased with Capco, we are very pleased with what is in our pipeline and frankly some of the results we have already had through signings there.

So Capco has continued to be a great performer for us over the last couple of years. When you look at MCX, MCX continues to grow very well. We highlighted the Money2020 conference. There was a lot of activity around MCX at that conference as well. We talked about the new signing of the call center business which augments our prior signing with them, so our relationship continues to expand. And we think there is still good potential for that engagement in the long-term to generate some meaningful revenue and profit for FIS.

Any idea on sort of a timeframe for like a full rollout of it?

We are leaving that up to them. I mean, they are in control of their timeframe. We are doing some work for them as we speak. And so -- but we are going to leave it up to them to roll out the timeframe for deployment.

Okay, thank you.

Darrin Peller, Barclays.

Just want to start off with first the mix again in terms of what is growing and what is really not in terms of how that impacts margin sort of as a follow-up question to earlier. Obviously in the payment side we saw card loyalty and output you guys called out as well as the network solutions. I mean are those the areas that you would expect to continue showing strength? And can you just touch on whether those are really margin accretive or margin dilutive to the rest of the business in the payment segment?

And then similarly for financials, a little bit more on Capco on just the consulting side overall. There's sustainability and growth in that area given sometimes it is perceived to be a little bit more discretionary at times. And the margin profile, how that can impact the margins in the business over the next year?

Yes, if you go to payments I think the ones we called out are the areas we continue to expect growth out of. I would tell you they come on at margins at or above overall Company margin. So those revenue dollars are very high quality revenue dollars and we are excited about the growth in those areas. We've also seen pretty good growth out of bill pay still, continue to see growth there which is obviously good margin business as well.

Moving to FSG, we've seen professional services both in the Capco consulting dollars but also what I call sort of the traditional FIS consulting dollars. The traditional FIS consulting dollars are less discretionary. If you look over the past several years including through the financial crisis, those type services are ones that are more mission-critical to the institutions.

The consulting dollars are in fact that. They may be more discretionary, but as the institutions have come out and started looking forward again in how to repair brand, how to improve customer experience, how to reduce cost in their business models, we've continued to see a lot of activity with the Capco group and the expertise those guys have in that area.

And, Darrin, in the area of Capco too, it's interesting some of the things they're doing in change management and so on, where that is becoming much more sticky, as we would say, because when a client decides to go and use us for doing it, it is not so discretionary anymore, right, they are committed to a certain process.

Yes, that was kind of the point I was going to make, Darrin. I mean we use the term consulting to reference Capco, but the reality is what we have done over the last couple of years the team has done an excellent job. While consulting is still a component longer-term professional services, longer-term project work is becoming a broader and broader component of their book.

So it becomes a little less lumpy when you think about those because those projects can spread 12, 18, 24 months. And then as Frank said, as we start getting into some of the change sourcing areas that we've announced in prior quarters, those are multi-year. So just like everything we have done traditionally over the years, as we've had a lot of businesses that will have lumpiness in their revenue line and we try to move those to a more reoccurring model. International is a great sample of that. We've seen that at Capco.

And then to Woody's point, when we think about the professional services on the FIS side -- that is really wrapped around our FIS product. So it really is part of -- we've had professional service engagements that have been going on for 10 years because it is just part of delivering that product and/or service to that the financial institution. So we feel very good about managing the discretionary side of Capco at this point in time. As I said, it keeps becoming a smaller percentage of the overall revenue.

All right, that is promising for next year. Thanks, guys. Just one quick follow-up on the -- back to the term fees and the timing. I know there was approximately $40 million expected and then a 1% headwind from the overall -- for the year. But can you just give a sense on, again, timing on -- how much might have impacted this quarter's acceleration versus last quarter's year-over-year organic growth rate? And then just remind us, I mean all of that should roll off by the end of this year?

Yes, the BMO term fees were about $40 million, 70% first half of the year, 30% in the back half of the year, no shift in that timing at all. We did see a little bit of additional term fees in the quarter as well as some licensing fees in Q3 and that is what kind of was favorable to the mix this quarter. That was probably -- the licensing fees were -- we anticipate a pull forward from Q4.

Okay and, again, the whole 1% sort of net impact of all the different moving parts anniversary to the end of the calendar year, right?

That is correct.

Absolutely.

Great. Okay, thanks again, guys.

Greg Smith, Sterne, Agee.

Can we just get what the actual term fee number was in the quarter?

I don't have that right in front me. I can get back with you on that one.

Okay. I mean it was materially above $70 million?

No, it wasn't materially above where we already guided to. We had the BMO number already in there, we had one other small term fee in there, but obviously we are down to splitting hairs at this point. You're talking about something that is basis point of growth, you are not looking at a significant item for overall growth. The overall growth in the quarter was very solid across all markets.

Yes, okay. And then just wondering if you saw in any of your payment volumes in the US, did you see any impact from the government shutdown at all at the end of the quarter or into October?

We really didn't. We watched that very closely as you would expect. But, no, we didn't see any impact.

Okay. And then is there anywhere just geographically where you are seeing the economy start to improve in potentially benefiting your business as we look forward? It sounds like you are seeing pretty good demand everywhere, but is the economy a potential driver of anything significant into the end of the year and into 2014?

Well, I think as we have talked in the past and we continue to see that steady recovery, when you look outside of the US, really all of our geographic regions are doing very well. We are seeing a different demand depending on the region for the type of product and/or service that is being driven. But we continue to see good steady recovery.

Frankly a lot of the areas in international are outside of US that are still having problems, we really don't do much in those particular countries. Then when we get in the US we continue to see strong growth in the large financial institution space and the global financial institution space, good interaction.

Certain community markets, Community Bank markets, some areas of the country -- actually you get down to the individual financial institution, some of those are performing better because they are just -- they have weathered through the market crisis better than others. But across the board, as you said, we are seeing good strong demand and good strong signings by the sales team.

Great, thank you.

Andrew Jeffrey, SunTrust.

I have got a couple actually. Just overall it sounds like you feel pretty good about the integrated sales approach at FI. Could you just comment a little bit broadly on the competitive environment? Are you mostly competing with internal solutions when you go to market for third parties and have your competitors changed in a meaningful way?

Yes, well, I mean it is a good question. And honestly the answer to that question depends on the type of institution and the size of the institution you're dealing with. Clearly in the community markets in the US we've really not seen a material change in our competitors and it has been very consistent in our go-to-market strategy and our interaction with those competitors.

As you get into the large financial institution space, especially in the global financial institutions space, you are going to get into a different breed of competitor altogether. It typically is either going to be in-house developed or it could be other large consulting services firms, some of the large off-shoring firms. So there is a very different mix of competitors in that space.

Frankly when we get over in international I would say it is probably more heavily weighted towards in-house developed than even some of the other larger consulting firms. But the quick answer is it all depends on the size of the institution and the type of service that we are discussing with them.

Okay and if you look at your win rates just globally if you could generalize, would you say that they are stable or improving?

Yes, I would say we are seeing very good win rates in the deals we are pursuing across all of our markets. We will still get frustrated from time to time because we won't have participated in a deal for some reason. But -- and we still lose some from time to time. But all in all we -- given the strength of our pipeline, frankly given the strength of our signings year to date we feel good about our sales team's execution.

On balance we feel good about the results that we have had the last several years and going forward.

And then as a follow-up also, just looking at the US -- obviously we read a ton about mobile solutions in many different manifestations. I am not sure that we have seen a pricing model emerge. Could you just opine a little bit on whether you think banks are going to charge their customers for access to mobile apps or wallets, whatever the case may be? And if not, how -- what is the long-term economic model around those offerings?

Yes. No, it is a great question. We are seeing a little bit of all of the above at the moment. I have met with clients in the last 30 days that are charging a lot -- they are charging and actually doing quite well with adoption and penetration. I found customers who are pursuing a different path where they are providing it as a service to their clients to move some volume out of their more expensive channels.

So I do think that the consumer is going to push mobile and some of these new transformative mobile channels. And so, the result of that is financial institutions, like a lot of things that have done historically around charging for certain types of accounts or certain services, they are going to slowly move towards some type of way to monetize that channel. And I think it continues to be a consistent trend.

And if they are challenged does FIS still have a viable long-term revenue stream around those solutions (multiple speakers)?

(Multiple speakers) absolutely, absolutely. I mean, we have been paid for years for channels that they have given away as part of their competitive advantage. People don't charge to walk into a branch and we sell products and services for branch automation every day. And so, whether a client charges for a particular channel or not won't have any issue around our pricing or our ability to grow that business.

The determination for the banks is how to do it cost-effectively. They have to make the service available and it keeps growing and they know it, that is their challenge.

Okay, thanks a lot.

Tien-tsin Huang, JPMorgan.

Just want to build on Greg and Andrew's question, just I guess on enterprise sales or bank sales. Obviously banks facing a lot of complaints costs, I think you're looking at bank results, expenses were generally down. So surprised to see license sales coming through and you talked a lot about core upgrades in general.

So just curious, I mean is it -- is there a greater force here that's driving bookings? Are you in the sweet spot and other places are getting cut? Just trying to understand the health of discretionary spend and secular spending for banks in the business that you provide.

Well, I think there's a couple of things going on here. First, we talked about it over the last several years. Our breadth of solution offering allows us to be able to sell into the financial institution given where they are prepared to spend money. So when you look at FIS there is no one in the industry that has a broader product suite and a broader service mix than FIS. And so, we get to capitalize on our sales cycle based on where the current project or current focus area is for a financial institution.

So that is one backdrop. So if you want to call that being in a sweet spot then we certainly will take that. But it is really back to the breadth of solution. When you look at some of these signings, that is why I had to mention multiple competitors in the earlier question. There is not a classic competitor out there that has everything that we have to offer and therefore we can maximize that in our sales channel.

There is also -- keep in mind, Tien-tsin, these are mission-critical applications and services. You have to offer these type of services for the financial institution to operate. And so, the debate here is not whether you are going to offer mobile or whether you are going to offer wallet or whether you're going to offer some type of other change sourcing service. The question is when are you going to offer that.

And so, it is up to us to make sure that we've got the best solution in those areas and the most integrated solution and can drive the most benefit, to Frank's earlier comment.

And, Tien-tsin, to follow up a little bit on that too, one of our tenets is being able to offer our services and that reduced cost for the institution.

That's right, absolutely.

So as they look to us it is helping them in that model of reducing discretionary spend and reducing cost in their overall business model.

Yes, it makes sense, the idea of cutting and investing. Just as a build on that too, Gary, the professional services side of it. I mean, now that you own that, you have owned it for some time, is that increasing your win share you think in general?

Yes, I think it is. I think we are seeing the benefits of being able to engage early on in the consulting -- this is obviously more of a global financial institution comment or a large financial institution comment. But it is allowing us the ability to really get engaged on the front end when financial institutions are trying to diagnose the problem, right, and what the solution is to that problem. And that typically leads into professional services around project and program management and selection and deployment. And we have seen through some of our announcements in recent quarters that now resulting in long-term services engagements.

You're also seeing it over on our products side as well. A lot of the larger financial institutions, as they came through 2008, they froze their spend. And so, as they've recovered and as they started to invest you are now seeing them turn to FIS to invest in services around the FIS products they have to deploy to get them up to speed.

We talked about Barclays earlier. That is a big move for Barclays to move from a solution that they hadn't upgraded in a number of years up to our latest release. And so, that will drive -- that is a long-term project that will drive a lot of services and a lot of results for FIS as part of that.

Sounds like Capco is a good investment for you guys. Just two more quick ones just eftpos, is that -- I just want to clarify that is a build and run scenario? And is there a big -- I know it was a bilateral before, but anything unique to that from a technical standpoint in building it?

Yes. No, we will be taking them to a more modern switching software, more modern switching solution. And so, they will get some very strong benefit of that. But there will absolutely be an ongoing processing relationship.

Yes, so there is an ongoing piece. I guess that is kind of -- I wasn't going to ask it, but I guess I will ask it because I'm kind of tired of the Durbin 2.0 stuff. But with this whole dual signature possibility here, given that you guys have done some builds -- switch building in the past. I mean, could you enhance the NYCE network to be a more competitive signature equivalent to the extent that the signature market does open up in diversity as mandated?

Yes, absolutely we could.

Okay. All right, I guess we will ask more if we know more about it. Thanks.

Exactly, exactly. You will monitor it just like we will.

Cool, thanks.

Ramsey El-Assal, Jefferies.

Following up on Tien-Tsin's question about Durbin 2.0. You haven't seen any changing in the -- in banks' budgeting process or any kind of incremental caution related to this Judge Leon's ruling and banks potentially thinking they might have to spend some money down the line on revamping the systems based on that? Or is it just too far out to -- for you to --?

I think it is still a little too far out. The quick answer is we have not seen any material change. We are having a lot of discussions with clients about that. But as we've shared in the past, typically any type of regulatory inflection historically has always meant good things for FIS. So any change in the promoting work for us either around professional services, product deployment, processing, etc. So -- but it is still a little too far out.

Okay. On your payment segment revenues, I mean they came in higher than we modeled and the growth rate really ticked up nicely there. You talked about I think there are some higher termination fees, some strong software licensing revenue. You talked about the dynamics on the check side.

I guess my question is, how should I think about -- how sustainable is this uptick in the segment growth rate kind of going forward? How do we price out the different kind of drivers there? What can we expect from the payment segment in the last quarter here and more general terms just going forward?

Well, I think we were a little cautious on the improvement in the check related businesses for a couple of quarters. We are seeing a good result out of that group and some of the things that we've done there and the team is working very well there. So I feel a little better on that front. We are still seeing bill pay a little ahead of plan, so seeing good visibility there. Some of the license fee again might have been a little bit of a pull forward but we are feeling pretty good about where payments is heading.

Okay. One last one for me. Can you update us on your non-FI business? I noticed in a recent presentation it is not about 12% of revenues. Is this mostly check related services, some merchant processing? What else is in there? And how should we think about the sort of overall mix going forward in your business from sort of FI to sort of non-FI revenue?

Yes, no, it is a great question. Certainly a lot of our merchant business is in there, a lot of our prepaid business sold to nonfinancial institutions in there. Our government and tax business is in there. So the way we look at it we continue to push payment products in those particular segments.

I don't think you should see any kind of meaningful change in the percentage of the overall revenue of the Company. In fact, I think some of the areas like international could continue to outgrow a number of those areas. But it is still a very good business for us, it allows us to leverage our processing scale. It also allows us to leverage our Payment Solutions in those markets. And the team is doing a good job executing in those groups.

That is great. Thanks a lot. Really helpful, thanks, guys.

Dan Perlin, RBC Capital Markets.

I just had a couple of quick ones. One is, Gary, you did mention branch automation and it is kind of a theme that is building around some other companies. I am just trying to understand, are you involved in the workflow process? Because it does sound like it would satisfy a lot of those dual mandates bringing down costs but investing for more efficiency. I am just not sure I fully appreciate your level of involvement there, so that would be helpful.

Yes. No, Dan, we've got a full suite of solutions that are not only dealing with workflow but dealing with automation around a lot of the channels and interoperability of those channels. And so, we continue to sell our products and services in those particular areas.

But back to my comment earlier about the breadth of our product suite -- really when you start getting into a retail commercial banking environment there is really not a product and/or service that we don't offer in that space today. And having good success and sales around and some of the things around workflow and loyalty and some of the Active Analytics comments I talked about in the prepared remarks -- all of that kind of ties together in some of the stuff we are doing around branch automation.

Okay and just to make sure we are not getting over our skis going in the fourth quarter, Woody, you had talked about a $7 million gain in other income that was contemplated. Is there something else that is contemplated in the fourth quarter we need to be aware of?

No, that is really want we just wanted to make sure you guys picked up on that. We did include that in our overall plan. Weren't sure of the timing of when we would actually be able to liquidate the investment, but it ended up coming through in the third quarter. So, no, nothing specific.

Okay. And then on the -- I am going to go back to the Financial Solutions margins for a second. The termination fee looks like based on our calculation would have kept margins flattish. And so, you talk about pulling forward some of these license fees into the quarter. And again, I'm just trying to keep myself from kind of getting over my skis in the fourth quarter.

So if I think about it, we would have a similar amount of termination fees going into that quarter, but the license fees are probably going to get pulled down. And so, I am assuming margins have to come down sequentially, maybe materially in that division, is that fair to assume?

Well, I mean I think you can do the math, right, if you look at what we were describing as sort of low end of 30 to 50 basis points at 40 through the first nine months of the year. So, I'm not sure what is in your model, but you can kind of do the math and back into it from there. Net-net we did see some license fees that we thought would probably be Q4 pulled into Q3.

Okay, fair enough. And then just one other one, Gary. In the past you have talked about -- you kind of framed up actually the size of these new deals, the percentage of new deals that were coming in over $50 million or above. Can you provide that level of detail again this quarter or are you just kind of moving with that?

No, we are trying to give you some insight. I mean clearly some of the deals that we are highlighting are very large in nature and we continue to see the growth in our pipeline of these very large deals. So that has been a significant change for us over the last several years. And I think that is a benefit of bringing Capco into the Company. But also us, just the investments we are making around even at FIS in the larger bank market. And so, these results -- some of these deals where highlighting are very large by our definition.

Okay. And then are there incremental costs that we need to be thinking about as you kind of take these on since it is a big shift?

You know, the nice thing about a lot of these is it is good project work, it is good processing work, it is really right in our sweet spot around product. So we think we will continue to see good margin expansion in these areas. So other than we continue to ramp up people around some of our professional services, but it comes on at good margins for us all in all. So we are pleased with these signings.

Okay, and then just one last one just quickly on PayNet. I mean it seems to be getting an enormous amount of popular press. And one of the things I think you said you had been working on was getting that to a same-day settlement engine. Are you there yet? And if not, what kind of timeframe are we thinking about there? And I will hop off, thanks.

Yes, we continue to work on that, we continue to deploy that across certain payment types. And the team continues to make advancements around that. So we are comfortable -- you are right, I mean we want to now move it now to results, right? We have signed up a lot of customers, we have got to continue to build scale through that channel. But we are in good shape and the team has done a good job with building out the capabilities in PayNet.

Excellent, thank you.

Tim Willi, Wells Fargo.

I had two questions. The first was maybe just some bit of housekeeping, but could you remind us to any degree what kind of exposure you guys have to the mortgage industry? I don't recall it being noteworthy, I just want to make sure there is not something we should think about relative to what we are hearing about slowing origination activity or anything like that.

That is not an exposure area for us on the mortgage industry side. We don't have any.

Okay, great. I thought so. Just want to make sure. The second is going back to some of the stuff around payments and MCX and talking about some wallet initiatives earlier on the call. Overall how do you see I guess FIS and this whole mobile wallet discussion?

Do think banks will try to sort of create their own wallets absent any real traction from sort of the first wave of players and you have an opportunity to be the engine behind that? Or will MCX sort of be probably the biggest wallet initiative you have? And sort of trying to think multiple years out how you guys might look in that landscape and in the payments division.

Well, we fundamentally believe from a wallet standpoint the wallet does need to be branded by a financial institution, right. And so, we offer a very robust [lost] wallet solution that allows our banks to do just that. That allows us to -- allows them to brand their wallet under their name.

Again, I think a lot of people get caught up in wallet today, it is kind of the chicken or the egg scenario. And so, some people are waiting on what they are going to do with their wallet strategy, waiting for it to be acceptable at the point of sale. I think that is what is very interesting about our cardless ATM cash access product that we rolled out at investor update and then again at Money2020.

Our message is -- and that is using the FIS wallet branded by the financial institution. Our message is simple, is you need to start getting into this business and start training your customers to go to your wallet because when it is available and readily acceptable at the point-of-sale you want them going to that wallet for acceptance.

So we think that is the right strategy with our financial institutions. It resonates well. We continue to be very financially institution focused. When you think about MCX, keep in mind, we are building all of the rails and back office support systems on MCX. And so, it is key for us, as we have shared very early on, is to allow the financial institutions to engage through that network and we continue to work with MCX to make sure that happens.

Okay, great. And just one last question I guess on that topic there. Standards around mobile payments and wallets I think has probably been something that is not quite clear to the marketplace and inhibited I guess the evolution. So by you working with MCX and sort of their mission of really sort of creating the standards that they want in place as retailers, do you feel like that inherently gives you any kind of leg up around some of the other competitors in the wallet that you are sort of right there at sort of the buildup of standards with the largest retailers over time?

Yes, we do. We believe that the MCX signing is a very strategic relationship for us. Of course MCX has to be successful and that remains to be seen. But as we shared on the last call, it is certainly a very well funded initiative by a very large group -- a consortium of large retailers.

But as they work through their standards, as they work through their rules, we do believe and frankly based on the fact that we are building out all the behind-the-scenes rails for MCX and doing a lot of the back office services we believe it fundamentally does give us a good position to work with them in the future with our technologies and to benefit our financial institution.

Great. That is all I had. Thank you very much.

Thanks, everyone. Today we have gone a little beyond our allotted time. So we look forward to speaking with you again soon. Please remain on the line for the replay information.

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