Fiserv Inc (FISV) 2003 Q1 法說會逐字稿

Good morning, and welcome to the Fiserv earning conference call for the first quarter of 2003. We currently have 100 parties on conference, and all participants will be able to listen only until the question and answer session following today's presentation. At the request of Fiserv, today's call is being recorded, and also is being broadcast live over the Internet. The call is expected to last 25 to 35 minutes. And you may disconnect from the call at any time.

Now I would like to introduce the Fiserv management team in attendance on this call. Mr. Les Muma, president and CEO; Mr. Don Dillon, Chairman of the Board and Chairman of the Fiserv product and technology committee; Mr. Ken Jensen, Senior Executive Vice President and Chief Financial Officer; and Mr. Tom Hirsch, Senior Vice President and Controller.

At this time, I would like to turn the conference call over to Mr. Muma.

Good morning. And welcome to Fiserv's first quarter earnings conference call. We appreciate your participation and look forward to presenting our first quarter results and answering your questions. Fiserv would like to state that the company may make forward-looking statements regarding 2003 earnings targets, sales pipelines, and acquisition prospects during the course of this conference call. Such statements are covered by the safe harbor included in the securities litigation act of 1995. These statements may differ from actual results and are subject to a number of factors. Please refer to the last paragraph of our first quarter earnings press release for the discussion of these factors.

Fiserv started 2003 with record earnings for the first quarter. Our business model, which includes approximately 85 percent recurring revenue and associated cash flows continues to fuel Fiserv's growth. Most of our business units performed at or above our expectations in terms of revenue and profit growth. Through continued strength in both new client sales and cross sales along with our ongoing initiatives in the area of operational efficiency.

We also closed two acquisitions in the first quarter and announced three more acquisitions subsequent to the end of the first quarter. Of the acquisitions announced in April, one acquisition closed in April, and the other two are expected to close during the second quarter. Our overall acquisition pipeline continues to be strong.

We will start our review with Ken Jensen, who will present our financial performance. I will follow with a brief business overview, and we will then open up the lines for questions.

Ken?

Thanks, Les. As already stated, Fiserv started 2003 with record earnings for the first quarter. Earnings per share were 38 cents compared to 33 cents in 2002. The 38 cents in earnings per share for the first quarter of 2003 was within the range of consensus analyst's estimates and our estimate made in the last conference call. Our estimate of full year earnings per share for 2003 continues to be $1.58 to $1.62, and our EPS estimate for the second quarter of 2003 is 38 to 40 cents. Our first quarter processing services revenues of $625 million increased $64 million, or 11 percent over the first quarter of last year.

Revenue growth was positively impacted in 2003 by our financial institution service segment, which increased revenues $65 million, or 13 percent over 2002. Total revenue growth for Fiserv was negatively impacted by continued weakness in our international banking markets and by our securities and trust segment due to continued sluggish conditions in the U.S. retail financial markets. In addition, the securities and trust segments processing and services revenues were impacted by two one-time items in our securities division. Our securities division recognized a one-time increase in revenues of $16 million from the sale of investment securities, including all of our shares of Knight Trading Group.

Also the securities division incurred a one-time decrease in revenues of $17 million that resulted from an apparently fraudulent trading scheme at one of its broker-dealer clients. The company holds insurance that may cover part or all of this loss. However, no recovery amount is being recorded pending resolution of our claim. The company also intends to pursue all recovery avenues from the broker-dealer and its principles. Fiserv considers this loss to be highly unusual. We have not previously experienced any losses of this nature.

We are currently estimating 2003 second quarter processing and services revenue for Fiserv to be approximately $655 to $675 million dollars, which is an increase of 16 to 20 percent over the prior year. Cash flow provided by operating activities before the positive impact of the change in securities processing receivables/payables of $26 million was $116 million, increasing $10 million over the prior year.

Our first quarter operating cash flow in both years was impacted by the company's 401(k) contributions of approximately $38 million in 2003, and $32 million in 2002. Fiserv's first quarter capital expenditures including capitalized software were $36 million, a decrease of $5 million versus the $41 million reported in the prior year. Also in April, the company issued $150 million of 4 percent senior notes due in 2008. The company expects to use the net proceeds to repay debt and for general corporate purposes, including acquisitions. In addition, the company entered into interest rate swap agreements at the same time to manage its total ratio of fixed to floating rate long-term debt over the period of these notes.

I will now summarize our performance by business segment, starting with the financial institution service segment. Our first quarter operating income for this segment was $120 million, an increase of 17 percent over last year. Our increase in operating income over the prior year for this segment was due to a number of factors, including revenue growth across the majority of our business lines, operational efficiencies, and acquisitions.

In our securities and trusts segment, 2003 first quarter operating income was $7 million, which was a 15 percent decrease versus the prior year. Our securities and trust segment operating income continued to be negatively impacted by the very weak retail trading environment impacting our securities division.

Now I'd like to turn the call over to Les, who will provide additional details and highlights from the first quarter.

Thanks, Ken. As Ken indicated, our first quarter earnings performance met the street's expectations and management's forecasts. Our first quarter processing and services revenue was $625 million, represents an 11 percent increase over last year, resulting from a combination of acquisitions and organic revenue growth. Our acquisition revenue growth for 2003 was derived from our 2002 acquisitions, and one acquisition that was closed early in the first quarter of 2003. In January, we completed our previously announced plans to acquire AVIDYN, Inc., a Dallas-based provider of specialized health care industry services. At the end of March, we acquired Precision Computer Systems, a provider of bank processing solutions located in Sioux Falls, South Dakota.

In April, we announced three additional acquisitions. First, Reliaquote Inc., which closed in early April, is located in Falls Church, Virginia, and specializes in the marketing and sale of fully underwritten term life insurance policies, primarily through the Internet. Second, Insurance Management Solutions Group, Inc. of St. Petersburg, Florida, which we expect to close in June, serves the flood insurance market with a complete range of policy and claims administration services. IMSG will join Fiserv's existing flood insurance administration services division within our insurance solutions group. Finally, Wausau Benefits, a third party employee benefits administrator located in Wausau, Wisconsin, which we expect to close in late April, provides a full range of health and related employee benefit administration services nationwide. Wausau Benefits will join our recently announced health solutions group.

Our year-to-date internal revenue growth rate was 2 percent. This rate was negatively impacted by approximately 2 percent due to the continued weakness of our international banking markets and the security division that continues to be impacted by the sluggish conditions in the U.S. retail financial markets. We believe our internal revenue growth rate will improve in the second half of 2003. In the first quarter, our financial institution services segment continued its strong performance, increasing revenue 13 percent and operating income 17 percent over 2002. Fueling this earnings growth was continued internal revenue growth acquisitions and operational efficiencies.

Our ability to deliver a full suite of automation services and products as well as a broad offering of business process outsourcing services continues to provide a fertile sales environment. Significant client relationships signed in the first quarter include the following. KeyCorp, one of the nation's largest automotive lending institutions expanded an agreement with Fiserv to manage its entire portfolio of automotive leases. Ohio Savings Bank, a $14 billion financial institution based in Cleveland, selected Fiserv to provide a full complement of products and services, including core processing, teller and sales automation, and a call center support technology. Southwire Company of Carrolton, Georgia, one of the world's leading cable and wire manufacturers, signed a three-year agreement for medical claims processing, and related services. And under agreement with Bank Millenium of Warsaw, Poland, Fiserv will lead a technology project to centralize the bank's processing systems in 367 branches across the country.

These selected major client wins highlight the breadth of our product offering and our ability to successfully attract new clients away from our competitors and to cross-sell additional products and services to our existing 13,000 clients.

Last week, concurrent with our announcement of Wausau Benefits, we announced the formation of Fiserv Health Solutions Group. This groups houses our four national health plan administration brands, benefit planners, Benesit, Harrington Benefit Services, Fiserv Health Kansas in Tennessee, acquired last year from Willis and Company, and will house our Wausau Benefits brand after the transaction is closed. This group also includes AVIDYN, a unit that offers claims repricing services, data management, utilization review and case management services.

Fiserv is the nation's fifth largest provider of self-insured health plan administration services. Jim Cox, who was appointed president of the group, joined Fiserv through our acquisition of Truitt (ph), which included Benesit (ph) and Harrington. Prior to joining Truitt (ph), Jim was a partner in the C.P.A. firm in Minneapolis, which he and his partner, Kirt Lugg (ph), the President of our flood insurance administration services division, sold to Virchow Krause.

Yesterday we announced the hiring of Terry Wade (ph) to fill the position of president of our insurance solutions group. Terry's career started in public accounting with Deloitte & Touche, and has since included positions in accounting and management with Bett PLC (ph), First Image Management, Policy Management Systems Corporation, and Coniva (ph) Technologies, Inc. Terry's experience and background will serve him well as he takes on the task of directing and growing our insurance solutions group.

In closing, our business continues to grow within management's expectations. Our sales and acquisition pipelines remain strong across most of our businesses, and we anticipate continued growth, both organically and through acquisitions. Looking forward, we are confident that we will be able to attain our 2003 earnings per share target, which continues to be $1.58 to $1.62 per share.

We will now open the lines for questions.

Thank you. At this time, we are ready to begin the question and answer session. If you would like to ask a question, please press "*1". You will be announced prior to asking your question. To withdraw a question, press "*2".

Our first question today comes from David Togut of Morgan Stanley.

Thanks. Les, could you describe the internal growth in the core U.S. financial institution data processing business? Perhaps elaborate a little bit on the sources of pressure on internal growth and what you see changing in the second half of the year to lift organic growth?

Well, to begin with, the growth in that area, if you take the 2 percent organic growth that we had and back out the 2 percent that we know we lost due to the securities in the international banking, we're at 4 percent in that group, which was about where we expected to be, David, as we came off the last conference call. And, you know, we take a look at that banking group and the strengths in that area, the lending is a strong area in the banking group, and the others are just taking the normal ups and downs that you see in banking. I think as we get into the second half of the year, our increase is going to be because we'll capitalize on some new large contracts that we've signed like GMAC, which will be coming aboard, and some other nice contracts, as well as just the forecasts that have been provided to us by our businesses show that we should see internal growth rate increase as we come out of the second quarter and go into the third and fourth quarters.

Do you have a target for second half internal growth?

Higher than the first half is about all I'd like to say right now, David. I mean, I think we certainly will come off of where we are. Where we end up, I'm a little hesitant to pin a number down because I know you'll tend to remember it. Suffice it to say right now, we see a positive trend in the second half of the year.

Okay, and just finally, can you give us a sense of what perhaps the total order value was of the new bookings in the quarter, both new sales and cross sales?

You know, we don't track it that way because our business is so broken up in different types of contracts that it's very difficult to track just total bookings. But I can tell you that the overall sales pipelines and sales activities are very strong right now.

Ok. Thank you.

You bet, Dave.

Thank you. Our next question comes from Carla Cooper of Robert W. Baird.

Good morning.

Good morning, Carla.

You were a little actually below the guidance for the quarter that you gave on the last conference call, you know, by $5 million, which isn't much, by I was just wondering if anything really changed in the quarter vis-a-vis you're expectations, you know, in January.

I think the main things that changed is when we came out of that fourth quarter, we expected the first quarter to see at least a flat securities business, and the securities business kept going south on us as it did everybody else in that -- the top processes retail transaction.

And speaking of the securities business, since you've experienced a loss in this segment, I'm wondering if you've done anything sort of a matter of course to increase reserve levels, perhaps? You know, to what extent do you respond in your operations to the fact that you did incur this $10 million loss?

Well, I think as far as reserves go, we haven't made any material changes. We consider that loss that we had to be a one-time deal. Obviously we've never had one like it in the past. And we continually evaluate the customers of that particular operation, and eliminate the customers who we think have the tendencies to get us in trouble or could get us in trouble. We also continually evaluate controls and procedures in the operation and make improvements to those. So obviously we looked harder in both of those areas after that big loss, but as far as reserves go, we think we're comfortably reserved in that area.

Thank you.

Thank you. Our next question comes from Andrew Jeffrey of Needham.

Good morning. A couple of questions. Could you give us some insight into how your debit business is performing, and whether that can be a meaningful contributor in the second half, and also talk a little bit about pricing in that segment and whether there's been any new pressure on pricing at all?

The debit card business continues to be a strong growth business within Fiserv. And as far as the pricing goes, to get to that, I don't think we've seen a material change in pricing. Over the past two or three years, there has been a pressure on pricing in debit transactions as we all know, but I don't think anything over the past quarter or two has made a material change. Bear in mind that in that particular business line, we bought CNS late last year, and we're in the process of consolidating the businesses and evaluating and consolidating the platforms going forward. We are nicely ahead of schedule with both of those operations, but although we'll see growth in the debit card business, it's not going to be material compared to the base because we're so busy doing the consolidation at the same time.

So you still view that as an '04 event potentially in terms of getting the growth of that segment up toward market growth level?

That's correct. That's still what we see. We're very pleased with the consolidation progress, but we're still looking for an '04 event there.

All right. Thank you.

Thank you. Our next question comes from Kartik Mehta of Midwest Research.

Good morning.

Good morning, Kartik.

Good morning, Les. Last quarter you said -- when we talked about Europe, you really had not seen a pick-up. Has there been much of a change this quarter or last quarter in terms of what you're seeing from business out of Europe?

We announced that one large transaction in Poland, but overall, I would say there's been no material change. It's been flat to maybe down slightly on a year-over-year compare basis. And we don't see anything real exciting there right away.

So would you anticipate second half just the easier comps helping you in that business?

That's correct. That's exactly right, Kartik.

Okay, in terms of acquisitions, it seems like lately you've done a few more acquisitions than you did, you know, eight, nine months ago. Is that a function of just better pricing opportunities out there? Or is that a function of now being more focused in the insurance business?

Well, I think it's just really what opportunities exist at a particular point in time. And, you know, we're always very careful with our acquisitions to make sure that they're additive to our earnings, and sometimes we find a group of acquisitions that aren't ones that we should do so we don't. And other times, we find them quicker.

And you know, in the last quarter, we talked about check imaging and you said you're seeing more and more banks going towards check imaging. As that trend continues, are you seeing banks that were, you know, staunch in-house check processors coming to you and saying, hey, maybe it's time to look at the outsource opportunities that exist?

I think that is what -- we've seen that over the past several years, and I think that's going to continue. To answer your question directly on check imaging, that continues to be a very vibrant area in Fiserv. We're continuing to convert a bank a day onto our image technology. We're also very active in preparing for the laws to change which will allow the electronic or imaged checks to be used to pass between banks. We're very well-positioned to take advantage of that. So that whole area, I think, over time, is going to continue to make banks think twice about doing their own item processing because of the cost and complexity of getting into the image technology and then the image interchange.

Can I get a last follow-up question, Les? I know you said margins are better when you do the imaged product. Is there much of a difference in terms of revenue? As we see more mixed shift towards imaging, is there a potential revenue impact that could happen?

We're watching that very closely. Potentially, the guides say there could be a reduction in revenue and an increase in margins. We certainly haven't seen that at this stage because we're still in the, you know, the stage of converting, but that's something we've watched. I think the important thing is that the electronic transaction or image transactions are higher profit transactions for Fiserv than the old paper ones.

Great, thank you very much.

You bet.

Thank you.

Our next question comes from Brad Moore of Putnam Lovell

Thanks. Just a couple of quick things. Can you update on the status of your middleware product, your offering there?

The middleware product, which is the product that we're designing that interfaces all of our ancillary products into our core products has been released internally as being installed in several of our systems today. And it's something as I explained at the last conference call that we're excited about, because it will improve our ability to cross-sell because of the seamless fitting of these products together, but it's going to take time. Our centers are going to have to install this middleware, which all of them will, and the process is ongoing. I think that the -- what we'll gain out of that will be something that's gained over the next probably 12 to 18 months as that is installed.

Okay, and is that consistent with your prior expectations of when you thought you would roll this product out?

Yes, it is.

Okay, and then could you just repeat with regard to the gain that you took on -- I think you said Knight shares?

Yes, we took gain on Knight shares and also some Bisus (ph) shares.

Okay, and what was the - what was behind that? What was the thinking of taking those gains now?

It was really to -- that we had a one-time loss and we had a one-time gain.

Okay, all right, thanks.

Thank you.

Our next question comes from Craig Peckham of Jefferies & Companies.

Hi, it's Craig Peckham at Jefferies. How much of your revenue today is derived from the benefits area?

If you include Wausau in that, assuming that closes, it's in the neighborhood of $400, a little over $400.

Okay, and I'm just curious, how does the operating profitability on the benefits business compare to the sort of core banking area?

It's comparable to slightly above.

Okay, just a question on securities processing. If I compare the December quarter with the March quarter, you had a step down in revenues which you explained, but the absolute dollar amount of operating profit remained relatively stable. What are you doing there to control cost? Anything active that we should be aware of?

You know, in that business, we have spent the past 12 months plus trimming that business down, consolidating operations, shutting down Denver, shutting down Boca Raton, bringing it in. We probably are very close to the most we can do there until we install the CSS software, which could gain us some additional leverage in the technology area, and the real solution here is to get volume. We've trimmed from a cost standpoint pretty much all we can in that business, unfortunately. So we're looking for volume. And obviously volume comes two ways. One is waiting for the economy to turn and retail trades to pick up on their own. And second is through sales, adding new broker/dealers, and obviously we're doing that all the time, as our sales force is out there.

Okay, thanks, Les.

You bet.

Thank you. Our next question comes from Peter Heckmann of Stifel Nicolaus.

Good morning. Could you comment on the conversion - I don't think you commented on this yet, the conversion of your securities clearing platforms, how that's going, how that affected the margins in the first quarter, and when you expect that to be done and start to see some margin benefits?

I assume you're talking about the conversion to the new CSS platform?

Correct.

It has been partially accomplished. The front end portion has been accomplished. We're still in the process of preparing to convert the back end portion of it. So at this stage, the big leverage from a cost productivity standpoint is going to be when we install the back office. And that's probably still out three to six months.

Yeah, it's probably more fourth quarter.

Is it - we're looking fourth quarter, okay.

Okay, great. And then could you comment on the success, relative success of the Intria (ph) items venture, and whether that -- some of the things you're doing there, you might try and expand those offerings?

I'm going to let Ken answer that. He sits on that board and goes to Canada once a quarter.

Entry items has been a, you know, very much of a success for us. And we would obviously like to expand that type of an operation both further in Canada and also in the U.S.

Does that include the cash management and processing?

Yes.

Okay, great. Thank you.

Jennifer Dugan of Merrill Lynch, you may ask your question.

Yes, hi. I was wondering if you could update us on some of your cross-sale acceleration initiatives. Are those giving you any significant or material results yet?

You know, we continue to push cross-sales. At about the time of the last conference call -- I guess between the last conference call now we've had what we call our cross-sale boot camp where we bring people in and show them new products. That's a slow evolutionary process. I would tell you we're gaining ground. Are we satisfied with the ground we're gaining? We'll never be satisfied because there are so many things we can cross-sell. I think it's going to continue to gain speed there. We're going to have to get this middleware product installed. I think that's a key part of it, and continue to work on it. The upside is a lot more than what we've accomplished to date, but we accomplish more every day, Jennifer. I guess that's the best way to say it.

How do you think the best way is for us to track the success of those initiatives going forward?

It's going to be very difficult. We don't break that out, I know. One of the things that we're looking at is how and should we break that out. Right now, what you're going to have to do is just rely for myself and the rest of the management team to talk to you a little bit more in generalities about what's selling and what isn't selling. The things that are cross-selling very positively today are the image technologies, debit card, ATM processing, check processing. A lot of our lending products, we're cross-selling very nicely. But there's still a lot more to do there.

Okay, great. Thanks.

Thanks, Jennifer.

Thank you. Our next question comes from Ashwin Shirvaikar of Smith Barney.

Hi, thanks for taking my question.

Sure.

It's a follow-up on the earlier question on health solutions group. Could you delve a little bit into the regulatory and political dynamics in this segment? Is the segment more unionized? Are you able to rapidly take costs out, become a large low-cost provider given that it's an increasing part of your business? Could you go into that a bit?

We've experienced no union situation at all in that business. And as far as the dynamics of that business, we are doing the back office processing for health claims for self-insured companies. So we're behaving like the back office of an insurance company for companies in the United States who self-insure. And there is a trend to move more and more to self-insurance. It's a very fragmented market with a lot of different companies in it. We've acquired five in it already, and we see a lot more potential to continue to look at acquisitions as a way of growth, as well as leverage the strength of all these businesses against one another to gain economies among what we have. So it's the type of business we like, recurring revenue, we get paid by the policy and by the claim. Fragmented market, nice growth potential. And high technology too. Very technology-related. And those are some of the areas that we think over time, we can gain some economies by leveraging the technologies.

Okay, and a separate question on offshore. Could you update us on whether or not you're using offshore for software development and the potential for going off shore to take more costs out in terms of, you know, BPO-like operations?

We to date utilize some offshore capabilities in the area of software development, and it depends on the particular development project and its applicability to outsource. We also continue to evaluate outsourcing other people-intensive areas, but we are doing that not only in India and that part of the world, but also taking a look at moving some of that to Canada as we find out the benefits of the costs on the Canadian side are very positive. So today, the main thing we do is software development. We're looking at other opportunities down the road.

Okay, thank you.

Thank you.

Our next question comes from Tim Willi of AG Edwards.

Good morning. I just had a couple of additional questions in the benefits and insurance business. Could you talk maybe a bit in general terms of what the internal growth looked like this quarter and maybe put some kind of quantification on it and just how that stacked up relative to the last several quarters? And then could you give any color on what the internal growth rate of the Wausau business had looked like?

We are very careful to try to not to talk about internal growth, breaking it down that fine. Within Fiserv, the internal growth rate of that particular business is at or above our growth rate for the banking business in the rest of our outsourcing businesses. Wausau in particular, over the past three years since they spun out of the insurance company has been north of that. They've been growing in the 20, 25 percent a year range. Of course, they were much smaller, but they're now up to $120 million. So we're looking for good growth out of that entire business going forward.

Is there additional opportunity in the Wausau franchise? Or was it running a margin that you think is probably about, you know, where it will be, or is there some scale and efficiency you can bring into that operation as well?

I think from an immediate standpoint, their margins are very nice. They'll continue to grow within themselves, but we're not going to be leveraging anything significantly between them and the other BPO work that we do in the benefits area.

Okay, great. Thank you very much.

You bet.

Thank you. Our next question comes from Nik Fisken of Stephens, Inc.

Hi, good morning. If you look at your guidance of $1.58 to $1.62 and realize you're assuming a back-half increasing in internal growth, are you assuming a pickup in overall improved market conditions specific to bank technology or insurance or securities?

No, I would say - and Ken u might want to comment on this too -- I would say we're not anticipating any material change in that. It's based pretty much on the forecast off the business as it is today.

Yes, and there's probably a little pickup in terms of the securities business in their forecast.

And did I hear you right that you're moving to CSS in Q4, Ken?

Yes, that's what we're expecting to do.

Okay, thank you.

Julio Quinteros of Goldman Sachs, you may ask your question.

Sure, hey guys. A quick question on the treatment of the gain this quarter. The historical practice had been to book all of those gains below the line as non-operating income. What makes this sale different and why are you treating it as revenue?

This is actually the standard method that is recommended by our auditors.

And what change, I guess, versus the last, you know, couple of years where all of the securities sales have been booked as extra items below?

I think this was just more material in terms of size.

Okay, and then on the $17 million loss for the current quarter, you know, clearly you're not setting up any reserves or it looks like you're flowing all of it through the income statement now. What happens if you actually recover some of this money through the insurance claim that you guys actually have or through litigation? Will there be reversals?

Well, yeah, effectively they'll come right back through the P&L then and profits.

It would come back as profits? And I guess what I'm trying to get at then is, if you sort of normalize for the gain in the quarter and then for the whole $17 million write-off or the loss in the current -- related to this business, what is the -- sort of the run rate that we should be thinking about in the securities business?

From a revenue or profit standpoint?

From a run rate perspective.

Well, I mean the two just pretty much counteracted each other.

So what you see in that segment today is pretty much what we'd expect going forward, because it was just about a net to zero.

With a slight pickup.

So would there be other revenue gains, if you will, in the future quarters that we need to be modeling into the...

Well, I mean, if you're saying if there would be a recovery?

Right, that's kind of what I'm trying to understand.

I would say to you if there's a recovery, you probably should ignore it.

Okay.

From a forecasting standpoint or modeling standpoint, I wouldn't model any pickup due to insurance or legal claim.

And you know, to the extent there's a recovery, it's a one-time recovery.

Right, okay. Maybe just on another quick subject then, on the acquisitions for the foreseeable, sort of for the rest of this year, what should we be expecting, you know, in terms of sort of acquisition costs for the full year now? We're at about $79 million reported for this current quarter, and based on what you guys have already announced through April, it looks like we're on a pretty good clip here. Should we expect it to recede in the second half, or will we need to then start thinking about acquisitions headed into 2004?

It will just really depend upon what's available in terms of what we close.

Okay, and then on the $147 million or so of acquired revenues so far that you've announced, you know, you cited that you expected your acquisitions to be accretive, but the one point with $1.58 to $1.62 guidance that you guys gave doesn't change from where we were back in December when we didn't have this incremental revenue sort of modeled into the numbers.

You know, we always expect to make some acquisitions during the year that will help us achieve our targets. And, you know, some years, they're more additive than other years, and sometimes our internal growth is more additive some years than others.

So just generally when we do an acquisition, even though it's additive, we do not change our projections on earnings per share. Our target is in place, and some acquisitions are expected.

Right, okay, thank you.

Thank you.

Patrick Burton of Smith Barney, you may ask your question.

Hi, a two part question. The first has to deal with the Fidelity national acquisition of the Mutual of Omaha flood insurance business. Did you guys look at that? And any comments about potentially increasing competition in that segment? And then the second part of the question is just an update on the CNS acquisition. Thanks.

As far as the...

Fidelity acquired the insurance business in the flood area. So we are doing the processing business, but we don't do the insurance side.

As far as the CNS acquisition goes, we continue to be -- as I said earlier, to do very well on the consolidation or the assimilation of that business. We are combining managerially our business with the CNS business. We are in the final stages of evaluating the platform that we're going to go forward with, which our best guess right now is the combination of the two platforms. And that is on plan and on schedule. So we expect to start seeing real benefit from this acquisition as we get into 2004. Everything is on target, if not slightly ahead of target in all areas.

Thanks.

And thanks for that clarification, Ken.

Thank you. At this time, we have time for one last question. Our next question comes from Bryan Keane of Prudential Securities.

Yes, hi, good morning. A couple of months ago, I think you guys announced the loss of Sovereign Bank as a customer, but you know, the vendors who won that business from you guys are really struggling. Any chance you can keep that contract?

You never know on something like that. We still have a nice relationship with Sovereign because we're obviously still doing all their work on the check and the account processing side. Those contracts run through most of this year, so it's really a 2004 event. And should they ever decide for any reason that it's better to stay with Fiserv, we'd welcome them back with open arms.

Do we know how big of a contract in and revenue that is for Fiserv on an annual basis?

In total, it's somewhere in the neighborhood -- Ken, you remember what the number is?

What is it? It's a couple percent of our revenues?

About 2 percent of revenues in total that will really come off in two pieces. If it goes as it's scheduled now, the item processing piece is supposed to come off in the latter part of the third, early part of the fourth quarter, and the account processing piece not until the -- probably the late first quarter, first/second quarter of next year.

Okay, that's helpful. And then just a question of clarification for Ken. The $15.8 million of the gain taken, is that in the $55 million security processing number?

Yes, it is.

And is that gain also in the organic revenue number of 2 percent?

They offset, so effectively, you have some decrease because the loss was greater than the gain.

But the gain that was taken, is that calculated also and on the organic revenue growth number?

Yes, it is, as is the loss.

Okay, great. Thank you very much.

Thank you. At this time, I would like to turn the conference back to Mr. Les Muma.

Thanks for your participation. We appreciate it, as well as the questions. We're very pleased with the quarter that we just came off of, hitting our earnings targets, as you gentlemen know. And we look forward to very positive results as we go through the rest of the year. Thanks again for your participation.