Fiserv Inc (FISV) 2005 Q4 法說會逐字稿

Welcome to the Fiserv fourth quarter earnings conference call. All participants will be able to listen only until the question-and-answer session begins following the presentation. Today's call is being recorded and also is being broadcast live over the Internet at www.fiserv.com. The call is expected to last about an hour and you may disconnect from the call at any time. Let me turn the call over to Mr. Jeff Yabuki, President and CEO.

Thanks and good morning. As all of you know, this is my inaugural Fiserv earnings conference call. I'm very happy to be here. Joining me on the call today are Norm Balthasar, Chief Operating Officer, Ken Jensen, Chief Financial Officer, and [Tom Hirch], our controller. Before I get started, I would like to remind everyone that our remarks will include forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. There are a number of factors that could cause Fiserv's results to differ materially from our expectations including, but not limited to, statements regarding 2006 earnings and revenue targets, sales pipelines and acquisition prospects made during the course of this conference call. These statements may differ from actual results are suggest to a number of factors. Please refer to the Company's year-end earnings release, which can be found on the Company's website at www.Fiserv.com for a discussion of these factors and a reconciliation of non-GAAP fan measures discussed in this conference call.

As shared in our earnings press release, Fiserv had a strong fourth quarter, leading to record revenues and earnings for the year. We are very pleased with our results and believe that we are well-positioned going into 2006. For the full year 2005, revenues were up 11% to $3.7 billion, with increases across each of our business segments. Organic revenue growth was 8% for the full year. The financial segment's internal revenue growth rate was a solid 7% in the fourth quarter and 6% for all of 2005, excluding the large contract termination fee received in the fourth quarter. This was a dramatic improvement over the 2% level achieved by our financial segment in 2004. Adjusted 2005 earnings per share from continuing operations was $2.30 per share. While overall GAAP earnings for the year was actually higher, we believe that adjusted earnings from continuing operations is the best earnings measure for investors to evaluate our performance.

For the fourth quarter, our results were driven by a combination of strong organic growth and mix of businesses that delivered solid results. Revenues for the fourth quarter were $988 million, and when excluding the large contract termination fee were $961 million. Our adjusted earnings per share from continuing operations for the quarter was $0.56 per share. Our balance sheet was strong at the end of the year. In 2005, we generated over $430 million of free cash flow and over $900 million of operating EBITDA. We deployed our capital in 2005, primarily to value-enhancing acquisitions and repurchasing company stock. We repurchased 4.4 million shares in the fourth quarter, and a total of 15.2 million shares for the full year, at an average cost of $42.84 per share.

Looking forward, we will continue to build the Company for the long term while continuing to deliver solid financial results. In 2006, we will be primarily focused on three key areas of opportunity. First, we will continue our focus on delivering sustained organic growth across each of our business lines. We will accomplish this by acquiring new clients as well as increasing wallet share with increasing clients. This is a critical element in continuing to build our base of recurring revenues and related earnings. We recognize that consistently achieving above-market growth rates is not easy given our size and market share; however, we believe that our 2005 performance is a strong indicator of our ability to do just that.

Next, we will allocate our strong cash flows in ways that maximize long-term share shoulder value. We will continue to apply our businesses and specific capabilities that enhance our market position. Additionally, we will repurchase shares when it makes sense compared to other choices in allocating our capital. We have 3.1 million shares remaining under our existing repurchase authorization that could be completed this year. We will revisit the question of additional share repurchase during the year. Finally, we will invest in areas of business that lead to long-term differentiation for the Company and have the attributes to drive growth for the future. We will continually monitor emerging market opportunities and work closely with our clients to identify value-added solutions that will further our market leading capabilities.

During 2005, we invested in a number of initiatives that have potential to drive significant growth. Examples of future drivers including expanding our presence in electronic payments, and in particular bill payments. We enhanced our position in 2005 through the acquisition of BillMatrix. We view the payment space as a significant opportunity for the Company, and will focus additional resources on high growth areas such as debit, credit, stored value, ATM processing, debit and ATM networks and merchant and brands check image capture. In 2005, we also introduced the Fiserv clearing network. This proprietary network includes the outsource and in-house check processing clients the ability to clear both paper and image items in network and via external clearing options, such as the Federal Reserve, on a more cost-effective basis. This service allows financial institutions to take advantage of the aggregation power of Fiserv and is an example of how we can create unique advantages for the financial institutions that have a relationship with us today, and those which we will serve tomorrow.

In the lending group, we are responding to our client's desire to bundle more mortgage fulfillment services and move to an all electronic, paperless loan experience, or e-Mortgage. In 2005, we made additional technology investments to provide a unique, fully-automated system that electronically takes loans from origination through a secondary market sale. These types of innovative technology solutions lead to cost and process efficiencies that are only available for our clients and further differentiate Fiserv as the technology leader in the lending industry. We also began ramping up our capabilities last year to compete more effectively in the global economy through the formation of Fiserv Global Services, or FGS. We plan to leverage FGS to more effectively and efficiently serve our clients.

In January, we announced the acquisition of CareGain and Fiserv help. CareGain provides advanced technology, enabling customers to cost effectively create and administer consumer-directed health plans. This acquisition allows to us better equip financial institutions and health plan providers to deliver products will further accelerate the consumer-directed healthcare movement. Our broad set of capabilities which include health plan management, electronic payments and core banking, uniquely position us to intermediate nearly all of the touch points between patient, health provider, health administrator, and financial institutions. We see an opportunity for Fiserv to emerge as the ultimate market leader in the expected convergence of health and wealth in the United States. I am excited about the long-term growth potential of these and other initiatives that are currently underway. We will continue to update you on our strategic progress throughout 2006.

Looking forward to 2006 results, we estimate full-year operating earnings to be in the range of $2.46 per share to $2.53 per share, compared to adjusted earnings of $2.19 in 2005, which includes the effect of incremental share-based compensation expense, due to the adoption of FASB 123R. Based on what we see currently, we anticipate our results in the second half of 2006 to be moderately stronger than the first six months of the year due largely to sequential quarter-over-quarter growth in our lending and payments businesses. Beginning in 2006, we are modifying our precedent on earnings guidance. Historically, we have provided updated annual guidance, as well as an estimate for the succeeding quarter in our earnings call. I believe it to be in the best interest of shareholders to focus on the delivery of annual results in the context of longer-term targets. In that regard, I have used specific quarterly guidances as less meaningful and, therefore, we will no longer provide specific quarterly guidance. We will continue to provide annual guidance, updated quarterly, and focus our primary energy on delivering those results on a year-in and year-out basis.

As you would imagine, we are in the midst of reviewing many aspects of our businesses. We are planning to host an investors day at the end of 2006, at which time we will provide a comprehensive update on our long-term plans and vision for the future. We hope to see all of you there. As was announced in November, Ken Jensen will retire as CFO sometime in the mid to late summer of 2006. Ken is actively engaged in the business, working closely with me and the rest of the management team. I intend to name a new CFO in a time frame that will allow a smooth transition, and our plans are on track. I also want to recognize the efforts of our nearly 22,000 employees who deserve the credit for our strong results.

In the short time I have been here, I have been impressed by the organization's collective focus on delivering both for our clients and our shareholders. For that and the efforts of all of our colleagues, I say thank you for a job very well done. Lastly, I want to recognize Les Muma, who wasn't able to be with us on today's call. Les, one of Fiserv's co-founders, retired on December 1st after more than 20 years of outstanding service to the company. Thanks, Les, for all you did to build Fiserv into the great company it is today. [Valerie], we'll now open the lines for questions.

[OPERATOR INSTRUCTIONS]

Congratulations on the quarter and welcome aboard. My question relates to this the strategic fit between the three reporting units now at Fiserv and what your view is longer term as it relates to the very different segments of the business. Thanks.

Sure. We are looking at all the different businesses making determinations on what are the businesses that we have today, how do they fit together, and importantly, where might there be other opportunities for us to expand the business. For today, the financial institutions segment, the health segment, I think we mentioned during the call that there's some interesting opportunities that come together in the health savings area. Clearly, the investment services business provides nice profitability and cash flows for the Company, but we're really in the process of looking at how it all fits and how it comes together to build value for shareholders.

Any timeline on how long your decision process might be? I'm looking at the different parts.

I would expect that by the time we come out publicly towards then of the year at our investor day that we will have all of those issues resolved and be able to communicate where we are going.

Thank you.

Thank you.

Dave Koning from Robert W. Baird, you may ask your question.

Yes, good morning. The financial segment margins were down at year-over-year for the second quarter when -- for the second consecutive quarter when we exclude termination fees. And I'm wondering what the timeline is there for when you'd start to expect expansion again, and maybe you could just explain a little bit why they were down year-over-year?

Why don't I start on that and then I will turn it over to Tom, too. If we look at it on a year basis, our margins were actually up a tenth of a percent going from 24.1, to 24.2. And as we have discussed before, there are a lot of moving parts in terms of what happens to our margins. They will vary fairly significantly from quarter to quarter. For example -- I'm talking about the margins without the large termination fee of $26.3 million.

For example, the margin in the fourth quarter was affected, of course, by our investments, in particular our Australian investment. That had an impact on our margin of over five-tenths of a percent just by itself. The fact that we are no longer having our Canadian business entry items as an impact of a little bit less than five-tenths of a percent. Now, there are, of course, other things that had positive impacts, too. We would expect that our margins next year in this area would be approximately equal to what our margins were this year. Tom, would you like to add some stuff?

Sure, Ken. I think the other thing is when you look at our business through the year, what we indicated is that the margins do jump around. Historically in the fourth quarter, our margins have been a little bit lower due primarily to the mix of business. In the first half of 2005, our margins were higher, primarily due to increased software license sales and also contract termination fees.

In the second half of the year they were slightly lower, because we continued to make some additional investments primarily in the lending group, and those investments have come through in both the third and the fourth quarter. The other thing I would say is our health segment is down a little bit also in the fourth quarter, primarily due to our investment there in our [BPO] operation. So I think those are the primary factors for the year, and I think going forward, as Ken indicated, we anticipate all six will be equal or slightly above '05 for the year.

Dave, let me just add one other thing. I think from my perspective, coming in a little bit on the newer side of the coin, it's an interesting challenge to find the right point between maximizing current year margin and building for the future. And the quarter was strong, there were opportunities for us to make investments, and we took those opportunities and made them, given the termination fees and, frankly, given the healthy growth in revenues. And I would expect that as we continue to grow, where we have opportunities to incrementally invest because of strength in a quarter or strength in a period of time, that we will make that. But all of that is geared towards continuing to deliver, I think, very solid margins over an extended and sustained period of time.

That's great detail. Thank you.

Thank you.

Chris Penny from FBI, you may ask your question.

Yes, hi, thank you. Good morning. Quick question on just a qualitative discussion about your termination fees. They've trended up in the last couple of years, and I think you guys have done a good job of keeping them out of guidance, and they have been above average on your typical quarterly rate. I'm wondering why -- what do you see in these termination fees? And it's from a consolidation most likely, but I just want to get an understanding of what '06 and '07, do you -- will you continue to see them at an above average rate for those coming years?

We would expect them to go back down to more rates that they were back in '03.

And just, kind of, again, qualitatively, the reasons that they have been above average? Is it just all due to consolidation?

It's consolidations, yes.

Chris, this is Tom. These fees are very unpredictable. You go back two or three years ago they were probably around $10 million; the last two years, excluding the large one, were in the range of 30. In our plan for '06, we have budgeted a less amount of those termination fees, but they are very unpredictable and they do range, and it is primarily just due to acquisitions in the marketplace.

I think, Chris, what you are hearing is it's environmental, not -- it doesn't have -- it's not related to the business model, and we are, to some extent, subject to the whims of the environment. So to the extent that M&A activity ramped up and it happened to be the banks that we have relationships with, obviously, that would increase the level of our termination fees. Frankly, my perspective is I would rather have no termination fees because of the impact it has on our future earnings.

Right. And just to clarify one more thing on that, we do benefit also from our clients when they are acquiring other institutions, also, and so it does go both ways.

Okay. And a question on the BillMatrix. It is more of a [biller direct] type of model. I was wondering about as you integrate and leverage that infrastructure, do you feel that you can move it more towards a bank-centric model or would you have to acquire some assets on that side to move in that direction to favor -- to help support some of your banks and their efforts to bring down their cost of bill payment?

Over time it will probably become more integrated with our bank business, but right now they are growing so well on the biller direct model that that will be over time.

And, Chris, I think the other thing is the payments space is a pretty interesting space, overall, where you've got bank facilitated payments, you've got biller direct payments, you're going to have -- I think, ultimately, you're going to see direct consumer-to-consumer payments, different kinds of micro payments and other opportunities that we think loom very large for Fiserv that,

I think as we mentioned in our prepared remarks, continue to put real emphasis on what are those different elements of the value chain that we can own today, as well as looking into the future, how do we want to invest and make sure that Fiserv has more than its fair share of payments if the future.

Okay. Thank you.

Thank you.

Greg Smith from Merrill Lynch, you may ask your question.

Yes, hi, guys. Can you size the flood claims processing revenues in 4Q and expectations for '06? Just trying to get an idea of how big -- now that you have a little bit more visibility into it, the impact from Hurricane Katrina and Rita is going to be on the business.

Yes, we have, as we anticipated, we had a good fourth quarter. We done disclose the dollar amounts at that level of a business unit, but it was good activity in the fourth quarter. We anticipate that to continue into the first quarter of next year and then probably tail off into the second and the third quarter of 2006.

Okay. Thanks. And then just a quick follow-up. Any way to detail what your assumptions are for buybacks in the guidance and also the tax rate we should use for '06?

The tax rate for 2006, we'll be using 38.7%. And just to highlight that a little bit, the -- I think our earnings growth that we have out there for the year in '06 is about 12- to 16% on an EPS basis, and in 2005 as you are aware, we did have some one-time tax benefits that generate about $0.03 per share. So when you look at the higher effective rate in 2006, our EPS growth rate is about 14- to 17%, which is mid-double digits. Regarding the buyback, we're not going to comment down that path. We do have 3 million shares authored currently, but we will continue to revisit that during the year.

And, Greg, the other thing is stock repurchases merely one of the different options that we look at for allocating our capital. I think it depends on a number of different factors, which, obviously, include an impact acquisition.

Yes. Okay. Thank you very much.

Thank you.

David Togut of Morgan Stanley.

Thank you. Can you comment on new contract signings last year in the financial outsourcing business and how you performed relative to quota?

Yes, sure. David, it's Ken. We were a little bit above our quota for the year, and we had some very good signs, some of which are listed in the press release, and we expect to be able to continue to have very good growth this coming year.

Just as a follow up, Ken, could you comment on the operating cash flow which was down 15% in '05? It looks like the key drivers really were DSO and deferred revenue. How do you see those trending in '06?

I would expect the DSOs -- and it's not even, necessarily, I think that the DSOs were up that much as much as our business was up because of the internal growth rate, and so that's going to be something that will continue to drive down the free cash flow from the viewpoint of receivables. I think our receivables should be better next year, though, than they were this year, in terms of not being as much of a drag on the free cash flow. As you probably calculated, our free cash flow was considerably better in the fourth quarter than it was in the previous quarters.

And I think the other thing that's impacting the receivables is as we continue to do business with some of the larger financial institutions, frankly, they just -- they don't pay quite as fast as some of the other institutions that we deal with.

And, David, the other thing when you are comparing '05 free cash flow to '04, we did have that tax item where we just had to pay our estimated taxes, that was about $50 million negative impact on '04 that should not -- I mean, '05 compared to '04, that should not be recurring in '06. So that was a fairly unusual item, which had a significant negative impact.

Okay. Thank you.

Thank you.

Kartik Mehta from FTN Midwest Securities, you may ask you question.

Good morning, this is John calling in for Kartik. I had a question on the health segment. There's been some headlines out there that there could be some changes with how HSA accounts are planned and some of the limits that might be set on those. Is there any opportunity for the health segment to continue to benefit from some potential changes in how HSA accounts are set up and the limits that they have?

Well, John, overall, we think that the whole health savings, health reimbursement account, the consumer-driven health area, is a really interesting and potentially lucrative opportunity for the Company, given the are relationships that we have with so many financial institutions as well as, obviously, having a very robust health business on our own. We mentioned that we had acquired, in January, CareGain.

CareGain is the equivalent of middleware, or the interpreter that's going to allow the banks and the health plan administration firms to work together to make it easier for consumers to make these kinds of choices. And their services are important to us but also uniquely situated in the marketplace, and we see that to be a very important and interesting growth driver. So, yes, we do think we are going to benefit from that, and I think you will see us continue to make strategic investments in that area.

Thanks so much.

Thank you.

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

Sure. Good morning. I just wanted to ask Jeff this question, as have you been on board as the CEO here, I'm just trying to get a sense for what has probably been the biggest surprise to you as you look at the company and how do you extrapolate that forward, in terms of opportunities for Fiserv as we go forward here.

Sure. That's a good question. And I have been here just about two months now, and the biggest surprises that I would -- that -- big bucket surprises are the first one is the breadth of the company, in total. There are, as you well know, there are many different facets of the Company. Within each of our reporting segments we have many -- many different businesses that I think lead to some potential opportunities for the Company, to some extent, diamonds in the rough, things that -- capabilities that are out there for Fiserv that because they are relatively small in proportion to our core businesses, that I think represents some growth opportunities of which, the CareGain acquisition that we talked about a moment ago was an interesting opportunity just because by virtue of the industries that we operate in.

So it's the breadth of the Company and the opportunities that may be adjacent to that breadth. And then number two -- and this is not a surprise, per se -- but I have been pretty impressed by the quality of the people here in terms of their commitment to clients and their desire to do the right thing for shareholders. And you see a good balance, a good balance there, of the people who really care about what they are doing and I think who are going to continue to drive us forward in the future.

I guess as it relates back to the comments you made about the multiple facets, I mean, the way that Fiserv is currently structured today, do you see any need to rationalize the infrastructure further or rationalize some of the pieces that exist out there on their own to gain that leverage that you are identifying?

I think it's premature to answer that question in totality, but what I can tell you is we will clearly look at the different opportunities to -- whether you call it rationalizing infrastructure or sharing capabilities where we have the ability to, in a common way, access the marketplace, I think you clearly have to do that.

But I think you have to look at what -- at the core, what are the opportunities, how can you best attack them, and how much capital do you need to do that? So it's not as simple as I think you would say coming in, to do the rationalization. That said, because of the dispersion in the Company, it feels likely that there will be some opportunities to gain efficiencies by looking for common or shared utilities.

Okay. Great. Thank you. And one just quick follow-up for Tom. On BillMatrix, did you talk about how fast BillMatrix was growing in the current quarter?

No, we don't disclose that type of detail. It continues to grow well, and we expect that market to -- that acquisition to continue to perform well and provide growth in 2006.

Okay. Thank you.

Thank you.

Glenn Greene from ThinkEquity Partners, you may ask your question.

Good morning.

Good morning.

I'm jut wondering if you can talk about the trends and the FI organic growth? Clearly it had picked up here in the fourth quarter. I understand you do have some headwind with CIBC coming off this quarter. So, one, just some color on the commentary related to the organic growth trend in the quarter and your outlook heading into the next quarter. You clearly have more difficult comparisons in the first half than the second half, just some color on the drivers overall in terms of FI organic growth?

Yes, let me give some higher level observations, and then I will turn it over to Tom, who can correct me, I'm sure. The big growth in the fourth quarter -- or the big growth in the -- for the year, we had, obviously, the new venture in Australia, which was very helpful for us. And then we saw some really strong growth in our lending operation and, frankly, we saw some very solid growth in our core banking. I mean, basically, a number of the businesses were hitting on all cylinders, but some of the things that got more public display, Australia.

But I wouldn't -- I would say that we are very pleased with what's going on in lending, in delivering different services or new services, and some more innovative services, and frankly, not only are we seeing revenues in that area, but we are continuing to invest because we see a lot of opportunity there. Tom, why don't you add some more color there?

Yes, I would think, Glenn, too, in the fourth quarter we really had a great quarter of organic growth and I would say that it primarily came from what Jeff indicated previously, but our bank and credit union areas performed very well in the fourth quarter. And that has to do with a lot of products and services that we sell into the existing customer base . And we just did very well at that in the fourth quarter and, sequentially, over the year we've continued to grow that.

And as I look down into 2006, we have given mid-single digit organic growth guidance for the year, and that strong guidance, given the fact that, as we indicated previous quarters, we're losing about $40 million of annualized revenue. So when we look at that mid-single digit organic growth, we feel good going into next year. And the quarters are going to bounce around, depending on, as we talked about, software license fees and other types of factors, but overall, for the year, we are confident in the financial segment to be in that mid-single digit range.

And similar drivers in '06 as '05 in terms of the macro, and also just some color on the Australia JV, how that's progressing?

Yes, I would say similar areas. I think we are going to continue to push on the payments then, as Jeff indicated earlier, and that's going to be an area, avenue of growth, that we didn't have as much maybe in '05. Regarding Australia, that continues to move forward. It will be slightly dilutive in 2006, and towards break-even towards the end of '06, but it continues to be on track.

Okay. Thank you.

Thank you.

Paul Bartolai from Credit Suisse, you may ask your question.

Thank you. Good morning. Just to follow up on the prior question about the core bank market. Can you talk about what you are seeing, just in terms of competitive trends and maybe if you are seeing any impact from [Sertigy/Fidelity] merger?

We are seeing, really, no impact from the Sertigy/Fidelity merger, or if ever we will. I would say the competitive marketplace remains pretty much the way it has been. There are pockets where it's very competitive, and we seem to win more than our share.

All right. Then just as a follow-up on the health side, you talked about low double digit organic growth in '06. Can you talk about what we should expect for pass-through costs there, and should that gap between reported and growth ex pass-through start to narrow?

I don't believe so. I think,similar trends to what we have in the current year, I think you are talking about the pro forma without the prescription costs.

So that -- so expect that in the low-single digits for '06?

Right. And that's consistent with the market that we are serving there, but that's correct.

Okay. Thanks.

I think where we'll see the real growth in that area is probably a year to two years down after the HSAs take off. Great. Thank you.

Bryan Keane from Prudential Financial, you may ask your question.

Hi. Good morning. The financial 7% organic growth, the flood claim processing, did that help or was that about a neutral effect to that in the quarter?

It didn't have that strong of an impact because we had a very strong fourth quarter of 2005. The primary factors we talked about were our bank and credit union core really had the tick up is why that rate has improved where it is.

And then remind me, going into 1Q and 2Q '06, should that -- is the flood stuff going to be a positive or negative trend versus the year-ago period?

Next year?

Yes. For modeling purposes, when we go into 1Q and 2Q '06, is it a positive or a negative effect? I can't remember what the --

As I indicated in my previous comment, Bryan, the first quarter of '06 is going to be stronger in that particular area, and that's probably going to tail off in the second and third quarter.

Okay. Any comments on acquisitions and what your appetite would be for that going forward in 2006?

Our appetite remains very -- what would you say? It's robust. It's strong. Yes. We want to eat a lot, and I think we will have -- continue to have plenty of acquisitions to do. We have a great pipeline, and you will see more.

So we'll see more than the last couple of years? It seems like it's been -- if you look at the last two years, it's been a little less than maybe it was the previous years. We'll see it pick back up to more than the typical levels?

You will continue to see it bounce around a lot. You know, '03 was a very big year because one of our large acquisitions we closed on, I think it was December 31st.

Yes, and Bryan, we still spent roughly $450 million in acquisitions in the current year, and that's just another deployment of our capital. That's one area, including buying back our stock and other internal investments, that we are making.

Okay.

Hey, Bryan, I would just add that while, clearly,we will look at acquisitions, and I suspect, as Ken says, our appetite is relatively robust, I think as we think about how to deploy against acquisitions, the things that represent the -- the areas that represent significant growth opportunities for us are ideally where we want to have more focus. So to the extent that good properties are available that are well within our targeted opportunity, you should expect to see us be aggressive in that space.

It sounds like the lending and the payment space are probably areas of focus?

Yes. Yes, as well as our -- I mean, I think, our core banking. I mean, the things that we do well, that we believe we can bring both management expertise and product expertise in to make those businesses better, both from an operating perspective as well as having them be complimentary to our strategy, are areas that are very, very attractive to us.

Okay. Thanks for the color.

Thank you.

John Kraft from DA Davidson, you may ask your question.

Good morning.

I just wanted to follow up on a comment you said at the beginning, the opportunity that you've got in the Fiserv clearing network, could you talk about how that rollout is going and, I guess, the uptick, specifically how many FIs are signed up?

The network has -- we began putting the network together in 2005. We currently have enough partners to cover about 75% of the U.S. The network won't be complete until the end -- say the middle of 2006, and we had about 300 active clients during the year. Again, we're still in the building phase, and we don't want to -- we are not going to push this really hard until it's complete. But we see this to be an interesting opportunity and, again, one that's proprietary to us given the size of the install base that we have today.

Great. That's it for me.

Thank you.

Phil Mickelson from JP Morgan, you may ask your question.

Yes, I was just wondering what is your outlook for bank spending growth this year? I mean, do you see -- how did 2005 shake out versus your expectations? Where do you see bank spending, overall, going?

I think they will be spending about the same rate that they did this previous year, same percentage increases, which will be low-single digits for the most part.

And then the core business, I mean have you seen any shifts in 2005, license revenues strong one quarter not -- is there any trends as far as outsourcing versus in-house? And then also the license, is that more driven from non-core license sales, or can you give us some color within the strength in the core business?

I think that it's going to pretty much continue as in the past. It bounces around. Sometimes we will have more license sales from quarter to quarter. I think that, still, most of our software license sales are to existing clients, which also adds to the stability of our earnings.

And then I was just trying to understand, they talked about it a few months ago, a Chase RFP for mortgage processing, can you give us some color on what the conclusion of that, was there revenue in the fourth quarter? Was a deal signed? Was it in-house or outsourced contract?

We announced, or JP Morgan Chase announced that they had chosen our product in the due diligence phase. We have not signed a contract with them. We continue to work on that in the first part here of 2006, and we don't have any significant revenue in our budget as of right now for that transaction. But we are heading down the contract angle and we'll be updating you later in the year as that goes forward.

And in regards to [GMAC], I believe you do the mortgage processing for GMAC and that business is up for same from GM. Is there contractual limitations on change of ownership, that that processing contract could be at risk?

We would have our standard termination fees in that contract.

But today, we have no reason to believe that there's any particular risk.

No. In fact, I would guess if it is sold that we would continue to be the processor.

Yes.

Thank you.

Thank you.

Roger Freeman from Lehman Brothers, you may ask your question.

Hi. Good morning. I just wanted to come back to the rationalization question from earlier. Specifically, I'm wonder if you think there's any opportunity on the product side. I think you historically let the mark decide which product succeeds and the processes you support. A number of products seem to overlap, and I'm just wondering if you are going to be more actively managing that portfolio?

You know, Roger, I suspect that it's too early in the evaluation process to add a lot more color to that. What I will say is we will evaluate this, really insuring that we take the steps that allow us to both maximize shareholder value over the long term, as well as insure that we maintain a very strong competitive presence. And there are both positives and negatives to having multiple, similar products in the marketplace as it relates to how you fit within the competitive landscape.

So it's a complex problem, but one that we are giving a lot of attention to. And I believe that when we come out towards then of the year and have our investor day, that we will be able to articulate our strategy very clearly in this area, including the implications of what actions we are going to take.

Roger, Just to add to that, we have in the core -- for instance, in the core bank area, we have continued to consolidate platforms over the years as Fiserv, eight, ten years ago, we probably had ten to fifteen bank platforms --

Probably more like thirty.

And we are probably down in the range of five to six. For instance, in the fourth quarter, we took a little bit of a charge for our one product that we are phasing out in the bank area, and we have done that behind the scenes. And so we have done some of that, and that's just to add to Jeff's answer.

Okay. Thanks. That's helpful. I guess my follow-up question, on a slightly separate topic, is there any way to quantify how much some of the faster growing parts of your business are growing? For example is there any bucket of revenue that encompasses image, imaging, health savings accounts, bill payments that you could say is growing at 10%-plus, or do you have any plans to maybe try to segment that out later in the year?

Roger, one of the things that we are clearly looking at is how -- what are the attributes of the different businesses, what businesses might you lump together that in the aggregate could create -- create or have higher growth characteristics than the reporting segment that they are in. So, again, I would ask for some patience and latitude. And when we talk about the business in depth later on in the year, we will certainly talk about areas like that. It's one of the reasons why, for instance, we talked about our payments business and our lending business discreetly in the 2006 -- or the 2005 highlights.

Okay. Great. Thanks. Looking forward to that update.

Sure. Thank you.

David Scharf from JMP Securities, you may ask your question.

Good morning. I've lost track over the last several quarters of the net revenue basis, really, how to look at the mix in the health segment. As we look at the TPA business, the pharmacy benefit, and some of the newer services such as [inaudible], is there a rough mix of that segment you can provide us?

No. I mean, we haven't [inaudible]. As you can see through the prescription ingredient costs, David, that continues to increase on a quarterly basis, that kind of gives you a feel that that business continues to grow as part of the total of the piece of the health segment. The TPA business, as you know, has been very competitive. That's nature of that marketplace.

We continue to consolidate some of our areas there, but looking forward into the future, we are going to see a greater proportion of growth in '06 and '07, coming from a couple of areas, as Jeff indicated earlier. One of those is CareGain and administration of the SHAs and consumer-directed healthcare, and we are going to see in the BPO area with our relationship with [EDS], some more growth in that area as we look out into '07 and '08. So that's kind of the mix there that we see going forward from that standpoint.

Well, when I think about the comments you've included in the last couple of press releases, particularly the growth and competition in the large commercial employer market, I assume that refers primarily to the TPA area, which is probably still the majority of that segment. Is that competition coming from carriers who are offering their own administration services, or is that coming from other TPAs? And is your mix that heavily weighted in the large market? I thought it was more focused on small and medium-sized self-insured employers.

It is focused more on the small and medium so that, over time, that's going to have less of an impact. In the large employer market, that's United Health, Blue Shield, Aetna, CIGNA.

I see. Thank you.

Thank you.

Nick Fisken from Stephens, you may ask your question.

Good morning, everybody.

Good morning, Nick.

What is the share count you guys used for your guidance?

We are not disclosing that, Nick. You know where we are at in the current quarter as far as our share count goes, so you can use that for your models going forward.

And then the only other question that I've got that's left is if I look at the hiring that you guys have got, and I understand we have to hire new CFO and a different person to run M&A; is that correct, A and B, do you expect that to be internal promotions?

To the A question, we could make the decision to split Ken into pieces and take his role and split it. We are still evaluating that as an option. And we have a strong internal management team, and so we evaluating our internal folks as our primary desired result.

And what sort of time line on this?

Well, without being specific, my goal, if I could have one in this area, would be to make the hiring decisions within the time that would allow maximum crossover between the time that Ken is here and the time that we have new candidates in place.

Great. Thanks so much.

Thank you.

Matt Kessler from Standard & Poor's, you may ask your question.

Thanks. A lot of my questions have been asked and answered, but one question I had, Jeff, if you could talk to us about how you look at Fiserv relative to essentially thinking about what on the margin you might want to change about the company? For example, we noticed, for example, that you put guidance in the press release, and you indicated during the call that we're not going to be getting quarterly guidance.

Can you give us any insight as to other changes that you might be thinking about in terms of how the company is run or how you are community communicating with the investment community? That would be helpful. Thanks.

Sure. Sure. There are a variety of areas -- not to be overly repetitive that we are looking at -- but my personal goal is for us to identify where there are opportunities for us to grow at levels that are in excess of market growth and to invest accordingly in those areas. Philosophically, how we think of -- the things that are important to me is what do we have to do to be -- to make our products and services, put them at the highest level of competitive differentiation, what are those streams of earnings that we can create that are sustainable over a very long period of time, and that translate into very high levels of cash flow.

And then, lastly, how do you take those cash flows and invest it in a way that delivers the best return for shareholders. So, philosophically, the way I think about the businesses are where do you get real differentiation and sustained cash flows; how do you take those cash flows and invest them; and then, lastly, what are the attributes of management that you need to have to make sure that you are organized in the way that perpetuates the first two items. So that's a little bit of a philosophical statement. Things like quarterly guidance, I have a hypothesis that where you have quarterly guidance out there, that you may spend a disproportionate amount of time ensuring that you are obviously meeting the targets that you have set.

While I have not seen that, per se, I want to make sure that we make decisions that are good for the long term 100% of the time, which is why I have moved us away from quarterly guidance. But to reinforce, I believe wholeheartedly in annual guidance and long-term guidance. When we get together towards the end of this year, we'll certainly give framework for what people should expect from Fiserv over the long term, be that revenue growth, and earnings guidance. So certainly, we'll put long-term targets out there that are based on the evaluations that we are doing today.

Great. Thank you.

Thank you.

Our last question comes from Craig Peckham from Jefferies, you may ask your question.

Good morning. Really, just a modeling question as we look at 2006, I wondered if you could help us understand how the additional equity compensation expense will break out across the segments?

We're not disclosing that at this particular time, but most of our operating and income and earnings are primarily in the financial segment. So, correspondingly, you're going to have a majority of our expense that's going to be correspondingly in that particular segment. And our expense will be -- if you look at our '05 ramp up by quarter, it's generally higher in the first quarter than it will be the remaining the part of the year, mainly due to the nature of our option program, so I would anticipate that that trend will continue in 2006.

Thank you.

Thank you. Well, thanks for joining us this morning. If you have any further questions, please don't hesitate to call our investor relations team, and thanks for your support. Have a good day.