Fiserv Inc (FISV) 2007 Q3 法說會逐字稿

Welcome to the Fiserv third quarter 2007 earnings conference call.

(OPERATOR INSTRUCTIONS).

I would like to turn it over to Jeff Yabuki, President and CEO of Fiserv. Sir, you may begin.

Thanks, Ed.

Good afternoon, everyone. Thanks for joining us for our third quarter conference call. With me are today Norm Balthasar, our Chief Operating Officer and Tom Hirsch, our Chief Financial Officer.

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 current expectations. We will make forward-looking statements about, among other matters, revenue growth, earnings per share, operating margins, cash flow targets, sales pipelines, the disposition of the Fiserv ISS business, the acquisition of CheckFree and our strategic initiative Fiserv 2.0. Forward-looking statements may differ materially from actual results and are subject to a number of risks and uncertainties. Please refer to our third quarter earnings release which, can be found on our website at www.fiserv.com for a discussion of these risk factors. You should also refer to our earnings release for an explanation of the non-GAAP financial measures discussed in this conference call, and for a reconciliation of those measures to the nearest applicable GAAP measure. These non-GAAP measures are indicators that management uses to provide additional meaningful comparisons between current results and prior reported results and as a basis of planning and forecasting for future periods. With that formality handled, let's get to the results.

This was an exciting quarter for the company. First, our businesses continue to execute well, delivering a 20% increase in earnings per share from continuing operations in the quarter. We also announced the acquisition of CheckFree, a business combination that we believe will transform the financial services technology industry and place Fiserv squarely in the primary leadership position. As evidenced by our acquisitions in the quarter, we are keenly focused on enhancing our products and services offerings with a goal of providing the greatest value to our clients. We will continue to align our business model around those areas that strengthen our technology leadership position and serving the financial services industry, today and in the future.

At our October 2 Investor Day, we updated you on our Fiserv 2.0 progress and also, the importance both strategically and financially of the CheckFree acquisition. Given that recent update, we won't spend much time on those topics today.

Our strong earnings results in the quarter were again led by our financial segment, which generated about 80% of our net revenue and adjusted operating income. Adjusted operating margins also continued to expand, showcasing the underlying strength of our business model. Third quarter EPS from continuing operations was up 20% to $0.72 from $0.60 in the prior-year. Adjusted EPS from continuing operations through September 30 was $2.03. Companywide adjusted operating income for the quarter was $206 million, an increase of 14% over 2006. Financial segment adjusted operating margin was 26.8%, up 300 basis points versus the third quarter of 2006. Once again, our continuing operations results exclude the announced sale of our Fiserv ISS business, which was reported in discontinued operations. We continue to expect the sale of these assets to close in two separate transactions, during the fourth quarter of 2007 and the first quarter of 2008.

Revenues in the quarter were up 5% to $1.2 billion. Adjusted internal revenue growth was 1% overall and 3% in the financial segment. We achieved this growth in spite of a $12 million decline in mortgage-related revenues versus the prior year. And in percentage terms, the impact of this decline on the financial segment adjusted internal revenue growth rate for the quarter was about 2 points.

Although we were pleased with our financial segment results, we are disappointed with our insurance segment performance. The group continues to perform below our expectations, particularly on the revenue line with adjusted internal revenue declining 5% in the quarter. While we are encouraged by the slight improvement in the adjusted operating margins of the segment, we recognize we must improve performance as we head into 2008.

Our growth in free cash flow continues to be very strong, up 16% year-to-date. We continued our focus on capital allocation, repurchasing 2.5 million shares of stock in the quarter and completing two small acquisitions, which will enhance market differentiation. Importantly, we made great progress against our Fiserv 2.0 initiatives in the quarter, positioning us well for a strong finish to the year.

With that, I will turn it over to Tom for further detail on results.

Thanks, Jeff and good afternoon, everyone.

Our financial segment once again had another strong quarter. The segment revenues were $753 million with adjusted internal revenue growth of 3%. The sources of internal revenue growth in the quarter were once again primarily the higher margin payment and core processing areas offset by an estimated 2 percentage point decline in our mortgage processing businesses. The growth rate also continued to be negatively impacted by the final transition of our remaining J.P. Morgan Chase item processing business. Year-to-date adjusted internal revenue growth is 5%, which includes an estimated 1 percentage points negative impact from the decline in our mortgage-processing businesses.

Operating income in the financial segment was $174 million in the quarter, an increase of 17% over the prior year. Through September 30, segment operating income is up 18% to $499 million, almost all of it organic. Termination fees in the quarter were $8 million, up about $900,000 over the prior-year period and down from almost $13 million in the second quarter. Year-to-date termination fees are about $30 million compared with $16 million in 2006. Adjusted operating margin in the financial segment was 26.8% in the quarter, up 300 basis points compared with the same period last year. The year-to-date adjusted operating margin of 25.7% was up 260 basis points compared to 2006. Margin improvement was driven by a combination of cost control, operational efficiency and improvements in our product mix. Specifically we are replacing some lower margin revenues in areas such as our mortgage BPO offerings with increases in highly-valued payments and core processing revenues, which tend to have more attractive margin characteristics.

At the same time, segment margins are negatively impacted by investments that we make across our businesses to deliver future growth, such as our NetEconomy acquisition announced in the first quarter. We don't expect year-over-year margin improvement of this magnitude to continue beyond 2007; however, we do anticipate that full-year margins will continue to improve at least 50 to 100 basis points annually into the foreseeable future. Overall, we are very pleased with our financial segment margin performance for the year.

Our insurance segment had weak results in the quarter and continues to be challenged to deliver top-line growth. Revenues in the quarter were $420 million, up 5% overall. Reported revenue growth rate slowed from what we have been generating the last few quarters, because of two large pharmacy contracts, one in the third quarter of 2006, and which now has anniversaried. As you know, the pharmacy contracts include significant pass-through prescription costs which lift our revenue growth rates.

Adjusted internal revenues declined by 5% in the quarter. The drivers of the decrease were primarily customer attrition in the large column area of our health plan administration business, the continuing slowdown in plug claims processing, lower property and casualty license sales and lastly, the revenue impact of shutting down some poor-performing businesses.

Insurance segment operating income was $32 million. Adjusted operating margin was 17.2% up 50 basis points from the second quarter and up 40 basis points year-over-year. The margin improvements reflect the operating efficiencies we have been driving in the segment over the last year, offset by continued investments in healthcare, banking and payments.

Overall, we are disappointed with our results in the insurance segment. We are focused on managing our discretionary spending and improving the execution of our business strategies to deliver shareholder value.

Cash flow from operations through September 30 was $459 million, compared with $437 million in the prior year. Year-to-date free cash flow is up 16% to $340 million compared with $292 million in 2006. This increase is driven primarily by solid working capital management and increased focus on capital spending throughout the company. Year-to-date capital expenditures were $119 million, down 18% compared with the first nine months of 2006. Our effective tax rate for the quarter was 38% versus 37.7% in the prior year's quarter.

We completed two relatively small acquisitions in the last 60 days: WorkingRX and BancIntelligence. WorkingRX is the fill-in acquisition in the worker's compensation area of the insurance segment. This business will create significant leverage for one of our existing businesses. WorkingRX generated about $50 million in net revenue for 2006 not including a significant amount of pass-through prescription product costs related to its worker's compensation business. BancIntelligence brings a unique consultative capability for bank clients, primarily in the $500 million to $5 billion size. It utilizes client data, along with market information to produce customized web-based solutions that can be used to enhance growth and better manage their business. This service is right in the sweet spot of our mission to help clients achieve best in class results.

Now, I'll turn the call back to Jeff.

Thanks, Tom.

Each quarter, we share several performance metrics to demonstrate progress against key Fiserv 2.0 objectives.

The first metric is integrated sales. This measures our progress in delivering incremental value to clients through a targeted set of Fiserv-wide products, with an ultimate goal of achieving $360 million of incremental revenues by 2012. Our 2007 incremental sales goal is $26 million in recurring revenue. Through the first three quarters of the year, we have closed 81% of that 2007 sales goal with 34% of the sales in the third quarter. This momentum is critical as we move into the 2008 sales year. We're confident we will reach our full-year objective. We are also on target to deliver the planned $15 million of operational efficiency benefit in 2007 en route to achieving $125 million in operational efficiency savings by 2011.

Our third quarter progress was significant. In fact, we have now achieved $13.7 million, or 91%, of our full-year objective of $15 million in annualized cost savings. Importantly, we have moved ahead of our laudable attainment pace on both of these important metrics. Overall sales quota attainment was 100% for the quarter and is now 99% through September 30. The majority of our group has had solid results, offset by continued weakness in mortgage-related sales and to a lesser extent, insurance. In particular, the depository institution and payments and industry products groups, again, had strong sales performance in the quarter. Overall, our financial segment sales pipeline remains strong and we believe that we are on track to achieve our overall 2007 sales quota objectives.

As we shared with you at our Investor Day, we expect to be at the low end of our $2.74 to $2.82 adjusted EPS from continuing operations guidance for the year. The movement and the range is due primarily to the sharp downturn in the U.S. mortgage markets which, we anticipate will continue and the weaker-than-expected performance in the insurance segment. Even with the difficulties in the mortgage lending environment, we expect our full-year 2007 adjusted internal revenue growth rate to be in the mid- single digit range for the financial segment and the low single digits for the company. We expect our free cash flow from continuing operations to be between $470 million and $490 million for the full-year.

Our guidance for the remainder of 2007 does not incorporate any potential impact from the CheckFree acquisition. We have received early termination on our HSR filing as well as CheckFree shareholder approval. Our financing is on track and we're working to secure the necessary state money transmitter license approvals. Given the anticipated closing of CheckFree later in the fourth quarter, we plan to release our 2007 year-end earnings on or about February 6, 2008.

On balance, we had a good quarter, and are on pace for the full year. In a somewhat challenging environment, we achieved 20% earnings per share growth from continuing operations and delivered across-the-board margin expansion. Our financial segment has a strong foundation and it's performing very well. At the same time, we are focused on improving execution in our insurance segment and are committed to improving shareholder returns in that business group.

We are delivering results while making progress against the Fiserv 2.0 objectives described for you nearly a year ago. We're actively managing our business and products, providing a more Fiserv-centric value proposition to our clients. We believe there is tremendous value to be unlocked in the combination of Fiserv and CheckFree. We will be even stronger financially, have more robust products and networks, universal client access and bring together some of the most talented people in the industry to serve clients. This combination is truly transformational. Lastly, we thank our employees and associates around the world for their relentless commitment to clients and shareholders. There is energy and excitement across the board as we enter the next stage of the company's future.

With that, let's open the call for questions.

Thank you, sir.

(OPERATOR INSTRUCTIONS)

First question today comes from Pat Burton from Citi, your line is open.

Hi, good afternoon and congratulations on the results. I guess I will ask about the insurance segment first off. Was the organic growth and negative 5 anticipated when you lowered the range at the analyst day, Jeff?

Hey, Pat, how are you?

Good. Good, thank you.

We clearly had a view into the results at that time. I would say that the insurance performance ended up being a little bit, even a little bit worse than we anticipated it would be at the time, and so while we had the view, we didn't have it all the way in. At the time, we believed that we would have issues and we talked about them. But, again, the revenues were a little lower than we anticipated.

Okay, and moving forward whether it's the fourth quarter or beyond, what steps can you take to get that business back to, you know, at least some sort of what the low single digit positive growth given the improvement you're making in the rest of the company. Thanks.

Yes, from our perspective, we believe that the performance in the third quarter is a bottoming out of performance. We expect to see performance continue to move up or move up in the fourth quarter and beyond. We are managing the business more tightly, we're taking a good look at where we see opportunities to sell in a more dedicated or precise fashion. And we're just much more focused as we have moved past some of the acquisitions that we have been involved in this year to ensuring that we're going to deliver those results.

In addition, we have looked at some of our management and we're looking at what are the right ways for us to organize to ensure we can capitalize on the market opportunities that exist for us. Tom, do you have anything to add?

Yes, to add to that, Pat, as we go back to our Investor Day a couple of weeks ago, I think I indicated at that time was our year, the full-year for the financial segment would be in the mid- single digits, which we're very comfortable with and also that our insurance segment was a challenge for us in the second half of the year. The revenue growth was lower-than-anticipated in the third quarter. We had lower flood claims processing than planned, our PNC licensing sales were lower. One of the things I want everyone to remember is that in this business, the net revenues here about $190 million, so you're talking, you know, $7 million to $8 million dollars as far as the decline in revenue. That has been impacted all year by the HPA business, but it can be impacted by timing as far as license sales and our PNC business and some of our flood claims. It's a smaller part of our business as you know, but we anticipate in the fourth quarter that we will be up from where we are from a growth standpoint. Our margins were up in this business quarter-over-quarter and have been up sequentially for each quarter this year.

Okay. Thanks and congratulations on, you know, the main part of the business and the performance there in these rocky mortgage days. Thanks.

Thanks, Pat.

The next question will come from John Kraft, D.A. Davidson & Co. Your line is open, sir.

Hi Jeff. Hi Tom.

How are you doing?

Hey, how are you?

I'm doing well.

Let me just start with guidance. You just said, Jeff, that you will provide the official guidance on the February call, but just the big picture-wise. Excluding what you don't want to talk about as far as CheckFree, you think there is enough of an exposure in the mortgage business to kind of cause you to fall below your longer-term target rates for both growth and earnings growth? Revenue growth, earnings growth?

Yes, John. To clarify the outlook that we have provided a few weeks ago at our Investor Day, which was the same not including CheckFree that we had put out in the prior year. We remained very comfortable with that but we have also said is that that is long-term performance outlook and that, it's really a 3-year average and that in some years will be up and some years we'll be down. But that, in any three-year period, we will be within that range.

Now, that said, we don't see anything today including the what is going on in the mortgage market that would give us any level of discomfort that we would be outside of our range in the financial segment. So talking about the financial segment. So we are comfortable with that. Again, we will give that actual guidance in 2008 and for just one more piece of clarity we were talking about the Fiserv-only numbers, not including CheckFree.

I think just to add to that. In our annual long-term performance outlook is to grow organic earnings 9 to 13%. That is from internal measurements. Again, as Jeff indicated, we don't see anything today from the lending standpoint because that is already baked into our numbers now and into the fourth quarter that would see us, you know, outside of that particular range.

The other thing this I would comment on is that our financial segment year-to-date is generated about 18% organic earnings growth on a year-to-year basis. That's been offset somewhat by our insurance segment but, nonetheless, a very strong performance.

Okay thanks. That's helpful and then speaking of the insurance segment, do you anticipate -- what sort of impact or exposure do you have relating to the claims processing potentially from the fires in Southern California?

We are not in that business, so we don't have any -- we wouldn't have any impact there.

Okay. And then lastly here, on the legacy, the paper item processing, what is the latest percent of your overall revenue that that represents?

You know, John, I think it's been around -- I think we have put that in our Investor Day update. But I think it's in the range of 10%, somewhere in there as far as the percent of our financial segment revenue and I think you can see that kind of on the pie in the analyst day presentation.

Okay. Thanks, guys.

Sure.

Thank you.

Our next question comes from Dave Koning from Robert W. Baird & Company. Your line is open, sir.

Hey, guys.

Hey, Dave.

I guess first of all, we had FI growth this quarter around 3%. I guess that was obviously impacted by the mortgage and Chase business. I guess if the mortgage business continues at the current level and takes awhile to anniversary the Chase item loss, what gives confidence that in the next couple of quarters we get better than 3% internal growth? Maybe you could give us a few items that kind of gets us back on track.

I would say, Dave, when you look back historically and if you look at it in the second quarter, you know, we reported adjusted revenue growth of 5%, which was, you know, positively impacted by a percent from termination fees and the negative percent from lending. So that was at about 5%, which is our core mid-single digit growth rate.

In the third quarter, we did report adjusted internal revenue growth of 3% but that really hit us hard with the lending piece, which was 2 percentage points. So, when I look at our core payments, core processing business, that has been at 5%, 6% over the last, you know, 6 to 7 to 8 quarters and we continue to so that going forward, we do believe, as a base line going into next year. We obviously have our integrated sales initiatives which are going extremely well and we don't believe that the J.P. Morgan thing that will anniversary by the end of the year. We don't anticipate having as we look into 2008 that large of an impact in our lending business.

And, again, we have those other growth vehicles that were driving through the integrated sales initiatives that will lift that core rate. But we have been very consistent at the 5% to 6% quarter-over-quarter as you look over the last six or seven quarters and we anticipate that going forward, notwithstanding the lending impact we had, which was fairly unusual in this quarter.

And Dave, I would just add that we also continue to have a very strong pipeline. We're continuing to engage in lots and lots of great conversations of prospects and so we feel good about that. We feel good about the underlying transaction growth we're seeing in our payments assets and when you combine that with the fact that we have been seeing a lot of lending decline over the last four quarters, we believe that by the time we turn into 2008, the grow-over on that, what we had really seen in 2005 will be far simpler than we have had to deal with this year.

And just to add one thing to what Jeff indicated. The margin characteristics of we drop off on the lending business, that is a much lower margin business than our core, you know, depository institution payments business. And you can see in the current quarter what we have basically done is replaced some of that revenue with much higher margin revenue from payments and other core processing assets, which we continue to push in our integrated sales initiatives, both EFT, wire exchange, bill payment, those products and services.

That is great and I guess a followup to that is in Q4, we shouldn't be surprised to see another quarter a little bit impacted by the mortgage-related business but then a pick up, you know, really.

Yes. We are planning at least for forecast purposes that the mortgage business will get no better today. I'm sorry, no better for the remainder of the year than it's been for the last month or two.

Yes.

Okay.

We have indicated at analyst day it was mid-single digit for the full year is the rate and that is what we reaffirm today.

Great. Thanks.

Thank you.

Next question will come from Tien-tsin Huang from J.P. Morgan. Your line is open, sir.

Thanks for the mortgage detail. The $12 million decline in the mortgage revenues, how much of that should we consider to be a loss due to declined bankruptcy?

Yes, the majority of that, Tien, is coming from declines in volume opposed to loss of clients. Clearly everyone who is serving the mortgage industry to some extent has had some falloff from that perspective. These clients are largely the BPO-oriented closing services where we are seeing volume declines, really, driving our dropoff opposed to loss clients. In fact, interestingly, we have had a pretty good year in signing up new clients and bringing them in. Unfortunately, that is getting subsumed by the dropoff in overall volume.

Got it. How is the lending business performing quarter today? And also can you give us a sense how you're adjusting your cost structures to offset from this weakness?

Yes, again, as we -- as we have said a couple of times, for what we can see now, we expect volumes to be certainly no better than in the third quarter and recognizing that the third quarter started out better than it ended. We believe the quarter is going to look really like it and has the last month or two. Basically flattish to even down to where it's been in the last month. There is no signs in the economy that that is getting any better.

At the same token, we're very aggressively looking at our business, looking at our prophecies and looking for ways to realign our cost structure as we shared with everyone. Previously, this business was a lower-margin business and we're caught in a little bit of a -- or we have been caught in a little bit of a timing issue as the volume has fallen so rapidly. We're going to be catching up and realigning our cost structure to match the new level of volume that we're assuming for the remainder of this year, and frankly, for most of 2008.

Okay. Jeff, maybe if you can comment on the overall demand environment for bank spending. Any change there?

Not at all, Tien We have been actually very pleased at our sales pipeline. Most of our business unit leaders and our sales leaders are saying this is a pipeline that is as strong as it's ever been n terms of the businesses that really contribute the most margin for us. And we're optimistic that we're going have some attractive client wins between now and the end of the year and we're pushing hard on that, in that vein.

Very good, thanks.

Thank you.

The next question comes from Greg Smith from Merrill Lynch. Your line is open, sir.

Yes, hi. Seems to -- something being missed here is the mix shift in the revenues, looking at the -- in the financial services segment. Three percent organic growth, but yet 17% operating profit growth. So I guess my question is if can you break in this out of the 17% operating profit growth, how much is coming from the positive mix shift in revenue versus how much is coming from more expense initiatives?

It would be difficult to do it any other than kind of on an estimated basis. We have identified for purposes of allowing people to gauge our progression on our expense management initiatives where we got accomplished about 90% of our expense goals on the Fiserv 2.0 side for 2007. So about $13 million and that is for the entire company. That is the biggest expense initiative or expense management focus point that we have.

As Tom mentioned in his remarks, Greg, the real difference here is we, we have taken revenues that are historically low margin, whether in the lending BPO or some of the IP or other areas that are with slower growth or declining in this case, and replaced those with much more attractive margin characteristics. As we showed at our investor conference, the revenues that are depository institution side and on the payments and industry products side carrying margin characteristics in excess of the 23% margin we had last year.

And so you're exactly right. If do you the math and you're bringing in the higher margin products on the increment or on the average in both cases, they're going to add a lot to the operating earnings. And that is why you have seen the leverage we have been seeing and as you know, we have been seeing that each quarter. We were 300 basis points up in the first quarter, almost 200 basis points up in the second quarter and 300 in the third quarter and that has been happening as these lower margin revenues have been being replaced by what we think are more attractive recurring streams of revenue.

Okay. That is exactly what I was trying to hit at and is it possible to give us annualized run rate revenues on the two recent acquisitions?

I think we had that for one, Greg, on the WorkingRX which was about $50 million and the other acquisition I think is under $10 million, as far as an estimate for that on an annual basis.

Perfect. And you called out, Tom, the $12 million of negative impact on the mortgage side. Any ball park what we can think about? Incremental margins? They have to be relatively low given the high margins you're putting up here.

That's correct.

Okay, you can't give us the specific numbers?

I'm not going to do that on the increment basis. That being said, they're lower than our overall operating margin as a company and lower than the other areas Jeff highlighted on the payments in the core depository institution area.

Okay. Perfect, thanks a lot guys, appreciate it.

Thank you.

The next question is coming from Charlie Murphy from Morgan Stanley. Your line is open, sir.

Thank you very much for the details on subsegment margins. I wanted to check in on payments and see if you're disclosing approximately, how much more profitable that subsegment is than the financial segment as a whole.

What we said, Charlie, on our Investor Day, we said that that group, payments and industry products, which are our payments, assets, and a variety of other products, that the margin characteristics of those revenues tend to be higher than our 2006 average margins, which is 23%. That is really all the insights that we'll be providing at this time.

Okay.

The only thing I clarify that to add, Charlie is that the incremental components of when we add incremental transactions to our EFT debit card platform, those are obviously much higher margins on the increment than what we would experience in lending or on the other ones, as far as there is a high direct cost associated with the businesses than lending and IP. Incrementally, it's positive when we get that incremental revenue on there.

Okay, great. I want to ask the same question on lending. Is there any way to know how much below the 23 that is?

No, I think the way to think about it is they tend to be BPO services so they a little more expensive to deliver given you have both technology and people in the businesses. And we have also talked about the fact that as the revenues have declined as rapidly as they have that we have had a mismatch or misalignment. We have not been able to reduce cost as quickly as the revenue has come off and not only do we have the impact of that being lower margin on marriage, but -- as Tom was talking on the increment, it actually goes the other way. It's a little worse.

Okay, thanks very much.

Thank you.

The next question comes from Julio Quinteros from Goldman Sachs. Your line is open, sir.

Great. Thanks, guys. Quickly on the environment that you're -- your client environment specifically. I'm trying to get any sense from you guys, as you still have people out there on the front lines. Have they noted any change in tone or environment or appetite for IT, especially the kind of work you're selling to them. Is there a sense or anything along the lines. I'm trying to get a general color for what the demands sort of situation might be like relative to all the turmoil that we're seeing in the financial services vertical today.

Yes, and it's a good question Julio. We have a pretty broad spectrum of clients that we're serving. But for our core processing clients, we're seeing the continued demand of people looking for ways to create advantages in the market. By the same token, they recognize that it's becoming more competitive. The big banks at times will move into their space. But as we have talked about the last few quarters, we have actually seen movement from bank core processing from the, that had typically been in-house, starting to move over to the outsourcing side and we showed a slide on that on Investor Day.

We believe that in times like this, outsourcing is a pretty viable opportunity. We're seeing it on the core processing and we're seeing it in our other businesses and lastly, our sales pipeline and sales quota came in both strong. So on a metric basis, that is all very positive.

I would say there is consternation in the markets in terms of lending-oriented, people are not making big mortgage processing platform decisions, they're not making big lending origination decisions and so in those areas, we have seen it slow down and when you talk to clients, do you hear consternation from them on when is -- when are things going to change. Today we saw that existing home sales were down 8%. I think we're going to continue to see issues in that area.

Thankfully that remains to be a very small piece of our business and as consumers continue to use their debit cards or pay their bills online or write checks, you know, again because of our recurring revenue transaction-based model, those are all positive for us.

Okay, thanks and on the termination fees, I think on a 9-month basis, you're up somewhere in the neighborhood of two times where you were last year. Is there anything different about the profile, the clients that are contributing to the increase in the termination fees this year versus last year?

No, there really isn't, Julio. We had a couple that I think I would know were earlier in the contract terms. When they get brought out earlier or acquired in the contract term, it would be a higher fee, just because of that acquisition earlier in the term. The other thing I would say is as you saw in the third quarter there, it is really about the same as where they were the third quarter of 2006 and we're right in line, really where we were in '05 and '04 as far as the dollar value. So, that being said, that is where we are on that.

Okay. And, just finally, when do you guys expect CheckFree to report their results?

I believe it's this week.

This week.

I am not sure if it's tomorrow or on Friday.

Thanks, guys.

Okay.

The next question comes from Kartik Mehta from FTN Midwest. Your line is open.

Thanks. Good afternoon, Jeff.

Hi, Kartik.

I wanted to ask you a question on the insurance segment, Jeff. If you look at that segment, do you think the reason may be haven't performed up to the product expectations is a product issue or a execution issue that is somewhat easier to fix versus a product?

You know, Kartik, one of the challenges in answering that question is I would guess there are probably well over 50 products in that segment. My take is it's a combination of both, but the lion share of where I think we have upside is execution based. Notwithstanding the challenges and HPA that we talked about where we're to some extent disadvantaged on the network discount side. All of that said, I do think we can perform better by better execution.

We have had some management changes this year and I believe that we will be in better shape and deliver better results in this segment. It's not going to happen magically overnight and we are going far deeper into what is going on in there to make sure we don't have any product issues or other issues lurking out there. I am comfortable we're going to improve performance. I'm disappointed it's taken as long as it has but we will turn that corner.

Thanks. And the last question, Jeff, have you noticed a change in behavior for your customers in the bill payment product? I think in the press release, you said you had 82 new clients for the bill pay products. As clients look for you to finalize the CheckFree acquisition and to have that product on your umbrella, are you noticing any clients saying "We'll wait until you acquire the company" for any change in behavior for the internet banking product.

The short answer is no. We are -- we have developed the Paytrack product is a good product and we have a nice job of distributing it across our base. As you will recall, there was a large segment of our population who had not yet signed up for, I think 50% of our core clients had not signed up for our bill pay solutions. We're making nice inroads there.

What has been most exciting is that in the last quarter, we started to have some very nice competitive wins. And so we're starting to take clients from our competitors and I believe that upon the closing of CheckFree, that we will be able to put together a far more robust and richer offering that will hopefully be an even stronger best-in-class offering than exists today. But no, we have not seen slowdown on the bill pay side nor on the internet banking side. We continue to hear from our clients. They want to know what we're going do that is going to be innovative and how we're going to deliver more product to them faster, which continues to give us confidence about the success that we're going to have in the future with that acquisition.

Right. Thank you very much.

Thanks, Kartik.

Our last question will come from Tim Fox from Deutsche Bank. Your line is open, sir.

Thank you, good afternoon.

Hi, Tim.

Just one follow-on the margin question. Given the performance you had this year and certainly in this quarter in the improving margins and the mix shift we should see going forward, why is it you anticipate 50 to a 100 basis points over the longer-term from a margin improvement perspective?

Good question, Tim. Let me give you my quick insights and I will have Tom give you a more detailed answer. We have seen really obviously healthy gains and margins this year. As we talked about that, those gains and margins really come from a combination of primarily product mix as well a bit on the cost efficiency side.

We, we, what we said was we expect to see at least 50 to 100 basis points of growth annually so each year, sequentially, I'm over the foreseeable future. We don't expect to see only 50 or only 100. We believe it's reasonable for people to build into their economic analysis some level of continuing gains in margin. Now, we would all like to see the gains be larger but by the same token, we can't always estimate what is going to be happening in the market or in the beginning of the year we would see the precipitous falloff we have seen on the mortgage lending side. We believe that 50 to 100 basis points is a very comfortable level that we'll be able to achieve on a regular basis. Tom.

Yes, but I think that covers it. The comment I made was that it will be a least in that 50 to 100. The comment wanted to make was the financial year-to-date, you know, they're up about 260 basis points and that type of margin improvement on a year-over-year basis would be difficult to obviously attain.

So, we just wanted to make the point that we continue to anticipate 50 to 100 basis points. It's something that we have demonstrated our ability to execute on. Something we're focused on is getting the higher-value products to our clients that result in higher margins also.

Good, that is helpful. And another sort of a question, Jeff, about you mentioned budgets look pretty good and pipelines remain fairly strong. I was just wondering -- given some of the success you have had with de novo wins over the past year or so -- what are you seeing on that front now? Is there any effect on the new de novo formations and possibly on win rates there if we see some continued softening in this market.

Hi, this is Norm. That still continues to be a very vibrant area for us. We have probably the same level as more activity, part de novo's not only opening but the amount we would be signing on the market share that we would gain. We feel very good about the de novo market. We don't see any appreciable difference. What we do see is probably a little traction as far as the de novos that are coming out.

Great, thank you, Norm.

Thanks, Tim.

Thank you, Tim.

At this time, I show no further questions.

Great, well, thanks, everyone, for joining us this afternoon. We as always, appreciate your support. If you have any further questions, please don't hesitate to call our Investor Relations group. Thanks. Thanks again.

At this time, that concludes today's conference. You may disconnect and thank you for your attendance.