Fiserv Inc (FISV) 2008 Q1 法說會逐字稿

Welcome to the Fiserv first quarter 2008 earnings conference call. All participants will be in listen-only mode until the question-and-answer session begins following the presentation. Today's call is being recorded and it is also being broadcast live over the Internet at www.fiserv.com. In addition, there are supplemental materials that will be referenced on today's call at the Company's Website. To access those materials go to www.fiserv.com and click on the Access Presentation link on the home page. This call is expected to last one hour and you may disconnect from the call at any time. Now, I will turn the call over to Mr. Jeff Yabuki, President and CEO of Fiserv. Sir, you may begin.

Thank you. Good afternoon and thanks for joining us for our first quarter conference call. With me today are Tom Hirsch, our Chief Financial Officer; and Norm Balthasar, our Senior Executive Vice President and former Chief Operating Officer. Our remarks today 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, adjusted revenue growth, adjusted earnings per share, adjusted operating margins, EBITDA, cash flow targets, sales pipelines, our CheckFree integration efforts, the disposition of certain Fiserv businesses 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 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 measures. 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 for planning and forecasting for future periods.

Let me say, up front, that we are pleased with our strong start to the year, both financially and strategically. As shown on slide three of our presentation, adjusted revenue, earnings and free cash flow were all up sharply for the quarter. We made progress against our key strategic objectives, which are important steps in delivering long-term value for clients and shareholders. We extended our CheckFree electronic bill payment relationship with Bank of America through 2013. While comfortable with our previous arrangement, the new agreement provides a higher degree of economic certainty and value creation, as we continue our market leading relationship with Bank of America.

In a few moments, Tom will talk to you about our new segment reporting structure. This new structure is illustrative of the transformation the Company has gone through over the last year. Our traditional financial businesses now comprise more than 90% of our net revenue base and our total payments-oriented assets represent a significant portion of that total. We exited businesses, which were less attractive in favor of strategically important, faster growth assets, such as payments, which enhance client relationships and extend our competitive position.

Before we talk specifically about the quarter, let me provide context for our overall performance. We have three main priorities for 2008. First, to deliver earnings results consistent with our commitments, regardless of environmental conditions. Next, to make significant progress integrating CheckFree in Fiserv. And last to enhance our level of competitive differentiation through innovation and integration, leading to superior results for our clients and shareholders. As you will hear today, we made progress in the quarter across each of these fronts.

There has been significant discussion in the media and through the earnings season about the economy and its impacts on results. When we established guidance for 2008, we assumed a tough environment. The significant weakness in our lending businesses has been worse than we anticipated. We assumed that license revenue would be softer this year and it has been. However, our sales activity to date is stronger than we expected and we are cautiously optimistic about our level of new business for the year. Make no mistake, we, like everyone else, would prefer a more robust economy. However, the recurring revenue nature of our business model insulates us well from swings in the economy. And while we are pragmatic and realistic about the current environment, we are not lowering our 2008 earnings guidance due to any incremental weakness in the economy.

Now, onto highlights for the quarter. Adjusted EPS was $0.78 per share, an increase of 26% over the prior year's $0.62 per share. Adjusted operating income was $280 million for the quarter and adjusted operating margin increased 200 basis points to 25%. The increase is primarily from continuing improvements in the business mix, the addition of CheckFree and our relentless focus on operating efficiency. We continue to believe we can drive margin expansion for the foreseeable future. Overall revenue was $1.3 billion in the quarter, a new Fiserv high, and an increase of almost 40% over the prior year, due primarily to the acquisition of CheckFree. Adjusted internal revenue growth was 4% Company-wide. While the growth is softer than we'd prefer, it's within our expectations for the quarter, given the lending results and the top line impact of declining flow revenue.

Adjusted internal revenue growth in our combined financial and payments segments was 4.4% in the quarter, against a very strong prior year comparable quarter. Excluding the impact of the significant quarter-over-quarter decline in the home equity processing business, our internal revenue growth would have been just under 6%. We continue to make progress on our two primary strategic initiatives, Fiserv 2.0 and CheckFree integration. These activities, which are deeply interrelated, should lead to a more attractive cost structure and enhanced revenue growth characteristics for the Company.

The CheckFree synergy impact in the quarter was as expected, with only about $7 million of benefit embedded in our quarterly results. We are taking the actions required to achieve our 2008 cost synergy targets of between $40 and $50 million and are on pace to achieve our goal. We gained momentum with more than 140 new financial institution bill payment relationships signed in the quarter. We also made good progress integrating the CheckFree bill payment product into our various core processing solutions. This work should be complete by the end of the year.

We closed the sales of Fiserv Health and the first portion of Fiserv ISS in the quarter. The regulatory approvals needed to complete the sale of the remaining businesses of Fiserv ISS are expected by the end of the third quarter. Free cash flow was strong in the quarter, increasing more than 47% over the prior year to $172 million. That, plus the net proceeds from the businesses sold, allowed us to pay down more than $630 million of our debt in the quarter and also repurchase about $100 million of our stock.

As I mentioned earlier, we entered into a long-term contract extension with Bank of America for our full suite of electronic bill payment services. Coming to terms with Bank of America has been an important priority and we're pleased that we will continue our long-term relationship. We agreed to extend the relationship through 2013, providing Bank of America the best in market solution for electronic bill payment and presentment. Bank of America received a one-time discount for the services, consistent with levels that we see from time to time when signing a a large, multi-year agreement. The new BofA contract pricing will decrease revenue this year by about $25 million, which was not previously considered in our 2008 guidance.

We are optimistic that we can recover this reduction over the contract term, through a combination of continued transaction growth and the provision of additional products and services, which help Bank of America continue its online market leadership. All in all, we believe this is a very good agreement for both parties. With that, I'll turn the call over to Tom for a more detailed discussion of the segment results and our balance sheet.

Thanks, Jeff and good afternoon, everyone. During my presentation, I will refer to the supplemental information included in the slide presentation, available on our Website, which was referenced at the top of the call. Commencing with this quarter, we have provided our results in new segment breakouts. To assist in your analysis, we filed an 8-K earlier this week, providing historic quarterly results for our new segments for both 2006 and 2007. As Jeff mentioned earlier, we have significantly transformed the Company over the last year, through the acquisition of CheckFree and several business dispositions.

These changes are even more obvious as you look at the evolution of our segments over the last year, as shown on slide four. We divested Fiserv Health and the first part of ISS business while adding significantly to our payments related businesses. Slide five provides more details of the composition of our new segments. The new segments are designed to provide you with additional visibility into our results. Our new financial institutions services segment combines our market leading, core processing solutions, deposit automation and item processing solutions and all of our lending operations. This segment comprised approximately 49% of consolidated net revenues in the first quarter of 2008.

As shown on Slide six, you will also note that our lending division, which remains under pressure due to the general market weakness, is becoming an increasingly smaller part of the Company, accounting for only about 7% of total adjusted net revenue in the quarter. Of those revenues, approximately 50% are related to the home equity processing business. As you are well aware, this business has experienced significant challenges over the last nine months and we expect this head wind to our revenue growth rate to continue.

We also created a new payments and industry products segment, which comprises about 43% of consolidated net revenue. This segment contains our payments-oriented businesses such as debit and EFT processing, electronic bill payment and presentment, expedited bill payment, credit card processing and more. This segment also contains our various risk management products, our output solutions division, and our investment account processing business. These businesses tend to have faster growing, higher margin products and services, including our significant payments presence. We anticipate the growth rates in this segment to outpace our financial institutions segment.

We typically combine these segments when evaluating our internal revenue growth rates, serving the financial industry, as many of the payment solutions are included in our integrated product offerings to our clients. This also allows us comparability to our previously named financial segment included in prior years. Our insurance segment is relatively unchanged after the disposition of Fiserv Health. But now it's a much smaller part of the total Company, contributing 8% of net revenues and 6% of adjusted operating income in the quarter.

Finally, we have a corporate and other segment that includes a small amount of unallocated corporate overhead, intangible amortization associated with acquisitions, and inter-Company eliminations. As we allocate the substantial majority of our corporate costs to the businesses. This segment reported $14 million of adjusted unallocated expenses in the first quarter of 2008, compared to $12 million in the prior year, an increase of only $2 million.

One additional note. We have changed our practice of adjusting our reported revenue for pass-through customer reimbursements, which are included in both revenue and expenses and have provided reclassified adjusted financial information to reflect the change in our adjusted revenues and adjusted margins in our 8-K filed earlier this week. Beginning in 2008, we will only adjust revenue for the postage pass-through costs directly related to our output solutions business in our payments segment. This business provides card personalization and printing service and due to the nature of the business, incurs a great deal of reimbursable postage included in both revenue and expense. Excluding these reimbursements is consistent with our largest output solutions industry competitor.

We will no longer adjust our revenues for other customer reimbursements, besides the pass-through postage in our output solutions division. This is based primarily on our review of the competitive landscape and our CheckFree integration. This change creates consistency with our competitors' reporting practices and enhances comparability of financial results. Lastly, these out-of-pocket cost reimbursement items are now more frequently bundled into our client pricing. Although this change to our financial statement presentation has the effect of diluting both the adjusted operating margin percentage and the adjusted organic revenue growth rate, we believe the change makes sense.

Now, onto the segment results. Overall performance in the quarter included solid results in our two largest operating segments. The financial institutions segment generated revenues of $549 million in the quarter, an increase of 8% over the prior year, with a majority of the growth being generated through acquisitions. Adjusted internal revenue growth was 1% for the segment. And excluding the negative impact of the decline in home equity lending revenues of $14 million, the growth rate was approximately 4%. Operating income in the financial segment was up 11% to $138 million in the quarter. And operating margin increased 90 basis points to 25.2% on revenue mix, including termination fees and operating efficiencies, partially offset by the decline in our home equity business.

Our payments and industry products segment generated revenues of $529 million in the quarter or $483 million on an adjusted basis. Net of the pass-through cost for postage, a substantial revenue increase over the prior year, due primarily to the acquisition of CheckFree. Adjusted internal revenue grew 8% in the quarter, driven by new client additions and increased transaction volumes. Operating income for the segment was $140 million in the quarter, with adjusted operating margins of 29.1%, up 190 basis points over the prior year due to continued operating efficiencies and the addition of CheckFree.

CheckFree generated $308 million bill payment transactions in the quarter, up 14% year-over-year. Growth this quarter was somewhat distorted by the number of days in this year's quarter versus the same quarter last year, which should work itself out over the course of the year. New subscriber additions continued to be strong.

As shown os Slide eight, adjusted internal revenue growth for the combined payments and financial segments was 4.4% for the period, and was 5.8% adjusting for the negative impact of the home equity lending business. We believe that the home equity processing business will have a continued negative impact on second quarter revenue growth, due to reduced processing volumes and several large clients who are exiting or substantially reducing their home equity business. We anticipate improvements to our growth rate in the second half of 2008, as year-over-year comparisons ease.

Our insurance segment revenue results for the quarter were slightly weaker than our internal plan and we continue our focus on expense management, while making additional product investments. This segment historically has a slower first quarter, due primarily to the mix of business and the timing of revenues. We anticipate improved performance going forward, as revenues strengthen and normal seasonality kicks in. Termination fees in the quarter were $17 million, compared with $9 million in 2007. The increase is primarily attributable to one client who was recently acquired early in a five year contract term that resulted in a larger fee.

As we explained last quarter, we are recording a $2 million charge or $0.01 per share each quarter during 2008, which was a result of the employment agreement amendment related to our offshore captive that was effective in the fourth quarter of last year. As Jeff mentioned earlier, free cash flow was strong, at $172 million for the quarter, up 47% over the prior year. About $20 million of a favorable working capital benefit in the first quarter will be reversed in the second quarter of 2008, which was related to the timing of interest payments on our debt. Capital expenditures continued to be managed very well, with $50 million spent in the quarter, compared with $45 million last year, which did not include CheckFree.

As a management team, we focus on maintaining a strong balance sheet and generating substantial free cash flow from our operations. This process includes actively managing working capital and intense discipline surrounding CapEx. That said, we do expect capital expenditures to increase for the remainder of the year over the first quarter's level, as we identify ways to build additional value for our clients.

For this year's first quarter, adjusted EBITDA was $340 million, up 47% from the prior year. Total debt at the end of the quarter was 4.8 billion, a decrease of more than $630 million from our year-end 2007 balance of $5.4 billion. We also repurchased just over 1.8 million shares of stock in the quarter for about $100 million. Our effective tax rate for the quarter was 38.6%, and we expect an effective tax rate of approximately 38.7% for the full year. Now, let me turn the call back over to Jeff.

Thanks, Tom. We had solid first quarter results against our key Fiserv 2.0 initiatives. Integrated sales for the quarter were $14 million, about 22% of our full year objective of $65 million of sales. While that is slightly below ratable attainment for the year, March results were quite strong, accounting for more than 50% of the $14 million in sales for the quarter. We remain comfortable that we will achieve our $65 million target for the year. Our operational efficiency goal for the year is to realize an incremental $20 million in 2008, over the $20 million achieved last year.

For the quarter, we achieved $6 million or 30% of the full year goal and are on track for the year. Sales quota attainment was 91% for the quarter against the benchmark of 100%. Although quota performance was below a ratable plan for the quarter, we are encouraged by the breadth of our current sales pipeline. Although in some cases, sales cycles are elongating, clients to continue to look for ways to increase efficiency, manage risk, enhance payment capabilities and serve customers in a more differentiating way. De novo bank activity remained solid for the quarter with nine new core processing deals. We won a large health banking deal during the first quarter, which now means we serve three of the top five largest health companies in the nation. Given what we can see today, we are cautiously optimistic about our sales opportunities for the year.

As mentioned earlier and shown on Slide 10, we are revising our 2008 guidance to reflect the impact of the Bank of America contract extension, which will negatively impact 2008 earnings by approximately $0.09 per share. However, given the performance in the quarter, and our conviction for the full year, our new adjusted earnings per share guidance is not being reduced by the full BofA impact and is now $3.28 to $3.40 per share, 23% to 28% growth over 2007, adjusted EPS of $2.66 per share. We continue to expect second half performance to be stronger than the first half, given the cumulative impact of synergies and Fiserv 2.0 benefits on our results.

We now expect our internal revenue growth to be in the 4% to 6% range, down about 1% from our previous guidance. The primary factors impacting revenue growth are the Bank of America repricing, further declines in flow of revenue, and larger clients unexpectedly exiting the home equity business. We still expect much stronger revenue growth in the second half of the year, as our lending comparisons improve and we gain momentum.

Given our solid performance in the quarter and after adjusting for the margin impact of the new B fA agreement, we now estimate that operating margins will expand by at least 100 basis points for the full year. And finally, we expect that full year free cash flow should grow in line with our adjusted earnings growth. I mentioned at the top of the call, that we had three key priorities for the year, and we are on track on each. As you saw in our first quarter results, our business model is strong and has sufficient diversity in our earnings streams to allow us to absorb many of the challenges facing the market today. We fully expect to achieve full year earnings results within our revised guidance while continuing to build for the future.

Next, we've made great strides in integrating CheckFree. I'm often asked how the process is going. My answer is consistent, it's going very well and it's really hard work. Our leaders are focused on delivering the myriad of costs and revenue benefits within this powerful combination of market leaders. We expect to achieve our integration goals for 2008 and set ourselves up for additional success in 2009.

Lastly, this year is about expanding our level of competitive advantage and differentiation. Between Fiserv and CheckFree, we are supplying industry-leading, mission critical solutions to the full continuum of financial institutions. Whether we are integrating new capabilities of core processing, extending product leadership in online banking and electronic bill payments, combining assets to develop new risk and compliance offerings, or helping clients to rationalize and manage multistyle of payments infrastructure, we find ourselves with a premium seat at the table. Each day we are working with clients to solve complex problems and capitalize on exciting opportunities that are only available to us because of the expanded capabilities within the new Fiserv.

We will also expand our level of differentiation through our commitment to clients, vast industry knowledge and multi-faceted innovation. Those activities are part of the reason why our sales pipeline is as strong as it's ever been. While it's too early to predict how these opportunities will play out, we're encouraged by our progress and confident in the future. Before I end, allow me to recognize the hard work and effort of our more than 24,500 colleagues around the world, who are working to make the new Fiserv the best it can be. Our employees and associates recognize that you have to step it up when the environment gets tough. Our people are making that happen for our clients each and every day. They're the best in the industry, bar none. Operator, we'll now open the lines for questions.

Thank you, sir. (OPERATOR INSTRUCTIONS). Tien-Tsin Huang of JPMorgan, you may ask your question.

Hi, thanks, good afternoon.

Good afternoon, Tien-Tsin .

Good quarter. Thanks for the detail. A follow-up on Bank of America. Were there any significant changes in scope in the contract? It sounded like it was very much the same but I just wanted to clarify.

Yes. The -- we've obviously been working on that for awhile. Given the confidential nature of the agreement, we don't think it's wise to provide any additional information on the terms themselves. However, let me say that Bank of America multi-year extension is obviously a strategic plus for both us and Bank of America. BofA retains the assurance that they have the best possible service infrastructure, as they've had for several years, we're continuing support their online services. We provided them with better economics and they extended their commitment. So from that standpoint, we think it's pretty well-balanced. We're pretty happy with the deal and we think that the longer term is really important in allowing us to be able to invest further in this relationship, given the extension for the next three years. We think it's a win-win.

Glad to see it get out of the way as well. Just a follow-up on that, then. In terms of CheckFree, are there any other contracts that are maybe coming up for renewal or possibly up for renegotiation? And separately, the 141 other bill pay customers that were signed, I just want to confirm that those were bank customers and not billers. And then also, were those primarily new bill pay implementations or were they some take-away business as well?

There's a bunch of questions in there, so the 141 are actual bill pay installations. So those are financial institutions, not billers. We didn't disclose the number of billers that we had in the quarter. There are a variety of types of new contracts, some of them are some of the smaller institutions that are greenfield, some of them are larger wins and obviously some of them are take-aways. And those include both volume that comes from our own sales, as well as the continuing good work that we do with borrowers in the industry. We've continued to nurture those relationships and we're seeing good volume coming out of that given the quality of CheckFree's infrastructure services. As far as it relates to the other contracts, there aren't any other large contracts that are up right now. And we're happy to be able to focus now on delivery and not have to be negotiating contracts.

Very good. And then lastly, just integration-wise with CheckFree, it sounds like it's on track but what are the next milestones that we should be watching for in the coming quarters through the balance of the year?

Yes, that's a great question. We -- from a perspective of results, I think the milestones that will matter is you should start to see bigger synergy benefits flowing through. We were about $7 million in this quarter, so we're going to need to have increases to land in our range of $40 to $50 million, which we're confident that we'll do, so that's one item. The second one and I think pretty importantly is how does the sales pipeline look against those products that we're bringing together. We're really having some very interesting success talking to some of the larger financial institutions about taking the different products in our portfolio and putting them together and we're quite excited that we'll see some sales wins coming out from those by the end of the year.

Okay. Great. Thanks.

Thank you.

Dave Koning of Baird, you may ask your question.

One other thing on Bank of America. If we just kind of do a back of the envelope calculation, it looks like you may have almost given up close to 50% or so of the profits, if we just assume a normal 25%, 30% margin on the Bank of America revenue historically. And so, I'm just wondering, what's positive enough to kind of offset that? And maybe -- I don't know how much in detail you can get but are you giving higher minimums than you used to have and maybe are you guaranteed revenue to go up from them each year over the next several years?

Sure, it's a good question. The -- obviously, as I said earlier, we're not in a position to really talk about the terms of the agreement. From our standpoint, the only reason why we mentioned the revenue is because we made a change to our guidance and it was really because of that, the pricing, the one-time price concession. From our perspective, just looking at the history of the BofA agreement, we've seen that agreement -- we've seen the underlying performance of Bank of America to be quite strong and there's been nice growth that's come out of that over the last five to seven years. And we believe that that will continue, given Bank of America's commitment to the digital space and their -- and the success that they've had historically. So, that's one point.

The second point and I think most important, Dave, is without talking about the details of the agreement, we said last quarter that we were quite satisfied with our agreement with BofA. And that the two or so years that were remaining, we were comfortable kind of continuing that agreement and seeing what would happen at the end. For us to go in and decide that we would renegotiate the agreement, we obviously had to believe that there was more net present value in the negotiated extended agreement than there was in the prior agreement and so I think you can assume that we believe that to be the case.

Okay. That's great. And then one other thing, on the last call, you kind of talked about kind of basic '09 indication of EPS growth, kind of in the 20% ballpark. Is there anything that you've seen that would make you change your thought process on that at all or off the current '08 guidance do you still think 20% or so is in the ballpark?

Yes, it's good question, Dave. From our perspective, the underlying performance of the business we thought was quite strong in the quarter. And as I mentioned, our sales pipeline looks good. Our cross-sell, our integrated sales initiatives are delivering. And so, we want to be cautious not to get in the practice of providing 2009 guidance in April of 2008 but we don't see anything in the landscape that is different today than it was in the prior quarter. Obviously, we've seen some weakening in the home equity business and we've compensated for that in other parts of our business and we believe we'll continue to do that. And so -- but we -- taking that into account, we don't see anything that would suggest that our view in February would be different than it is today. Tom?

That's correct, Jeff. And I think the other thing I would add, Dave, to the previous comment that Jeff had on the BofA contract and this kind of goes outside of that agreement, is that as you have looked at our results over the last two years as we continue to grow the top line. We are extremely disciplined around the process of making sure that revenue is good revenue to the Company, it's profitable. That's why when you see typically organic revenue growth out of the Company, we anticipate that you're going to see improving operating margins and improving operating income. Then it's something we work very diligently at all the time and throughout our organization. So, that was just a comment kind of on the contract pricing issue.

Great, thanks. And nice Q1 results.

Thanks, Dave.

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

Yes, hi, guys. Just on BofA, from what you've said, correct me if I'm wrong, but whatever the revenues you get from BofA in '08, the '09 revenues assume bill payment volumes continue to grow. '09 should grow and we should continue to see the revenues from that contract grow year on year. Is that a correct assumption?

Yes, we -- what we did in the new agreement is we gave BofA a one-time reduction in pricing, which will lower our 2008 revenues, as we indicated. And then we would expect, based on the secular trends and the history, that they would grow over that amount and so there would be growth on that new reset amount, yes.

Okay. Perfect. And then was this something you had been in discussions for quite awhile? Just wondering why it couldn't have been anticipated when you gave the original '08 guidance?

I think the reality is that there had been on and off again, and on and off again, discussions really ever since prior to our discussions with CheckFree. That's how long these discussions have been going on between CheckFree and BofA. And you know, as everyone does, that transactions of this size take lives of their own and at the time we -- because we talked about this. At the time, we provided guidance, we just didn't have a good enough sense that this would actually get across the finish line.

Okay. And then lastly, the sort of outperformance that you've called out and the reason for not taking guidance down by the full BofA impact, where exactly is that outperformance coming from?

That's primarily just coming across the board, I would say more in our payments related areas, those have continued to do well. Our expedited bill payment business and our EFT business continue to grow nicely. And also, on some of the early integration efforts that we have as far as combining some of our businesses there. So, I would say in that payments area has been a big plus for us.

Okay. Thanks a lot, guys.

Thanks, Greg.

Bryan Keane from Credit Suisse, you may ask your question.

Good afternoon. License sales, what percentage of revenue is that now? That's still an area of softness and you guys expected it to be soft but now with CheckFree in there, can you give us a sense of how big that is?

It's still not very big, Bryan. Last year it was around 5%, maybe a little bit more but it's still around that particular level. So, it's just really not a big number. They brought a couple of businesses in. And as, you know the larger ones, and we anticipated that. And the larger institutions the larger licenses, those have been slower, and we anticipated that early on. But it's roughly about 5% of our total revenues.

5% of a larger base.

That's correct.

And how are, Jeff, your first impressions on Carreker and Carilion, how are they fitting into the mix?

One of the things that we probably underestimated up front, Bryan, was the opportunity that exists in Carreker to be able to match up well with some of the things that we do at Fiserv. In terms of things like remote deposit capture and deposit automation generally and risk management. Some very interesting products where Carreker has both the relationships and the expertise and we have obviously the distribution network across the smaller institutions. And we're bringing that together and doing some interesting stuff. And again, we feel fairly optimistic that we'll see some nice sales come in towards the second half of the year.

On the Carilion side, there was no surprise there that Carilion obviously has kind of the best Internet banking technology in the market. We're seeing some very interesting opportunities with Voyager generally to be able to integrate that into other elements of our system today. We're finding by putting together some of our Internet banking products and kind of looking at what are the right suites, how can we leverage kind of the best of all of our products to come up with some market leading products? So we're seeing some wins there.

I would say, on the down side, there are not a lot of people -- because of the economy the way it is today, really to your earlier question, there aren't a lot of reasons why people are going out and swapping out their online banking. And those kinds of incremental license purchases, are not happening as they were, say, a year or so ago or 18 months ago. So, it is a little bit harder there. We have some new products that are coming out towards the end of the year, it's one of the reasons why we're somewhat bullish on our sales results -- or our predictions of our sales pipeline. So, we think we'll see better results in the second half of the year. But for now, we're pretty pleased by what's there on the Carreker and the Carilion side.

Yes, just to follow up on that. I think your opening comments you said sales activity a little stronger than anticipated. So is that the area that surprised you? And then also, it surprised me to hear that March was a little bit stronger in integrated sales. Can you just comment on that?

Sure. I think we, like everyone else, we're quite nervous about how the economy would be and what that effect would have on our clients and so I think we generally were just a little bitten bit tentative going into the year. And we were really trying to balance that out against what we were hearing from our clients. And what we were hearing from most of our clients, X the largest institutions in the U.S. is people still are looking for ways to serve clients and deliver payments and to be a little bit more efficient. And so, we have really seen more strength across the board than we anticipated. And that's really topped off by some pretty interesting core processing deals and other things that are out there, because people are really looking for ways to drive efficiency and because we think we have one of the stronger suites available, Again, we're getting maybe longer looks than we would have historically. On the integrated sales side, that's purely related to the fact that our products are coming together very nicely. Our integration efforts are coming together nicely and we're paying our people to sell them. And that's really just -- it sounds so fundamental, Bryan, but it's really making a big difference.

Thanks a lot.

Jonathan Kraft of D.A. Davidson, you may ask your question.

It's John Kraft.

Hi, John.

Congratulations on a nice quarter.

Thank you.

Just want to clarify something here, and sorry, this is the middle of earnings season, so I may not be thinking properly. But you did say as far as BofA, that it's a one-time pricing concession. Can I think of it as a one-time $25 million rebate for '08 or was it a one-time reduction in transaction price that happens to equate to $25 million in '08? And if transaction volumes are the same in '09 it would be another $25 million then?

It's the latter. It's a one-time adjustment to the price schedule.

Okay. And there are incremental volume-based tiers after that as well, correct?

We probably shouldn't go any deeper than that on a detailed basis. We believe that it's a $25 million or so item in this year. And based on what we can see, that will obviously -- that there will be growth, but there aren't future reductions in the pricing schedule. So beyond the annualization impact, which is relatively small, we don't see a future change to how we had anticipated future revenues.

It's going to grow off this pace, John, if that's your point. We expect continuing growth as we go into '09 and '10 far as volumes and subscribers as that continues to grow.

And actually '9, '10 and through '13.

Right.

Well, I'm happy to see the overhang gone.

Yes.

And just one last I guess housekeeping item for you, Tom. Might you be able to provide a little bit of guidance on a segmented basis, what your organic expectations would look like for the year?

We're not going to do that this time, John. We will -- as we get to further along in the year and we have our investor day, we'll be putting out some long-term performance outlook by segment. But for now, we're going to kind of look at our guidance on organic revenue as 4% to 6% and that's where we're at for this year.

Fair enough. Thanks, guys.

Thanks you.

Glenn Greene of Oppenheimer, you may ask your question.

Clarity, if you look at the $0.09 impact, it almost implies, if my math's right, almost 100% margin on that $25 million revenue impact. First of all, am I thinking about that right?

Yes.

And the reason why -- it's basically a change to the pricing and there is no -- for all intents and purposes, all of the expense structure stays the same. So basically as we've thought about it, in 2008, it's a $25 million reduction. Now, not surprisingly, we'll obviously work to look for efficiencies in our platform and other ways to make ourselves more efficient to compensate for that. But for 2008, it's really a one-for-one reduction.

I got it. So you're thinking about it as sort of a fixed cost business. Got it. And then Tom, you alluded to why the bill pay transactions were late and you talked about the number of days in the quarter. I was certainly under the view that March was a strong seasonal quarter for the bill pay industry. Did something sort of -- some kind of phenomenon happen this quarter?

So, Glenn, let me go back to what you said. Obviously, just to clarify, it's not -- we're thinking about it not as a fixed cost business, we're thinking about it, although the impact is similar, but what we're saying is we assume that -- remember, this is a change against really our 2008 guidance. And so we had assumed a series of assumptions, growth assumptions and everything else, we basically assumed that nothing changes except for the pricing. Now, if for some reason volume were to drop and things like that, then that number would be less and if volume were to grow, exponentially over our assumption then that would be higher. But I think that would actually be a good thing. So, I just wanted to make sure we clarified that.

Another thing to add Glenn, is that over time, obviously we have a lot of things working on the expense side as far as infrastructure goes, that over time will continue to work to get our costs down on a per transaction basis.

And to the point on the actual bill pay volumes, there are some interesting anomalies and we've gotten in and kind of learned how the transaction settlement business works. There are interesting anomalies that have to do with how transactions are settled and the timing of those transactions and how that relates -- how the days of the week and the month of March of 2008, how that translates or relates back to the month of March of 2007. Suffice it to say, that we are quite comfortable with the growth that we're seeing and that it will continue. That those anomalies will work themselves out by the end of the year. But it still looks a little anomalistic in the queue, in the first quarter.

And then Jeff, you had alluded to some of the activity in the big bank market. And you sort of repeated your comments from the prior call. But could you give a little bit more color on the kind of deals or the nature of the deals that you might be referring to, without being real specific?

Yes, the -- it's a little bit tough. We're looking at things -- some deposit automation type of transactions. We're looking at some item processing transactions. We're looking at ways to expand the Fiserv clearing network. We're looking at different ways that -- one of the interesting challenges facing the financial industry right now is all of the legacy payment platforms that are out there. And the opportunities to bring those "silos together," to create a more holistic and a more data-rich view of the end consumer. And so, no company really prior to now has had the full suite of capabilities to look at that and bring that together. And so, we're looking at some places there. And in the risk areas, we see some very interesting opportunities, when you take our products and the Carreker products that we think are quite valuable.

And the last thing that I would say is one of the interesting opportunities that exists in our business really is through the RevE business, which is basically a consultative business that exists in Carreker, that really is based on looking for, as the name implies, ways for the larger financial institutions to enhance their revenue. And not surprising, this is a time when lots of the larger financial institutions are looking for ways to enhance their revenues. So, we see a lot of interesting opportunities coming out from that area.

Is it fair to say that Carreker is sort of exceeding your expectations in terms of sales activity or even performance at this point?

Yes, there's been some -- I think as part of the combination, there's been some very good integration between that business, the remote capture business that we have, our check processing business and the team has worked extremely well together. The Carreker team and the Fiserv group here and I think they are doing very well as a team and have a good outlook for the year.

Thanks, guys.

Thank you.

Pat Burton of CitiGroup, you may ask your question.

Yes, hi, congratulations on the quarter as well. My question is are there any other large bank contracts within the portfolio where you could envision this time of renewal coming up this year or next? Thanks.

Certainly nothing this year. Now, it's important to keep in mind that there's no other contract in the portfolio that is of the breadth that this -- that Bank of America is. So from that perspective, I would say there's no risk of anything like that happening.

And by not going out with the details, you don't think there could be a knock on effect with other customers of the CheckFree base?

No.

Okay. Thank you.

Thank you, Pat.

Tim Fox of Deutsche Bank, you may ask your question.

Thanks, good afternoon.

Hi, Tim.

One question and just maybe a clarification on your comments around the sales pipeline and breadth. It sounds like the sales pipeline is actually expanding, however, quota attainment was below plan because of longer sales cycles. So I'm just trying to reconcile the two. And if we see quota attainment remain somewhat below plan, is there a risk to numbers, just given the extended sales cycles?

Sure, and that was one of the reasons why I certainly mentioned the sales cycle because that is -- in certain cases and again, it's not all of the businesses, but in certain cases, we are seeing that elongating and the delays in some of the decision making. I would say a couple of things. The quota attainment in this quarter is a little bit misleading because we basically straight line our quota for the year. And it's not surprising that in any sales organization your first quarter results are going to be less than your fourth quarter results. So, we would expect to see that change and as people get geared up.

I would say, Tim, if we get to the third or fourth quarter and we're still below, that I I think obviously that's going to be an issue. But again, the first quarter, it's kind of a small sampling of what's going on. We think that -- if we were 120% or 130% in this quarter, we actually wouldn't feel any different. What we really care about right now is; what is the size of the pipeline, what's the composition of the pipeline and what is the probability of closing those items in the pipeline? And that's where we actually have a fair degree of comfort right now.

That's helpful. And just secondly, and following up on guidance and to an earlier question about the fact that you're not taking the full $0.09 impact. Help us understand how you can be a little bit more confident about that performance, given the fact that home equity has been weak? Granted it's a small part of the business at this point but it doesn't seem like, from a macro perspective, that's going to improve any time soon. Do you see any other large customers existing? How can we feel confident about that relatively small part of the business not weakening even further?

I'll give you my insights and then I'll let Tom kind of close it out. That business has reduced a lot. I think at our peak, we were about $90 million per year larger than we are right now on a run rate basis. And that peak was sometime in 2006. So, we've seen a lot of reduction there. And the surprise, to the extent that there was one in the quarter, was that some of the large players actually are getting out of the home equity business. Now, we've taken that into account for the year and we're quite comfortable that the -- kind of the stability and the insulation of our business model will let us continue to take that as we've taken the $90 million reduction so far. So, we're comfortable.

Now, Tim, if the world falls apart dramatically worse, if there's a 50% to 75% decline in home equity volumes over the next couple of quarters over where we anticipate them to be right, then I think that could be problematic. Our pipeline reports and our forecasts and what we see, give us comfort that we'll be okay. And we've obviously taken into account within a range. Our range is a little bit wider right now and it's wider because we think there's some risk in the home equity business. But what we don't want to do is sit here and spend the whole time talking about what's become a relatively small business and have that take away from some of the strength that we're seeing in other parts of the business. Tom?

And I'll just close that out, is that, again, this business is about 2%, 3% probably of our total revenues of the Company on a net revenue basis. And we continue to take out the variable costs of this business. So overall, we've had some outperformance in other aspects of the business, just compared to plan. Like I talked about, particularly in the payments area and a few other areas. So again, I think you've got to size this particular business. We've given you that additional detail, so you see the size of this business and it's down to a pretty low level. And again, we have other compensating factors, just given the size of that business, compared to the rest of Fiserv, which again is very high recurring type revenue and very resilient to these economic times.

Great. That's helpful. Congratulations on the quarter.

Thanks, Tim.

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

Great. Guys. Real quickly, Tom, would it be possible to get the organic growth rates under the new segments also disclosed?

Yes, it's in the appendix of the presentation, Julio, so it should be out there.

So the historical quarters are in the appendix here. Okay. Great.

Yes, for '07.

And then can you just help us -- here it is, I see it. Can you just help us sort of decompose the organic growth numbers, especially on the financial side, which came it it looks like 1%? Just make us -- help us understand, excuse me, kind of the puts and takes in terms of what the drags were in financial? And how to think about that as we go forward, what falls off, what continues to grow? Just to have a better sense on what the quarterly trajectory would look like there.

Okay. I think the -- in that particular area, when you go back to slide 12, Julio, you'll kind of see that business last year started the year in the first quarter around 4% and ended around 2% and that's primarily because of the lending impact kind of hit through the year. For the first quarter, we did 1%, but again, the lending impact was much larger. It was about three percentage points for that segment. So we really did about 4%, notwithstanding the home equity lending business. The other parts of that business are really the core account processing, which continues to do well. That's the strength. We are the market leader in those solution sets or ITI or CBS solution. We continue to sell more product to our existing clients. So, that business continues to be very stable and growing. The headwind we have is the equity business, which we talked about and I think really that's kind of where we're at. I don't know Jeff, if you have something to add to that?

I think that's right.

And the only other thing, anything in terms of termination payments or anything like that that would have been tougher comps going into this quarter?

Going into the -- for the remainder of the year, Julio?

Yes, exactly, sorry.

No,.

No. Okay. Got it. And then, just finally, on the payments business, as we kind of look at it now, just in terms of seasonality, if you look -- looking at the numbers here, just looking at them for the first time, actually, 13, 8, 10 and 5 for '07, it looks like there's a little bit of movement in those numbers. Is that seasonality or is there something than -- just kind of help us understand what drove all of the -- kind of the moves between first quarter, second quarter and then third quarter to fourth quarter.

Well, I'd tell you, Julio, first of all, is that business last year on a percentage basis was a lot smaller than it is this year with the acquisition of CheckFree, obviously. So the base is fairly smaller when you compute the revenue growth there. The other thing I'd say that -- and I think it's on slide four or five, the pie chart where we kind of show what's in that particular business. We have the industry products piece, the output solutions piece and that business can tend to move quite significantly, a little bit more in the first quarter, primarily. And it can move based upon some larger transactions that occur in the card fulfillment business. So, that does add a little more volatility. But I think as you'll see this segment as it's bigger in 2008, it's going to be much more stable.

Got it. And then just to make sure I understand, the change on the previous presentation for the reimbursements versus what we're doing now, I heard what you said but -- maybe I just want to -- if it's possible to sort of close the door on what the reimbursement number would have been in this quarter if we were still using the old definition. Is there a way to reconcile that, maybe?

Well, I think the reimbursements have been historically, I think they've been around $400 million or so on the customer reimbursement side. That's on an annual basis. And now it's probably around $200 with just the postage. So, it's probably around $50 million a quarter.

Got it. Okay. Thanks.

Thanks, Julio.

Kartik Mehta of FTN Midwest, you may ask your question.

Hi, good afternoon. Jeff, I'm trying to reconcile some of the comments you made on BofA, and I know you can only say so much. But would it be fair to say based on your comments that the services you'll provide CheckFree over the length of this renegotiated contract are the same services that you provided prior to this renegotiated contract?

Yes.

Okay. And Jeff, I'm just trying to understand the margin impact. You said on the BofA that you couldn't take the cost out that quickly. Is it just because of the structure of the business? Is it you're in an integration standpoint and that's why and that eventually you will be able to take the costs out and the impact we're really seeing in 2008 won't be the same in 2009?

Yes, that's a -- the real problem in a situation like this is it's a little bit like the opposite of gasoline prices. When gasoline prices go up, they're just up and you pay the extra amount and if gas -- and profits to the oil companies go up. And if gasoline prices go down, profits to the oil companies go down. And you might be able to do things over time, this is a very big transaction processing business where we're looking on a regular basis to make sure that we are reducing costs as often as we can. I don't know that we will ever get to the point where we take out all $25 million of costs he related to this reduction. I do believe that we have very defined opportunities to reduce our -- the costs of operating this platform and we will execute that. And this gives us a little bit more incentive to make sure that we're executing it. But I can't sit here right now and say when we'll start to see the realization of the saves against that $25 million.

And Jeff, last question, what do you think -- is there a difference in the way financial institutions are acting today versus before kind of this credit crunch happened? I know your results don't seem to indicate that but I'm thinking from either a product standpoint or a length of contract standpoint, is there anything that's changing, other than lower license revenues?

Well, we have the good fortune of serving the entire continuum of financial institution clients. And so -- from the smallest institutions obviously up through the mega institutions. And the impacts on those institutions are different and there's obviously different levels of tentativeness across each of those groups. I think, but for the credit crunch, you would see -- I think you would see, as Tom mentioned, you'd see higher license revenues. You'd probably see a little bit more pricing power than you see today because people are paying a lot of attention to everything. I think people are being much more prudent about how they spend. And I actually think that benefits companies like us because of the breadth of the solutions and the integration that we can bring. And I frankly believe there will be less changing of core platforms over the next year or two because I don't think people will want to take the risk and that's helpful for us, obviously because of our breadth there.

Thanks, Jeff. Appreciate it.

Thank you, Kartik.

Our last question comes from Charlie Murphy of Morgan Stanley. Sir, you may ask your question.

Thanks very much. I was wondering if it's possible to get some color on which segment you would expect to contribute the most to the 100 basis points of margin expansion this year?

Yes it is. We're just not going to be in a place where we're giving that kind of segment by segment guidance. Obviously, we'll see it each quarter. The underlying strength of the payments segment itself, there tends to be more leverage and more growth, so you might anticipate that that would be the place. But it can come from a variety of different places, depending on what's going on from a sales perspective.

Thanks very much.

Thank you. All right. Well, thanks everyone for your time on a Wednesday afternoon. We appreciate your support. If you have further questions, please feel free to contact our investor relations' group. Have a good night.