Fiserv Inc (FISV) 2008 Q3 法說會逐字稿

Welcome to the Fiserv third quarter 2008 earnings conference call. All participants will be in a listen-only mode until the question-and-answer session begins following the presentation.

Today's call is being recorded and is also being broadcast live over the Internet at www.fiserv.com. In addition, there is supplemental materials that will be referenced on today's call available at the Company's Web site. To access those materials, go to www.fiserv.com and click on the Access/Presentation link on the home page.

The call is expected to last for about an hour and you may disconnect from the call at any time. Now I would like to go ahead and turn today's call over to David Banks, Vice President of Investor Relations at Fiserv. Sir, you may begin.

Thank you, operator. Good afternoon, everyone, and thanks for joining us for our third quarter earnings conference call. With me today is Jeff Yabuki, our Chief Executive Officer; and Tom Hirsch, our Chief Financial Officer.

Our remarks today will include forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. 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 ur earnings release, which can be found on our Web site at www.fiserv.com for a discussion of these 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. Now I'll turn the call over to Jeff.

Thanks, David. Before we get to the results, I want to remind everybody that we are hosting our 2011 investor day on November 11 in Boston. We're looking forward to updating you on ur progress with Fiserv 2.0 including our CheckFree integration initiatives.

In addition, we'll highlight several important enterprise growth strategies which showcase our growing focus on delivering innovation to the market. I won't go into depth on our strategies today in light of the upcoming investor day. However, I will give you an update on our view of the market environment at the end of this call. If you haven't yet signed up for the event, please contact our investor relations team.

Let me say up front that we're pleased our results for the quarter and the year to date. In January, I identified three key 2008 priorities which we would use to gauge Fiserv's progress for the year, and we've updated you on our progress each quarter. Those priorities are, first, to deliver earnings results consistent with our commitments, regardless of environmental conditions.

Second, to make significant progress integrating CheckFree and Fiserv. And finally to enhance our level of competitive differentiation through innovation and integration leading to superior results for our clients and shareholders. We continue to deliver against each of these commitments. Adjusted earnings per share were up solidly during the quarter and have increased 23% for the year.

We have affirmed full year adjusted EPS guidance within our original range, which includes the dilution from the sale of the majority interest in our insurance businesses. For the full year, we anticipate that adjusted EPS will be up 23% to 24%. Our free cash flow conversion of those earnings has been excellent, generating $465 million year-to-date, and increase of $169 million, or 57% versus the prior year.

Our second key priority for 2008 is to make significant progress on the integration of CheckFree. This integration is a multi-faceted initiative with a number of different projects. Some, such as cost synergies, revenue opportunities and product development are tangible and easy to measure.

At the same time, we're using this integration effort to further our Fiserv 2.0 cultural agenda, focus on attributes such as leadership, product innovation and one-enterprise thinking. We continue to make excellent progress on achieving our $100 million cost synergy target. Through September 30, we've recognized $38 million of pretax benefit in our income statement this year, versus our original full year 2008 target of $40 million to $50 million.

Given our strong performance, we anticipate that we will achieve cost synergies above the top of the range for the year. You can see some of the benefit of this initiative contributing to our strong payment segment margin which are up more than 300 basis points for the year. We reported strong bill payment sales again this quarter and have signed over 400 clients year-to-date.

We're having good success delivering the CheckFree RXP solution into our core processing client base. Our next generation Online Advantage product was recently named a best-in-show winner at the 2008 Finovate conference and will be in market in December. You'll have an opportunity to see a preview at our investor day.

We launched our Fiserv Mobile Money solution suite in September as one of our first single solution enterprise-wide products. This suite, which links to all wireless technologies, is well-suited for all sized institutions. Mobile Money is a great example of how we're focused on enabling the landscape with single, best-in-class solutions when it makes sense for clients.

Our third priority and most important for the future of Fiserv is extending our level of differentiation through innovation and integration. We continue to make steady progress on this front and the early returns are excellent.

As part of our innovation process, we are providing products and services to clients today that uniquely meet the needs of the evolving market. Our Home Retention service is one such example which allows financial institutions to make mortgage loan modifications effectively and efficiently, helping their balance sheet and, importantly, making it possible for more consumers to stay in their homes.

We've also introduced a new common loan servicing platform that allows financial institutions to serve multiple loan types on a single platform, thereby reducing costs and providing better data to the institution who services that loan. I believe the current environment is serving as a further catalyst for our Fiserv 2.0 approach to the market. We can differentiate our position across all segments of the market through our client reach and wide array of innovative market leading products such as bill payment, Internet banking, debit and high value consulting.

While we'll spend more time on these topics at our investor day, I'm confident that the progress that we have made this year will pay even more dividends in the future. As I mentioned up front, we're generally pleased with our results for the quarter. Adjusted EPS, operating margin and cash flow were up solidly. Adjusted EPS from continuing operations of $0.81 was up 16% for the quarter and is up $0.23 to $2.43 for the year.

In addition, this quarter's EPS result includes approximately $0.04 of dilution related to the sale of our 51% interest in Fiserv Insurance due to the timing of the capital deployment. The dilution will be reduced as we continue to deploy the remaining proceeds. We shared with you last quarter that the dilutive effect of the sale would likely be much more pronounced in the third quarter than in the fourth. And the results this quarter bear that out.

The strength of our businesses and our focus on high quality execution translated to another quarter of strong margin performance as adjusted operating margin was up 160 basis points over the prior year, excluding insurance, to 26.1%. We are not satisfied with our overall internal revenue growth performance in the quarter. The headwinds did not ease as we anticipated, leading to flat internal revenue growth for the quarter. After adjusting for some of the large unusual items which have occurred this year, our more normalized internal revenue growth for the quarter and year-to-date would have been 3% and 4% respectively.

While those levels are reasonable given the environment they don't tell the full story. We're focused on building the Company for the long term while delivering results. We've continued to resist taking on large one-time or unprofitable revenue.

Instead, our primary focus is building our payments and processing businesses to enable larger growing streams of recurring revenue, earnings and cash flow. We're seeing strong double-digit transaction growth in scale areas, such as bill payment, debit processing and EFT, which are providing both growth today and more tomorrow.

With that, let me turn the call over to Tom for a more detailed discussion of the financial results and our balance sheet.

Thanks, Jeff, and good afternoon, everyone. I will refer to the supplemental information included in the slide presentation which, as we mentioned earlier, is available on our Web site. As Jeff mentioned, on July 14th, we sold a 51% majority interest in our insurance businesses. Subsequent to the sale, we no longer consolidate the revenue, expenses or the balance sheet of Fiserv Insurance.

Instead, we report our 49% share of net income as income from investments and on consolidated affiliate on one line below operating income. And the net assets of this business are reflected on one line on our balance sheet. This will be our treatment going forward.

Revenue in the quarter, excluding Fiserv Insurance, was $1 billion, up 42% over the prior year. As referenced on slide 4, year-to-date revenue was up 43% to $3.04 billion compared to 2007. Adjusted operating income, excluding Fiserv Insurance, was $265 million for the quarter, with adjusted operating margin increasing 100 basis points compared to 26.6% compared to the prior year period.

Through September 30, adjusted operating income, excluding Fiserv Insurance, was $794 million and operating margin has increased 160 basis points over the prior year, to 26.1%. The continuing improvement in margin performance comes from several factors such as business mix, including the the addition of CheckFree and related cost synergies, business model leverage and our continued focus on operating efficiency.

Our overall adjusted operating margin, excluding Fiserv Insurance, has increased each quarter this year from 25.8% in the first quarter to 26.6% in the third quarter. We will continue to see variation in revenue and margin on a quarterly basis in our reporting segments due primarily to the timing of certain items such as termination fees and license revenues. However, our strong year-to-date margin results are indicative of our ability to manage the business effectively in a variety of environments.

Additionally, margins will increase proportionately to our success in distributing higher growth payment products, such as EFT and bill pay, across our core account processing distribution platforms included in our financial segment. This integration creates more value for our clients, and increases operating leverage across our platforms. When evaluating our performance, there are several items impacting the comparability of the second and third quarter results which are shown slide 6.

First, the sale of the majority interest in Fiserv Insurance led to dilution of about $0.04 in the quarter in adjusted EPS, primarily due to the timing of the redeployment of the proceeds from that transaction. This dilution will be reduced as we redeploy the capital from the transaction. Next, termination fees in the third quarter were only $3 million, down $15 million from the $18 million included in the second quarter.

Almost all of that reduction is in the financial segment and resulted in lower revenue, operating income and margin when compared with the second quarter. As you know, these fees fluctuate by quarter depending on acquisition activity. Third, our lending revenues continue to decline below the sequential and the prior year quarters. And finally, we reclassified the remaining insurance businesses that we did not sell on July 14 to discontinued operations.

These small operations generate less than $20 million in annualized revenue, as these operations have been slightly dilutive to operating results (inaudible) adds about $0.02 per share to reported continuing operation results during the first half of 2008. Adjusted internal revenue growth, excluding Fiserv Insurance, was flat in the quarter and is 2% for the first nine months of the year.

However, as we shared previously, there are three larger unusual items which continue to negatively affect internal revenue growth. The home equity processing business, the Bank of America contract repricing earlier this year and the declines in [float] income. Although we have had good success this year with our Home Retention product, home equity processing revenues, which include the new product revenues, still decreased by $6 million over the historic low levels experienced so far this year.

As seen on slide 7, if you normalize for only these items, our adjusted internal revenue growth rate would have been 3% in the quarter and 4% for the year-to-date. At the segment level, our payment and industry product segment generated revenues of $529 million in the quarter, or $478 million on an adjusted basis, net of the pass through cost for postage, a substantial increase over the prior year due primarily to the acquisition of CheckFree.

Adjusted internal revenue growth in the quarter improved sequentially to 3%. When excluding the impact of the BofA repricing and float decline revenue growth in the segment would have been 6% for the quarter and 7% for the year-to-date. We continue to see strong double-digit transaction growth in our payment processing businesses, along with good performance in our output solutions business, which is seasonally stronger in the second half and particularly in the fourth quarter.

Operating income in the segment was a very strong $148 million in the quarter, with adjusted operating margin of 31%, up 410 basis points over the prior year. Through September 30, operating income was $422 million, and operating margin was up 310 basis points to 29.6%. The increase in margin is due to continued improvements in operating efficiency, network efficiencies, and as Jeff mentioned earlier, the ramp-up of cost synergy benefits associated with the CheckFree acquisition. We are very pleased with these results.

The financial institution segment generated revenues of $526 million in the quarter, an increase of 5% over the prior year. Adjusted internal revenues contracted by 3% in the quarter. Excluding the home equity impact, internal revenue in this segment was flat for the quarter and is up 2% year-to-date.

The third quarter results were below expectations due primarily to overall weakness in our mortgage-oriented products, reduced contract termination fees and softer license and associated professional services revenues compared with the prior year period. Contract termination fees were $3 million for the quarter, compared with $6 million in the prior year, a year-over-year decrease of $3 million. Operating income in the financial segment was $128 million for the quarter. Adjusted operating margin was 24.2% for the quarter and 25% year-to-date.

Segment margin was down 50 basis points for the year, compared to 2007 due primarily to lower license and one-time revenue along with margin pressures in our lending-related businesses. We continue to make progress variablizing our expense structure in response to lending market volatility. As Jeff indicated, our free cash flow was exceptional. We generated $465 million for the first nine months of the year, an increase of 57% compared to 2007.

Through September 30, our free cash flow per share was $2.82, 16% higher than our $2.44 of adjusted earnings per share. This performance reinforces the strong cash flow characteristics of our business model, along with a disciplined approach to working capital management and investment spending. We expect our current mix of businesses will continue to produce attractive free cash flow growth.

Year-to-date capital expenditures were $139 million, an increase of $28 million from last year's level which did not include CheckFree. Our overall financial position is very strong. Through September, we have repaid more than $1.1 billion of our debt this year. Our next required debt payment is $250 million which is not due until the end of 2009.

We have more than $300 million of available cash on hand at the end of the quarter. We also had $650 million available on our credit facility, which does not mature until 2011. We have increased our free cash flow guidance given our exceptional year-to-date results. We now anticipate our full year free cash flow will be between $560 million and $580 million, an increase of 27% to 31% versus the prior year.

Our forecast includes $50 million of semi-annual interest payments that are due on our public bonds, (inaudible) associated with our insurance transaction. As Jeff mentioned, we repurchased 3.2 million share in the quarter for approximately $160 million and had about 6.8 million shares remaining in our current authorization at the end of the quarter. Our net interest expense for the first nine months was $187 million with $57 million recorded in the third quarter.

This amount should continue to trend down as we reduce our debt, and derive some interest rate benefit from the variable portion of our debt. Lastly, we anticipate that our income tax rate in the fourth quarter will be slightly lower than the year-to-date normalized tax rate of 38.7% due to the extension of the R&D tax credit. Now I'd like to turn the call back over to Jeff.

Thanks, Tom. Even in the face of a more challenged environment we continue to see good sales activity. Integrated sales continued to build its momentum with about $21 million in the quarter and are now at $56 million year-to-date, 86% of our full year objective.

The majority of the products are payments related and include bill payment, debit EFT, Fiserv clearing network, Internet banking, source capture solutions and WireXchange. Sales performance continues to be on track with year-to-date quota attainment at 99% of 2008's target. Although sales pipelines remain fairly solid, we have continued to see delays in buying decisions for license and one-time professional services revenues. We continue to make progress on our operational efficiencies connected with Fiserv 2.0.

Through September 30, we've achieved 95% of our target or $19 million of incremental benefit this year. As we've mentioned previously, we plan to refresh our efficiency targets at the upcoming investor day in light of the divestitures over the last year. Before I wrap up, let me talk for a moment about the market environment and how we see it affecting us.

We view the markets and how we deliver products and services in two distinct groups. First, the very large financial institutions which include those names you're most familiar with, and for illustration are generally the top 50 banks in the U.S. We typically serve this group with (inaudible) read and/or specialty products such as bill payment, Internet banking, lending solutions, item processing, risk solutions, investment services and the like. The majority of the almost 17,000 remaining financial institutions we generally consider as community-based institutions.

This group tends to be more geographically focused in the clients they serve. In addition, this group will tend to value technology integration in conjunction with innovation and has strong relationships with their core account processor. The substantial majority of Fiserv's total revenue comes from serving this group of institutions, with or without a core processing relationship.

For this group of banks, thrifts and credit unions, which count on us for a variety of nondiscretionary integrated technology solutions, things remain relatively stable. I say relatively because it's safe to assume that no financial institution is escaping the present turmoil. However, this group doesn't generally have the same magnitude of issues facing them as some of the larger institutions. They're generally well capitalized, and with some regional exceptions, they have not entered the more speculative areas of mortgage lending and/or investment vehicles that are negatively impacting some of the larger financial institutions.

As you know, there have been more regulatory actions in 2008 compared with the last four or five years, although less than was anticipated earlier in the year. Through mid-October, there have been 29 regulatory actions requiring remediation versus around three in the prior year. And of the 29 actions, eight of those are our clients.

In most cases, the remediation includes the assumption of the accounts by a stronger financial institution. So far this year in terms of numbers of institutions, the client gains and losses for Fiserv are even. So when the dust settles, we anticipate that we will still be serving the same number of client groups. However, as we've discussed in the past, more important than the number of financial institutions are the accounts and the associated deposits those net new clients represent.

And for illustration, we anticipate about a seven-fold increase in the total assets of the banks joining Fiserv in this transition versus those that we lost. We continue to see good sales activity in this group with the primary focus on deposit gathering, efficiency products and risk management. This translates to demand for products such as EFT, bill payment, remote capture and risk.

While we do believe the market softness will continue, the nondiscretionary nature of the services we provide across this segment should continue to allow us to deliver stable streams of revenue and new sales. Back to the larger institutions, the story is different and a bit of a mixed bag. There is consolidation being driven by larger losses and capital needs across the spectrum. We have seen the big get bigger and in most cases get stronger.

In addition, we expect the mergers and combinations within the middle tier of this group to continue which we believe will change the market order and likely reduce the number of institutions currently in this group. We have a variety of diversified relationships with the larger institutions in areas such as online banking, bill payment, item processing and investment services. For the most part, we do not deliver core processing across this universe of clients.

Given the evolution of the market and the diversified nature of our products and, therefore, our revenues, our risk is more around client concentration. Aside from our bill payment relationship with BofA, which as you know, we extended earlier this year, our large client concentration is fairly low. In addition to BofA, we have only a handful of clients who have a concentration of about 1% of Fiserv revenue.

In fact, there are no clients be client beyond Bank of America that pay us more than 1% of total revenue for electronic bill payment or any other single product. There have been and may continue to be transactions across the large end of the market that will impact our revenues. For what we have seen to date involving our larger client relationships, we don't believe there are near-term revenue risks that will materially impact our results.

Depending on the depth of our relationships, transactions are complicated and are typically measured in multiple months or even years. We expect that the various combinations in the market will be at worst neutral to our revenue profile over the mid to long term. As I mentioned before, our business and revenue are highly diversified across the enterprise. And with a broad array of financial institution clients.

Bottom line, we continue to like our position providing mission critical technology solutions to the market. We believe we are well balanced within the universe of financial institutions and insulated enough to ride out a challenging economy. We'll share specifics around these market trends and segments in our upcoming investor day in a couple of weeks.

As I indicated earlier, we're affirming our full year adjusted earnings per share from continuing operations which includes the dilution from the sale of the majority interest in our insurance business. Given that we're in the fourth quarter, we have narrowed our expectations to be within a range of $3.28 to $3.32 per share, or for specificity $0.84 to $0.88 per share in the fourth quarter.

As we mentioned earlier, the performance improvements in the fourth quarter are coming from continuing cost efficiencies, lower dilution from the sale of the insurance businesses, and upticks in revenue related to normal business seasonality. We expect the adjusted internal revenue growth in the fourth quarter to be between 1% and 3% with much more benefit coming from the payment segment. We expect adjusted operating margin for the full year to increase by at least 150 basis points, and as Tom mentioned earlier, that free cash flow will be between $560 million and $580 million, growth of 27% to 31% over last year.

We made three commitments to our owners at the beginning of 2008, deliver on our earnings, integrate CheckFree, and enhance our level of market differentiation. We're on track to achieve all three. Clearly, were in the midst of a market event. The market today is far different than it was a year or 18 months ago and our internal revenue growth is being impacted in 2008.

However, as you have seen each quarter, the strength, diversity and resilience of our business model provides a solid foundation for us to grow. We expect to emerge stronger for the experiences and far better positioned for the future. As always I'd like to recognize the hard work and commitment of our associates around the world who are responsible for the results we deliver each and every day on behalf of our thousands of clients, which is especially evident now. Truly, our people make the difference.

With that, operator, let's open the line for questions.

Thank you, we will now begin the question-and-answer session. (OPERATOR INSTRUCTIONS) One moment, please, for the first question. Tien-tsin Huang, your line is open.

Thanks so much. I have a couple of questions, first, on the internal new growth target for 2008, it now looks like it is about 2% if I am calculating that correctly, down from your previous target of 4%. Can you rehash what is driving the change there?

Sure. This is Tom, and I'll start and turn it back over to Jeff. The biggest thing that changed since the second quarter is primarily, I would say, in three areas. One, in our home equity business as we talked about, we planned on having more revenue from the base business there. That business is down $6 million from the second quarter, and we have sold a lot of new product as far as our home retention product in addition to that.

So that had a fairly big negative impact on our growth rate, roughly about 3%, 2% overall for the Company and 3% for the financial segment. So that was a major driver from that standpoint. And that was the biggest thing that we had.

The other thing I would say is that as far as the large licenses and discretionary spending has tailed off a little bit in the third quarter, a little lower than what we planned. But I would say the biggest item is the home equity business. That has been offset by good growth in our payments business. We are up sequentially in that group and we continue to see good growth there.

But the financial segment was definitely impacted by the large home equity downturn. And also the discretionary spending on licenses which does impact businesses such as our credit union business and some of the professional services.

Yes, and, Tien-tsin, I would say that you'll recall that the -- a fair amount of the boost that we were going to -- that we were anticipating seeing in Q3 and in Q4, but really in Q3, was really kind of a comparative benefit of the sharp decline that we see in the home equity market as Tom referenced earlier in the prior year. And, frankly, we were just -- we did not anticipate kind of the steep decline that it has continued to be on.

And that coupled with specifically in the area of non-- kind of -- I'm sorry discretionary and upgrade types of licenses, we don't see giant holes, but we see a fair amount of softness across that horizon. So there are not big holes, but these small items aggregate up to make a difference. Those are the two primary areas.

Got it. Most of that is contemplated here in the fourth quarter guidance of 1% to 3%?

Yes, we are still at this stage assuming that the home equity markets can continue to decline. We don't see much pickup there, if any, and we're actually not believing we're going to see much benefit in license sales this year either. At this stage, even though we're hearing things from clients that say they're not going to keep putting these off, we just think that things will continue to elongate and we have taken that into account in our guidance.

Okay, fair enough. And then just moving to CheckFree synergy, just looking like you're tracking above your targeted savings there for the year. Does this, I guess, excess savings accelerate your 2009 target or have you identified some incremental savings beyond what you originally anticipated? Do you follow my question?

Yes, absolutely, it is really a matter of us executing better than maybe we thought we would execute. We have been very good on the execution side. So I would say it's coming in a little bit faster. I don't know that I would be able to say that we are -- we're seeing new saves. So that would give us increased confidence in being able to book the -- the entire amount of the synergies within the time frame that we originally anticipated.

Again, I would just add to that that the third quarter in our payment segment, the overall operating margins there were 31%, which sequentially were up about 250 basis points from the second quarter. So those cost synergies and scalability of those -- our payments business model, especially in EFT and bill pay, continue to generate good growth, good operating income growth. And as I indicated previously on the top line standpoint, just the float in the BofA reprice, that payment segment is running at about 7% internal revenue growth on a year-to-date basis.

And 7% -- okay that is good to know. The last quick question for me, the sale, the last piece of the Fiserv ISS, looks likes it has been pushed out again. What is the visibility here of getting that done in Q1, and does that change your buyback appetite for the rest of the year in going into Q1?

No, it does not. It just with the regulatory agencies today we have to get approval through the FDIC, et cetera, and they have just been busy on a lot of different matters. And so that is just going through the normal regulatory course. But it will not change anything in regards to our share repurchase purchases.

The share repurchase was really contemplated not based on the ISS transaction but on the insurance transaction which was closed.

All right, great, good work on the margins and this cash.

Thanks, Tien-tsin.

The next question comes from John Kraft from D.A. Davidson, your line is open.

Thank you, good afternoon. I just wanted to clarify on the Q4 guidance, it sounds like you expect the license sales to continue to be weak. You expect the home equity business to continue to be down. Obviously, there is a little bit less of the dilution, but that doesn't quite get you enough to the ramp that you're expecting. I'm trying to get an idea of your confidence and if there are some deals that might have slipped or deals in the pipeline that you have got nailed down?

Sure, John, we think that as we talked about in our market discussion, there are certain clients who are buying -- those clients tend to be the clients who are more outsourced with us. On the in-house side, we are seeing clients buying, but the cycles are elongating and we believe that they will close, and whether they close in Q4 or Q1 of next year it's hard for us to know. What we have not assumed is that the cycles look any different between now and the end of the year.

So some will obviously close, some will not. The acceleration that you're seeing is due to the seasonality that we have in our businesses where we have stronger fourth quarters, like in our output solutions businesses, as well as in our payments businesses where we're continuing to get good solid double-digit transaction growth, that is fueling underlying growth.

So when you add that altogether and you put a dose of conservativism on there, we get comfortable that the numbers we are talking about are quite achievable.

Okay. That is helpful. And you just mentioned the strong payments business. Specific to walk-in,or walk-up bill pay, how's that been doing? You've got one competitor that sort of suggested that given the environment there are customers out there that are not able to pay their bills. And that business is slowed.

Yes, in the walk-in business, John, one of the things that we had done last year was to set up a relationship with Wal-Mart. And that relationship is growing nicely. We're in something like around 800 Wal-Mart locations at this point, in addition to the walk-in network that we already had established.

And we're seeing reasonable levels of activity there. We have -- we have a little bit of an established position. So we don't have -- I don't think we have the same kind of potential battling that is going on. That said, I mean I think on the fringe -- the transactions are less.

But it's important to know that those transactions in the aggregate are not enough to move the needle. So the kinds of growth we're seeing is all positive and adding to some of the network economic benefit that Tom was talking about earlier. We don't expect to see any really material increases in business in the walk-in business probably for another year.

Okay.

On increased basis.

Got you. And last question, I know you're going the to talk about this in detail next month. But I was just wondering if you would care to share some high level thoughts on organic growth next year?

Yes, obviously, we had some belief that somebody would ask some questions about what we're seeing into 2009. And I think for right now like everyone else, we're all kind of heads down, getting our plans done. What do we need to do to manage the business going forward?

You know, when I think about 2009, I think about the things that we have had to deal with this year, things like Bank of America repricing and some of the issues in lending and declines in float. Those kinds of things. We know that when we announced the acquisition of CheckFree, we had a lot of -- a lot of people attacking the client base and just a lot of things going on that we think were net negative.

We're hoping that those things will be a little bit more positive going into 2009. We do expect the environment will continue to be at least as soft as it is now and we're going to manage the business as if it is going to be that way so we can be sure we can make our commitments. But we think that we'll have maybe a little bit less of a headwind. But I think it will be hard work for everyone in 2009 and in 2010.

And at least from my perspective, John, just to level set that discussion a little bit is that as you're aware, we've really dramatically increased our payments business. And that business has grown year-to-date internally, roughly about 4% on a year-to-date basis. And that has been impacted negatively about 3 percentage points in that segment for the float and also for the BofA reprice.

And we've obviously, the float is pretty well down and it continues to decline a little bit. But that number is fairly small right now. And the BofA reprice will not be a recurring item, as you know, into 2009. So overall when we look at the payments business, we're year-to-date organic about 7%. Our financial segment is fairly flat.

We have had a difficult time in the home equity processing business. That business has negatively impacted that segment by 2 percentage points. So to the extent that it is leveled out and we can keep that business solid, year-to-date, the financial segment is at 2. And on average that comes to around 4% or 5% through the first nine months of the year as far as our actual results.

But as Jeff indicated, we're in depth in our planning process and we'll continue to get that to you and give you more update in two weeks, and our guidance, obviously, in February when we release our year-end results.

Okay, 4% to 5%, that's helpful. Thanks, Tom. Thanks, Jeff.

The next question comes from Bryan Keane from Credit Suisse. Your line is open.

Good afternoon, a little surprised to see your financial operating margin down 220 basis points year-over-year. I guess considering you're getting a lot of cost saves from Fiserv 2.0, anything unusual in there? Were you a little surprised to see where the margins came out?

Brian, I think as usual, this is Tom. And I'll address that in a number of ways. First of all, any quarter can have some fluctuations depending on some of the license fees or termination fees. When I look at that segment overall, year-to-date we're down about 50 basis points in the operating segment. I would think that the biggest things that we have had primarily in there are related to the lending business.

The large decrease in revenues. We continue to variabalize the expense there, but that has continued to be a drag overall. And if you're comparing more in the second quarter to the third quarter the largest item was really the decrease in termination fees, Bryan. Those went roughly from $18 million to $3 million, and those have a fairly dramatic drop through.

So when we look at the overall margin there, at 25% on a year-to-date basis, while it is down over the prior year the lending businesses have a major impact as far as the margins go in that particular business.

Okay. And then, Jeff, when you were talking about some of the regulatory actions, I just want the sum up your comments. So so far, net, net, the gains and losses come out to be about zero?

Yes, and if you think about, Bryan, there were eight clients, of the 29, eight of those were Fiserv core processing clients. If take into account the 21 that were not our clients acquired some of those. Some -- and just kind of the ins and outs of that, the net, net number of institutions is the same.

And the seven-fold increase was what again?

So basically the size of the institutions that were acquired by our clients were seven times larger in assets than those that we lost. So net, net, we end up with probably a larger account base with a much larger asset base. And as you know, the way our pricing models work, they work on accounts and transactions, and those kinds metrics which we think are economically positive and favorable for us going forward.

So the larger the institution, the better it is for Fiserv?

In terms of how we charge, yes.

Okay, and then on the flip side of that, the bank consolidation we've seen, we've heard about quite a few of them. But net-net, you think that is going to be some positives, some negatives so a net-net neutral?

When you say bank consolidation, what do you mean?

Well, I'm just talking about the acquisitions that we're hearing, WaMu, Wachovia and [Net City].

Yes, exactly. I assumed that was what you were saying. We have lots and lots of different relationships with the different institutions, whether they be bill pay or investment services or item processing or remote capture, or whatever it is. And some of those relationships we know will continue and some of those relationships will probably not continue.

But we also have a good idea, Bryan, when institution A acquires institution B, not surprisingly, because there are not that many providers, everybody knows what everybody else is doing, as we can see the landscape unfolding, we believe that we'll win some and that we will lose some, but net, net that they will be neutral. And, in fact, could be positive, but right now I assume they will be neutral and our revenues will stay net stable.

But the other thing that is important there is that even when an acquisition of one of the larger institution occurs, it takes a long time for some of the -- even if we're going to lose -- say you're going to lose a bill payment customer, it's going to take a fairly long period of time for that transition to actually occur. So from our standpoint, we don't see it being any kind of a near-term issue. We see these things being mitigated over the mid term and we think this -- the turmoil that is going on, especially in the middle tier of that larger group will actually allow us to deliver some more of our products because people will be looking for that differentiation.

And I don't think anybody is going to be looking, for example, to be going to a downgraded bill payment solution. So from our perspective we look at those as some pretty interesting opportunities in that middle tier of the space.

And just finally, Tom, the tax credit will take the tax rate to what level? And then any comments on appetite to buy back stock of these levels?

Yes, it will be lower from at least 100 basis points from where we were at on a year-to-date basis. So I think 37.5, in that particular range.

Okay, and then just appetite to buy back stock here?

Yes, I mean, Bryan, I think we bought back 3.2 million shares, I think, in the quarter for about $160 million. You know we -- we thought the stock was valued well there. And at today's price it is cheaper than it is then.

So we'll obviously be looking at the opportunities that we might have to acquire stock. And we said -- we said before that we intended to repurchase shares on the basis of offsetting the dilution from insurance, this actually could create the opportunity to do that a little more effectively.

Okay, thanks a lot.

Thank you.

The next question comes from Dave Koning from Robert W. Baird. Your line is open.

Hey, guys.

Hey, Dave.

Now you mentioned how strong the operating margin in the payment segment has been in Q3. And that is certainly encouraging. I wonder if this is a new sort of a baseline now that 31% is the new baseline and can even ramp from here, or if there is risk that it could go down for any reasons over the next few quarters. And also, the normal seasonality is that Q4 margins in the segment usually go up from Q3. And maybe you can just comment a little bit about those factors?

Sure, and, Dave, the thing I would say as I comment on the financial segment the same way I look at quarters. You know quarters can move around from a standpoint of a margin standpoint. But to take a step back, our margins in that our year-to-date basis and that payment segment are up roughly 310 basis points as we continue to leverage and grow that particular model.

So over time we continue to believe that we can continue to generate operating efficiencies along with the additional cost synergies associated with the CheckFree integration with Fiserv. So over time we don't really have anything there from an unusual nature that would say that those should not be be able to continue to expand as we have done historically. So that model is a good scalable model.

But we're not going to give some type quarterly guidance because there are sometimes license fees that can fall from one quarter to another. And the output solutions business can also have revenue that goes into one place or another.

But overall we have had exceptional margin improvement. And we continue to believe the model is very scalable and will continue to drive efficiencies through that business.

I mean, Dave, we clearly see continuing opportunities to be more efficient on our own cost structure. And whether it be from the -- our own internal technology and the platforms that we use as well as some of the cost synergies that we talked about earlier in the call, on a year in and year out basis, I believe that those margins will have continuing room to grow.

At the same time, as you know, there were some things going on in our numbers this year on the revenue line in that segment that were pretty detrimental. So when you add those together, there is no reason to believe that we will not be able to continue to grow those margins. Now there is an offset to that.

And the offset to that is that in transaction businesses that are rapidly growing, you're always going to have compression. And so we factor compression in, obviously, and our clients are important clients and we want to make sure we can serve them well. So we factor that in. But we feel very good about the progress that has been made on how we're operating the business. And I think you're going to continue to see improvements in those areas.

That is great, just one follow-up question. Free cash flow is certainly one of the biggest highlights. I'm wondering about the sustainability of free cash flow above the non-GAAP earnings, and what are the drivers that keep it above the cash earnings?

Yes, Dave, I believe we'll continue to see it at our above our adjusted earnings per share. I think we do have some type of deferred tax type expense, et cetera, that will continue to kind of be here for a little bit that will provide some benefit in excess of our adjusted earnings per share.

I also believe our CapEx in relation to our depreciation, we've been very good as far as having a lower amount of CapEx in our normalized depreciation and amortization, and we continue to have a business model now around working capital with the dispositions that we have had over the last year, year and a half regarding the health business, the trust business, the insurance business that is very focused on growing and delivering good cash flow through good working capital management.

But for now, I would say as we had expect it to be at or above, it's 15% higher year-to-date through September. But I think we'll have a small percentage that will be above our adjusted earnings per share over the long term in our free cash flow.

That's great, thank you.

Thanks, Dave.

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

Great. I guess I wanted to go back a little bit and kind of think back on the last time we saw real material deceleration in organic growth, the 2003 time frame, we were running at around zero percent or so. It seemed to stay there for a little while. And during that period the level of acquisition activity was really taken up.

At that point in time, the flexibility of the balance sheet was much different given a much lower debt level. If we look forward with the $4.2 billion of debt that you have now on the balance sheet, how comfortable are you guys that you're going to have the flexibility to manage the business that you have always had, with a little bit of organic growth and a little bit of acquisition growth contributing to the top line given a very different debt and balance sheet structure in your model today?

That is a good question, at least I wasn't here in 2003, but I am familiar with that time in retrospectively examining the past performance. As Tom talked about, we have a lot of strength in our balance sheet right now. We've got about $1 billion of liquidity if we needed it, but in fact I don't think we do need it. The business is run much differently today than it was back in 2003, which was really running as a holding company where you're exactly right.

There was a lot of movement on the acquisition front. And then I think that slowed down. And all of a sudden I think people realized that, wait a minute, what happened to organic growth? So we better start acquiring. We actually have quite a good handle on good handle on what is going on with organic growth right now.

And quite frankly, if the environment was a little different I think the conversations we would have having would sound a little bit different. That notwithstanding, as Tom has articulated several times, there are a few big items that are really hurting us this year. And, frankly, when we anniversary those items, I think the numbers will look a lot different.

I think the Company is quite strong in terms of its operating margins and its clients. And we've gone from basically having almost no payments assets to over $2 billion of payments assets today, generating on adjusted basis about 7% growth. So I'm feeling quite good about that.

The only thing that gives me pause is I don't have a crystal ball to know exactly what the environment is going to do. And that is why you're going to hear conservatism and there is just no need for us to get out in front of the market. We're just going to keep our heads down and do what we need the do to deliver earnings and cash flow.

Okay, and maybe if you could just help us distinguish between the volume commentary that you guys made earlier where you talked about double-digit transaction growth on the debit EFT side. Does that also include the check volumes? And can you kind of strip those apart a little bit to get a sense for what's happening on the debit versus EFT and check sides?

Yes, sure. That did not include check. That was specifically talking about debit, EFT and the electronic bill payment businesses. We continue to see deceleration in check. The check business continues to be down. On an organic same institution business check's down, a lot of move towards remote capture, those kinds of solutions.

We have got a lot of activity in our FCN network which is also growing very rapidly. But the double-digit transaction growth is really in the debit and the EFT and the bill payment business. We have other areas that are growing, as well, but those are really the big drivers in the segment.

Okay.

And, Julio, just for clarity, the check business is actually in the financial segment, not in the payments business.

Okay, got it, understood. And then the drags within payments other than the Bank of America stuff that we have been talking about for the last couple of quarters now, where would there have been weakness, I guess, in the payment segment separate from the Bank of America situation?

Well, the big driver will be the decline in float. In float revenue, which is -- I don't know, 300 or so basis points this year, reduction plus we're anticipating another good size cut coming soon. So that is probably the biggest single driver, but, Tom, you may have --

Yes, I think when we look at the growth rate in the payment segment, we reported 3% in the third quarter, up from 2% reported in the second quarter. And there is about a 3% negative regarding the BofA reprice and also the float.

And as you know, Julio, we have about $750 million of variable debt where we get the benefit on the bottom line, the interest. But this float does go from the top line through the CheckFree business, and that's been a drag combined with the BofA piece of about 3% as that has come down over the 2007 type levels. But our payments business, excluding those two items, and the float is impacting many companies, I'm sure payroll processors, et cetera. We fortunately have a variable debt that we're able to have those same serving so it doesn't really hit our earnings from that standpoint.

But year-to-date through the third quarter, that payments business is 4%, without those two items it is 7%, which is at a good level. We think we can do better. But still it's strong from that standpoint.

And I think the other metric that you guys do provide is the transaction growth. If I'm reading this correctly, it looks like it is about 12% for the quarter and still 13% or so year-to-date on the electronic payments side?

Yes.

Got it. Just lastly one quick thing on the balance sheet, the decline in deferred revenues and if you could just give us what the pieces are that are in the other long-term assets line?

Yes, the biggest change we have had, Julio, on the balance sheet, remember, as I indicated we sold our majority interest in our insurance business. So what happens from a balance sheet perspective is many of those assets and liabilities are now netted in one line item called investment and unconsolidated subsidiary. So when you look at our balance sheet you're going to have changes from the end of the year related to the assets and liabilities that have come off in that. So the other long-term assets is really the net investment in our insurance business. Regarding the deferred revenues, overall they're down as you look at our cash flow on page nine of our press release, right about at the same levels as they were last year. So we really haven't had any significant change. It is typically timing. The fourth quarter is typically a build-up of deferred revenue associated with maintenance billings for the next year. When you look at year-over-year, the balance sheet is a little odd because the insurance deferred revenue is no longer in there compared to 12/31. But when you look at the cash flow, they're fairly on the same level compared to last year.

Got it, Great. Thank you.

Thank you.

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

Thank you. Jeff, I wanted to ask you a little bit about maybe -- what you believe may be the biggest challenge in 2009? Is it just the fact that you could have more consolidation and in essence net losses that you may not foresee? Or do you think there are other challenges that might occur?

Yes, Kartik, as it specifically relates to 2009, I don't see consolidation in and of itself to have a material impact on our actual revenue line, assuming that is the bigger of the issues. I think, frankly, the state of the economy and that impact on our clients and how our clients spend is the biggest issue. And because the majority of our revenue, the substantial majority of our revenues come from the community-based institution group that are generally -- we are there are core processors. We think that is a very stable -- group of revenues.

But on the fringes, you're going to have issues around -- if the economy continues to look the way it looks now you're going to continue to have, I thin,k slowing in some professional services. And one-time license sales, and those types of revenues. And, frankly, the home equity business could get worse. It could get worse today. And I'm sorry it could be worse in 2009 than it is now.

Now at some point that will kind of hit a natural floor, but it could get worse. So when I think about what are the things that could go wrong, I think those are far more impactful than the impact of consolidation on our 2009 results.

Are you able to quantify at all what the drag has been so far from the professional services and the license revenue?

It is -- it's difficult, it is very difficult to share it because we would have to start breaking down the businesses well outside of -- well outside of the way we typically talk about them. But what I can tell you is that in our credit union businesses, for example, those businesses tend to be businesses that are more in-house, so they're not outsourced.

The things like processing system upgrades are not things that are required. People have discretion to do them. And that business, as we've said all year, has been weaker this year than it has in the last. And I think you've seen some of our peers make similar comments.

So that is a sizeable business for us. There is no big hole, but there are little pockets all over that in the aggregate end up to be more than rounding errors.

Great, Jeff. Just one last question kind of your the thought on the CheckFree acquisition. Considering what we've seen in the past, the six to 12 months, be it the M&A activity or what has happened to banks, would you have made any changes in that CheckFree acquisition at all? Or do you think the opportunities are almost the same as what you saw or as literally the same as when you acquired it?

Yes, I actually think the opportunities that we have with CheckFree today, what we see as the opportunities that are far greater than when we originally thought about acquiring CheckFree. And we'll certainly talk about that next month when we get together for investor day. But we have executed far better on the cost side. We thought that there were some risks that we would not be as competent as we are or have been to executing on the cost side.

Frankly, even though we're not saying that the costs synergy opportunities that we have are larger than we originally committed to, we see more opportunity there than we have, whether -- how we execute against that We still have time to figure out. The businesses and the opportunities that we have given the client base, we didn't understand how impactful it would be to go to market with the legacy Carreker folks and the Carilion folks and the CheckFree folks, and combining them with Fiserv.

That has become a very powerful combination. The relationships that we have, and our ability to distribute products across the market is far greater than we thought. And then kind of right in the heat of the moment is -- is the CheckFree, kind of the legacy CheckFree, the bill payment business is a jewel. I mean it is an incredible technology.

The importance of ACH-based payments, we believe, is unbelievable for the future. And the new Online Advantage is going to move so far ahead of the rest of the industry. And the next generation behind that that is in development now is light years ahead. So we're excited.

Whether they be on the risk side or the traditional bill payment side, we -- it's way better than we thought it was going to be. And it is hard work along the way. But the organization is coming together. The catalyst in the environment is good for us and we're excited.

And I just want to make sure I got a clarification, Jeff. Earlier you had stated that all the large bank M&A activity that happened would be neutral. And I'm assuming you meant both neutral from a revenue and earnings standpoint, or margin standpoint, would that be accurate?

Yes, I was really talking more from a revenue and earnings standpoint. I haven't done the math, Kartik, at this stage, to say it's margin. But I mean generally we think it will be neutral. And I think that you could say that within a standard deviation all three of those would fit.

Thanks, Jeff, I appreciate it.

Thank you.

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

Yes, hi, guys. Jeff, you mentioned potentially passing up some one kind of one-time work, or revenues that you can get in favor of focusing on higher quality recurring in margin profile. What are some examples of that one-time work?

Yes, we have had several opportunities, Greg, during the year to engage in large check-oriented transactions, where you invest capital, get very large streams of revenue. You drop those in, so you basically lose a little bit of money, maybe break even, not unlike what you saw Fiserv do a couple of years ago when it did its Australian transaction.

That would have the effect of juicing the organic growth rate. But we just think it's low quality and we're not willing to do those kinds of things. Conversely, we have other deals out there that we have put together that have been actually quite attractive, looking at our IP foot print and remote capture, those are just starting to come online.

They're not moving the needle enough yet, and unfortunately there are a couple of others out there that may have gone away in some of the consolidation that has occurred. So -- but it's those kinds of more innovative transactions that we're looking at. And all we're saying is we're just not willing to taking on the risk of applying capital just to bring in revenues that add to the top line, but they just don't do anything other than make the more difficult to execute.

And they tend to be a little bit more one time. Because once you anniversary that it is hard to continue to grow off of it.

Yes, okay, great. And then you guys had talked previously about, with the change in CheckFree's fiscal year end that maybe there were license sales that would have typically been done in the June quarter, are getting pushed into the December quarter given the incentive structure with the salesmen. Is that kind of swamped by everything else going on at this point?

Yes, we clearly of saw a push in Q2 as the old sales year closed. We think we'll get a little bit more of a push in Q4, we have considered that. But I think the noise, Greg, in the environment is going to trump the push that people will make to try to get in some quota credit in before the end of the year.

Okay, and the last question, looking at your stock price, the stock price of some of your close competitors, you're all doing the same thing, the obvious conclusion would be that we could see consolidation within the industry at some point.

I guess the question is at what point do you and some of your competitors feel pressure to pursue that strategy as a way to potentially increase earnings growth? Would it take another couple of years of this environment, or do you think something could happen potentially sooner?

Yes, I mean that is a little bit of a crystal ball question. I mean I think the precipitous decline in the stock price of the sector is much more geared towards kind of the fear of what does the consolidation mean to the industry. That notwithstanding, I think I am on record as are several of my other colleagues who run our peer firms saying there are probably too many competitors in this space.

So I think it's more at some point is there more value by shareholders by putting some of these firms together. Can you attack the market differently, much like we did when we did the transaction with CheckFree last year? I think there will be some movement in our space over the next year or two, but I thought that before the decline in the stock market.

And this could change the patient quotient for some shareholders. But I think that most people who understand this sector as you do, Greg, know that the noise that is going on right now isn't going to have a really long-term effect on the revenues that are being generated here. And I think things will settle out and we'll have to see what happens next as we move into next year.

Good, perfect, thank you very much.

Thanks, Greg.

The next question comes from Charlie Murphy from Morgan Stanley. Your line is open.

Thanks, Jeff. Given some of the consolidation among large banks out there, I know that Bank of America is CheckFree's largest customer, but are there any other major negotiations you may be working on over the next year that could cause some pricing surprises?

Yes, I mean certainly no client has the scale that Bank of America has, we have -- you know across the legacy CheckFree business, as it is across all of our businesses because we have long-term contracts. You know anywhere between 10% and 20% of our contract, 30% in some businesses come up for renewal each year. We have compression on many of them.

I can tell you that we had compression this year that we've covered that is -- was -- that was sizeable. And we'll continue to have that each year. And it has been going on for a while.

So I would say I can be confident right now that there is nothing out there that I can see, based on the world as I know it, that would cause us to come out and say that we have had -- we have had to take a compression hit that's going to change our numbers at all. So we're very comfortable with that.

Our renewal cycles are fine, we have good visibility into them, and we're comfortable that we won't have any issues there.

Thank you very much.

Thank you, Charlie.

The next question comes from Paul Bartolai from PB Investment Research. Your line is open.

Thanks. Good afternoon. Just a couple of quick follow-ups here. First, on the financial margins. I mean I understand what you guys are talking about with the license fees and what not, but if you look at year into year margin is still down a financial 150 bps or so, excluding the term fees, is there anything else impacting that? Do you see pricing getting tougher, are clients coming back to you to renegotiate, anything else impacting that?

No, I just think the largest thing has been in our lending businesses, which are as those continue to contract, and I think our revenue in that home equity business is down $50 million, $60 million in that particular segment. And you know that does have an impact on our overall margins for that particular group.

The other thing I would say is -- as Jeff has highlighted is that some of our license-related revenue, which again is a small part of the Company, but to the extent that is deferred slightly and the purchase is down, that is higher margin type revenue that actually hits the bottom line. But outside of those particular areas there is really nothing significant in that segment from that standpoint.

Yes, we're actually pretty pleased, to be honest, that we have been able to actually take the actions that we have been able to take in that segment, given the large reduction that we have had in revenues. And even have margins at that level. So we feel actually pretty good about that. And, again, we think we'll have a reversal of fortune moving forward.

And I would just again comment that the overall margins of the Company last year were 24.5%, this year year-to-date they're 26.1%, they're up 160 basis points, which is a very strong performance from that standpoint.

Okay, great, fair enough. And then on the financial revenues even if you exclude home equity you're looking flat in the third quarter given what we've heard from some of your competitors, a little bit surprised given the recurring nature of the business that it's not up at least a little. Are you seeing anything that is getting tougher as far as maybe attrition, as cross sales not going as planned?

I mean, Paul, the couple of things that we see is -- we have very little international business. And so for us, we have not been able to get any benefit from the growth that has been occurring outside the U.S. in 2008. And, in fact, the international -- much of the international business that we have was actually mortgage-related, and so when the mortgage market started going the wrong way at the end of 2007 and into 2008, that actually had a pretty negative impact on us.

And, again, we don't talk about that all the time because we don't think there is any value in doing it. The second thing is that we don't have big, big software license sales and big, big installations of professional services. So we can't go out and sell -- if we have a hole that gets created we can't really go out and sell or change that through the delivery of a license or a professional service contract.

So from and our standpoint, the good news is we have a lot of visibility into what our revenues are going to look like. The bad news is, if something starts to go the wrong way it is very difficult for us to turn on a dime. And then lastly, just to say it one more time, the home equity business, which is probably down $100 million or $120 million since its peak, four quarters ago or five quarters ago, that business was unusual.

Most of our competitors didn't have them. And today they don't have them at all. I think even the closest competitor has now spun that off. We retain that drag in our numbers, and unfortunately there is nothing we can do about it.

But I think those are the primary differences when you look at a high level contrasting what we're doing versus the competition, and why our growth rates haven't stacked up in this quarter.

Okay, great. And just last on the payment margins to clarify an earlier question, the results were really strong there on the margins. But is there seasonality in that business in the margins in third quarter?

There is certainly nothing -- you know again, I don't like to comment on a quarterly margin, but again I would say that we do have some permanent things there with the cost synergies that we talked about. So I didn't think we had really anything too unusual as far as the third quarter goes.

But again we're focused on driving year-over-year margin improvement, do not look at individual quarters. We do, obviously, from a progress standpoint. But again, we don't know of anything in there that is unusual from the standpoint that would say one way or the other, in a significant standpoint trend one way or the other. Besides that, the year-to-date is up as we indicated about 300 basis points.

All right, perfect, thanks.

All right, thanks, Paul, and thanks to those of you left for joining us this afternoon. I know the call went a little bit long, if you have any further questions please give David a call, and other than that we look forward to seeing everyone on November 11. Thanks.

Thank you so much for participating in today's conference call. You may disconnect at this time.