Fiserv Inc (FISV) 2008 Q4 法說會逐字稿

Welcome to the Fiserv fourth quarter and year end 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 are supplemental materials that will be referenced on today's call available 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. The call is expected to last about an hour, and you may disconnect from the call at any time. Now I will turn the call over to Jeff Yabuki, President and CEO of Fiserv. Sir, you may begin..

Thank you. Good afternoon, everyone, and thanks for joining us for our fourth quarter and year end 2008 earnings conference call. As always, Tom Hirsch, our Chief Financial Officer, will be on the call with me. 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 our earnings release, which can be found on our website at fiserv.com, for a discussion of these risk factors. You should also refer to our earnings release for an explanation of the non-GAAP financial measures discussed in this conference call, and for a reconciliation of those measures to the nearest applicable GAAP measure.

These non-GAAP measures are indicators that management uses to provide additional meaningful comparisons between current results and prior reported results, and as a basis for planning and forecasting for future periods. On to 2008, let me say up front that we are pleased with our results for the fourth quarter and the full year. We knew at the top of the year that 2008 would be one of transformation for the Company, given our integration with CheckFree. As we all know, a significant blow was delivered to the financial services industry during the year, further compounding the complexity of the task. Even so, Fiserv, as it has so many times before, managed through the difficulties by staying focused on serving clients. This focus translated to another year of record earnings and free cash flow.

2009 is a milestone year for the Company as we celebrate our 25th anniversary. As we begin our next 25 years, we find ourselves in a great position to extend our market leadership. We have reshaped the Company significantly, and we will continue to evolve along our chosen course. We know it's the quality of our people and their commitment to our mission which creates the basis for our success. We are proud of what we have done in our first 25 years and couldn't be more excited about our prospects for the next. Each quarter I have updated you on our three key priorities that we have used to gauge our progress for 2008. Those priorities were, 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. To the first priority, we grew our 2008 adjusted earnings per share by 23% to $3.29, within our range of full year guidance.

You will also recall that our full year results included dilution of $0.04 to $0.05 per share related to the July share of the majority interest in our insurance businesses, which was not an adjustment to our 2008 guidance. Operating margins continued to expand as a result of high-quality revenue and operating efficiency. Our free cash flow conversion of those earnings throughout the year was excellent, and the fourth quarter was no exception. We far exceeded our forecast, generating $146 million in free cash during the quarter to end the year with a record free cash flow of $611 million, up 38% from 2007 and well above our targeted expectations of 540 million to 570 million at the beginning of the year. Our next key priority was to make substantial progress on integrating CheckFree. A key element of the transformative acquisition was to achieve $100 million of cost synergies. We realized $62 million in 2008, exceeding our year one target of $40 million to $50 million.

In addition, we have integrated the organization and are now going to market in a way that is helping us to win more business. We signed more than 550 new bill payment clients during 2008, with strong sales each quarter. Over 115 of these signings were competitive replacements which means that in addition to winning existing business, we're also expanding the size of the overall bill payment market, both of which will add to our future revenue growth. In short, we believe that CheckFree has delivered at least as much if not more value for Fiserv than we expected when we announced the deal in August of 2007. Our third priority -- and most important for the future of Fiserv -- is extending our level of differentiation through innovation and integration. At Investor Day in November, we showcased several new important product lines. such as Online Advantage, Mobile Money, Source Capture, and our new integrated debit solutions.

While these illustrative products are powerful in their own right, we're focused on providing full solution suites to the market which are unique to Fiserv. We made significant progress on that front during the year, which shows up in our primary sales metrics. In what we would all say was a challenging year, we ended our sales year very strong, attaining 104% of quota. As important, we dramatically increased our integrated sales, achieving $86 million, which almost tripled last year's level of $30 million. We realize the dial-on differential turns slowly. However, our increasing success expanding the size of our client base, along with the Fiserv share of wallet, is a clear signal that we're on the right path. Although we feel quite good about our performance this year, we aren't satisfied with the internal revenue growth.

Let me comment on this briefly before I turn the call over to Tom. The aggregate force of headwinds helped compress our overall internal revenue growth rate for the year, which at 1% is the only real disappointment for the year. A near perfect storm of unusual items took their toll on our growth. Historically low interest rates, a very weak mortgage lending market, the B of A repricing, and weaker discretionary spending all combined to reduce our top-line growth rates. But rationale aside, we know we must do better on this important driver of long-term growth. We expect our rate to improve as a cumulative benefit of growing our recurring revenue base builds enough to offset negative items that we have been facing.

Excluding what we consider to be unusual items, our full year internal revenue growth rate would have been 4%, including a very strong 7% growth rate within our payment segment. With that, let me turn the call over to Tom for a more detailed discussion of our financial results and 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 website. As shown on Slide 4, adjusted revenue in the quarter was 1.01 billion, up 23% over the prior year excluding the results of Fiserv Insurance. Our fourth quarter results continued to reflect the impact of the sale of our majority interest in Fiserv Insurance. Adjusted EPS in the quarter was $0.85, up 23% over the prior year. And last year's results included one month of CheckFree performance.

Adjusted operating income was $269 million for the quarter. Adjusted operating margin excluding Fiserv Insurance increased 240 basis points to 26.8% compared to the prior period. Additionally, our adjusted operating margin increased sequentially each quarter this year, from 25.8% in the first quarter, to 8% in the fourth quarter. Slide 5 shows a snapshot of some of our key performance metrics for the full year 2008. Adjusted revenue grew 38% to $4 billion, compared with 2007 revenue of $2.9 billion, which excludes Fiserv Insurance.

Adjusted EPS for the year was up 23% to $3.29 per share compared with $2.67 per share in 2007. And full-year 2008 adjusted operating margin was 26.3%, excluding Fiserv insurance, up 190 basis points over 2007. The continuing expansion in operating margin comes from several factors, including business and revenue mix, the addition of CheckFree, operational efficiency and business model leverage. Our strong margin results are indicative of our ability to manage the business effectively in a variety of environments. Additionally, margins will continue to increase in proportion to our success in distributing higher growth payments products, such as EFT and bill payment, across our processing platforms included in our financial segment. This integration creates more value for our clients and increases operating leverage within our businesses. Keep in mind that we normally expect to experience quarterly variation in our segment operating results due to the timing of certain nonrecurring revenue such as home retention, termination fees, and license fees.

As Jeff mentioned earlier, our full year free cash flow grew 38% to a record $611 million. On a per share basis, our 2008 free cash flow per share was $3.75, 14% higher than our adjusted earnings per share of $3.29. And our 2008 free cash flow per share increased 43% from $2.62 per share in 2007. We continue to generate strong cash flow through a combination of management focus, the recurring cash flow characteristics of our businesses, and a relentless focus on capital management. Adjusted internal revenue growth, excluding Fiserv Insurance, declined by 2% in the quarter and grew by 1% for the full year. As illustrated on slide 7, there are some large unusual items which continue to negatively impact our internal revenue growth, including the home equity processing business, the Bank of America contract repricing, declines in flow of income; and in this quarter, some currency impact.

Home equity processing revenues not only didn't stabilize in the quarter, but declined further to just $23 million compared with $51 million in the fourth quarter of 2007. This $28 million decline caused a 3 percentage point decline in the internal revenue growth rate for the Company in the quarter, and a 5 percentage point decline in the financial segment. For the year, our home equity business declined by $70 million in revenue due to external market conditions which negatively impacted our overall Company growth rate by approximately 2%. The sequential revenue decline in the quarter was due largely to a slowdown in our home retention product; and more specifically, in December. Revenue from this product had been providing some stability most of the year to this division. We anticipate that the home retention product will pick up again in 2009. However, that timing is dependent on the speeds with which the new administration can implement its new economic stimulus package and provide direction to financial institutions on how to deal with these loans.

Our internal revenue growth rate adjusted for these items would have been 3% in the quarter and 4% for the year, consistent with our third quarter results. The payments and industry product segment exceeded the half billion dollar revenue mark for the first time this quarter, generating adjusted revenues of 501 million net of the pass-through cost for postage. This was a substantial increase over the prior year, due primarily to the acquisition of CheckFree. Adjusted internal revenue growth in the quarter was 3%, consistent with the third quarter level. When excluding the approximate $50 million negative impact of the B of A reprice and float decline resulting from lower interest rates, revenue growth would have been 7% for the full year and also 7% for the quarter.

Strong performance in our output solutions business and solid transaction growth in our payment processing businesses headlined the growth. Segment operating income was up a very strong 66 million over last year's fourth quarter to $157 million. Fourth quarter adjusted operating margin of 31.3% was up 90 basis points over last year and 30 basis points over the sequential quarter, as we continue to see the synergy benefits from our CheckFree acquisition. Segment operating income for the year was $579 million and adjusted operating margin improved 220 basis points to 30%. The financial institution segment generated revenues of $511 million in the quarter, which was a decline of 2% compared with the prior year. Adjusted internal revenue contracted by 6% in the quarter. Excluding the home equity impact, internal revenues declined by 1% for the quarter and were up 1% for the year. Weakness in our mortgage related product and lower discretionary license and related professional services fees contributed to the weak results.

Operating income in the financial segment was 126 million for the quarter and 535 million for the full year. Adjusted operating margin was 24.7% for the quarter and 24.9% for the full year. Segment operating margin was down 60 basis points for the year, due primarily to lower license and one-time revenue, along with a significant revenue decline in our lending related businesses. While we continue to make progress variablizing our expense base in response to lending market volatility, we were unable to completely offset the revenue decline in the quarter. As we have mentioned, we generated $611 million of free cash flow, or $3.75 per share for the year. Our above-forecast free cash flow was aided by exceptionally strong November and December results. Full year capital expenditures were 199 million, up 43 million from 2007, which did not include CheckFree. As expected, capital spending was slightly higher in the fourth quarter; but for the year was consistent with historic levels at about 5% of adjusted revenue.

We struck a healthy balance in deploying capital across our various priorities in the unusual environment we saw in the fourth quarter. We actively repurchased 5.6 million shares for $187 million, and also paid back $150 million of debt ahead of schedule. For the full year, we were -- repurchased 10.6 million shares and reduced our year end share count by 6% from the end of 2007. We had about 1 million shares remaining in our current repurchase authorization at the end of the year. We repaid more than $1.3 billion in debt during the year, and closed 2008 with approximately 4.1 billion in debt outstanding. As of December 31st, we had about $800 million of availability on our credit facility. Our EBITDA for the year was 1.3 billion, and our debt to EBITDA ratio at the end of 2.8 -- at the end 2008 was 3.2 times. Our effective tax rate, excluding taxes associated with the sale of Fiserv I,insurance would have been 36.6% in the quarter.

The fourth quarter rate was impacted positively, as anticipated, by the research and development tax credit. Going forward, we expect our effective tax rate will be approximately 38.5%. Now I would like to turn the call back over to Jeff.

Thanks, Tom. As I mentioned up-front, we had a good sales result in the fourth quarter, and December in particular. For the full year, our sales quota was 104%, led by strong sales in our account processing and payments areas. Additionally, our pipelines were stable at year end, which should provide with us a solid start to 2009. Integrated sales, as I mentioned, closed strong at $86 million versus our target of 65 million for the year. We estimate that about a third of the $86 million converted to revenue during 2008. As you know, these revenues tend to be recurring in nature, and moving forward add to our organic revenue base. We continue to gain confidence in our ability to expand wallet share with higher value products and services.

Before I get to the 2009 outlook, let me spend a few minutes updating you on our view of the environment, as well as our key priorities for 2009. Many of our conversations center on how the market environment impacts the Company. Clearly, there are issues across all tiers of the financial institution landscape. We expect the market challenges to continue throughout 2009 as the economy remains relatively weak and the current administration brings more clarity to its plan to address the issues in the financial sector. As we've shared previously, we separate the overall market into two broad segments based on asset size for assessing the potential impact of the environment on our results. The top 50 to 100 institutions is one group, and the remaining 17,000 institutions, which we consider community based for purposes of today's discussion.

As a reminder, our revenue is very well diversified across the industry landscape, providing some insulation against any concentration risk. Our top client represents about 5% of revenue. The next 49 financial institutions represent about 17% of our revenue; and the remainder, almost 80% of revenue, is spread across the balance of our very large client base. For the most part, the smaller institutions tend to be healthier than the mid-tier or the mega banks. That said, we do expect continue regulatory driven bank and credit union actions, resulting in mergers or closures of some institutions. There were 39 actions taken against banks and credit unions in 2008; and so far in 2009, six more banks have been subject to action.

While we can't be sure how this will play out, we believe that the ultimate number of actions will be well below the doomsday scenarios of thousands of closures we've seen bantered about. Instead, based on what we can see today, we expect the number of actions will ultimately settle out in the low hundreds or less over a period of the next several years. It's important to keep in mind that even when closures occur, the processing revenues don't leave the system -- they follow the accounts. As we have said before, when it's all said and done, we expect to be about where we are today, even in terms of net clients won and lost. Traditional de novo activity has slowed considerably, and we expect it to stay that way for all of 2009. However, we're actively engaged with a variety of parties that are exploring new ways to capture opportunity in the rapidly evolving banking market. Although pressured, we anticipate that technology spend will likely increase in 2009 across the community banking space. We continue to see demand for products focused on gathering core deposits, managing efficiency and risk and regulatory, all which translate to revenue opportunities for us.

In addition, we expect to see less account processing system switching, which should also benefit us as the market leader. The largest FIs are likely to remain under pressure, while the business and political issues facing this segment are getting resolved. We believe this group will exhibit more targeted spending, primarily focused on deposit growth and efficiency. While the majority of our revenue from this group is recurring, and typically integral to the value proposition of the institution we serve, we're watching carefully to understand the trends. We're also seeing an uptick of activity in the 3 billion to $30 billion FI market. Although this has historically been a relatively small part of our revenue base, we are receiving new inquiries into what we, as the new Fiserv, can do to help these institutions reduce their operating expenses and generate new deposits and capital. A recent creative example is our acquisition of the i-Tech data processing center from the First Interstate Bank of Montana. This transaction provided the bank with access to Fiserv wide solutions to serve both the bank and the data center clients while monetizing a processing asset for them which provided capital flexibility to further expand their core banking business.

The mutual trust from our more than 30-year relationship with First Interstate Bank, along with our capital resources, allowed us to construct a mutually beneficial transaction. For Fiserv, we were able to obtain over 150 new account processing clients which will provide opportunities for us to deliver add-on value. We believe the dynamic environment could lead to more innovative opportunities to grow the Company. Two other recent deals with regional banks illustrate the organic opportunity we're seeing in this market. In January, we announced that Commerce Bank of Harrisburg selected Fiserv as its technology provider with 14 integrated technology solutions. Commerce was looking for a partner that could provide a complete solution, and they found that partner in Fiserv. In December, we made a competitive replacement with the CheckFree RXP bill-pay solution at Associated Bank, an existing Fiserv account processing client. They saw it as an opportunity to provide e-bills and upgrade their users to the best-in-class bill-payment solution, and one that's integrated with their other Fiserv solutions, including the Corillian online banking platform.

While overall technology spending could be flat to down for 2009 across the entire bank and financial institution landscape when compared with last year, we still believe there will be attractive opportunities for us to deliver value to the market. There's no question that this market turbulence has pressured our results, and we expect that to continue. However, we also believe that our sizable client base and our position as a leading provider of non-discretionary recurring revenue based products gives us a solid foundation which will continue to show strength, even in these difficult times. We expect that the market will see more tangible evidence of our progress in 2009 from the transformative work we've done over the last several years. Our three key priorities for 2009, when taken together, enhance our overall differentiation and build long-term shareholder value. Our first is to meet our earnings commitments, regardless of environmental conditions, with an emphasis on maintaining capital flexibility.

Next, continue CheckFree integration activities with increased focus on revenue opportunities and product innovation. And finally, to refine our go-to market approach, leading to enhanced sales results and an increased share of wallet with existing clients. Our 2009 outlook is based on a broad assumption that the general weakness in the end market will continue for the entire year. However, our guidance does not anticipate that the market will worsen materially from where we are today. You will recall at our Investor Day in november that we provided insight to Fiserv's performance outlook based on the market conditions at that point. It's our view that the environment has worsened since that time. In addition to the negative macro trends, there are several key variables and assumptions that we've accounted for in building up to our performance range in 2009. We are assuming a significant decrease in contract termination fees in 2009, compared with the $46 million we received in 2008. The substantial majority of those termination fees are received in the first half of 2008, which will negatively impact first half comparison.

We do not expect a material turnaround in our lending businesses in 2009, and anticipate our home equity revenues to be flattish for the full year with very challenging first half comparisons. We are continuing to make investments during 2009 which we believe will extend our market leadership and improve eternal efficiency -- internal efficiency. We assume that interest rates, and therefore float revenue, will remain at historically low levels; and last, we expect the dollar to continue to be strong versus foreign currencies. All of that considered, for 2009, we are targeting adjusted earnings per share to increase 10% to 14% to $3.61 to $3.75 over $3.29 we earned per share in 2008. As is typical, this guidance excludes certain costs such as merger and integration, extraordinary gains and losses, and intangible amortization. We anticipate that results comparisons for the first six months of the year could be challenging due to reduced revenues from float, termination fees, the B of A repricing, and home equity volatility.

For these reasons, we expect comparative performance, as opposed to absolute performance, in the second half of the year to be much stronger than the first half. We anticipate 2009 free cash flow to be up 6 to 10% over the record level we generated in 2008. The free cash flow for 2009 will not include the first six months of net income and free cash flow contribution from Fiserv Insurance, the results of which are now reported below the line. We expect internal revenue growth to be within a range of 0 to 4%, which includes the grow-over items I mentioned a moment is ago. As we have demonstrated, there is attractive operating leverage within our business model that is allowing us through expense management, operational efficiencies and capital allocation to deliver double-digit earnings growth and attractive cash flow, even in a time when organic revenue is growing slower than we would prefer.

We expect overall adjusted operating margin to expand by at least 50 basis points for the full year, with a strong bias to the second half given the anticipated reduction in termination fees. Our integrated sales target for the year is an incremental $90 million, which reflects some softness in the market and the very strong performance in 2008. On the cost side, we expect to realize at least $60 million of incremental savings. This number, beginning in 2009, now combines both CheckFree cost synergies and our operational efficiency program saves. Finally, our 2009 guidance accounts for a variety of scenarios for the allocation of capital, including internal investment, debt repayment, smaller acquisitions, and share repurchase. Although we will make the actual capital determinations throughout the year as market conditions evolve, our 2009 guidance includes the benefit of capital deployment for the full year.

Last year, we accomplished what we set out to achieve. We delivered 23% EPS growth, 38% free cash flow growth, integrated CheckFree, improved the Company's business mix and enhanced our level of market differentiation. We're confident that we will again achieve our key objectives in 2009. However, we know a lot of hard work awaits us over the next 12 months. The market is clearly different than it was a year ago when we were setting expectations for 2008. We're managing our business pragmatically given the environment. We continue to invest, and in some cases significantly, in areas where we can build long-term client and shareholder value. And we're realigning our market approach in order to make further progress meeting our Fiserv 2.0 objectives. I assure you that we are take a number of steps to stay ahead of the curve and deliver the results that you have come to expect from us with a watchful eye on the long term.

The strength, diversity and resilience of our model provides a solid foundation for us to continue to grow. We will emerge from these unique times stronger for the experiences and far better positioned for the future. Finally, let me thank our thousands of associates around the world who are responsible for the strong results we delivered in 2008 and for their commitment to serving our more than 16,000 clients in this unique and exciting time. With that, operator, let's open the line for questions.

Thank you. (Operator Instructions). Our first question comes from Bryan Keane with Credit Suisse. Your line is open.

Hi, good afternoon.

Hi, Bryan.

Hey, Bryan.

Just curious to get an update on the known merger actions that we've seen out there and how that your latest conversation are going, and how that mate affect Fiserv?

And Bryan, which mergers are you talking about?

Well, Wachovia, WaMu, some of the bigger ones that are known in the impact to Fiserv with your conversations over the last quarter.

Sure. I mean, our conversations over the last quarter are fairly similar to what they were last -- when we announced in the third quarter. We continue to talk to both JPMC and Wells Fargo about the opportunities that we can see to continue to serve them, and we do continue to do that. We anticipate that the revenue impacts that we might have from both of those mergers specifically have been accounted for in our guidance, and all of the other known or anticipated mergers, specifically from some of the regulatory actions that I spoke of earlier, have been accounted for in our guidance. So we think we're square for where we are in 2009, and hopefully we'll find ways to continue to add more of our services into both of those institutions.

Okay, great. And then, Jeff, you were talking about the payments business, and I think you said the fourth quarter would have been 7% internal excluding some one-time items.

Yes.

Can you just walk me through those items and maybe when they anniversary? For example, the B of A pricing, when does that anniversary exactly?

Sure. I'll start with that, and then I can -- this is Tom -- and then I'll turn it back over to Jeff. But it was -- the two items are the B of A repricing, which anniversaries in the first quarter; and then the float, which have been the two items that have been there virtually all year. And the impact on the payment segment has been roughly three percentage points. So we had an adjusted rate of 7% in the fourth quarter, which was actually up over the third quarter of 6%. So those two items are roughly about three percentage -- three to four percentage points impact, and the B of A should go away in the second quarter of 2009, and the flow of those decline as we go through the year, as interest rates have.

Right. Bryan, the -- on the float side, if you just went back and tracked the rate declines that occurred in '08, you would be able to see how that would actually move itself out of the system. Unfortunately, the rates are so low now we don't think we'll actually have to pay anyone, but they are -- I guess I shouldn't be that tongue in cheek -- but they are -- you know, we're down at a pretty low point at this stage.

Yes.

Okay, and then the home equity processing, is that -- I think you guys said flat sequentially, is that right?

No, it was down --

No, no, no -- for the first quarter.

You know, we don't -- right now, Bryan, as far as our guidance for 2009 for that particular business, we don't see a lot of acceleration in that business. The only thing is historically, that business has been slow in the fourth quarter. We obviously did it not have a lot of loan modification revenue that in quarter, and that's going to impact us as we go through 2009. But what quarter that's going to hit is kind of uncertain at this point in time. So -- but I think we had a very low level -- you know, it was down 20 million from the third quarter, so that is a very low baseline as we head into 2009.

Okay. Okay, and then just finally, clarification, the 0 to 4% organic growth, I assume with those headwinds, most of them kind of subsiding after the first quarter, we're probably looking at the lower end for the first quarter, and then it picks up from there?

Yes, I would say my guess is, without going back and actually doing the math, you are talking about more of a pickup in the second half of the year than you are in the first. I think the interest rates kind of were moving down for significantly in the first part of the year, and that -- as that moved its way through the system, I think most of the pickup is going to occur in the second half.

Yes, and I would just add to that, Bryan, as Jeff kind of indicated, that we also have -- the contract termination fees were pretty high in the first half, too, and that will be a very difficult comparison for us. But again, the base business outside of the home equity, which, again -- and the float, which are really highly dependent on external events that we don't control -- we continue in the home equity business to manage our cost structure appropriately. As you saw, the revenues kind of went down the fourth quarter about 20 million, but our margins in that segment actually went up. So we again do what we need to do to manage that business effectively.

Okay. Well, given the headwinds, congratulations on the results.

Thanks, Brian. Appreciate it.

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

Yes, hey, guys.

Hey, David.

Hey, David.

And this is a little bit of a follow-up on Bryan's question, but within that 0 to 4% guidance, you talked about some of the headwinds that do continue into '09 -- float, currency -- I guess B of A is still a headwind early in '09 -- potentially some deconversions or transitions with WaMu and Wachovia. If we package all those together, are you looking at those as maybe a 2% headwind or something like that in '09?

Yes, I mean, obviously, we wouldn't be able to give comments specifically on those items. I do think Tom kind of gave some sense for what the float and the B of A impact was on us this year. So there's a little bit there. And we haven't talked at all about the WaMu or the Wachovia impacts. So it's hard to -- I'm trying to think about how to [perimeterize] that. Tom, you might have a --

Yes, I would think, Dave -- I think, as you know, in the current year rate, right, we have a 1% organic growth rate as a Company in 2008; about 70 million negative from the home equity business, which was about a 2% negative impact on that rate, and then the float in B of A was about 1%. So the pro forma rate for the Company was about 4. Those items had a 3% impact in total on the growth rate, and we anticipate it is going to be less than that obviously from a standpoint of the home equity piece and also the float from that standpoint.

And then that's offset, and then kind of determination fees going down very significantly -- next year, at least -- from a planning standpoint.

Yes.

Okay, great. And just on the free cash flow, that was obviously very good in the year; is the 6 to 10% growth off of that 611?

Yes.

Yes.

So if we use the end of year, or I guess the Q4 share count, the free cash flow per share in '09 just using that would be 410 to 425 per share?

Yes.

Okay. Well, that's good. And then finally, just on the ISS sale, any update on the timing and amount?

Unfortunately, the FDIC continues to be -- I don't want to say pre occupied, but pretty stretched on the things that they are working object. We actually made some good progress this quarter. I'm sorry, in the fourth quarter, and really in the month of January. I don't believe it will close in the first quarter, but I do feel quite good that we'll see it close early in the second quarter.

Still 50 to 100 million?

Yes, that's around book value deal, so the equity in the business is about $100 million.

Great, thank you. Thank you.

Our next question comes from Kartik Mehta from FTN Equity Capital Market. Your line is open.

Thank you. Jeff, I wanted to go back to your internal growth expectations for 2009. You said 0 to 4%, and you said the market is still tough and you expect it to be tough in 2009. So is reaching the high end that goal just execution on Fiserv's part, or is it your belief that maybe the market gets better in the second half and that's how you get to it?

You know, I think to get to the high end you would have to see -- you would have to see some improvement in the lending businesses in terms of you would have to see the home retention pipeline fill up and have the government stay focused on allowing the institutions to modify the loans, creating the right incentives to have that happen. So that's a little bit of an environmental factor. And you would have to see -- you would have to see the financial institutions not just buying at the pace they're buying at, but also getting the products implemented, getting the revenues implemented. One of the things you heard me talk about is of our $86 million of internal sales we had during the year, only about a third of those got installed. So we have to see those installed. But those are the kinds of things that we'd have to see happen on that level in order to kind of get up to the higher end of that range.

Right, and then you said that free cash flow used in 2009 -- obviously debt, share repurchase, or even potential acquisitions. But as we stand today, and where you see where the share price is and where you are from a debt standpoint, what makes more sense? Does it make more sense to reduce the share count in your opinion, or does it make more sense to reduce debt?

Well, that question depends to some extent what hat you are wearing at what time. The primary -- our primary obligation is to meet our debt commitments, meet the commitments we made to the rating agencies -- which we're in great shape on that point so far. We firmly believe that we're very attractively valued right now, so we'll -- obviously we'll look at that as one of the serious choices for allocation, as well as we think maintaining capital flexibility right now, given everything that's going on in the market, is pretty important in terms of opportunities to consolidate, grow through acquisition -- to some extent, as Tom mentioned, we've got almost $800 million available in our facility. We will generate a lot of free cash this year. That will put us in a pretty attractive place if transactions open up in the market that we think are interesting. And to the extent that we have deployed all that, we wouldn't want to be in a place where we had to change our minds. So we're being -- I would say we're being thoughtful and pragmatic in how we allocate that capital; but suffice it to say, we will get it allocated during the year.

And then, Jeff, kind of last question, if you look at 2009, would it be fair to say that on the downside, your fear is more what happens with the economy rather than consolidation in the industry considering your statements about how many regulatory actions we could see?

I think it's -- this is Tom, Kartik. I think it is -- that's probably the case. I think the uncertainty in the overall economic environment is something, at least from my standpoint, versus the other side of thousands of institutions or what people have said. Certain individuals have said around that, because right now our credit unions and -- are very healthy and a lot of the institutions that we service are doing well; and so from that standpoint, I think it is going to be ultimately more on the economic side, but I'd turn it over to Jeff for any other comments.

Yes. Kartik, the real issue, I think, is, as we mentioned and as Tom said, it's really not the fear of consolidation in the end market. I mean, certainly across the community based institution space, that is not my concern. My concern is far more around the economy locking up more, which closes the spigot on buying behaviors across that space and all other spaces, and I think that's the thing that we're trying to pay attention to. Fortunately, what we're seeing across our client base is a continued desire to acquire products that will help them in areas like gathering core deposits, being more efficient and, of course, all of the regulatory and risk, and I don't think we can underplay what's going to happen on the regulatory side. We still have not seen the changes implemented be implemented that most people expect will come out of this crisis that we're getting navigated to. So from that standpoint, I do think that whether that comes late in '09 or '10, I think there is going to be a time where you are going to see people make a series of purchases that answer the regulatory requirements. So we'll ultimately be installed.

Thanks, Jeff, I appreciate it. Thanks, Tom.

Yes, thanks, Kartik.

Thanks, Kartik.

Our next question comes from John Kraft with D.A. Davidson. Your line is open.

Hi Jeff, Hi Tom.

Hi, John.

Hi, John.

I just wanted to follow up on something, Tom, just to clarify. It sounds like the home equity processing business is what you have been really referring to -- the 159 million or so at last count.

Correct.

What about the traditional -- the servicing, that business? What's the status there? What has that been trending at?

That actually has been going very well. We have developed and invested over the last several years in a common loan servicing platform, and we have actually had a lot of traction from clients as far as bringing more efficiencies to their internal environments. And so that business continues to be sound. Obviously, in the loan origination license area, those areas continue to be flat to down and that's already where we're at already. So I would say, John, from my standpoint, this business here is the one that we've had just a lot of volatility in, and it's really tied to the external market ramifications.

And unfortunately, John, the businesses that Tom referred to, the scale is so much smaller that they're just dwarfed by the issues that are being faced in the home equity processing business right now.

Sure. What's the total revenue, though, from all your lending related products?

I'd have to go check that but I would say it's probably a couple hundred -- maybe 150 million more or 200 in addition to the home equity piece.

Doubles it or so.

Yes.

Okay, that's helpful. And then moving on to bill pay, it looks like the transaction volume is slowing somewhat. I was wondering if you break out -- I'm sure you do -- break out the trends that you are seeing between the bank based users and then the walk up bill pay users?

Right. Yes. Just kind of generically, the walk-in bill pay users, that growth is far slower than we see through the consolidation, kind of the bank sites. And I think there are a couple of odd anomalies going on in the fourth quarter. If you go back and look over the six months to six months, the growth rates look a lot higher. It just had had some odd -- you know, unfortunately, bill payment, the number of Mondays and Tuesdays, those -- all of those kind of the comparable days make it difficult; and in fact, we had some of that in the fourth quarter. So we're still feeling quite good about the level of growth we're seeing. We're seeing well onto the double digits for the six-month period, and we're projecting good solid growth for this year in all of our payments businesses, and especially that one. Now, again, just because we've caveated everything else, I mean, we're in a very odd environment. People will still pay bills.

We continue to believe that -- you could make a strong argument, John, that people will pay fewer bills -- I'm sorry, people will pay lower amounts more times, and that would benefit us; but for right now we're kind of cautiously optimistic about how that is looking, and we're also quite -- feeling very good, not just on -- you know, the 550 bill pay sales that we had this year, most of those are not implemented at this stage, and a lot of those are new installations, and it takes time to ramp that up. So again, we're building this base of transactions that is where CheckFree was in their growth six or seven or eight years ago. And so we haven't seen kind of the waterfall of growth that we will ultimately get as we further penetrate the Fiserv base.

And just to add to that, what Jeff just said, I mean, that that been one of our key success stories in 2008 as far as the integration of CheckFree, is really integrating the sales force, the account management to sell into our core account processing clients, as Jeff mentioned. Over 500 clients, I think he mentioned in our comments, that 120 of those were competitive replacements. So again, we're making good progress there, and we're going to continue to grow that base.

Okay, and then just one last -- just on that topic. How many of your core platforms now are fully integrated with the CheckFree and Corillian platforms?

It's a tiny number. I mean, you talk about both -- if you talk about -- if you're specifically, John, asking about the CheckFree plus Corillian, plus Fiserv account processing, or are you talking about just CheckFree or any bill pay with any one of the Fiserv account processing platforms?

Well, actually, both would be helpful. I'm assuming that the integration between CheckFree and your cores is mostly done.

Well, let me -- I should clarify, because I may not have heard it right. If you are talking about just the integration work itself, that's almost all done. If you are talking about how many clients -- I thought you were asking more about the client take-up.

No, no, no, about the technology of the product.

Technology integration. The technology integration, CheckFree into all of our platforms is virtually complete.

Okay, and then Corillian? Is that -- ?

Corillian Is only complete in those platforms where -- right now where we see a high opportunity to sell. We're kind of staging that to make sure that we aren't doing integration for integration sake. So we've got Corillian -- and we've delivered that several times -- Corillian with bill payment, right into our core. In fact, that was the associated deal that we talked about in December. They had Corillian and they added the CheckFree bill pay to that, and that's CBS -- one of the CBS core processing platforms.

Got you. Sounds good. Thanks, guys.

Thank you.

Our next question comes from Tien-Tsin Huang from JPMorgan. Your line is open.

Thanks so much, good afternoon.

Hi, Tien-Tsin.

Hey. I have a few questions. Home equity, I just wanted to clarify, I think you mentioned that you expect revenues to be flat in '09. Is that flat to the 2008 revenues, or flat to the 4Q run rate?

No, flattish overall to the total in 2008, with some variability there obviously.

Right, because there was a pretty big step-down in 4Q; and I may not appreciate the seasonality, but --

There is historically. You know, last year there was probably a $10 million step-down. This stepped down about 20, mainly because the loan modification or that home retention business dried up completely. And so that piece of business, we believe, is going to come back. You can read about it. It is going to happen. It is just the timing of that going into 2009 is just more uncertain.

Understood. And then, I guess, software license sales -- sorry if I missed it in the prepared remarks -- where did that come in relative to plan in the quarter, and what are your expectations for fiscal '09?

It really depends on where those are at. I think as far as we talked about in the -- they are not strong. as far as we talked about in the -- they are not strong. I would not put it at that case at all. You know, as far as new licenses go, especially in the loan origination, our international area has been a little weaker from that standpoint. I think some of the add-on licenses, we do have as far as a baseline goes, but I would say purchases of new licenses are low, and that's kind of what we experienced kind of in the fourth quarter. Yes, and I would say for 2009 we're assuming that license sales and the related services implementations basically are as weak as they were in 2008.

Got it. Last one for me, then, is the -- I guess just the transaction-based businesses, like debit and EFT. You talked about bill pay a little bit. How did those transaction-based businesses track within the quarter? I'm just curious about how December sort of was in terms of run rate, and again what's your expectations for '09? Thanks so much.

Sure, thank you. The transactions -- our transaction-based businesses were all actually strong in the quarter. We were pretty happy with how the transactions looked in the EFT and debit business and the bill payment business. And again, there there was a little bit of variation in the quarter, mostly on a day's basis; but net-net it felt good, and we feel pretty optimistic about that business moving forward.

Great. Thanks. Glad to see double-digit earnings growth for the year.

Thank you.

Our next question comes from Glenn Greene from Oppenheimer. Your line is open.

Thank you. Good afternoon, guys.

Hi, Glen.

Hi, Glen.

First question, just wanted to touch on the pricing environment and sort of contrast it between both the core processing and the bill pay, specifically on the bill pay at the high end of the market. With all the consolidation going on, a lot of these banks have obviously gotten bigger. Does that naturally put them into a more attractive pricing tier from their perspective -- I mean, tier volume pricing? And then just some commentary on the core processing market. Are you seeing any push-back from customers or has it gotten more competitive, or has anything really changed there?

Sure. A great question, Glen. On the bill payment -- in the bill payment business -- and again, I will focus, I would say, in the -- in kind of the middle and down -- in the community-based space that we talked about earlier, I would say that the bill payment market really hasn't changed much over the last year. Some of the competitors are being a little bit more aggressive, as they are, because we're actually having a lot of success in that market. The big benefit that we have is, frankly, CheckFree's bill payment product is so far ahead of most of the competitive options that there are not -- there's just just not a lot of incentives for institutions to switch. I will say, at the upper end of the market, where we are seeing some pricing discussion, is where there are consolidations happening. So when a -- if a bank ends up acquiring another -- if a large regional bank acquires another large regional bank, and that -- that target large regional bank was not our client, then that ends up rolling into the tier system, and so there is some price -- the price reduction, and there's always going to be conversations around that.

The good news for us is, in those cases we pick up a lot of -- at least we would hope we would pick up a lot of incremental volume. That's why you would have the tier change. And so net-net, even where you have those reductions, we end up having more revenue and more cash flow and more earnings. So we're willing to give on that. On the -- kind of the organic market, it wouldn't surprise you to know that everyone is asking what can we do, and we see opportunities to extend agreements, maybe get longer terms and other things, both on the bill pay side, and on the account processing side. And I would say, just more specifically in the account processing environment, as I mentioned, we expect many less -- frankly, many less system switches this year than we did last year. The cost of doing the switch at the institution level -- and again, I'm focused on a community based space, because that's really where we play on the account processing side, for the most part.

So, we're -- we've been seeing pricing -- kind of people doing pricing as they have been for the last several years. There's some aggressive pricing out there. People are looking for ways to entice people to switch. Frankly, we're very focused on value, delivering the multiple solution, the integrated solutions -- some of the integrations that we've done between our account processing, our internet banking, our bill payment solutions, those kinds of things -- the opportunities to innovate on the data and the analytics that surround that. It's a pretty strong argument, and price only goes so far, and we're seeing value trumping that almost -- in almost every case.

Okay. Just on a different direction, the cost savings you articulated -- I think it was around 60 million combined between the second year of CheckFree and Fiserv 2.0 -- could you give us a sense for what the CheckFree piece of that is? Is it just reasonable to assume an incremental 40 to get you to the 400? And also -- Go ahead.

I would say -- sorry, Glenn -- I would say, you know, it is going to be -- obviously our target was 100. What we would anticipate it being some where in the 30 to 40 range on that item. You know, you -- obviously we're going to target to get to that number, but I would sites in that range, Tom?

Yes. No, that's -- and again, Glenn, we're continuing to -- the companies are integrated, so when we look at how we're going to save money from an operational efficiency standpoint, working this as an integrated company between Fiserv and CheckFree; but we are on track with that and to Jeff's point, 30 to 40 is a reasonable range for that.

Yes, where I'm really going, just trying to get a sense -- not to be greedy, but how much cost savings opportunity for CheckFree is there beyond fiscal '09?

Well, you know, we -- at Investor Day, we put together what we felt we should do, not just at CheckFree, because we are making a number of investments in a lot of areas there, obviously, with online banking, bill pay, all the rest of that; but we outlined $250 million of cost saves by -- as a combined organization -- by 2011. We're well on the way to accomplishing that. I think we're over -- at Analyst Day we said we were about 78, 80 million. We're at about 110 million now. And with 60 more, we're anticipating 170 of that 250. So we're on a good pathway as far as that goes overall as an organization, and so that's kind of how we're viewing that, Glenn, from that perspective.

Glenn, let me just add one other point, and that would be that part of -- part of those saves that Tom is talking about and that we have talked about, when you talk about not wanting to be greedy, part of what we're trying to do is redirect really as much of those saves as we can into investment, so that we can continue to build out our products and our product set while delivering pretty strong earnings. So from that standpoint, because a lot of our investment is people and those kinds of things, it doesn't get capitalized, it runs through the P&L. So just keep that in mind when you are thinking about the level of cost saves.

Okay, and just real quickly, what amount of your revenue is subject to FX exposure?

It's not a big piece of our revenue, Glenn. It's again -- the international revenue is about 4 to 5%. We have a piece in Australia, and Europe, the UK, et cetera. So it is not huge, but it did have an impact in the fourth quarter, I think just in the segment overall about 1% but -- on the top line basis. But again, our total revenues there are I think around 4 or 5%.

Great, thanks a lot, guys. Appreciate it.

Thank you.

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

Hi, guys.

Hey, Julio.

Hey, guys. Sorry about that. I think most of my questions have been answered, and I think the spotlight, I guess, more than anything else on the organic growth, sort of comments just going back to 2009, just looking at where you guys are relative to sort of the integration of CheckFree and the pieces that you have there, what -- is there more -- is it more about the environment that gets you to the higher end of the 0 to 4% growth rate, or is it more a function of really sort of driving against the targets that you guys have set? Because obviously you exceeded those targets this year. So as I think about how that translates into growth next year, what gives us that range or sort of -- in order to get to that higher end of that 0 to 4 for next year?

You know, I think it -- I think if I could only choose between environment and what's in our control, I would say the environment, kind of the stabilizing of the environment -- so things like having the home -- the home loan modification, the home retention revenues -- I mean, those kinds of things are going to be the item that will move us closest to there. I would say the other opportunity that we have is to the extent there are large transactions out there, there are -- we had a couple of large revenue transactions that we had been working on for a long time this year -- one of them we said no to because we didn't like the economics. Another one was said no for us because the institution ended up changing its name. So those kinds of things, those are long-tailed. You don't know when they are going to happen, but that's the other thing that could shift. I would say for us, so much of our revenue is recurring and gets layered in, it's difficult to really move that growth rate dynamically in any period. So I would say it's the environment. I would say it's maybe the addition of a larger revenue transaction as the things that move us up towards the other side of the base. I guess the only other thing could I say is if the Fed changed the interest rates and those kinds of things, I guess there would be some positives as well.

And just, Jeff -- and I apologize, because I don't have the deck in front of me here -- I was hoping to grab it here -- but can you remind us, of the waterfall chart that you guys gave us when we went through the Analyst Day, had some explicit contributions from sort of the sales that would have been booked in 2008, and what percentage that contributes to 2009. So I'm just trying to get sort of what that piece is that flows into the '09 number, and then kind of what you would have to do on top of that to get to the 0 to 4, if you will.

Sure. Well, I think what we mentioned today is, of the 86 million of sales that we book this year just on the integrated sales side -- so not talking about our normal sales quota, but the sales of targeted clients -- targeted product to existing clients -- that's about a third actually hits our revenue this year, and then the remaining two-thirds will flow in hopefully next year -- or this year, into 2009.

Got it. Okay, guys. Thanks, good luck.

Thank you.

Our next question comes from Paul Bartoli from PB Investment Research. Your line is open.

Thanks, guys. Good afternoon.

Hi, Paul.

Hi, Paul.

First question, just on the -- Jeff, you mentioned that things got a little bit worse in the market from the Analyst Day. Was that mostly the home equity business, or where did you see kind of broader based weakening of the environment?

Yes, I would say -- I would say where it manifested itself most obviously in our numbers was in the home equity business, in the processing business; and again, largely because the home retention, the loan modification pipeline, just got cemented over. So that was the largest item. But again, it's the -- the overall sentiment in the market continued to decline since Investor Day, and that has an impact, not on something that we would call out directly, but on sentiment and on people's willingness to say, "All right, I will buy that discretionary product or I will buy this discretionary product". So again, on an absolute basis, I would say it's in the home equity processing. But we know there are pipeline deals that we thought were done that, for example, got extended for 30 days. So those kinds of things occurred.

Okay, great. And then as you look at your guidance, the 0 to 4% internal growth for '09, any chance you want to give some color around what you are expecting in payments and financial -- sounds like kind of the 6 to 7% where you kind of exited the year adjusted for payments, (inaudible) where you're comfortable, but what about financial?

Yes, I would say that we're not going to give any -- we're definitely not going to give any segment growth, but we think the performance in '08, on a relative basis, is pretty representative. But Tom?

Yes, I would -- Yes, I would say that would probably be a baseline going into the year. The thing I would again say, as we did that on the call, is that when you look at the comparisons, Paul, on a year-over-year basis, they are going to be much more difficult in the first half of the year with the termination fees, the home equity business, and then the B of A thing and the float will get better as we go through the year. So that's just something to to keep in mind as you look at 2009.

Right. That's kind of why I was asking. I mean, especially as you look at the financial business with the real tough grow over and the term fees, it almost seems like things need to deteriorate a little bit further in terms of the growth rate in the first half '09 versus 4Q. Is that fair?

Yes, I'm it not going to say it's -- again, we're not going to say by segment where that's going to go; but obviously, you see the home equity piece, you know what that is from that standpoint; and again, to the extent it stays there. Now, we don't know when that loan modification revenue is going to hit, but again, the first half is going to be more compressed, obviously, than the second half.

Okay, fair enough. And then looking at the margins -- again, in financial -- down there a bit, and the lending business obviously was probably the biggest factor; but if you kind of strip out the lending piece, is there any way to kind of give us some sense of what you are seeing in the rest of the business in terms of margins in financial?

Yes, I would say overall, we obviously have the impact in the financial segment that overall in the financial segment, the margins there are down about 60 basis points year-over-year; but obviously we had a $70 million reduction in revenue, and we've taken costs out. But obviously you cannot take out the amount of costs when that you have that type of dramatic change from a top line standpoint. So I would put them as stable to slightly increasing on the remainder part of the business. The other items that we have there that are a little bit lower are the discretionary license fees, which are down a little bit, which impact margins; but again, justify in the financial segment, that's kind of where I'd put it.

Flat to up slightly, ex kind of the lending business (Inaudible)?

Yes, yes.

Okay, great. Thanks, guys.

Thanks, Paul.

Our last question comes from Franco Turrinelli from William & Blair. Your line is open.

Wow, I'm the last question, so I should start by echoing Bryan's first comment congratulating you on another gain in a tough environment.

Thanks, Franco.

The Alpha and the Omega, right?

Yes. (Laughter).

Actually, hey, Tom this one is probably for you. Can you just remind us on the capital structure, are there any debt repayments -- you know, credit lines expiring, term loans -- anything that we need to be aware of in terms of needs on your -- or requirements on your cash and cash flow?

No, the only -- the next term loan payments that we have, Franco is $250 million, which is mandatory at the end of 2009. We have a revolver with a capacity of 800 million which actually matures in 2011, and that's really -- the only mandatory debt payments we have, are 275 at the end of the upcoming year -- 250, excuse me -- and then 375 in 2010.

And maturities and everything is all extended, as I remember, into '11 and '17, if I remember correctly?

Yes, '11 -- there's some in '12 and then '17.

Okay, so from that point of view, and flipping this back over to Jeff, I mean, obviously, you know, times are tough for you, but we're seeing some of the results from competitors that are even worse. And I'm wondering to what extent you think that gives you an opportunity to be aggressive on consolidating the industry, either domestically or internationally?

Yes, it's one of the reasons why we said in our prepared remarks that we run a lot of different scenarios for how to deploy the capital this year; and I think the -- it's been our position for a while that an industry consolidation would be beneficial, and so we're looking at that. We also have talked about the fact that we want to have a more stated international strategy, and we think using capital internationally is probably -- will probably jump start whatever we want to do. So we're working on that this year as well. So we're going keep some powder dry to make sure we have those opportunities. I think the biggest challenge for all of us, Franco, is trying to figure out what value is today. You know, what's the right price for anything? And so, you know, from that perspective, we'll look at things, and we think, -- we think notwithstanding some of the -- the fact that we're not satisfied with some of our internal revenue growth, we think we've made a heck of a lot of progress, integrating CheckFree, generating a lot of free cash flow. We think we're going to grow that again, and so we think we're in good shape and really looking for opportunities to grow.

Yes. Are you past the point of integration with CheckFree that you have a bandwidth to take on another project?

Yes.

Great. Thanks. Congratulations again.

Thank you.

Well, thanks, everyone. I know we went a little bit long on our year, but there was a lot to talk about -- the environment is making a little bit more interesting for everyone -- but we appreciate your support, and if you have any further questions, please don't hesitate to call our Investor Relations team. Have a good day.

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