Fiserv Inc (FISV) 2009 Q3 法說會逐字稿

Welcome to the Fiserv third-quarter 2009 earnings conference call. All participants will be listen-only mode until the question-and-answer session begins following the presentation. Today's call is being recorded and it is also being broadcast live over the Internet at www.Fiserv.com.

In addition, there are supplemental materials that will be referenced on today's call 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.

Great, thanks. Good afternoon, everyone, and thanks for joining us today for our third-quarter 2009 earnings conference call. With me on the call is our Chief Financial Officer Tom Hirsch.

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; cash flow targets; sales pipelines; our CheckFree integration efforts; the disposition of certain Fiserv businesses; and our strategic initiative Fiserv 2.0.

Forward-looking statements may differ materially from actual results and are subject to a number of risks and uncertainties. Please refer to our earnings release, which can be found on our website at www.Fiserv.com for a discussion of these risk factors.

You should also refer to our earnings release for an explanation of the non-GAAP financial measures discussed in this conference call and for a reconciliation of those measures to the nearest applicable GAAP measures. These non-GAAP measures are indicators that management uses to provide additional meaningful comparisons between current results and prior reported results, and as a basis for planning and forecasting for future periods.

On September 28th, we announced the sale of Fiserv Loan Fulfillment Solutions, which we will refer to as LFS on today's call. An 8-K was filed yesterday, which recasts our historic results excluding LFS. The results from this business, which we have referred to previously as home equity loan processing, are now included in discontinued operations. All financial metrics and comparisons to prior year exclude LFS and are factored into today's discussion. We anticipate that the transaction will close by year end.

Earnings results for the quarter and year to date continue to be strong and in line with our expectations. The quality of our earnings continues to shine, as margins expanded and free cash flow was up sharply, as anticipated, $80 million sequentially in the quarter. Adjusted earnings per share grew 14% in the quarter to $0.92, with adjusted year-to-date earnings per share up 11%. We remain confident that our full-year EPS results will be within our original 2009 guidance range.

Adjusted operating margin was again exceptional at 28.9% for the quarter and year to date, expanding 110 and 160 basis points respectively. Note that our overall margin, which no longer includes previous LFS results, is reset at a level more than 100 basis points higher than originally reported, given the compression that LFS had on our historic financial results.

Free cash flow through September 30th is up 9% to more than $500 million, over a strong 2008. That growth is even more impressive when you consider that in 2009 we have increased capital spending to best position your company to produce strong results today and tomorrow.

Adjusted internal revenue declined 2% in the quarter and was down 1% on a constant currency basis. For context, a 1% revenue decline in the quarter translates to about $10 million.

We continue to feel the pressure of the economic environment across our diverse revenue streams. At the same time we again saw strong performance in our core payments businesses, such as debit and bill payment. For example, in debit we saw improvements in the sequential quarter growth rates and also had month-over-month growth gains within the quarter. This resulted in the third quarter being the strongest transaction growth quarter of the year and ahead of the trends we highlighted at our recent investor day.

We shared three key enterprise priorities with you at the beginning of the year. As we near the end of 2009 we're still on track to achieve our full-year objectives. Our priorities are; first, to meet our earnings commitments while maintaining capital flexibility; next, to continue integration efforts with an increased focus on revenue opportunities and product innovation; and last, to enhance our go-to-market approach leading to increased sales results to new and existing clients.

To our first priority, we delivered 14% growth in adjusted EPS in the quarter. Through September 30th earnings have grown 11% to $2.72 per share. While we are pleased with our earnings performance to date, we are most encouraged with the underlying quality of those earnings. Even though we have lost over $40 million in extremely high-margin contract termination fees and float income so far this year, we have still grown earnings, margin and cash flow at healthy levels.

Mathematically the decline in high-margin revenue alone had a negative impact on our 2009 earnings of about $0.17 per share, or 7 percentage points of earnings growth through September 30th. As these revenue sources are naturally restored we anticipate the impact will be quite positive to our results.

We continue to see the natural operating margin of the Company expand as a result of our various scale and network businesses, such as account processing, bill payment, debit and Internet banking. We believe these areas will continue to produce high-quality growth into the future.

We repurchased 1.3 million shares of stock in the quarter and also repaid $125 million of our term loan. We continue to retain significant capital flexibility to allow us to build shareholder value across multiple fronts. We've continued to progress on our integration efforts, with an increased focus on innovation.

On the cost side we generated $24 million in incremental operational effectiveness savings in the quarter and have now hit $73 million to date. The fact that we have already achieved $13 million more than our full-year target is representative of the large efficiency opportunity we believe is available in the future.

Payments momentum continued in the quarter, with 85 bill payment sales and 58 debit wins. Competitive take-aways again represented the significant majority of these transactions. We've added more than 450 clients in these important payment areas in 2009, and as we shared at investor day, there are several key 2010 product opportunities, which we believe will further increase our level of competitive differentiation.

Our third priority is to enhance how we go to market. As we shared at our investor day we see meaningful opportunities to bolster market share across targeted client segments. Our market-leading solutions are in demand and the power of our integration and innovation story delivered within a single brand framework is resonating well. We are focused on turning our robust sales pipeline into recurring revenue and even more market momentum at a time when clients need it most.

Now, let me turn the call over to Tom for a deeper dive on financial results.

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 Jeff highlighted, our financial results excludes LFS, which is now included in discontinued operations for all periods.

Before I move into the results, let me also say that we are pleased with our performance so far this year. While year-to-date adjusted revenues are down about $45 million this year, or 1.5% on a total base of $2.9 billion, we are weathering well one of the most difficult years the financial industry has ever experienced.

Our business model, which generates a significant amount of recurring revenue, has proven its resiliency. Notwithstanding the environment, our quality of earnings has never been better. We have generated over $500 million of free cash flow year to date and our margin growth has been stellar.

Now on to the detailed results. As shown on Slides 3 and 4, adjusted revenue in the quarter declined 1% to $945 million and was down 2% year to date to $2.86 billion. Internal revenue, on a constant-currency basis, declined 1% for both the quarter and year to date, and 2% unadjusted for currency fluctuations. As Jeff mentioned, a 1% decrease in revenue amounts to about $10 million on a quarterly basis.

Adjusted EPS in the quarter was $0.92, up 14% over the prior year. Adjusted EPS of $2.72 through September 30th, was up 11% over 2008. Our adjusted EPS for the quarter of $0.92 per share excludes a $0.04 per share positive earnings benefit that was recognized for GAAP purposes, resulting from the final settlement of a CheckFree acquisition income tax reserve.

Due to the sale of LFS and the dilutive impact related to that business early in the year, our first-quarter adjusted EPS has been recast to $0.90 from $0.88, as LFS had a $0.02 loss in the first quarter. Second quarter adjusted EPS of $0.90 remained unchanged, as the business improved to break even. We had anticipated, when establishing our 2009 guidance at the beginning of the year, that LFS would be accretive to our full-year performance, with revenue and earnings growth in the second half of the year.

Adjusted operating income was $273 million for the quarter. As shown on Slide 5, our year-to-date adjusted operating margin of 28.9% increased 160 basis points compared to 2008.

We have generated $506 million of free cash flow year to date, which is 9% higher than 2008. As I shared last quarter, we anticipated free cash flow to be much stronger in the second half of the year and as you have seen, we generated almost $200 million of free cash flow in the third quarter alone. We recognize that free cash flow per share is an important metric in building shareholder value. Our free cash flow per share is up 15% to $3.25 for the first nine months of 2009, and nearly 20% higher than our adjusted EPS of $2.72 year to date.

We continue to see recurring revenue growing in a number of mission-critical areas, such as account processing, on-line bill payment and debit processing. The strength of our value proposition is validated by our win rates. In 2009 we have signed 294 new electronic bill-pay agreements, 164 new debit processing agreements, and continued to lead the industry in the number of new account processing wins in a very difficult market.

However, our 2009 internal growth rate is being tempered by a number of environmentally-driven items across the Company. These include a significant reduction in termination fees; account declines in our investment services business; lower float revenue; currency impacts; reduced direct marketing engagements in our output solutions division; declines in check processing; and weakness in discretionary license revenue. That said, we do believe that we will benefit from favorable comparisons in 2010, as a number of these items will not continue to decline.

The payment segment generated adjusted revenue of $474 million in the quarter, down slightly over a solid third quarter in 2008. On a year-to-date basis adjusted revenues were $1.44 billion, up 1% compared to the prior year.

Adjusted internal revenue in the segment was down 1% in the quarter and is flat for the year to date. Excluding float and a large client reprice our year-to-date growth rate is 2%.

Our debit and bill payment businesses, which make up a majority of the segment, recorded combined revenue growth in the mid single digits. As we shared with you on investor day, we are seeing strong double-digit debit transaction growth, as some consumers may be trading credit transactions for debit. In addition, the consumers served by our community-based institutions appear to be accelerating their debit usage since they tend to be earlier in the adoption and usage curve. Both of these trends, along with strong new client sales, are contributing to our success.

New bill payment sales continue to be robust and most of our clients' transaction volumes have been growing at around 8% for the year. However, the net growth has been impacted somewhat by lower-than-anticipated volume at certain larger clients and virtually non-existent float income.

Payment segment revenue performance has been negatively impacted by the following factors in the quarter: License fees declined by almost $10 million in the quarter from $20 million in the third quarter of 2008, which impacted the growth rate by 2 percentage points. Our investment services business has experienced double-digit percentage revenue declines all year. This deficit is due to large account losses earlier in the year, which then impact growth all year. This negatively impacted segment growth by over 1%. However, the business has seen improvements in account growth, which should position us to rebound in 2010.

Third, our output solutions division, which delivered strong performance all year, had revenue decline by 5% in the quarter, which translated to an approximate 1% negative impact in the segment. This decline is primarily related to a drop-off in demand for direct mail, as our clients continue to manage expenses in this difficult market environment.

Segment adjusted operating income was $151 million in the quarter. Adjusted operating margin of 31.7% was up 70 basis points over last year. Year-to-date segment adjusted operating income was up 7% to $453 million and adjusted operating margin was up 190 basis points to 31.5%.

The increase in adjusted operating margin in this segment was driven primarily by strong operating leverage in our transaction-based EFT and bill payment businesses, positive synergies associated with the CheckFree acquisition, partially offset by the impact of lower license fees, float and add-on revenues.

The financial institution segment generated revenue of $475 million in the quarter, down 2% compared with the prior year. On a year-to-date basis, revenues were $1.45 billion, down 4% compared to the prior year. Adjusted internal revenue on a constant-currency basis contracted by 2% in the quarter and 4% year to date.

Excluding the significant decline in termination fees, the revenue decline for the year would be approximately 2%. Similar to last quarter, revenue growth continues to be impacted by lower discretionary spending by our clients leading to decreased license fees and fewer add-on product sales.

Termination fees in the quarter were $2 million in both the current and prior-year periods. However, on a year-to-date basis, termination fees in this segment have decreased by $28 million to $6 million, from the $34 million we received in the first three quarters of last year. The low termination fees in the quarter reflect a continued slow-down in voluntary merger and acquisition activity among financial institutions we have seen all year. We expect that termination fees will remain at low levels through the end of 2009, and likely into 2010. As a reminder, in last-year's fourth quarter we had roughly $8 million of termination fees in this segment and $9 million overall.

Notwithstanding the tough environment, the segment continues to generate high-quality earnings, reflecting an attractive product mix, and operational efficiencies. While year-to-date revenue in this segment has declined $57 million, operating income for the same period actually increased $18 million to $428 million.

These results led year-to-date margins to expand by 230 basis points to 29.6%. The margin improvement was driven by several factors, including strength in our account processing businesses and overall operating efficiencies generated under our Fiserv 2.0 initiatives. These same factors also helped us achieve a 29.6% operating margin in the quarter, an increase of 310 basis points year over year.

Capital expenditures were $151 million through September, up $13 million over last year, and are approximately 5% of adjusted revenue. As Jeff mentioned, we continue to invest in our business, recognizing that the dislocation in the industry is bringing new opportunities for us and our clients.

We repurchased almost 1.3 million shares for $61 million in the quarter and we have repurchased over 3 million shares in 2009 and have 3.2 million shares remaining in our repurchase authorization.

We prepaid $125 million of our term loan balance in the quarter and incurred net interest expense of $52 million. We also finalized the financing agreement to lend $67 million to Stone River, our minority-owned insurance business which, as we mentioned last quarter, was funded out of cash on hand. This transaction allowed Stone River to refinance its outstanding debt at an attractive rate.

Our discontinued operation results now include LFS along with the remaining portion of Fiserv ISS. We recently received FDIC approval to complete the ISS disposition. We are awaiting state regulatory approval, which we expect to receive before the end of the year. We anticipate completing both of these pending dispositions by year end. We estimate proceeds in excess of $125 million, including tax benefits, from these transactions.

Our effective tax rate for the quarter was 37.7%, excluding the impact of a $7 million GAAP income tax benefit related to the final settlement of the CheckFree purchase accounting tax reserve. This, as I mentioned earlier, was also excluded from adjusted EPS. We expect our effective tax rate to be approximately 38.2% for the fourth quarter.

Lastly, while we don't use EBITDA as an internal performance measure, we do know that some investors and analysts do consider that metric. For comparability, our EBITDA margin is nearly 500 basis points higher than our adjusted operating margin of almost 29%.

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

Thanks, Tom. Third-quarter sales were down a bit versus our strong Q2, and we now stand at 86% of quota attainment for the year. That said, pipelines have continued to build and are in very good shape going into the fourth quarter. While we continue to see longer sales cycles, we anticipate a strong finish to the year, which should benefit fourth-quarter revenue and get us off to a good start in 2010.

Integrated sales in the quarter were up slightly compared with Q2, to $28 million, bringing the year-to-date total to $75 million. We are on pace to meet our $90 million target for the year. Even in this challenging environment our integrated sales are up $19 million over the same point in 2008. The leading areas of integrated sales this year have been in payments; customer channel; such as Internet banking and branch; and efficiency-based products.

Before I get to our outlook let me update you on the environment, which is generally consistent with the view we shared at investor day a few weeks ago. Through today there have been 121 regulatory actions impacting 106 banks and 15 credit unions, which is well within our range of expectations for the year. Even as resolutions have accelerated in the back half of the year, we still estimate that only about 1% of all depository institutions will be subject to an action in 2009.

Within Fiserv we remain about even on wins and losses since the commencement of the regulatory actions. Given the low level of traditional M&A activity this year it's likely that we will end 2009 with a smaller decline in the number of overall institutions than we have seen over the last several years. As we mentioned at our investor day, we do expect the number of actions to accelerate in 2010 and then begin to level off in 2011.

We are pleased to see new capital appears to be slowly making its way into the market. We believe the amount of capital on the sidelines is building and expect entry to be more visible towards the middle of next year. This new capital, in combination with the actions of stronger players, will increase the level of overall health within the financial services industry and, therefore, create more opportunities across the fintech space.

Lastly, we are seeing important and attractive opportunities to deliver more value to clients today. The end consumers of financial products, be them retail or business, require the institutions that serve them, to invest in products and technology to meet their needs, regardless of the economic environment.

In addition, institutions are clearly looking for ways to be more efficient, and while not spending frivolously, there is technology spend available to meet specific needs. That means financial institutions are being prudent and pragmatic about their level of spend, not that it has stopped.

This stance generally translates to fewer transactions and longer sales cycles, but make no mistake, there are attractive opportunities available across the entire market for a company that has the right products, the right value proposition, and the ability to creatively work with the market. We believe we are that company and the strategies that we shared at investor day provide us the platform to continue to lead the industry evolution.

As we shared at investor day, our 2009 EPS guidance remains unchanged. However, as we said at the time, we believe it to be prudent to narrow the likely performance range for the full year. We now expect 2009 adjusted earnings from continuing operations to be between $3.63 and $3.68 per share.

We expect full-year free cash flow to be in a range of $640 million to $660 million. We expect revenue growth in the fourth quarter to be slightly positive in a range of flat up to 2%.

And, finally, we continue to expect full-year operating margin to expand by 100 to 150 basis points over the prior year, even after overall margin has stepped up as a result of removing LFS from our results.

Before we move to Q&A, I want to thank our nearly 20,000 associates around the world who have persevered in one of the most tumultuous economic periods in history. Our people have charged forward each day, and in many cases stand side by side with clients to help them navigate through these extraordinary times. I could not be more proud of the character of our associates and the positive impact they have had on people's lives.

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

Thank you. (Operator Instructions). Our first question is from David Koning of Robert W. Baird. You may ask your question.

Yes. Hey, guys, first of all, I just wanted to pursue Q4. I guess Q4 revenue last year was $984 million and you expect growth I guess flat to up 2% year over year. So that implies a pretty good sequential ramp and I'm just wondering what your thoughts are around that? It looks like about 4% sequential ramp, which is a little more than typical.

Yes, Dave, that's a good question. The first thing is in our payment segment. As you look back into last year, it also has a sequential ramp and the primary purpose of that is the Personix business, which is in our payment segment, is very seasonal with very strong Q1 and Q4 performance, and that will continue again this year. It's just very seasonal from that standpoint, so there's a large amount of revenue that hits Q1 and Q4 in that particular business and I think you'll see that historically. And that's a big driver of that particular growth.

Yes, in addition, Dave, we see -- we continue to see very solid progressive ramps in our payments businesses, as well as an expectation of some sales -- some license sales coming together in the fourth quarter. Just based on the pipeline that we've seen we have some reasonable visibility, we feel pretty good about those numbers.

Well, great, that's great to hear. And then I guess secondly, the Q4 growth, the flat to up to 2%, is there anything in this quarter that would be different, or any comp issues that wouldn't allow that same type of growth to continue into next year, and maybe even get a little better because I think some of the comp issues get a little easier even into 2010?

No, I think, Dave, the -- we're not going to comment on 2010, besides the fact that I did mention we had a lot of one-time items, clearly, that negatively impacted us from an environment standpoint, whether those be termination fees, currency, et cetera.

But again to Jeff's earlier point, as we look into the fourth quarter, we're forecasting zero to 2% growth. That is on a base of about $1 billion of revenue and every 1% is roughly about $10 million of revenue. And clearly we had a -- in our payment segment we had some license fees that were short of last year by about $10 million, which was about 2%, and those can move around on a quarter to quarter. We are seeing a lot more of that, obviously, in the current year just given the environment. But again, we have sound visibility into those as we go into Q4 from that standpoint.

But clearly, again, zero to 2% is our guidance for Q4 going forward. And as we look into 2010, as I highlighted in my comments, we feel quite confident that many of these one-time items, whether they be investment services, output solutions, termination fees, or currency impact is going to improve.

One of the examples would be items such as float. We feel relatively confident that we won't actually have to pay on our float portfolio, so that's fairly low at this point. Termination fees are way down. Tom did mention that we had $9 million last year in the fourth quarter, so that's working against us. But as -- we are not assuming any real termination fees in the fourth quarter, so we will be down at a very low level.

The other thing, Dave, is even last quarter we had said that we were seeing light at the end of the tunnel. We were getting the progressive benefit of the sales that we had been doing. Some of the sales that we had in Q2 will start to come on board at this point to move into '10. So we believed at the time that we would see sequential improvements over the next six quarters, and we believe that we will be more positive, certainly going forward, than we've been over the last three quarters.

That's really, too, Dave, what we highlighted on investor day -- we anticipate a stronger Q4 than Q3, which is what we indicated at that time also.

Yes. Well it's great to hear things are stabilizing, thanks.

Thank you.

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

Hi, this is David calling for Tien Tsin. I was wondering what the -- in the discontinued ops if you could break out what the LFS revenues and non-GAAP EPS were in the quarter?

Inside our discontinued operations we really have two pieces in there. The revenues of that I believe were roughly around in line with the second quarter, which I think for LFS is around $30 million.

We have two pieces of businesses in the discontinued operations; the Fiserv ISS and our LFS business. The Fiserv ISS loss in the current quarter was, as we had been getting that business ready for sale we actually sold our investment portfolio and put it into very short-term investment vehicles. Therefore, the spread on that business went down significantly in the third quarter, generating a loss in that business, and we also had a slight loss in our LFS business, but that is really what we have there.

And can you split out what the two pieces each contributed?

No, we're not going to disclose that level of detail.

Okay.

But both of them are in there and we had -- like I said, the revenues were around $30 million for the LFS business.

Okay, great. And then the other question I had was, are you seeing any change in pricing trends in the bill pay business?

No, the bill payment business, as in most of the businesses, have been competitive ever since -- certainly in the almost four years that I've been here. We haven't seen any material escalation in the competitiveness over the last year and, in fact, most of our data would say across our various platforms that compression is either at or below historic levels.

Okay, thanks, guys.

Thank you.

Our next is from Bryan Keane of Credit Suisse. Your line is open.

Yes, hi. Just hoping you guys could update us on where we are with Fiserv 2.0 and the plan to take out $250 million of cost?

Yes, hey, Bryan. On -- I think we said we were around $73 million so far this year in costs -- in cost takeout, and that is against both our original synergy target and the Fiserv 2.0. And the good news there is that was against the target of $60 million for the full year, and so we are in pretty good shape. We've been making more progress there, so we continue to be quite confident that we'll reach that number and likely exceed it over time.

Are we now done with the CheckFree synergies and what was the final total of cost take out from CheckFree?

Yes, we're not done. That number is a combined number, but we are very close. We're not separately disclosing them, Bryan, but I'll tell you that we are very close to what we originally stated as our target and, in fact, we are estimating currently that we will be in excess of the $100 million that we said we would be able to take out on the cost side.

Okay. And then just, Jeff, with the -- on the competitive landscape with both FIS and Metavante now together, can you just talk about your thoughts on what that means going forward, any changes in your guys' strategy?

Sure. So they've really only been formally together for about a month and so I think we're waiting, as everyone else is, to get a clear -- more clear indication for what they're going to do.

I think that given on a scale basis we're roughly the same size, so I think you'll have, obviously, now two players so that will arguably make it a little bit easier for clients to see the differentiation between the parties. But I think we're waiting to see. They were both good competitors when they were separate, we assume they'll continue to be good competitors together, and the -- I guess the score will get tallied out eventually on the Street.

Okay. Just the last question for me, Tom, just a clarification. If I add $0.02 back into the first quarter, for the discontinued op, I think fourth quarter then EPS range is $0.91 to $0.96. Do I have that right?

That's correct, Bryan.

Okay, thanks a lot.

Thank you.

Our next question is from Ashwin Shirvaikar of Citigroup. Your line is open.

Hey, guys.

Hey, Ashwin.

Hi. I have a question. You've benefited from some extent from the transition to debit, but as things get better in the economy do you expect some of this to reverse, and how should we think about that?

No, we don't think the debit trend is a temporary trend. One of the things that we talked about at our investor day is that we really have two -- at least two pretty important macro trends helping us on the debit side.

The first one is that our debit business tends to focus below the top 25 institutions in the US, and that group is what we would call earlier on the debit maturity curve than some of the larger institutions. So we have that group issuing cards at a higher level of frequency and then having ramp and so that's a very good thing.

The second benefit is we're selling that, we're doing -- we're having a lot of success on the sales front. We've sold, I think, 58 in the quarter and somewhere around 164 or so for the year, so we're adding institutions and we're adding institutions that are early on that macro trend. So that is all very good news.

The second thing is, I think estimates are -- is that the younger generation, who significantly favor debit, are going to move from about 14% purchasing power in terms of number of transactions today to 40% over the next five years, and, therefore, those who have planted the most debit flags will get the benefit of that macro tailwind. So we feel pretty good about that moving forward. And again, our growth in the quarter was significant and we anticipate that that will continue.

Okay. If I can add one question from a modeling perspective, as you go from 4Q to 1Q and beyond, is there any particular seasonality or any other quirk to be aware of there?

No, I don't think, Ashland, I think the biggest thing we have is in the -- like I indicated earlier, in the payment segment. The Q4 and Q1 is generally a bit stronger with our output solutions business, and that tends to carry through on a little bit higher level of revenues in those two quarters from that standpoint. But those are probably the biggest factors that we have.

As I look onto 2010 clearly we're going to have a lot less of the one-time type items, such as float and termination fees, et cetera, from that standpoint.

Right. And will you provide -- either in an 8-K or a 10-Q will you provide the ex-LFS information going back for all these -- all the quarters of this year and last year?

Yes, we did provide that in an 8-K that we filed on Monday.

Oh, you did? Okay.

Yes, so it should be out there. It's got all of the quarterly history back for 2008; free cash flow, internal revenue growth, all those statistics.

Okay, thank you.

Yes.

Thank you.

Your next question comes from John Kraft of D.A. Davidson. You may ask your question.

Hi, Jeff, hi, Tom. Nice work, at least on the expense side.

Thank you.

I wanted to follow up on the last question, specific in the debit side. You guys are really bucking some trends out there and I understand that the transaction growth would be faster at your smaller-sized customer institutions, but you're also seeing some acceleration, or at least some pretty stable new contract -- absolute contract signings, and I was just curious what is the driver there? Is that just the integration that you've done to build that into the rest of your platform?

Are you talking about, John, why we're able to continue to win?

Yes, and why so -- it looks to me like you're taking share.

Yes. We have spent -- one of the benefits that we are getting is the aggregate effect of all these sales. We have -- over the last couple of years we have really worked hard to create what we call this integrated desktop, which is a very tight integration between our debit product set and our account processing, or our core platforms.

And so -- and that is resonating well with our clients. The clients like the fact that they have a single vendor of choice, and so that has been a very strong selling tool. As well as some of the fraud and risk management tools that we have, have been perfected to the point where our platform and the products and tools that we have is generating a level of, I think, 5 to 6 basis points less of fraud than is on average.

So, good value proposition, better integration, and frankly, it's become top of mind for our entire sales force. We -- our people are in there talking not about a single solution, but about a holistic how can we help you run your institution, and frankly that's why it's paying off the way it is.

And, John it's really helpful, just to add to that. Obviously in all the account processing renewals that we have we're clearly bringing that bundled value proposition to all those renewals as they come up in our service bureau businesses across the credit union, bank and thrift marketplace.

And the other thing I'd highlight is that we're now over, over the last two and a half years in debit, 630 or odd so wins in that particular area as far as number of clients, so we've really done a nice job there.

And we're still only at about a 40% level of penetration so there's still a fair amount of room.

Any guess as to what percent of those wins are competitive take-aways?

Yes. It is a very, very high number.

Okay: And then moving on to some of the international deals that you mentioned in your release. Specific to Mexico and Indonesia, were those existing customers? It sounds like they were existing customers, and then these were direct sales to them, or you are going through another channel? What sort of presence do you have there?

It's all direct. We are -- as we said a little bit at investor day, we are of more -- we've been more opportunistic and certainly we're working to change that. But these are relationships that we've expanded. Whether it's [Panin] or [Van Comer], we have relationships. I think Panin is a ten or 12-year client, so it's just a matter continuing to go with the entire solution set. MobileMoney, Mobile is a very -- has a very strong attention span outside the US just as it's getting here. So it's really a matter of integrating more product knowledge into our sales force has really kept us -- has given us a little bit of a lift to date.

I think next year you'll see a much more programmatic approach to how we go to market. We mentioned last quarter that we had a very large win outside of the US. We'll be able to comment on who that is and what we're doing for that customer in the fourth quarter of 2010, but we're very excited about that. We think that's going to resonate well across other institutions who want to do similar things.

Actually that's helpful. Thanks, guys, that's all I have.

Thank you.

Our next question comes from Julio Quinteros of Goldman-Sachs. You may ask your question. Mr. Quinteros, please uncheck your mute button.

Maybe we should move on.

We'll put Julio back in the queue.

The next question comes from Tim Fox of Deutsche Bank, your line is open.

Hi, thanks, good afternoon.

Hi, Tim.

My first question was around the investment services business. I think, Tom, you gave some statistics out there about it was down mid double digits. I was just wondering if you could expand a little bit on that business relative to how strategic it is to the overall Fiserv business? And some of the large account losses that you mentioned earlier in the year, if those were competitive in nature, or more around the downturn in the overall market and what you're looking forward to in that business looking out into 2010?

Sure. And, Tim, I'll take it and then Tom will add additionally. That is a business that has a very, very strong competitive position. The account losses are organic losses, and that was really due significantly to the volatility that we saw in the markets between last September and really the end of April. And we really saw a firming -- we began to see firming at that time and then we've actually seen growth over the last three or four months. The challenges in that business -- and this is a business that is really providing separate account management to a number of larger financial organizations, and once those accounts fell off the system earlier in the year, because you basically lose 12 months of revenue and then 11 and ten and sequentially, you dig yourself into a hole and it's almost impossible to get out of that hole and that's what's happened there.

As the market has refirmed we see that organic account growth coming out of there and we're actually feeling pretty good about what that business is going to generate for next year. But unfortunately, the damage was done and we just have to ride the storm at a lower level.

And to Jeff's point, this is not a competitive loss situation with clients or anything else associated with that. It's also down a little bit, as I mentioned, in the license fees area as it does sell some software also internationally.

Tim, I guess I should have also commented. Strategically it's a -- it is certainly not account processing, but it is a -- it is clearly a processing business, it's got network and scale-oriented economics, it's got a superior competitive position, and it serves the large financial institutions in the US, who tend to be our clients, as well, and so it gives us a deeper relationship with those clients. So we feel good about that. Given the business has had a rough year this year economically, we remain very committed to that business and that strategy and we're going to keep delivering.

Great, that's helpful. And the second question I had was around discretionary spending and you mentioned, I think, $10 million down in license versus $20 million last year. I think -- believe that was within the payment segment itself. And just could you comment on whether you think the bulk of that discretionary pressure has been from the overall profitability pressures your customers are seeing, or do you think there's anything to do with the special assessments that have been a major overhang? And what are your clients telling you about their view about special assessments going forward, and is that a big headwind still on closing deals?

Yes, I think the -- this is Tom and then I'll turn it back over to Jeff, also. But I think overall it is that discretionary spend as far as our clients are continuing, especially in the discretionary areas, not around the EFT, bill pay, things they have to have, but other things that they like to have. It goes three or four or five levels higher up, the pipelines remain good, but again, to get those licenses closed is taking a lot longer than we anticipated and they are continuing to control their expenses.

So they really control that discretionary spend tight and we have not seen a lot of that change. We see a little light, but clearly it was a difficult quarter from a license standpoint. We fortunately don't have a lot of license fees, but in our payment segment in total in the Company, we have about 5% of our revenues tied into license. And we have a risk management business, again, the licenses in that business were down and the investment services, as I mentioned, and some additional seat licenses in there, too. So it was fairly unusual from that standpoint.

We had a strong Q3, but as you know $5 million of license fees in that segment is about a 1% impact on our growth rate for the quarter, so it can have an impact. But again, we see some stabilization of that as we look into Q4, but again that discretionary spend continues to be tight.

And, Tim, just environmentally it's really been a bit of a roller coaster out there. In the first part of the year I think you had lots -- you had a number of institutions trying to figure out what was wrong, and -- or how -- not what was wrong, but how wrong were things, then you have the assess -- so when people got their arms around that, then you had the assessment. And I made this comment a couple of times. My take is once people got past the middle of the year and they had made it through the year without spending a lot, I think people just said, you know what, I'm going to get through this year, I'm going to keep these plans on hold and unless I really need it, or it's going to move me forward in a way that I can really see the return on a risk-adjusted basis be awfully high, I think people have just gone on -- a bit of on hiatus.

And what is interesting about some of these licenses is, I think sometimes when people think about licenses they think about these very large licenses. For us many of these licenses are relatively small. You can have -- they could be 100,000 licenses -- $100,000 licenses, they could be $50,000 licenses. There aren't that many $1 million licenses. License fees at that level are probably a little bit easier to see than the lower levels of license where people have really gone on hold.

I believe that will begin to come back in the second half of next year. We've not factored, as I mentioned at investor day, much improvement in that kind of behavior, but we are getting more visibility into those people who are moving forward. I was with some clients last week who are picking up other institutions. So you've got a real divide being created between those institutions who view the turmoil going on right now as an opportunity to grow. They're working -- they're looking at the institutions being resolved, and they are excited about that, and they're spending money and they're looking to expand their platforms and we think there is opportunity there.

Thank you, both.

Thank you.

Our next question is from Mayank Tandon from Signal Hill. You may ask your question.

Yes, thank you. I had a question, Jeff, just on the bill-pay side. How do you view the competition between billers and banks? And I think some data suggests that the biller-direct model is winning. How does that affect your business longer term?

Sure, it's a good question. Most of the data that we've seen actually says that the bank consolidator model is finally overtaking biller-direct. My take on that is actually the E-bill element of the bill payment strategy is really important. It's one of the reasons why we believe the CheckFree model is superior, because they have such a strong level of distribution on the E-bill side.

The benefit of a biller-direct side is can you go to the site and know what your bill is, you don't need paper. To the extent that those E-bills are being delivered within the bill payment that's very good news and it's good for the biller, as well. We enable billers to do what they want to do, so we don't view them as competition, and we clearly don't view the banks as competition.

So I think both models are going to persist over time. We're working on a variety of different strategies on the analytic side, as well as on the behavioral side, for us to continue to improve share. I think today the number of bills paid electronically per month is around two of the average of about 14 per household, so there's plenty of room for everyone to survive. We believe the consolidator model will win over time and obviously that's where we're investing the majority of our resources.

Okay, that's helpful. Also just on the pricing side, again on the bill-pay front, are you seeing any discrepancy between the big banks versus small banks? I'm just trying to get a sense if you're moving downstream more and more and squeezing out the smaller players, as a big bank may be holding off on any new initiatives?

Yes, the -- there is a -- there's always been a pricing difference between those organizations -- no matter what you're talking about -- those organizations that have very sophisticated procurement organizations are going to typically be able to squeeze a vendor more than someone who does not have a sophisticated procurement organization, so I think you see that in the larger sophisticated organizations. Plus those larger organizations are -- they have significantly more volume and so they're going to be at different pricing tiers than some of the smaller institutions.

The majority of our wins are obviously below the top 25 and well below that, because most of the top 25 are already using us and most of the top 50 are using us today. So the wins for us are moving down into the landscape. And, in fact, if you look at our -- which we don't share publicly -- but as we look at all of our transaction growth data, not unlike what we're seeing on the debit side, we have a lot of growth coming from the small institutions, but the growth in the absolute is so small relative to the billions of transactions that CheckFree -- the old CheckFree processes today it gets lost in there. What doesn't get lost in there is the revenue and the margin that's associated with those transactions.

That's helpful, and just finally on margins. I don't know if you have talked about long-term margin trends but just wanted to get a sense from you in terms of you had great margin improvement. What is the thought process in terms of what the threshold would be for a company like Fiserv based on your business mix?

Well, our -- as you know, our long-term performance characteristics as far as margin expansion goes we continue to believe in this business model, 50 to 100 basis points is something that we can do. We clearly still have, as I kind of highlighted on investor day, a number of different opportunities under our Fiserv 2.0 operational efficiency initiatives to be able to work on a number of things internally and we continue to do so. So with the scale, the businesses that we're in today, especially in the payments and the account processing and the network businesses that we have, we think that's a good area to think about over the longer term.

Yes, that 50 to 100 basis points a year is something that we think we can do without doing things that damage the business and quite contrary we have the ability to invest and still grow margins because of the -- as Tom talked about, the network scale and cost and operational efficiency characteristics of the Company.

That's terrific. Thank you very much.

Thank you.

Our next question comes Julio Quinteros of Goldman Sachs. You may ask your question.

Hi, this is (inaudible) on behalf of Julio. I don't know if you can hear me.

Yes, we got you, thanks.

I have a question with regards to your margin trends and going on with the question that was asked previously, I was wondering do you have the potential to accelerate your cost synergies from Fiserv 2.0 and the CheckFree synergies, is there a potential to go that going forward even if revenue growth was moderate?

Yes.

Yes, I think we've shown that, obviously, in the current framework. Yes, we -- as we talked about in investor day, we have very purposefully moved as much of our energy as possible over the last six to nine months to a lot more focus on products, product innovation, revenue growth, and we're seeing the early signs of that. It takes time to accelerate and we're continuing to -- obviously we talked about it -- we take out costs and there was a chart in our investor meeting, which showed -- or our investor conference, which showed the level of value that's been created, or been extracted out of five or six different areas, and it's pretty early in the majority of those. So we think there's a lot of room to grow, and if for some reason -- and we don't believe this to be the case -- but if for some reason we felt like we weren't going to be able to grow revenue, we would merely transfer some additional effort over to the cost side. But we believe we will be able to do both and that's what we're doing.

And I think if you look at our margins just going from 2008, we were probably at 26.3%, we're up to 28.9%, our margins in 2007 were 24.4%, so we've shown through this environment, especially the businesses that we're in today and what we do from an operational efficiency standpoint, that we'll continue to expand those going forward.

Okay, perfect. And with regards to your products, both on the financial and payments side, where do you see the greatest traction with clients right now?

Where do we see the greatest what?

Traction with clients.

Oh, traction. Clearly on the payment side, debit, bill payment, areas like source capture, or anything around remote capture, deposit gathering and efficiency-based products. We're also seeing a fair amount of energy around multi-channel strategies, so how do I get a single view of the customer, whether they're internet, ATM, call center, in branch, whatever it is, so a lot of energy there.

Okay. And on the financial side are you seeing any incremental volume from, let's say, regulatory and fraud compliance solutions, just because the landscape is getting a lot more complex right now?

Yes, not get. The areas -- we have a very strong anti-crime suite, so we are very focused on that, but everyone in the industry, us included, is really waiting to see what the regulators are going to do and what changes they're going to put into place, and as that happens I do think you'll see a lot of opportunity in terms of better managing risk and obviously it's going to look like better management of credit risk. It's one of the reasons why we think our analytic strategy is going to be quite helpful as we help cli -- as we assist clients to get ahead of loss mitigation.

Okay, perfect. That's it for me. Thanks a lot.

Thank you.

Our next question is from Glenn Greene of Oppenheimer. You may ask your question.

Thank you. Good afternoon, Jeff and Tom.

Hi, Glenn.

The first one is a high-level view and maybe it's early, but any view from talking to your talking to your customers in terms of bank IT spending plans going into 2010, and maybe a contrast between the large banks and mid-tier banks and how they're dealing with the environment. Most of the uncertainties obviously know at this point, maybe banks are getting back to business, but on the other hand you've got commercial losses escalating for the mid-tier banks. Any thoughts at a high level spending for IT spending going into 2010?

Glenn, I -- your last comment is probably the most important. Right now lots and lots of people are ferreting their way through their commercial portfolios, and especially in those areas where land and land development had been going on, so you've got -- you had a period where people felt more optimistic. I think right now, and I think we saw recently, the regulators are encouraging the institutions to maybe be a little bit more forthright on their portfolios. In other words, let's get all of that bad news out there. But the conversations that we're having with people right now sound much more optimistic than they did at this time last year where, frankly, people were just worried about their survival. But I would say that's institution-by-institution-based and that is in and across all tiers, whether it is in the very largest institutions or across the -- even the smallest community-based institutions.

It really does depend on who you're talking to, but the tenor of the conversations feel more optimistic and people are looking at what they need to do to serve their clients, so there is much more discussion around there. So at least the sense around the organization is a bit more optimism than we felt last year. We are seeing that in pockets there are people who are focused on spending, but I think I'd have to leave it to some other pundits to be able to speculate on what the actual growth rates will be for next year. I think they're still going to be tempered, I just -- I can't tell you if they'll be more or less than this year, they just feel a little bit more optimistic right now.

Okay, and that's consistent with what we're hearing. On the contract renewal side could you just remind us what 2010's looking like, any big contracts coming up for renewal for that we should be aware of? Is it sort of renewal cycle on both the financial and payment side, or how to think about that?

Yes, we have a couple of larger institutions who are going to be renewing either at the end of next year or early in '11 and obviously we're working those. For right now I can't see anything that is going to cause any kind of of issue. By the same token, we're working very hard and we understand that we need to always get all of our clients renewed, again, regardless of where they are on the spectrum of value, and we'll talk more about that when we give guidance for next year.

Is that more on the payment side now?

It's more on the payment side, yes..

Okay. All right, great. Thank you.

Thank you .

Our next question is from Kevane Wong of JMP Securities. You may ask your question.

Hey, guys, just two things. Just looking at the payment -- or the bill-pay growth, just looking at the bill-pay transactions sequentially, obviously relatively flat, it's similar to what we saw first quarter to second quarter. Is there some color you can give us if we back out Bank of America, which is obviously a big transparent customer there, what kind of growth is underneath that we'd be really looking at? I don't know if there's a good way to quantify it, or just give us some color on there?

Yes, absolutely. The -- and obviously we can't talk on an institution-by-institution basis, but our numbers generally reflect what's going on in the industry, and certainly in some of the larger institutions, some of those institutions are gaining deposits and some of those institutions are not doing quite as well, and that is -- clearly when we look into the data we can clearly see where we're being impacted. And some of that is also because not everyone is marketing at the same level that they had been doing historically for obvious reasons. When you start to look down into the base, and you look at the non-acquired CheckFree base and you look at the institutions that we've been adding, over -- I think over 1,000 institutions over the last six or seven quarters, we're seeing some not surprising very attractive growth.

Some of that is organic, people who have actually just added bill payment for the first time. But frankly we're getting good growth because when people add our technology it's a much richer experience for their customers, and that's turning into more bill-pay growth. So those numbers are big. The problem is that it just doesn't move the needle very well because the base is so large. It shows up in revenue and it shows up in margin, but it doesn't show up in the actual tran growth. And, frankly, I don't think it's going to show up in tran growth probably for six or eight quarters because it's going to take that long to build up enough mass, not unlike what happened with our debit business three or four years ago.

Got you, that makes sense. And then also maybe just a clarification for me, maybe I just missed this. Looking at the growth in the payment segment going from -- the internal growth going from 2% in second quarter down to -1%. The slides didn't show the one-time thing, though, you're talking about stuff. Is that really just the float stuff that you talked about, or is there anything else that really caused that sequential drop in the internal growth for that segment?

Yes, I think -- this is Tom and I think I held out a little bit in our prepared remarks. I think -- again, just to back up a little bit, a 1% change in that segment's about $5 million of total revenue, but we did in the third quarter, which I highlighted, the biggest change we had was a decrease in license fees from about $20 million last year in the third quarter to $10 million this year. That was really a 2% impact on the segment. Our output solutions business, which is in our payment segment, their revenue declined also 5%, which was unusual for them. They had a fairly strong first half but they did see some of their client spending down, so that was another factor, and our investment services business has been there all year. But the biggest thing we had a strong Q3 last year in license fees, those came down. We have some visibility -- more visibility in those as we looked into Q4. But those are really the changes and I'd just, again, say that we didn't highlight those in the slide but I did have those comments in the script. And I think that can move around again, When you're talking about $5 million or $10 million or $15 million of revenue, clearly that's a fairly small number on a quarterly basis and that why those rates can move around a little bit on a quarter-over-quarter basis.

Perfect, that's helpful. Thanks, guys.

Okay, thank you . All right. Well, thanks everyone for joining us. We appreciate it. and if you have further questions please don't hesitate to call our

This does conclude today's conference call, at this time all parties may disconnect.