Fiserv Inc (FISV) 2011 Q1 法說會逐字稿

Welcome to the Fiserv first-quarter 2011 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 for today's call available at the Company's website.

(Operator Instructions).

This call is expected to last about an hour. You may disconnect at any time. Now, I will turn the call over to Jeff Yabuki, President and CEO of Fiserv.

Great. Thanks, Sarah. Good afternoon, and thanks everyone for joining us for our first-quarter call. With me on the call today are Tom Hirsch, our Chief Financial Officer; and Mark Ernst, our COO. Our remarks 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 internal revenue growth, adjusted earnings per share, adjusted operating margin, free cash flow, sales pipelines and our strategic initiatives. 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 measures. These non-GAAP measures are indicators that Management uses to provide additional meaningful comparisons between current results and prior reported results, and as a basis for planning and forecasting for future periods. Let me say up front that we're pleased with our results for the quarter, and are right on track to achieve our full-year guidance. The good start to the year was led by 3% adjusted internal revenue growth in the quarter, including 5% growth in the payment segment and 2% in our Financial segment.

We continue to see signs that the return to revenue growth is continuing. Adjusted earnings per share was up 7% for the quarter, to $1.02, and free cash flow increased 8%, to $244 million. Adjusted operating margin declined 60 basis points, in line with our expectations for the quarter, due primarily to increases in investments and a facility gain recorded in the first quarter of 2010. Towards the end of the quarter, we took steps to adjust our cost structure in certain businesses most impact by negative market forces, and to move forward on our operational effectiveness targets. This action also supports our desire to invest in newer strategic solutions, primarily in our payment segment, that we expect will drive long-term growth.

These types of resource decisions are important in managing effectively and increasing our capacity to invest. Tom will provide more color on this in a moment. We announced three smaller acquisitions, which totaled about $50 million, and repurchased 4.3 million shares during the quarter. And, with all that activity, we still ended the quarter with more than $500 million in cash on the balance sheet. We remain extremely disciplined in the allocation of your capital. We share three key enterprise priorities for 2011 for you to use in assessing our overall performance. First, to deliver an increased level of high-quality revenue growth and meet our earnings commitments. Next, to center the Fiserv culture on growth, leading to more clients, deeper relationships and a larger share of our strategic solutions.

And, third, to deliver innovation that increases differentiation and enhances results for our clients. Adjusted internal revenue growth improved 4 percentage points in the comparable quarter, from negative 1% in 2010 to positive 3% in this first quarter. The majority of this growth is being driven by high-quality recurring revenue. As expected, we saw stronger growth in our payment segment. Earnings and free cash flow were solid in the quarter, and also reflect our expectation of a stronger second-half performance for operating margin and earnings growth. The client wins highlighted in our earnings release showcases our focus on growth. Our unified sales force is executing larger transactions with more content, focused in areas that deliver the most client value.

For example, we had 276 wins across some key electronic payment solutions in the quarter; saw a significant increase in demand for Mobile Money, including a transaction with US Bank, already a bill payment and online banking client; and added Georgia's Own, a $1.6 billion credit union to our growing list of leading credit unions in the US that have selected our state-of-the-art Acumen account processing account platform. We also made strong progress against our third priority, to provide differentiated solutions for our clients. Mobile banking solutions are now evolving from an interesting technology catering to early adopters to a must-have component of a financial institution's channel strategy.

The combination of online channel renewal and construction of a new mobile highway is centered right in the sweet spot of our digital strategy. At Focus 2011, one of our largest financial institution client conferences which we held last week, nearly 75% of the clients surveyed said they intended to make new investments into mobile over the next 12 months. Increasing demand was an important part of our decision to acquire Mobile Commerce Limited, or M-Com, a leading international mobile banking and mobile payments provider. Not only does this provide us with leading mobile banking capabilities to help FI serve their clients in both licensed and ASP modes but should also help us incorporate mobility as a strategic differentiator across all of our platforms and solutions.

The acquisition was a logical extension of the partnership we formed with M-Com several years ago to deliver our market-leading Mobile Money solution. To meet burgeoning demand by financial institutions, we launched a set of prepaid solutions in the quarter, which includes processing and program management for general-purpose reloadable, payroll and gift cards. Reloadable prepaid can create an alternative account platform, which could have built-in revenue advantages versus a standard DDA. We acquired Maverick Network Solutions to add a robust and flexible prepaid platform, which we believe complements our suite of world class payment capabilities.

We also acquired Credit Union On-line in the quarter, giving us the capability to offer our popular XP2 credit union account processing platform in an outsourced environment. Credit Union On-Line's existing clients will now have access to Fiserv's comprehensive portfolio of value-added solutions. We also continue to expand the technology platform and network size for our P2P payment solution, ZashPay. In addition to signing over 120 new institutions in the quarter, we inked an important network expansion deal with Visa that will complement the use of our own ACCEL/Exchange network. Our objective is to enable ZashPay users to move money faster and more reliably than any other P2P solution through a network of financial institutions.

Lastly, the recent investments in new technology solutions, such as ZashPay and Mobile Money, while enhancing differentiation with our clients, are not yet providing Fiserv with any material revenue. Based on our current view, we anticipate that these investments will begin to generate measurable organic revenue later this year and have strong momentum into the foreseeable future. With that, let me turn the discussion over to Tom to provide more detail on our financial results.

Thanks, Jeff, and good afternoon, everyone. Before I begin, let me point out that we have moved the presentation of our performance metrics from the body of the earnings release to the supplemental slides, which are available on our website. In addition, we have added several metrics that we believe will provide you with insights on how we are doing now and, importantly, where we are going. We have included metrics for key payment solutions, sales performance, and operational effectiveness. We may periodically add or remove metrics in order to provide you more visibility into our results. With that done, let's move on to the financial results. Adjusted internal revenue growth of 3% in the quarter was slightly better than our expectations, and was a significant improvement over the first quarter of last year.

Recurring processing and services revenue grew nicely in the quarter, and offset the expected weakness in item processing, which was contemplated in our guidance. Adjusted earnings per share increased 7% in the quarter, to $1.02, in line with our expectations, which also anticipates stronger second-half earnings. Adjusted operating income was $279 million in the quarter, and adjusted operating margin was 28.3%, a decrease of 60 basis points from 28.9% in the first quarter of 2010. This margin decrease was largely driven by a 70-basis-point negative impact on the Company from the Corporate segment, which had a difficult comparison as the prior year included a $4.5 million building gain that reduced Corporate segment expenses.

We recorded a charge of $18 million, or $0.08 per share, in the quarter related to a reduction of approximately 700 employees, or about 4% of our workforce. This action, which commenced towards the end of the first quarter and primarily impacted business in market segments most challenged by the economic environment, better aligns our workforce with our growth priorities and advances our progress towards our operational effectiveness goals. The ongoing cost savings will help fund increased investment in a number of strategic areas, while allowing us to meet our earnings commitments. There was no material earnings benefit from the action in the quarter. Now, on to the segment results.

Payments segment adjusted revenue was up 6%, to $514 million in the quarter. Adjusted internal revenue growth for the quarter was 5%, including positive growth in each of our major payments business lines. Adjusted internal revenue growth in the Payments segment has averaged 4% over the last 4 quarters, which compares favorably to the less than 1% average over the preceding 12-month period ended March 31 of 2010. The benefits from a slowly improving market, along with strong sales performance, are providing early momentum in this segment. [Flow] income was again insignificant in the quarter. Bill payment transaction volumes, excluding the impact of the Wachovia de-conversion, grew 8% in the quarter, compared with 6% in the first quarter of 2010.

The additional of more than 900 clients over the last 2 years, combined with continuing consumer adoption, is having a positive impact on growth. Card services performance was strong, as total debit transaction volume grew 21% in the quarter. And, we continue to see even higher transaction growth across our ACCEL/Exchange Pin debit network. Operating income for the Payments segment was $156 million in the quarter. Adjusted operating margin was 30.3% in the quarter, down a slight 20 basis points from the first quarter of 2010, due to planned investments, including mobile banking, biller solutions, online banking and ZashPay. We are also adding resources to support integration delivery of large client projects ahead of the revenue.

While this does impact margin in the first half of the year, this should reverse as revenue builds throughout the remainder of the year. Financial segment revenue was also up, generating 2% growth in the quarter, to $480 million. As with Payments, adjusted internal revenue growth in the Financial segment has been trending upward, averaging 2% over the last 4 quarters, as compared with negative 3% over the prior period's 4 quarters. Our account processing business continues to exhibit steady growth, especially in our outsourcing business. However, license revenue in the segment continued to be challenged, decreasing by $5 million over the prior-year period, and negatively impacting revenue growth and margin in this segment by approximately 100 basis points each.

And, as anticipated, the continuing secular decline in item processing also created a drag on the segment growth rate. Financial segment operating income was $139 million in the quarter, and operating margin was up 10 basis points, to 28.9% over the prior year. The operating leverage from our scale position in these businesses was partially offset by lower license revenue and incremental investment spending. Adjusted operating loss in our Corporate and Other segment increased to $16 million in the quarter, compared with $9 million in the prior year. This 70-basis-point negative impact on overall Company margin was primarily from the building gain in 2010 we mentioned earlier. Our 36.3% effective tax rate was a bit lower than anticipated in the quarter. We expect our effective tax rate for the full year to be approximately 37%.

Capital expenditures increased $14 million in the quarter, to $56 million, primarily due to increased investments, some early capital spending related to our data center transformation initiative and acceleration of other capital spending to earlier in the year. Total debt at March 31 was $3.4 billion, which is just under two-and-a-half times trailing 12-month EBITDA. As you will recall, we do not have a mandatory debt repayment until November of 2012. We had another strong quarter for free cash flow at $244 million, which we put to work. We repurchased 4.3 million shares of stock for $261 million, funded $49 million for the 3 acquisitions in the quarter, and still had over $500 million in cash at quarter end. As of March 31, we have about 1.8 million shares remaining on our existing repurchase authorization. Now, let me turn the call back over to Jeff.

Thanks, Tom. Quota attainment for the quarter was 84%, compared with 82% in the first quarter of 2010. It's important to know that we established much higher 2011 quota targets. Actual sales performance was up 27% versus the comparable quarter, driven by strong results in Payments. Sales in the year started slow after a strong Q4, and picked up steam in March and April. Our pipeline is very healthy, and we expect to attain at least 100% of our higher-quota targets for the year. Sales cycles continue to be long due to economic conditions, regulatory uncertainty and, in some cases, the increasing size and complexity of the sales opportunities themselves. Our 2011 integrated sales target is up 48%, to $155 million, which, as you will recall, has been expanded to include non-account processing clients as well.

Through the first quarter, integrated sales totaled $22 million, or 14% of our annual target. Sales of payments, channel and risk solutions were the leaders in the quarter. Operational effectiveness attainment was $4 million in the quarter, which represents 16% of our 2011 target. This year's cost savings will be weighted towards the second half of the year as the new programs come online. We're making good progress against our 5-year target of $250 million, which should enhance our ability to invest and contribute to incremental long-term earnings growth. Before we get to guidance, let me comment briefly on the environment. Regulatory actions are slowing in 2011. Through April 22, there have been 42 regulatory actions, compared with 64 in the prior year.

Total assets of the impacted institutions are down 54% year over year. We continue to expect a lower number of actions this year, and in a range of 130 to 170. We have seen an increase in organic acquisition activity over 2010's depressed level, and believe that, that will accelerate throughout the year. Unfortunately, the view into the regulatory environment remains murky. And while the recent developments in areas like Dodd-Frank are somewhere between interesting and encouraging, regulatory clarity is important in an institution's willingness to commit resources to new projects. That said, we continue to believe that the risks and opportunities from the changing regulatory landscape remain generally balanced.

Financial institutions are still looking for ways to make more money. Deposits are high, and asset growth is low. We believe it will still be some time before revenue growth makes a material comeback in most financial institutions. Despite the market and regulatory uncertainty, we're encouraged by the market-based discussions we're having. There is a clear belief that the world is changing, and that change is centered in areas such as digital and mobile, payments, decisioning, and operating a much more effective institution. We are well positioned to provide clients the capabilities needed to generate new revenue, manage risk and gain efficiency. As I mentioned up front, we're right on track to achieve our guidance for the full year.

We continue to expect 2011 adjusted internal revenue growth to be in a range of 2% to 4%, which we anticipate will include stronger growth in the Payments segment. Now, as a reminder, we recognized an unusually high $12 million in-contract termination fees in last year's second quarter, which will create a difficult second quarter comparison in 2011 for revenue, earnings and margin. We continue to expect adjusted full-year earnings per share growth of 9% to 12% and an increase in adjusted margin of at least 50 basis points. As we said at the beginning of the year, we expect our overall performance to be stronger in the second half of the year. And, last, we continue to expect free cash flow to increase 5% to 8% over the record $735 million in 2010.

Before I go to Q&A, let me comment briefly on our acquisition strategy. We've had several questions as a result of our acquisitions in the quarter, and the substantial pick-up of M&A activity in our sector. First of all, we like our current product and solution portfolio a lot. We have been expanding our capabilities and do not see material gaps in how we face-off against the market. There are a variety of reasons we believe an acquisition can make sense, such as adding or enhancing specific capabilities, as we did several times in the first quarter. These tend to be smaller, easier-to-digest transactions. There are also scale plays, which have done well, can provide a worthwhile economic return.

Unless truly compelling, we would not allocate material capital and/or pay a large valuation premium for this type of asset. For us to make a large acquisition, we would need to believe that the combination of economic and strategic advantages would substantially enrich the Company's competitive position for the long term. Those factors were clearly present when we acquired CheckFree, and that remains true today. This acquisition philosophy is a key part of our capital allocation strategy, which has served us well over the last 5 years, and I fully expect that to continue. We're pleased with our start to the year. While the last several years have been challenging for many, we have taken the opportunity to reshape the Company, and we like the return to revenue growth we're currently experiencing.

That isn't luck. It is the commitment of our associates around the world who give their all for Fiserv and its clients each and every day. We made some difficult decisions in the quarter, because it's the right thing for us to do. We're enhancing quality, driving efficiency, and investing in technology solutions that will create value for our clients, associates and shareholders over the long haul. With that, let's open the line for questions.

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

Just a quick question on the headcount restructuring. Was that planned going in for the year when you gave guidance? Or, was that as a result of maybe a slower start than you thought, than you anticipated, so that you decided to make some actions?

Bryan, thanks for the question. When we gave guidance back in February, we had contemplated a range of different actions at that point in time. We had made it clear that we thought it was important for us to invest. We're regularly looking at different ways to move resources around the Organization, to be able to fund those investments and still deliver returns that are within our expectations. And so, at that point and at other points, we're clearly always looking for different ways to run the Organization more effectively, also to align with our operational effectiveness objectives. I would say that to the latter part of your question, we have seen more positive signs in the environment than we've seen in quite a while. I mean, we feel pretty good about our revenue performance in the quarter. We feel really good about the pipeline and the business that's coming on from our strong sales here last year. So environmentally, I actually feel better today, April 27, than I did on February 3. So it's not at all related to that.

I just wanted to follow up on that. How about the large deals in the pipeline? How does that look, Jeff?

It looks good, Bryan. We have a number of larger transactions in the pipeline. As I mentioned in my prepared comments, it takes longer for those deals to get across the finish line. But we are seeing a lot of activity in the online renewal cycle, vis-a-vis what we saw happen with Westpac last year and some very interesting deals, both in the US and globally, that are a very good match for the variety of different solutions that we have coming online, whether they be mobile and digital or retail banking or core banking, risk. There's lots of very interesting transactions, but they are large and complicated and they will take time to close. But the pipe is looking very good.

Okay, last question for me. Tom, maybe you can help me with the Corporate and Other. I think it was up $28 million year over year. [This] sounds like there were a couple of puts and takes there, but you can help us through maybe some details on increase?

Yes, I'm not sure where the $28 million happened there, Bryan. It looks like the adjusted operating loss for the Corporate and Other segment was about $9 million in the first quarter of '10. And it's actually $16 million in the first quarter of 2011. That's the adjusted operating income. And so, that loss is up about $7 million. Roughly $4 million to $5 million of that is related to the building gain that we had in the prior quarter. So, the operating loss that we had in the first quarter of '11 for the Corporate and Other segment is in line with what we had really in the second and third quarter of 2010, and it's more normalized.

Yes, okay. I think I was combining a couple of line items there.

You could have been looking, Bryan, at the GAAP number because that includes in the Corporate and Other the intangible amortization and the restructuring charge.

Yes, that makes sense. All right. Thanks for the color.

Our next question comes from Dave Koning with Baird.

The first question I had was, over the last few years, the range between Q1 EPS and Q4 EPS has usually been about $0.05 to $0.10. This year it looks like, judging from maybe the way it probably has to play out during the year, that it actually has become a little bigger ramp from Q1 to Q4. Is there something this year -- do you feel like we're going to see a little bit bigger growth trajectory sequentially through the year? Just giving the sales pipeline maybe as the regulatory overhang passes in the next few quarters and banks start to spend again? Is that sort of the genesis of that?

Yes, Dave, and you're right. You know the Company, so you know what that typically looks like. We have that seasonality that goes from quarter 1 to quarter 4. The biggest item really impacting the second-half growth is the speed in which new business that was sold last year is coming on. We had a number of larger deals which have long implementation tails that have taken a while to come on the books. And also, we did a lot of outsourced account processing transactions last year, which are coming on. They come on over a period of time. So, it's much more the ramp of last year's sales than it is the sales that we deliver this year. To a large degree, except for the license revenue, most of the sales that we make in any year have an impact in the following year. And so, it's really revenue that is obviously not booked, but they are sales that have been closed that we're just in the implementation cycles of.

And the other thing I would add to that, Dave, 2 important things I think on the expense side, is first of all, as you know ,we said the first half would be more heavily weighted with investment spending. And that's clearly the case. So, that's a little bit different than what we've had in previous years. And the other thing I commented on, is clearly our operational effectiveness objective that you are aware of, our $25 million target, clearly the action that we took at the end of the first quarter is part of that. Also, the fact that that was going to be also more second-half loaded because we have a number of activities underway in regards to that. So, there's a couple things also on the expense-ramping side that we have in the first half with investments and the second half with our operational effectiveness-type initiatives. So, those are probably a little bit different than what you would normally see in previous years.

Yes, for example on the operational effectiveness, I think our target for the full year is around $25 million, Dave, and I think we're around $4 million for the first quarter.

Got you. That's a great explanation. And then, just 1 other short thing was, I think $2 million of acquisition-related revenue this quarter. What would that look like on a full-quarter basis, just so we understand the next couple of quarters?

It's not going to be that significant. The acquisitions we did were fairly small. I think it's going to be a [$2 million] more than that, I would imagine, than the $2 million. Probably around $5 million, somewhere in that particular range on a go-forward basis.

Okay. Great. Thanks a lot.

Our next question comes from Glenn Greene of Oppenheimer.

The first question, all in all, the revenue growth looked good. Margins -- I know you sort of called out the Corporate margins, the 1 area that was a little bit disappointing relative to at least to my expectations was the Payments margins. Maybe, Tom, you could comment on it. Was it sort of in line with your expectations? Or, any sort of items to call out there. Is the ramp in the back half just the cost efficiencies that seem to be back-end weighted?

Yes. I think it's just in line with our plan, Glenn. The only thing I can say in Payments is that we're just investing a lot of money there. I know we've talked about it a lot. We've talked about Mobile, we've talked about Zash, we've talked about Voyager. We're making more incremental investments in that particular segment in the first half of the year. We have some great opportunities there. Clearly, that is the biggest thing that we're experiencing right now in the first half of this year. But the scale of those underlying businesses continues to be very sound. And like I said, it's just really that incremental investment spending that we're making, and they're really in the first half. The scale of the business that we're signing, primarily in bill pay and debit and all of those other areas, the incremental margins on those streams or revenues continues to be very solid.

Okay. And then, just a clarification for Jeff. I just want to make sure I'm understanding how to read slide 7, the sales attainment. That 84%, that is really 84% of the quarter, correct?

Yes, year to date. Q1 happens to be year to date. So, it's 84% -- it assumes that each quarter 100% is the goal, and we were at 84%. And that compared to 82% in the prior year. And then, just to make it a little bit more complicated, this year's quota was set much higher, so our actual-to-actual was actually up 27%.

Okay, which is the more important thing, is that it was up 27% year over year.

That's right. And Glenn, I just want to make sure -- Tom said it, but I want to make sure it didn't get lost. We fully expected the results. We know we're investing and we know that those investments, they are a little bit higher right now. But we also know that that revenue is going to follow. One of the points I was trying to make in my prepared remarks is, we talk a lot about solutions like ZashPay and Mobile and other things like that. And, unfortunately, or fortunately, depending on how you're thinking about it, they are not generating any real revenue right now. Certainly nothing to speak of or to call out separately. And that's ramping up and that will continue to ramp up, and that will ramp up over a multi-year period. The margins on those products will look very close to all of the rest of the margins that we have. Take ZashPay, for example, ZashPay leverages the Genesis bill payment back end. So, nothing has changed. What is important to know is that nothing has changed in the fundamental economics of any of those products at all.

Okay. That was actually a good segue because I was going to ask you about some of these higher growth initiative like ZashPay, and you made the comment that it is going to become meaningful or significant by the end of year? Sort of heading into '12?

Yes.

Is it meaningful enough to move the internal growth meter, like 100 basis points or something? Just any way to frame it.

Tom likes to remind me all of the time that in any quarter, $10 million is 1% of revenue growth. I can't sit here and tell you that it's going to move it on a -- Every dollar moves it, but each quarter it's going to become more and more meaningful. And the cumulative effect of that is going to become -- it's one of the reasons why we've had high confidence in our growth. You take something like Mobile, which is both a license and an ASP kind of a model. Our ASP just got up in the first quarter, there is literally a handful of clients running on that. We have lots and lots of clients who we run ASP for, and I think you'll hear more and more about how that ASP business is growing. So, it's going to become meaningful. And it will move, whether it's in '11 or '12, you'll start to see it actually move the organic revenue growth rate.

Terrific. Thank you.

Our next question comes from Chris Schutler with William Blair & Company.

Tom, maybe you can just talk for a second about the share repurchase in the quarter. It was higher than we've seen in a long time, and just wanted to get your thought process there?

Clearly, we had, coming into the year, as you know, we had some extra cash. We sold a little bit, we got some cash out of our StoneRiver Equity investment at the end of the last year and we built up some cash. And clearly, our target on debt-to- EBITDA, as you know, is 2 to 2.5 times. To the extent we will continue to de-lever, continue to grow our EBITDA. But as we get within that range, we're going to allocate our excess cash first, in a disciplined way, as we have, share repurchases, our Benchmark Capital allocation. We did build some extra cash at the end of the last year, and we deployed some of that in the first quarter to share repurchase. We'll continue to balance the capital deployment in line with that overall metric of getting to 2, 2.5 times, on the debt-to- EBITDA type framework.

Okay. Fair enough. And then on the output solutions, the postage reimbursements, they just seemed higher again than any other quarter we've seen in the last 3 or 4 years. Just wanted to get a sense of what was going on there.

Just remember that that is a pass-through item for our GAAP revenue. So, the adjusted revenue, we backed that out in our internal revenue growth for both the Payments segment. As you know, it was higher. That is a pass-through item, and that can either sometimes be paid by our clients and/or paid by us or passed through or billed by us. That can move around. It really does not have any impact from a driver of business, underlying business. And that's why we exclude it for our non-GAAP financial measures because it is a pass-through item.

Okay. And then, I just want to clarify. You said that operating income growth and earnings growth should both be better in second half than the first half. I didn't hear you say the same thing about revenue growth, and I just wanted to confirm that's the case as well.

Yes, I mean revenue growth, we're off to a good start with 3% organic revenue growth. We continue to be very good. We did mention in the second quarter we have a termination fee that has a little bit more of a difficult comparison on a year-over-year. But, we're clearly going to have a stronger second half than we will first half from that standpoint also.

Okay. Great. And then just last 1 for me. On the headcount reduction, any more specifics you can give us in terms of what areas of the Company that happened in? Did the $18 million of severance fall into Financial or Payments?

It's a good question. First of all, the $18 million is in SG&A on our press release, and it's foot noted down there. The whole $18 million went into there. It went into the Corporate segment., and then, as you know, it's added back there for the adjustment. But back to the action, again, we're not going to get that specific on where that took place. But I will say, it's leaning towards more of those businesses inside of Fiserv that have certain adverse market conditions. And 1 of the things, just to clarify I think, that action that we took at the end of the first quarter really kind of does 3 things.

First, as Jeff indicated earlier, it really provides a funding vehicle for additional investments that we're making. Second, it really provides increased confidence in our ability to achieve our full-year guidance for 2011 as we continue to really enhance our long-term growth profile. And finally, it moves us closer to our $250 million operational effectiveness goal. As you know, it's $25 million in the current year. So, a number of things will come out of that. But really, it's a movement of resources inside the Company to those areas, like in Payments, where we need to make some more incremental investments.

Okay. Thanks a lot.

Our next question comes from Darren Peller with Barclays Capital.

It's [Frida Dawn] for Darren today. I had a couple quick questions, 1 on the M-Com acquisition. It seems like a nice addition to allow FI to offer mobile banking services to customers. Was also wondering if you see a potential role for Fiserv to participate in merchandise purchases as well, via mobile? Obviously, that's a growth area in mobile. And I think a competitor of yours may have been involved in 1 of the pilots that's going on with one of the card networks around merchandise payments via mobile. I'm curious if you see a similar opportunity for you.

Frida, we clearly see over time that mobile will become 1 of the preeminent ways people transact. We see opportunities to participate in the construction of different networks. And, 1 of the things that people will clearly want to do -- I think there is over $9 trillion a year paid for goods and services acquired by consumers. And so, it's a big space. We pay a lot of attention to it. M-Com has both mobile banking solutions, but also is involved in mobile payments. We see it as a space that we want to be involved in, and we'll continue to monitor what is going on there. I think for now, -- I'm trying to be cautious with my words -- it's premature to know what the final answers are going to be. I think we're going to see a lot of puts and takes, and we'll continue to be involved in many of those different kinds of experiments that are going on right now until we can actually see what the final answers are going to look like. Clearly, our financial institution clients are very involved in what is going on there, and so a lot of our involvement comes from that group.

Makes sense. And then just last 1 for me, on the Visa P2P deal. Obviously, that [expands in] network nicely. Can you give us a sense for maybe what the expected -- or maybe do you have a target penetration rate for VISA account holders? And how fast that could expand the network?

I can't hypothesize on what or how that will be expanded. I do know that ultimately that I believe that the winning P2P solution will be almost exclusively based on the size and reach of the network that is created. The importance of the Visa opportunity is allowing for a very broad group of consumers who can receive payments on a, quote real-time end quote, basis, which is a very important part of what we think will ultimately make the P2P technology choice the winner. The ability to move money virtually instantaneously, and that's what the debit network can do.

We have our own debit network, so we're very close to that. We think it will be a big number. In tech US, at least, each household transacts about 100 times a year on a consumer-to-consumer or on a person-to-person basis. So, it's a very big opportunity for the 300 million or so people who are in the US. Now, they have multiple cards, and that's how the numbers get to be so large. But, it's large opportunity and it's an attractive opportunity. Partnering with VISA, we're really pleased to have the chance to do that. And we'll do everything we can to make that grow as quickly as we can over the next several years.

Great. Thanks.

Our next question comes from Kartik Mehta with Northcoast Research.

Jeff, I don't know if Mark is there or not, and if he's not maybe you can address this. I'm wondering how his time is being spent. I know in the last call, you discussed or Mark discussed broadly how he was going to spend his time at the Company. Now that he's had a few months there, I'm wondering if you could expand on how he's spending his time?

Sure. He's here, Kartik, so I'll let him answer for himself.

Kartik, I would you tell you that I'm probably spending the bulk of my time trying to get into 2 specific areas operationally. One is the degree to which our solutions are effectively integrated between our different capabilities, our online banking to our cores, our bill pay through various different aspects of our technology, and trying to ensure that we are working hard on the road maps to ensure that integration works really smoothly. Because, as you know, we've talked about this. Strategically for the long term, we believe that the market is really moving toward integrated solutions.

And while we have many best-of- breed solutions, making them really work well on a kind of integrated basis is something that we are still on a journey toward so that's a key area of focus. The second area really is kind of looking at quality of delivery all across the board, whether that's our operational quality, our implementation quality, the way in which we integrate or interact with our clients, and effectiveness of communication. Whether our data center transition is working well. All of those kinds of things, and bringing real discipline to the ways in which we both measure and then drive for performance improvement around quality measures.

Mark, it sounds like you are spending a lot of time on revenue generation rather than just cost-cutting, would that be fair?

I suppose the answer has got to be yes .From my perspective, the cost-cutting aspects of the things that you've heard from Tom and Jeff and others at Fiserv are designed to give us the kind of flexibility to be investing back into the business. So, I would say cost-cutting in some indirect way is related to revenue-generation. But clearly, the long-term success of this Company is dependent on our ability to drive greater revenue. I think that quality is 1 of the thing that's allows us to win, allows our clients to have confidence to give us more of their business. That's why that's an important focus for us. For me. And then, how effectively we are integrated in our solutions will, again, give our clients confidence to place more of their business with Fiserv in total. But, the line between where is good operational execution and how does that drive more growth, I guess I don't stop to think about that line.

Tom, you and Jeff talked a lot about the investment in the Payments business in the first half of this year. Obviously, that's placing a drag on margins that should improve in the second half. Tom, can you talk about maybe the amount of drag you're witnessing because of this investment? Because it seems as though, based on your comments, they are somewhat insignificant.

Yes, the thing we always have to be careful with, Kartik, when you look at a stand-alone quarter and you're talking about a drag in Payments, I mean $5 million of investment spend is 100 basis points, right. So, on a quarter-over-quarter basis that can change a lot. But clearly, you can look at the incremental drop-through on our Payments segment in the first quarter, our expenses are up [20%], our revenue is up [28%]. Clearly, we typically have a much higher drop-through than that, than 25%. So, you can clearly do the math as far as what that is. But clearly, there is incremental spending in there, and we've talked about the areas we have. And again, we are positioned very well, this is right in line with our plan for the year. We have said all along, and we said in early February, that we're going to be making some incremental things here in the Payments segment early in 2011. And that's what we're doing. And so, that's kind of where we're at from that standpoint.

One last question, Tom. You talked about termination fees in the second quarter of '10. Based on what you know today, are there any that you anticipate in 2Q '11? Or, will the comps just be [tough] because you can [have] $0?

We'll always have some. We have a [$2 million] this quarter, and so it's kind of unknown because it really depends on when the client de-converts. But, all I know is that last year we had $12 million in the second quarter and the other quarters were between $2 million and $4 million. So, it's difficult to tell how those are going to fall on a quarter-on-quarter basis. We'll have some. But again, it's kind of early to know exactly how that's going to fall out. But, that being said, we do not anticipate it's going be at that particular level, and that's why we highlighted it.

And our goal, Kartic, is for that number to be 0.

Thank you very much. .

Our next question comes from John Kraft with D. A. Davidson.

I wanted to first follow up on a comment that Tom made. It sort of sounded like the restructuring was late in the quarter, and the severance -- I was wondering if there might be any that falls into Q2?

What does that mean, John, the actual severance?

Any costs that we should be thinking about as we're modeling Q2?

No, I mean the action took place at the end of the quarter, so any benefit in the first quarter, in regards to the action that we took.

In fact, John, we notified everyone by the end of the quarter. But in fact, people will be leaving at various times during the year, depending on their individual responsibilities, just to make sure we're clear about that. But all of the severance has been picked up in the first quarter.

Got you. That's helpful. And then bigger picture question and discussion here. We've been hearing a lot of talk, particularly from the larger banks, about increasing DDA monthly fees due to the regulatory environment. And we've heard all sorts of various projections about what the attrition might be. I guess I was hoping, Jeff, you could talk about what you're seeing, what your projections are, and how it might impact some of your contracts.

Sure. I would say that the talk of what the larger institutions are going to do ebbs and flows depending on the day and what is the latest on Dodd-Frank. I think that's why I said it's somewhere between interesting and encouraging in what is going on out there. Because of who we serve from an account-processing perspective, we're serving the smaller end of the base for the most part, there is a lot of, I would say, energy and excitement in this smaller end of the base. Call it below the top 10 banks in the US, who are sitting back waiting for the larger institutions to do those things because they believe there will be some movement of clients from the larger institutions to the smaller institutions. So, when we model that, when we consider what the implications are, we don't typically give much detriment to that because the accounts that may be lost at the large end, we don't believe will impact us.

And the accounts where they may have bill-pay or other kinds of relationships, those tend to be very profitable accounts. On an average, they tend to be 3 to 4 times more profitable than a standard DDA, and so we don't have much concern that those accounts are going to be affected by the kinds of pricing discussions that you're referencing. That said, I don't think we're Polly anna enough to believe that there won't be any implication to anything we do. That's why we step back and say we think that our risks and opportunities are balanced, and that as people play with different pricing strategies and trial different pricing strategies, we're paying very close attention. And, it's one of the reasons why we've talked about what do we need to do around how we think about pricing in our Company, so that we are taking into account different possible changes that may occur in the larger landscape because of some of the regulatory concerns that are out there.

I think we highlighted that on our Investor Day last year, and we continue to do work on what are our pricing models and what is the best way for us to insulate ourselves from these kinds of changes that have been discussed at large bank level. So, I think we are clearly monitoring it and trying to manage to what may happen. It's a lot of hypothesis right now, and not much going on. I will say, though, lastly, is that what we're seeing on the prepaid side, the whole notion of reloadable prepaid across these institutions, which have different regulatory restrictions or lack there of. I think there is an interesting opportunity, and we're seeing a lot of energy around basically creating a reloadable prepaid that looks like a DDA, has the aspects of a DDA, but has different fee and pricing characteristics. I think we're going to see more energy in that, depending on what happens on regulatory front. That's 1 of the reasons why we did the small Maverick deal we did in the quarter.

That's helpful.

Our next question comes from David Togut with Evercore Partners.

I apologize that this question has been asked since I joined the call a little late for another call. But Tom, you mentioned share repurchase was the benchmark for capital allocation. What is your current view of the acquisition pipeline, and if you could give us a sense of whether you see good value currently?

Yes, I would say, and Jeff kind of highlighted this in his opening comments, when we look at the pipeline, I would say there is a lot more activity. Clearly, there's been a big pick-up over the last 6 to 9 months as far as activity goes. But at the end of the day, David, as Jeff highlighted, we like our product and solutions set. We don't really have a lot of material gaps. You saw us do some smaller acquisitions that really fit some needs in some areas that are growing, like prepaid and mobile and kind of an add-on to our XP2 service bureau processing platform. Those are smaller and kind of easier to digest. But regarding large plays, again, CheckFree is probably the benchmark for us from that standpoint.

It was very strategically compelling, and it had scale advantages. I think any time you talk about paying a premium, you have got to have both of those things working together in order to be able to do a larger transaction. We're very disciplined with that. And so, again, to the extent it doesn't get up to a high enough threshold for us, we're going to be buying back our stock as we've done consistently pretty well over the last 5 years. So, activity is up, rest assured we'll continue to be disciplined. To do a larger transaction, we're going to need both of those things. It has got to be strategically compelling and bring those scale advantages, unless the economics are just so 1-sided from a synergy standpoint that we would get some unbelievable benefits compared to share repurchase.

I would say, David, on your point on pricing, in at least as we can see it, pricing -- besides the little lull that occurred in early '09 -- I would say pricing has remained fairly high. And it's one of the reasons why we've not been very active on the acquisition front, because it's hard for us to go out and do deals at a high multiple where they don't bring strategic advantage and compare that to share repurchase, which is a pretty low-risk proposition or paying back debt or anything else. So ,valuations have remained high, and the stock market doing what it's doing, is keeping those expectations of sellers fairly high.

Shifting gears on pricing to the core Financial segment, if you didn't address this earlier, what are you seeing in terms of unit pricing trends on contracts that are being competitively bid in the credit union, community bank and small bank space?

I would say, across the board pricing remains as it has for all of the 5-plus years I've been here, and I would say quite competitive. It is a gain that is largely won and lost. Either it's a pricing, lowest possible unit price. Or, it's optimized value, and we tend to go -- in fact we do not tend, we really stay on the optimized value front. There are deals that we walk away from because we don't think the pricing is the right thing for shareholders. We're really looking to differentiate our offerings by a number of the both investments that we have made, whether it's through CheckFree or other areas, plus those that we've been talking about today, ZashPay, Mobile and things like our common loan origination platform and a variety of other technologies that we've been investing in that we believe are deemed or accepted pretty highly or within these competitive renewal or new RFP processes. That's a long winded way of saying it remains competitive out there, and we remain disciplined, as disciplined as we can be, on the pricing front.

Finally, Jeff, it seems like the credit environment broadly is improving for banks. We've seen a lot of releases of loan loss reserves. Is that improving credit environment flowing through to your customer base in terms of their willingness to spend on some of your solutions?

I would say that while it's nice that the reserves are coming back in, most of the bankers that I talk to don't view that money as real. They view it more as paper. The reserves going down and that was painful, but when they come back in they do not feel as good. There is a much larger challenge. The challenge is really around revenue growth, and it's really around asset growth. And until the financial institutions can start lending with regularity and turning the excess deposits that are being held today into some ROA, I think we're still going to see challenges.

That's offset, frankly, by this belief the world is now different. People are making investments into channels, making investments into risk, making investments into payments. And I think the people have said, hey, the world is not going to end. I need to make some of these investments. How they get paced and how long it takes to make those decisions are being, in my opinion, held back by the lack of being able to put the money to work. But, decisions are being made. And over the next 6 to 8 months as the world continues to evolve, I think we'll see improvement. But, it's going to still remain, I think, a little bit slow out there for a while.

And just to add to that, David. I think the regulatory environment with Dodd-Frank and a few other things continues to be murky. And so, that's just a subtle overhang to the industry a little bit. More clarity around that is going to help things also, from that standpoint.

Thank you very much.

Our next question comes from William Maynard with Citi.

This is Ashwin. My first question is -- and I might have missed this -- the severance. What is the ongoing benefit from that severance? And is there a split across segments?

I'm not going to give the segment, but on an annualized basis -- and that's a full-year basis and clearly didn't have any benefit in the first quarter, Ashwin -- it's roughly in the range of $40 to $50 million. And again, of these savings, more dollars are going to be weighted towards reinvestment as we kind of talked about, as we're investing more in our Payments-related area. However, as you know, we'll continue to manage the investments appropriately to ensure that we meet our 2011 earnings commitments. But it's roughly $40 million to $50 million on an annual basis.

We also expect there to be more benefit in '12 than there will in '11.

Okay. And could you comment on the demand for the front-end stuff like analytics and consulting type activities?

Again, depending on how you're defining front-end, we're seeing more demand on what I would call the front office consumer facing than we've seen in several years. Whether it's mobile, online, there is a lot of energy, Ashwin, around bringing the channels together, so multi-channel, sales force automation, those kinds of technologies, a ton of demand. On the services side, we've got a fair amount of activity around implementation and customization of some of the large technologies that we're putting in. People are looking at a lot of customization. And then on the analytics front, I think that is still the most exciting and untapped area that is out there. We reference that we had a large client conference last week. We literally had thousands of people at this conference. The whole notion of analytics.

If we're not at the right time right now, we're certainly within being able to see. People believe that there is something there in the data, and they want to begin using that data. We've got a number of interesting betas going on right now, where we are bringing these different transactional sets together. We're trying to figure out how to [product-ize] it and bring it into the market. But, it's an exciting time from that front. I think you're going to see us continue to make that a priority within both our investments, but more importantly, in our formula for differentiation.

Okay. Last question, if I can squeeze it in. I apologize if you talked about this earlier, but the sales quota attainment in 1 of the charts that you have, 84%, can you explain that a bit? Is this sort of a situation of a large sale or a couple of sales that happened? Is it broad-based?

Ashwin, it's 84% against the quarterly attainment. So, in theory, it would be 84 times 25%, so it would be around 20%, 21% if you wanted to use that as the number. When we publish our quota each quarter, we talk about it, we talk about percentage attainment against our goal. Probably the most important thing to understand about that is, last year we were at 82% by the end of the first quarter, 82% of the quarter goal. This year, we're at 84% of the quarter goal. And that 84% is actually 27% higher on an actual-to-actual basis. So, the actual results are much higher, even though they are only a couple hundred basis points higher in a quote, quota performance measure.

That reflects quarter going up, I guess.

Yes, exactly.

Okay. Great. Good job on the top line. Thanks.

Our next question comes from Greg Smith with Duncan Williams.

A lot of talk about mobile banking and more of your clients, meaning the banks, are demanding it. But, what are you seeing as far as consumer adoption from the banks? A second part of that question is, are you getting paid on a per-user basis on mobile, kind of like online banking? Or, does that have a different economic model?

We're seeing a lot of -- you can see this yourself. You see people using their phones for different things. For example, I think there are 1200 financial applications out on the App Store today, the Apple App Store. So, there is a lot of demand for financial applications and therefore accessing them mobilely. We're seeing consumer adoption. It's early, there is no question it's early. But to have 75% of banks last week say we're willing to make new investments, we're going to make new investments, you know that they are getting pushed by their consumers. So, we thinks that's great news. From an operating model perspective, just like with online banking, there are 2 models that we deliver against. We deliver against a license and services model, and that tends to be in the larger institutions.

In the smaller institutions -- and the majority of the financial institutions will fit, the quote, smaller model. It's a normal ASP kind of a model that's based on users. I would think about it as on a user subscription basis. So, not exactly like bill-pay, which is transactional model, but basically it's an all-you-can-consume mobile on a per-consumer basis. So the FI pays a fairly small fee to get turned on, and then as users adopt and start using it, then there is a subscription that's paid each month. And the FIs price that the way they want to. And I think we announced this quarter that, for example, US Bank picked up our license and services model. It was actually a , it was a Firethorn replacement. One of the things that is interesting in the space right now, is Firethorn decided to exit the business. Lots of business out there up for bid right

Okay. Interesting. And then lastly, Steve Olsen is departing. How do you plan on filling that role with your Management team?

Steve, who had been with CheckFree and with us for quite a while, he, I think, got to the point where he said I want to pursue some things with my family and do, perhaps, some different things. Steve I think, is in a fortunate point as it relates to being with CheckFree when we bought them and then being with Fiserv, so I think he has earned the opportunity to make those kinds of choices. From a Management team perspective, we have a pretty strong bench. We had made several moves in the last year underneath Steve, because we have some very strong leaders in there. And I should clarify, not just the moves that we made recently, but it's a very strong team. We feel very good about them.

From an oversight perspective, we're using this as an opportunity to look at how we're structured today, and make sure that we are structured effectively. One of the reasons why we brought Mark Ernst into the Company was so that in these kinds of events, that we would have the time to make good decisions so we're not in any rush to judgment. I'm personally very involved in the Payments businesses. Given the amount of investment that is going on, it's giving me a chance to make sure that I have a first-hand view into our performance. Over the next several months, we'll make the right determination for what we're going to do organizationally. But, we're in great shape and we feel good about our people.

Okay. Thank you.

Our next question comes from Andrew Jeffrey with SunTrust.

I think you've done a great job of laying out the operational effectiveness goals year-to-date, as well as the sales quota attainment. I wanted to ask a question about integrated sales, where you have a $155 million objective this year and you're 14% of the way there. It seems like much of the business is pretty well back-end loaded this year. Is there something specifically going on with integrated sales that would also push your achievement of that goal into the back half of the year, too?

Sure. If you go back and look historically, you'll see that's always the case. We always end up doing more on that front. But there is also 2 other points that are important to note here. The first one is that we expanded -- you may remember that we expanded our program, so we used to just look at that as a singular program based on our account processing client relationships and the ability to sell across. We expanded that beginning this year, and included our non-account processing clients.

So, for example, we may have a mortgage origination client who has a need for a different kind of technology. We want to make sure that we're managing that relationship in a way that we can capture that sale. That's brand new. If we went back to the 2007 year, which is the first time we introduced the integrated sales and began measuring it, you would see a very slow start there. So, we expect to see that element of $155 million start even slower. The only other thing I would say is, we straight-line everything. We don't say, well, we only expect to have 18% in the first quarter and 41% in the fourth quarter. So, we always expect, unfortunately, to be a little bit slow coming off of Q4. And then, that will ramp momentum through in the year . And I think you can see that back in our

That helps. Thank you. Specifically, when you're talking about the investments you're making in Payments, it sounds like you've kind of got the technologies you want for the most part in place. So, maybe a little more granularity, if you would, on the investments. Are we talking about sales and marketing Where exactly, are the dollars being spent? As I said, it sounds like the technology set is pretty robust.

Yes. The answer is, it is primarily technology and delivery. We'll just pick on ZashPay because it's something we like to talk about. We think the opportunity for ZashPay for traditional person-to-person is big. We think the opportunity for ZashPay as a small business-to-small business payment vehicle is huge. And so, we're in the process right now of building out that capability, so later on this year we'll introduce a capability that allows small-business owners to pay other small-business owners and to do some e-invoicing through that capability. That's part of our road map, and that's not in the market yet. We're pushing on the consumer side. The small-business side comes later. That's 1 example.

Take mobile. Yes our mobile banking platform is good and solid, and we're out there ramping it up. But there are lots of different capabilities. Each of us in this room probably has at least 2 phones, and they run on different platforms. You need your Blackberry apps and your Android apps and your iPhone apps. So there is a lot of those things that are going on, just using those as examples. Yes, we like our base, but the road map in bringing it up to have the right level of feature function and the integration and the delivery, are the things where we're putting our economics right now.

The delivery side of setting up an ASP and mobile, you're going to have more up-front costs that you're going to have to put around there from a service delivery, as Jeff indicated. So, we have some of that going on too.

Okay. That's great. And no concern that ZashPay cannibalizes CheckFree in any way?

We think they are really complementary. To be honest, if some percentage of the person-to-person payments that are made on the CheckFree RXP product today got being done by ZashPay, we would be really happy because we think that would build a habit with ZashPay. They're quite complementary, and they're economically complimentary.

Okay. Thanks a lot.

Our last question comes from Dan Perlin with RBC Capital Markets.

I just had a quick follow-up. Jeff, on your 2011 second-half growth, you talked about the speed of business last year coming in. My question is, is there a lot of executional risk assertion with that? Or, is that going to be more a function of the revenue recognition [policy] of business already won?

It is. It is not revenue/recognition issue. It is about getting the installs gone as quickly as we can. It's also at times -- and I think we mentioned this a little bit, as I recall, when we announced Q4 and gave guidance for this year, and we're talking about the back-end load. In some of the larger installs, we have to get queued up in the financial institution. So to extent that there is any risk, I would say that you could have something where we get delayed within the FIs, as opposed to we have the execution risk on our side. But right now, based on everything we can see, we feel comfortable that where we're queued today has been accounted for appropriately, and the risks associated with that have been accounted for appropriately in our numbers. Now, that's not to say that something won't change later. But for right now, we feel comfortable with that, with how we're thinking about the [go-lives] on what we sold last year.

Okay. Is there an organic growth attainment within your guidance that you need to have in order to get to your 50 basis points of margin expansion? Or, do you have a cost-reduction plan in place, if that level of organic growth does not come to fruition?

Clearly, Dan, the way we manage, and we have in the past, we have some levers we pull on the investment side, and we're going to manage that appropriately as we normally have over the last several years. To be able to manage those investments appropriately to meet our commitments on an earnings and earnings guidance standpoint.

Okay. And just so we're clear going into the second quarter, the $12 million termination fee, hat's in Financial, right? That's not in Payments.

That's correct. Primarily.

Primarily. Okay, super. Thank you.

Thanks, everyone. I know we ended up going a little bit longer, a lot of questions. But I appreciate your support. If you have any follow-ups, please feel free to contact our Investor Relations group. Have a good afternoon or evening.

That does conclude today's conference. Thank you all for participating. You may disconnect at this time.