Fiserv Inc (FISV) 2011 Q3 法說會逐字稿

Welcome to the Fiserv third-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 also being broadcast live over the Internet at www.Fiserv.com and is being recorded for future reference. In addition, there are supplemental materials for today's call available at the Company's website. To access those materials, go to the Company's website and click on the Access Presentation link on the homepage. 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 Peter Holbrook, Vice President of Investor Relations at Fiserv.

Thank you. And good afternoon everyone. Welcome to our third-quarter earnings call. With me are President and CEO Jeff Yabuki; Tom Hirsch, our Chief Financial Officer; and Mark Ernst, our Chief Operating Officer.

Our remarks today will include forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. We will make forward-looking statements about, among other matters, adjusted internal revenue growth, adjusted earnings per share, adjusted operating margin, free cash flow, sales pipeline, acquisitions and other 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 is the basis for planning and forecasting for future periods.

With that let me turn the call over to Jeff.

Thanks, Peter, and good afternoon. Before I get to results I want to thank each of you who joined us for our annual investor conference on October 11. Building on the strategies we shared last year, we provided detailed insights into how we expect to accelerate growth in both our existing businesses and our newer innovation-based solutions.

We discussed our thesis on continuing to expand operating margin, and importantly, how we intend to deploy the substantial free cash flow we generate. We believe our strategies are well-aligned with the evolving market and we are enthusiastic about our opportunity to create value for clients, associates and you, our shareholders.

Let me say up front that we are pleased with our performance, which was in-line with our expectations for the quarter and the full year. We delivered 12% growth in adjusted earnings per share to a record $1.16 in the quarter.

Given our strong performance to date and visibility into the fourth quarter, we are raising our full-year EPS guidance to $4.54 to $4.60. This performance is particularly impressive considering the investments that we've made into our new solutions this year.

Adjusted internal revenue increased 2% versus last year's third quarter, which was our strongest growth quarter of 2010. We continue to make progress in growing our level of sustainable recurring revenue. On a comparative basis through September 30, we are about 2 full percentage points higher in year-over-year internal revenue growth.

Third-quarter revenue was impacted by timing as some higher-margin revenue, such as license fees, continued to migrate to the fourth quarter, which is a consistent trend over the last couple of years. Tom will provide further insights on our fourth-quarter outlook later in the call.

Adjusted operating margin for the quarter and year-to-date was down 40 basis points versus the prior-year, with the Corporate segment having a 50 basis point negative impact on our year-to-date margin performance. Additionally, we have taken opportunities to accelerate our investments and create incremental market momentum in our newer solutions, given the strong adjusted EPS performance this year.

Free cash flow through September 30 decreased 5% from the prior-year to $507 million, primarily due to the timing of capital expenditures and changes in working capital, which we generally expect to reverse in the fourth quarter.

Excluded from the calculation of free cash flow was a $54 million cash distribution that we received from our 49% interest in StoneRiver, which continues to provide solid value.

We have been focused on three key priorities for 2011. 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 was 3% in the first nine months of 2011 versus 1% in the comparable prior-year period. The improved year-to-date growth has been driven by high-quality revenue gains in both segments and a very solid 5% growth in our Payments segment.

Given the 11% increase in adjusted EPS through September 30, we now expect full-year results to be 12% to 14% higher than 2010, which is at or above the high end of our original target range, and also should lead to our 26th consecutive year of double-digit EPS growth.

A focus on enhancing our growth culture can be seen across multiple areas of the Company, including sales performance. We expanded numerous client relationships and achieved nearly 30% of our annual integrated sales target in the quarter.

Demand is high with our channel solutions and we had over 250 payment wins in the quarter. Importantly, these results do not yet include the leading solutions within the CashEdge acquisitions, which closed late in the quarter.

Preliminary market feedback on CashEdge has been very positive and provides additional confidence in our ability to distribute these market-leading solutions across our broad client base. We plan to use the playbook created for solutions such as bill payment, where we have signed over 1,800 new bill payment clients since the acquisition of CheckFree.

Our third 2011 priority is critical as it focuses on creating incremental client value through innovation and differentiation, which is a key to future growth. At Investor Day we described the value propositions for new solutions such as Acumen, Mobiliti and P-to-P. We shared our view of the incremental growth we expect to generate from these investments. These opportunities compliment the leading solutions that we have in the market today, such as Internet banking and bill payment.

To that end we are pleased to welcome back Zions Bancorporation, one of a small handful of direct CheckFree RXP clients to ever leave our solution. Zions, a top 35 bank in the US with over $50 billion in assets, recently selected Fiserv to support its multichannel digital payment strategy for both retail and business customers.

In addition to returning to CheckFree RXP, Zions also added Zash Pay and a number of other consumer and small business payment solutions. We believe that as disparate payments and channel solutions begin to converge we are extremely well-positioned to deliver the integrated solutions that will allow clients like Zions to meet the rapidly changing expectations of their customers.

Now let me turn the discussion to Tom to provide more detailed into our financial results.

Thanks, Jeff, and good afternoon everyone. As we highlighted at Investor Day, year-on-year revenue growth in both our Payments and Financial segments have been steadily accelerating. Adjusted internal revenue growth for the first nine months of the year is 3% compared to 1% in the comparable prior-year period. As Jeff mentioned up front, the third quarter of 2011 was our toughest quarterly comparison for the year due to strong 2010 growth across both segments.

The 2% adjusted revenue growth in the quarter, given the strong performance in the first half of 2011 and our visibility into Q4, was within our expectations for the quarter. I will provide more detail in the context of segment results in a moment.

Adjusted earnings per share increased 12% in the quarter to $1.16 and is up 11% to $3.31 for the first nine months of the year. We also exclude two positive items from adjusted EPS this quarter, an income tax benefit of $0.02 from the resolution of a purchase accounting tax reserve, and a $0.02 gain from the sale of a business by our unconsolidated affiliate StoneRiver.

Adjusted operating margin in the third quarter was down 40 basis points, primarily due to the timing of certain higher-margin revenue in our Financial segment and the impact of our investments in new solutions. Year-to-date adjusted operating margin was also down 40 basis points as increased losses in our Corporate segment earlier this year negatively impacted margins by 50 basis points, primarily due to legal cost and a building gain in the prior-year.

Now onto the segment results. Adjusted revenue in the Payments segment increased 5% in the quarter with 4% adjusted internal revenue growth. Growth in the quarter was within our expectations given the comparison to the very strong 2010 quarter and the acceleration in the Wachovia bill pay deconversion.

Adjusted internal revenue growth through September 30 was 5% as compared to 3% in the prior-year, an increase of 2 full percentage points. Excluding the impact of the ongoing Wachovia deconversion, which should anniversary in the middle of 2012, bill payment transaction volume increased 7%, both in the quarter and year-to-date.

E-bill transaction growth was 4% in the third quarter compared with 2% in the prior-year quarter. Data-fed e-bills continues to be a competitive differentiator and catalyst for transactions on our bill payment platform.

We continue to enjoy strong performance in our debit business. Debit transaction volume grew 19% in the quarter and 20% year-to-date. Debit transactions remain an important source of income for our clients, the great majority of which fall below the $10 billion asset threshold of the Durbin legislation.

Operating income in the Payments segment was $162 million in the quarter, and up more than 5% to $482 million on a year-to-date basis. Adjusted operating margin was 30.8% in the quarter, 90 basis points lower than the third quarter of 2010 due primarily to product investments, the scaling of large Internet banking projects, and the deconversion of the Wachovia bill payment volume. Through September 30, adjusted operating margin was down 20 basis points in the segment to 30.9%.

Financial segment revenue in the quarter was $487 million, up $1 million in what was also a tougher compare in the prior-year period. The timing of license and termination fee revenue, along with the decline in our revenue enhancement business, driven by the timing of deal closures, negatively impacted segment growth. We have anticipated these impacts and have good line of sight into higher-margin revenue in the fourth quarter.

As you are aware, license revenue for the entire Company tends to have a fourth-quarter spike, which has been on average over the last couple of years higher by more than $20 million than the first three quarters of the year.

Segment internal revenue growth is 1% year-to-date, driven by our account processing businesses. As you know, the check processing business continues to be a headwind, negatively impacting the growth rate by approximately 2 percentage points.

Operating income in the Financial segment was $143 million in the quarter and $435 million in the first nine months of the year. Operating margin was 29.4% in the quarter and 29.7% year-to-date, each down 10 basis points from their comparable periods in 2010.

Segment margin has been impacted by an $11 million decline in higher-margin license and termination fee revenue year-to-date, and also the aggregate impact of investments in products such as Acumen, Relationship Advance, and common loan origination platform. These impacts were offset almost entirely by incremental cost savings and the operating leverage inherent in our model.

The effective tax rate for the quarter used to calculate adjusted EPS was 35%, which excludes the $0.02 positive tax benefit I mentioned earlier. This 35% tax rate was 1 percentage point lower than the third quarter of 2010, which resulted in an approximate $0.02 positive benefit to adjusted EPS in the current quarter.

The lower rate was primarily driven by estate tax law changes, increased research and development credits, and favorable resolution of tax audits. We expect our fourth-quarter tax rate to be approximately 37%.

Operating cash flow through September 30 was $681 million. Free cash flow was $507 million in the period, which was negatively impacted by the timing of working capital changes and capital expenditures, which we anticipate will improve as we finish the year. And as Jeff mentioned earlier, free cash flow does not include the $54 million cash distribution from our StoneRiver investment.

We also funded the $465 million acquisition of CashEdge in September, with available cash of $345 million and $120 million from our $1 billion revolver.

Through the first nine months of the year we had repurchased 7.8 million shares of stock for $475 million versus 8.1 million shares for all of 2010. As of September 30, there were 5.7 million shares remaining on our existing repurchase authorization.

With that let me turn the call back over to Jeff.

Thanks, Tom. In spite of the second quarter being the most successful sales quarter in the Company's history, sales results were a higher than expected 99% of quota in the quarter. We are at 102% of quota entering the fourth quarter, which is typically the strongest of the year.

Although sales cycles remain long, categories driven by large secular trends such as mobile and Internet banking, along with solutions that help financial institutions drive revenue or improve efficiencies, are getting significant attention. Durbin-related PIN-debit activity is high, as leading debit issuers evaluate their options related to selecting an alternative network.

Integrated sales were strong in the quarter totaling $45 million or 29% of our annual target, led by solutions across payments, channels and risk. Through the first nine months of the year integrated sales were $113 million, 73% of our full goal and 28% ahead of last year. We are on track to achieve our full-year target of $155 million.

Our operational effectiveness results were $11 million in the quarter. We are now at $27 million through September, which exceeds our $25 million full-year 2011 target.

Our view of the market environment is consistent with what we shared with you at our recent Investor Day. Regulatory actions have continued to slow as anticipated in 2011. There have been 103 actions through October 28 compared with 161 in the prior-year, and total assets of impacted institutions are down 67% in 2011 when compared with 2010.

We believe that increased technology spend will be required as business models evolve to reflect today's market reality. Institutions are reworking their internal processes, looking for new ways to increase revenue and enhance efficiency all while reacting to the needs of an empowered consumer.

We believe that technology will be the key enabler, and therefore, expect healthy IT spending across these areas. However, as we shared on Investor Day, we still remain somewhat cautious on the level of near-term general IT spend. We will provide additional insights in the context of our 2012 outlook early next year.

For 2011 guidance we remain on track for the full year. We continue to anticipate adjusted internal revenue growth of 2% to 4%. We now expect full-year adjusted earnings per share of $4.54 to $4.60, which is at or above the top of our original guidance range and reflects growth of 12% to 14% over 2010.

We anticipate free cash flow to bias towards the lower end of the 5% to 8% growth range for the year. And as we shared at Investor Day, expect operating margin to be at the low end of the 10 to 50 basis point improvement range for the full year.

We are progressing well in 2011, delivering strong results, reenergizing revenue growth, and bringing new solutions online that will further boost our competitive position. Our progress is due to the relentless effort of our nearly 19,000 associates around the world who remain singularly focused on driving success for our clients.

With that let's open the lines for questions.

At this time we will begin the question-and-answer session. (Operator Instructions). Dave Koning, Baird.

Hey, guys, nice job. I was wondering mainly about Q4 this year it seems like you are projecting a pretty big EBIT ramp. It looks like in the ballpark of $40 million. And I know you don't guide anywhere -- to any exact number, but in that ballpark, given the margin parameters. The last few years you have only grown EBIT about $10 million to $17 million sequentially.

So it seems like a lot of good things are happening. I know CashEdge is part of that, but it seems like a lot more than just that. Maybe you can just describe a little bit maybe what the pipeline -- you talked a little bit about it, but what gives you confidence for such a big EBIT ramp sequentially?

I think, Dave -- this is Tom and I will turn it over to Jeff. I think a couple of things I highlighted that we have been at a minimum over the last two years from a license revenue standpoint roughly $20 million, and clearly in our current plans in this year are anticipating even a little bit higher than those particular levels, just given away our plan laid out in the current year.

So we are going to have that higher-margin license revenue. We do have a couple of termination fees that are falling in the fourth quarter versus the third quarter. And just really strength in the other businesses, including our revenue enhancement business line that we talked about, along with some strength in our Output Solutions business. So it is just really how the plan fell into the current year. And, again, we feel really good about that.

And also, a little bit around the timing of some of our investment spending, and those are really the factors that are driving that, but we have good visibility. We are very comfortable with that. And that is -- clearly, Dave, we have been saying that all year, as you know, going back to the second quarter and very consistent with our comments on Investor Day.

And just the one other thing, just on CashEdge just so we have parameters for this quarter, how are you expecting revenue to come on, I guess, in Q4 from CashEdge? And then do you expect that to be margin accretive or dilutive?

I think it is -- we are going to continue to spend in the P2P area, so, again, I don't expect it to be margin accretive from that standpoint. And you can probably just take a quarter revenue from what we prepared on Investor Day as far as the annual revenues there as a rough estimate.

Great, thanks. Good job.

Ashwin Shirvaikar, Citi.

Good move at the higher EPS guidance there. My first question is on the license revenues in 4Q, with regards to your comment, is achieving that more a function of sales deal closures or is it more about attaining implementation milestones?

There is a couple of things. It is a combination of certainly the -- when December 31 comes around, like the year is over -- and we have seen the last couple of years really beginning in 2008 and ramping up after that we have seen more and more sales get compressed into the fourth quarter. And so we do expect to see more license revenue.

And it is a function of the fact that we have, in my opinion, much better sales coverage, much better account management coverage. And we just have more and more deals that are coming together. And again, back to the earlier point of they tend to come to fruition, or they have tended to come to fruition over the last couple of years in the fourth quarter.

And, Ashwin, just so you know, in our core accounts processing base we have a large distributed account processing base that is in-house clients. And so, again, they typically buy more as we hit the fourth quarter. So it is pretty much across credit union, our banking environment, and a number of other license businesses that just seasonally have a good, strong fourth quarter.

They tend -- to your point around implementation, they tend not to be -- these are not large -- very large licenses. Those are -- if we sold a very large license that required implementation, obviously, that wouldn't benefit the fourth quarter in any material way.

So one other question I had was as banks, and particularly large ones, sort of struggle with their debit strategy here, especially with some fee reversals, how does that affect Fiserv? Does that affect Fiserv in any way?

So, Ashwin, we have been fairly consistent in our view that we believe that debit was a trend that was not going to be able to be stopped by the virtue of fees being assessed. And we have seen obviously some reversals of those kinds of actions coming, and we believe that either -- I am sorry, either consumers would decide to switch institutions or they would look at other ways to continue to use their debit cards.

So we have been pretty positive on that all along. That was not necessarily a popular position, but we do think that we are going to continue to see strength in debit.

What one of the things that we are actually very encouraged by is -- on Investor Day we talked about one of the key market trends being that of consumerism, and really having consumers have power to influence organizations to deliver the kinds of products and services that they want. And whether it is debit or a fully functional mobile application or a new wave of Internet banking or P2P payments or whatever it may be, we do believe that what you're seeing in the market right now is a direct relationship or a direct result of consumerism, which we think is actually creating a tailwind on those secular trends that we talked about both today and at Investor Day.

Okay, thank you. That is very useful.

Julio Quinteros, Goldman Sachs.

Just one quick question on the check processing drags, because this is something that seems like it is endemic in both your model and the FIS model as well. I guess just in terms of thinking about when that actually comes to an end from a revenue perspective, I think if I recall from your Analyst Day it sounded like we were getting pretty close to that, but the offset for you guys, as you think about the forward look was that the margin contribution should be higher as you get more of the electronic check capture, etc. Can you just walk back through what the benefits are expected as you get the better margin accretion there?

Yes, I think -- we are not going to give exact numbers. We are nothing to talk about guidance for 2012. But clearly, I think Julio, you remember the chart I put up on Investor Day for the check processing business.

And what we said this year is we have accelerated the -- from an operational standpoint a lot of the center closures, because on the intake of the check those are electronified, instead of having to process a paper check through the sorters. And we have primarily completed that as we get to the end of this year.

Our revenue per tran of paper item is higher, but we make more money clearly when it is electronic. So that whole activity is coming close to an end as we get to the end of this year. So going into next year we are not going to see the precipitous decline as we have this year in regards to revenue.

It is still going to continue to decline, as check is declining on a secular basis, as you know, 8% to 10%, but it is just not going to accelerate as quickly as it is. And we should get some lift from a margin standpoint going forward also.

We put out there -- I think you saw on the chart that this business should go maybe from a 10% margin to a 15% margin in 2012, but again, that is our anticipation with not as big of a headwind from a revenue growth standpoint.

And, Julio, just to put a little bit finer point on that, so we did lay out in the chart what has been going on a revenue basis. We said earlier in the year that the combination of check decline and Wachovia would be 150 basis points on -- a drag on our revenue this year. And I think we showed -- we tried to show pictorially that that would diminish some in 2012, and we still believe that.

And then just lastly, when you talk about IT budgets, Jeff, you made a point about expecting some budgets for 2012 to be either flat or soft or whatever -- cautious, I think you said on the general IT spending numbers there. How do you differentiate that from the investments that you are seeing in payments, things that are driving your mobile strategies, etc.? Because I guess in general I would think that those dollars are coming out of general IT spending budgets, but obviously the growth we are seeing in investments and the focus in the channels still seems to be running its course.

So how do you distinguish between a cautious general IT spending environment, but then still a requirement to invest in mobile and cost efficiencies that all those things? So how do the dollars get allocated relative to a more cautious general IT spending comment, I guess?

Thanks for asking that question. We have tried -- what we tried to stay is we think that financial institutions will, in fact, spend money. And we are seeing a lot of that going on on these -- in these areas of secular interest, so mobile and payments. I mean, those areas are getting money put to them.

We are also seeing money being allocated to places where institutions have an opportunity to raise revenues. So for us we are seeing a lot of interest in our revenue enhancement solutions areas, specifically in our Relationship Advance products, just a ton of interest because of the revenue opportunity that creates, and then, of course around efficiency.

And so the nuance point that I was trying to make at Investor day and again today is quite simply this. That institutions will, in fact, as what we are seeing today, we believe that they will spend money in those areas.

However, given that overall IT budgets are not going to be increasing, we don't believe across the board. We think that given the volatility in the markets that will probably be off a year. But those dollars will, in fact, come out of the IT budgets or other places within the institutions to fund that.

So to the extent that your growth is coming from areas that fit into those basically those four areas, as the majority of our growth is, we actually think we have a secular tailwind. But on balance, if you look at the entire industry, it would not surprise us if you did not see growth in overall IT spend, when we look back on 2012, that will be fairly consistent with what we saw in 2011, and in some cases it could actually be down given the volatility.

But, again, we believe that in the areas where we are focused that people, because of what we are seeing in both the pipeline and in closed deals, that people will, in fact, continue to spend money in those areas well beyond 2012.

Thanks, guys, good luck.

Glenn Greene, Oppenheimer.

I guess I will just segue on the last question. But maybe -- and I know Analyst Day was only a few weeks ago -- but maybe, Jeff, you could comment on the sales activity, the pipeline activity.

Obviously, there is a lot about regulatory uncertainty (technical difficulty) and the macro uncertainty and volatility has kind of made a lot of people uptight, but what is the behavior you are seeing from your bank customers in terms of their willingness to spend? Has it changed at all? Is that any cause for caution heading into 2012?

Beyond the comments that we made at Investor Day and what I just said a few moments ago, I would say no. And in fact, I would argue -- we have these arguments sometimes within the Company. Based in our sales results, which have been stellar, based on our pipeline, which is, in fact, up across all measures that are meaningful, we are -- we feel like we are in very good shape. However, the caution comes in because we don't believe you can ignore the volatility that is in the markets and what is going on in the core foundation of the economy.

So I would say that we are more cautious than some of the metrics that we are seeing inside. So we are having great conversations. The pipelines are good; we are closing deals. We expect to have -- as you heard Tom discuss today, we expect to have quite a strong fourth quarter.

So all of those metrics are quite positive, but we still believe it is prudent and pragmatic to maintain a cautious tone at this juncture. And when we give guidance at the end of January for 2012 we will obviously have a much better, much well-informed opinion on what the market will be like. But on balance the market is, in the areas that we talked, about pretty positive.

You had -- at least on the last quarter -- you had given a sales growth figure, at least year-to-date. I don't know if you gave a comparable statistic on this call at least year-to-date, or was that just sort of the sales being integrated -- the sales effect, I guess, statistic you gave of 28%?

New sales are up somewhere in the area -- I don't have the exact number -- but somewhere in the area of 15% to 18% over last year.

Okay, and then just a quick one for Tom. And I know this probably explains part of the reason you're thinking the license revenue will ramp more than $20 million Q-to-Q, but any way to quantify the amount of the big deals that much been deferred that you were hoping would have landed in the third quarter, at least directionally?

No, I think that is factored into kind of similar license revenue, etc. So we have -- it is just the way this year fell out and it is where we anticipated. But like I said, we are projecting a good, solid Q4, and that has been really our consistent message since the end of the second quarter, and it is just reconfirmation today of that.

Okay, I leave it at that. Thanks.

Brett Huff, Stephens.

One quick question on the math in the press release. Where did the gain on sale hit in the P&L?

That is the -- if you look at our equity income line, from equity investment you can see that is up a little bit on the regular P&L, about like $8 million for the quarter. Then from come from investment and unconsolidated affiliate, and about $3 million of that $8 million is that gain on sale of that particular piece of business. So it is really in our actual EPS results, we just claim credit for $5 million of that $8 million.

Okay, that is helpful. And then another question to both of you on just the ramp from 3Q to 4Q. I want to make sure that I get what you're saying. It sounds like you had a few deals push from 3Q to 4Q, it is that the right understanding?

We had a few deals that we thought could close in either Q3 or Q4. And not surprisingly they closed -- they did not close in Q3, which is consistent with what we have seen over the last few years.

Okay, and have those deals closed yet or are we still in the process?

Yes and no. There is a lot -- again, one of the challenges is that -- we aren't dealing with gigantic license fee deals, so there are a lot of deals that get done, so they are doing what we expect them to do.

Okay, and then last question. I just want to make sure I reconcile the raise in guidance, which was substantial to me, on the EPS line versus the remaining 2% to 4% for the organic growth. Is there a sense of top -- near the higher end of that organic growth range? Just the raise in one without the other, can you help me reconcile that other than to saying it is mix.

Sure, and I will take it and then Tom can add on to it. The things that you are seeing in there are -- you may remember, Brett, in the last quarter we said -- hey, we are going to bias to the upper end of the range.

We ended up having a quarter -- we ended up having a third quarter that was right in line with expectations. We also have good visibility -- to the conversation we were just having, we have good visibility into the revenue that we are going to see in Q4. And as you know, license revenue, termination fee revenue, those kinds of things are very high-margin revenue and we expect to see that -- we expect to see a higher proportion of that caliber of revenue coming in the fourth quarter.

Which is why, without necessarily moving outside of the range of revenue, just because of the very nature of the scale that we have as a Company, the way we invest on a quarter-to-quarter basis and the higher-margin revenue, we have got some movement. And we just want to make sure we were being as open with you as we could be.

I would say the other thing is when Jeff indicated that we had a bias towards the upper end, clearly that was on our EPS side. And so given where we were and given what our results in Q3 and keeping lockstep and barrel with our Q4 plan that just had us move up that particular range because of where we are at.

Okay, and then can you -- at some point can you comment just on the term fees and the size of those or will you call those out when Q4 happens?

We always do. There ain't anything unusual. We just have -- as you know, we have like $8 million in the second quarter, maybe $4 million in the third quarter, and so these can bounce around between $4 million to $10 million, as you know, per quarter.

I think term fees are actually down.

They are.

Right, so far for the year.

So far for the year they are down a couple of million dollars, and primarily, also, are pretty significantly in the Financial segment.

Great, thank you for your time.

Tien-Tsin Huang, JPMorgan.

I decided to ask you directly, because I probably missed it or misunderstood. Just the raise in the EPS guide explicitly, what are the components that is driving that?

I think we just kind of tried to go through this is that at the end of the second quarter, as you know, and even at investor day we said we have a bias to the upper end of the range. We clearly continue to feel really good about Q4.

From that standpoint, we had a little shifting between Q3 and Q4 on a couple of things. And we have had some good outperformance as far as where we are in our performance year-to-date. So we had a bias to the upper end. We continue to have good visibility into our Q4 results, and that is why we raised the range. But this is just a continuation of where we were at the end of last quarter and so that is where we are at.

Tien-Tsin, I think the other thing I would say is at the end of the second quarter we said we were having a pretty good year. We were actually ahead of our model, internally things were looking good. And -- but we felt it was premature to say anything other than we're going to bias to the upper end of the range. We needed to see how Q3 would look, and just given that performance, given the visibility into the type of revenue we are going to see in the fourth quarter, given some tax benefit in this quarter, and it just all kind of had to say we think we are going to be at the top or above the range, which is why we are now at $4.54 to $4.60.

Okay, I just wanted to make sure, because there wasn't -- I can really see a lot of surprises. Everything was pretty much in-line with quarter end (multiple speakers). I just wanted to make sure. I just want to make sure is all.

And that is fair, Tien-Tsin. I would say the real answer is with a couple of months left in the year we have pretty good line of sight into what is going to happen over the next 60 days.

Okay, I don't doubt that at all. Just one last one for me, just the Zions coming back. I know that you have talked about that in the past, but are they coming back of the end of the contract or is this an early change or a conversion? And I take it they are just not shopping for best price here. Did they experience -- how should I say it -- less optimal service at the rival, or is it the bundle that is causing the difference and allowing you to win that business back?

This is my opinion. I don't -- I think it is very difficult for institutions to switch off of CheckFree RXP. It is one of the reasons why -- I don't remember the exact number, I think we've had only six or seven people actually kind of direct contracts deconvert over the last four or five years.

In a couple of those cases they were acquisitions. But for institutions that are focused on delivering a really high-quality experience, CheckFree RXP is the market leader. There is no question. Whether it is data-fed e-bill or whether it is the risk model that we use, the way we settle any of those measures, it creates a really great experience for consumers.

And when people switch off that it doesn't usually go very well. There are videos out on YouTube that where clients of certain institutions have complained about the change in their bill pay experience.

So that is in our opinion the reason why they made the switch. And the reason why they left originally -- when they left that was before our time, but we have a very good relationship with them. And as you saw, they didn't just add CheckFree, they added lots of different technologies around their payments and this converging suite.

So we are excited about that. And we think that is consistent with -- well, not we think, we know that is consistent with what we have been seeing in the market. And when you have only lost a few customers in the history and one of them comes back, it feels pretty good.

Yes, yes, because I know converting is a big deal. Thanks for that, Jeff.

David Togut, Evercore Partners.

Earlier today, FIS highlighted a slight increase in pricing pressure in their Financial segment. Are you seeing any change in pricing in your own business in the last quarter or so?

No. We have been saying for a while that it is a highly competitive market, and it has been a highly competitive market for a long time. And we compete, and I think FIS did a nice job of indicating that there are a lot of competitors out there, and I think everyone is doing the best job they can.

But we have not seen any kind of measurable change in pricing activity. Tom or Mark, I don't know if --.

No. I mean, it is really, as we commented on, it has been about the same when we look on a year-over-year basis, and that is why we continue to focus on differentiation as a key part of our strategy to be able to more competitively differentiate our solution set. But we have really seen no change out there.

The other thing there too, you know, to make sure people are paying attention to is that so many of these transactions anymore have so many different products involved that pricing is quite often bundled and it is hard to see precisely what the price is on any one particular element of the transaction, but certainly in the last quarter nothing has changed.

A quick follow-up on that then, Mark. Can you update us on the timing of large Acumen conversions on the calendar?

So as we talked about at Investor Day, we did a number of things that are in motion. I would say that that continues to be the case. We have seen one or two deals slow down just a little bit in terms of whether they are going to come through in the fourth quarter. But for the most part they continue to progress as we talked. (multiple speakers).

And, David, we have -- I think the majority of our slots are called for in 2012. And so we have a lot of implementation work that will be happening and we have a lot of implementation work going on now. So we expect to have --.

Clearly, for the most part we are now filling 2013 slots.

Got it. Just a final question on the cost savings. You have already exceeded your $25 million target for the year. And the rate of savings appear to have moved up from about $9 million in Q2 to $11 million in Q3, if my math is correct. So can you comment on your target for 2012, the $65 million, and where you are relative to the big actions needed to achieve that?

David, as far as the -- we are very pleased with the activity we have had this year. And clearly from our standpoint we are not going to give guidance that we have.

But the incremental piece in 2012, as you know that I shared on Investor Day was $40 million, and cumulatively that is $65 million. And we are clearly from that standpoint comfortable in that general direction. And we will firm that up as we give guidance here at the end of January in 2012 and February, but we continue to make good progress there.

We have got visibility to some of that, but not all of that. When we get visibility into all of that -- and we know that some of the procurement things are saved going into next year, but there is still a lot of work to be done.

Got it, thank you very much.

Darrin Peller, Barclays Capital.

At your Investor Day I believe you mentioned that your investment initiatives have been contributing to about a $40 million pretax operating loss. I just wonder can you comment on how much your third-quarter margin may have been impacted by these investments now?

And then maybe perhaps just one on when we should expect on a quarterly basis to see those turning more breakeven or positively impacting quarterly margins?

I think you can see it in the -- if you look at the -- I'm not going to be exact with that, but clearly it is somewhat ratable but more -- we invested a little bit more in the third quarter. You can see the expense ramp in the Payments segment. So when you look at the total expenses in there in second quarter they are about $353 million, in the third quarter they were $364 million. So we did put a little bit more in there.

But as we talk about some of those, clearly what we have talked about is, as we go into 2012 certain of those investments, like Acumen, like mobile, are going to begin to scale, but that recurring revenue takes time to build. And we are interested in driving that long-term revenue, so it is going to be slowly but surely that is going to continue to improve as we look forward into 2012 and into 2013.

On a sequential basis though this quarter was better than last quarter in the sense of the adverse impact from that, and should we continue to do so?

The other way around.

We had more expenses in the third quarter.

Okay, for these (inaudible). Will that get -- will that decrease in Q4 though?

I'm not going to go into every single one. All I will say is clearly our -- you can kind of look at our overall margin guidance that we feel that the margins clearly in Q4 are going to be much stronger than what we had in Q3. And we are going to continue to spend money as we are, but over time as we head into 2012 and 2013 it is going to slowly dissipate in certain of these areas.

That is helpful. Just one last quick one on the tax rate. I think you said 37% should be expected for the quarter -- for next quarter. I just want to make sure that is a normalized tax rate. Should we expect any one-time items that you see or is that just (multiple speakers)?

Not right now, no, pretty normalized for the fourth quarter. Like I said, our adjusted tax rate, as you know, in the quarter was about 35% in the third quarter. And so for the fourth quarter it is going to be right around that 37% [for an approximate rate].

Great, thanks a lot, guys.

John Kraft, D.A. Davidson.

I just have one question left, and that is going back to the discussion of the fallout related to Durbin and the debit changes there, this morning we learned from FIS that they are seeing a large number of account openings happening in the community bank segment. And so I guess my question is are you saying this? And if so, remind us how the CashEdge instant funding product, how that revenue works. Is it a volume-based fee? And I'm assuming their volumes would have spiked.

So I will take the latter part, and it is the CashEdge OpenNow/FundNow product is based on transactions. I can't actually -- I would like to be able to say that there will be a bunch of volume coming from that, but I don't. My guess is no.

That product, as you know, is primarily targeted at the larger institutions, so to the extent that this were to happen a few years from now, we suspect we would see a bunch more benefit.

Just on the account point itself, I think we have been saying for a while that was our belief that these -- the kinds of actions that were being taken would be difficult for consumers to swallow. And -- but there are lots of other reasons why people might be switching between institutions. So I don't think we have a hypothesis that it is something that is being driven by Durbin.

Our community banks, so speaking for our clients, they would say that this kind of noise in the market was a good thing and is a good thing for them, and they did expect to see clients migrating to them and saw this as an opportunity to grow. But we don't have a specific comment.

We have heard the same antidotes from our client base -- community bank client base and the credit union client base, but it is a little early to call that a trend. It could be just because there is a lot of noise and the noise could well go away at this point.

So I think certainly we are in a good position to have a broad range of types of clients, and the nonaffected Durbin, nonaffected institutions will have a slight advantage in this world going forward. So that is a good thing for us. But I think it is too early to call this a real trend.

Yes, it is just too early.

That is helpful, thanks, guys. That is all I have.

Greg Smith, Sterne Agee.

I don't think this has come up, but I just wanted to get your thoughts on the interest expense. Is this a pretty good clean number now? I think it was $45 million in the quarter, is that a good run rate (multiple speakers)?

Yes, I think that is a fair thing to say. It is pretty good in context of that, just given the fact we do have CashEdge coming on a little bit with the incremental debt there, but it is going to be in the range of that area.

Okay, that's all I had. Thank you.

Peter Heckmann, Avondale.

As regards P2P volumes, I know you said you're going to -- in the first quarter start to provide some growth rates, or commentary in terms of actual payment volumes. But can you talk about just early uptake, are banks starting -- I am seeing banks start to advertise this. Are you seeing your banks start to advertise it?

And generally what type of model are they looking at? Is it proving to be something where a bank can charge the user a fee or are banks subsidizing it, like they will pay and giving it away at a subsidized rate or free?

So that is a big question, which I assume we won't be able to fully answer. But the simple answer is different banks are doing different things. And we are big fans of the FedEx pricing model and believe that as same-day/real-time payment capabilities come online, which should be over the next several months, that that will allow almost all institutions to charge for expedited payments. Today virtually all institutions charge for expedited payments within the bill pay application, and we don't see why this would be any different than that.

So from that standpoint we do believe it is going to be a revenue-generating opportunity. Even so, in certain institutions they are, in fact, charging for this, but there are some that are giving it away. It really does depend on the strategy of each of the individual financial situations.

We are seeing institutions advertise. They are doing it on their own. They're excited about it. They are using it as a way to differentiate their own services. And that is from smaller community-based institutions to some of the largest institutions in the US.

So I think it is early days, but I do -- the energy around this is great. As we said in our prepared remarks, we have signed nearly 1,000 clients onto ZashPay. That does that does not include the fantastic job that is going on within CashEdge and the POPMoney solution. And we see a lot of opportunity here just like we laid out Investor Day, and we will start putting the transactions out next year. They will obviously start small, which they should, but they will grow good we think at a pretty rapid pace.

One of the things that is interesting is that the usage models are looking good. So once you get people using the solution, the number of transactions, but very importantly, the types of transactions that people are engaging the solution to transfer funds on is really interesting, in fact, broader than we anticipated originally.

Okay, okay. Do you think -- I guess I'm trying to think about it longer term, but does P2P maybe take some volumes from bill pay, and maybe in two or three years do we not even think about them as being separate products?

So one of the -- that is a great question. And one of the points that we talked about at Investor Day, and I tried to include a little bit of a reference in the remarks today in the context of Zions, and that is what we do believe that these solutions, which are arguably disparate today, will come together and that consumers will want and then demand a common way to transfer money in either as in response to a bill or a request for money in anyway, or whatever the case may be. It will be difficult, we think, for consumers to make the differentiation do I go into bill pay, do I go into P-to-P?

So we do see those solutions converging. We think it is one of the powerful reasons why having the solutions together under one company will create a significant and proprietary advantage. And not just in terms of the consumer initiating the payment, but in terms of the risk model, the fraud capabilities, the settlement, bringing all of that infrastructure and management together to create a ubiquitous way for consumers to execute transactions, we absolutely believe in.

And that will also, we believe, transfer over to the small business side. The small business side is a very significant opportunity as well.

And then when you combine that with the fact that we have arguably the leading mobile solution, which you saw in our press release, and the leading Internet banking solutions, those together we think are a powerful combination and will help to also spur growth in the early days.

Okay, yes, that will be very interesting. One last little maintenance question. What were diluted shares outstanding at the end of the quarter?

I think our outstanding shares were roughly around 140.8 million from that standpoint. (multiple speakers). Yes, and the diluted was, well, I think 1.5 million, 2 million higher. You will see that in the 10-Q that we are filing tomorrow.

Okay, thanks.

Bryan Keane, Deutsche Bank.

This is [Asheesh] calling on behalf of Bryan Keane. I guess most of my questions are answered. Just some -- Visa announced on their earnings call that they are going to incentivize merchants to route over their network, and they may also incentivize merchants to -- let's say if Interlink is not present on the back of the card, they could even route it on the signature -- route PIN transaction on signature network, as long as it is a Visa branded card. Do you expect any of these changes -- if the merchants do start using -- start routing PIN or signature, do you expect any impact to your ACCEL networks, transaction volume?

And also any positive impact to your debit processing, because these transactions, I don't know if it will get processed as signature or PIN-debit transaction?

So we commented a little bit on this at Investor Day. We think Visa is doing a good job in how they are managing their franchise. And from our perspective we still see significant and interesting opportunities on the opportunities around the alternate network, given that we don't serve that market today for the most part.

So we continued to be enthusiastic and optimistic about the opportunities there, both in terms of the network, because just sheer growth in the network will be a good thing for us. And then, secondarily, we continue to grow the debit business.

I guess the other thing I would say is remember that the significant majority of our revenue in that business today is in the below $10 billion space. And our network is relatively small, which is why we think this is such a good opportunity on balance. So we remain enthusiastic.

One quick question on the boost to license revenue. I was wondering how much of that is going to come from cross-selling opportunities from all the acquisitions like the CashEdge, IM Commerce and Maverick acquisition, how much would that contribute to the boost to the license revenue that you're expecting in the fourth quarter?

Zero. I mean very close to zero, if anything. We expect the majority of our license revenue in the fourth quarter to come from existing clients just by the very nature of the size of our client base. But we have not accounted for those areas in the numbers that we've been discussing with you today.

Okay, thanks.

That was our last question. Thank you for joining today's conference, and have a good evening.