Fiserv Inc (FISV) 2011 Q4 法說會逐字稿

Welcome to the Fiserv fourth 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, Carol. And welcome to our fourth quarter earnings call. With me today 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 revenue, adjusted internal revenue growth, adjusted earnings per share, adjusted operating margin, free cash flow, free cash flow per share, sales pipelines, acquisitions, 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 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. Let me say up front, 2011 was an excellent year. Revenue growth continued to accelerate on the strength of record sales, differentiated solutions, and strong client relationships. We delivered record earnings per share and took important steps to benefit our growth, earnings, and capital structure for years to come. We are very well-positioned entering 2012. Our results in the quarter were strong. Adjusted revenue grew 6% and adjusted internal revenue growth of 4% was the highest quarterly performance in nearly four years. Our full-year adjusted internal revenue growth continued to climb, increasing 3% in 2011 versus 1% last year. Adjusted earnings per share was up 20% in the quarter to $1.27. It increased 13% to a record $4.58 for the year, $0.04 above the high end of our original EPS range.

Adjusted operating margin for the quarter increased 30 basis points over last year's strong Q4 performance and 100 basis points sequentially. Adjusted operating margin for the full year was down slightly to 29.2%. Free cash flow of $734 million was essentially flat due primarily to increased capital expenditures and timing of working capital which we generally expect to reverse. Free cash flow per share increased 5% to $5.09 for the full year. Free cash flow and free cash flow per share over the last four years have grown at a cumulative annual growth rate of 14% and 19% respectively, reflecting the strength of our business model and consistent execution of our strategies. We allocated over $1 billion in capital in 2011, split about evenly between strategic acquisition and share repurchase. We also refinanced a large block of our debt at historically low rates while extending our average duration by nearly 50%. Our balance sheet is strong, and we remain within our targeted debt-to-EBITDA range.

For 2011, we were focused on three key priorities. 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 accelerated in both segments in 2011. The majority of our growth continues to be from high-quality recurring revenue in our existing businesses. Innovative new solutions such as mobile, P2P, and Acumen are an important element of our plan to further accelerate growth and are just beginning to ramp. Adjusted EPS growth 13% marked our 26th consecutive year of double-digit growth. Earnings grew while investing in these new solutions that should have the dual benefit of accelerating revenue growth and expanding margin. Fostering a step change in our revenue growth is the rationale for centering the Fiserv culture on growth. The record success of our single sales organization is a proof point of that focus.

We have significantly increased our expectations for sales performance in each of the last two years and that is leading to better results. In 2011, we attained 116% of quota, which translates to an absolute increase in sales of 20% over 2010. For those keeping score, you may recall that our absolute sales in the second quarter were the highest in the Company's history. Just six months later, the fourth quarter sales results set a new high watermark, topping the Q2 performance. We are also seeing increased productivity from our account managers across the Company, which adds to our ability to more closely match our solutions to the needs of our client base. Differentiating solutions through innovation that leads to better client results is our highest priority. Financial institutions are rightfully focused on driving revenue and increasing efficiency to restore earnings lost over the last several years. The recent Fed announcement that interest rates are expected to stay extremely low through late 2014 exacerbates that emphasis, with technology playing a key role in solving the revenue and efficiency equation.

During the year, we acquired solutions that strengthened our leadership in channels and payments. First, we acquired M-Com, a global leader in mobile banking and payment to solidify our position in a rapidly growing market. This allows us to control the development of mobile capabilities and complement our leadership positions in online banking, account processing, and payments. We also acquired Maverick Solutions to provide financial institutions with a suite of prepaid capabilities to capture new streams of revenue. And importantly, we acquired CashEdge, the market leader in account-to-account transfer, online account opening and funding, P2P, and data aggregation. Each of these solutions can drive differentiation and revenue for our clients.

As we enter 2012, we remain bullish on the opportunity to digitize approximately 11 billion US P2P transactions, totaling $865 billion that are originated each year. Nearly 1,400 financial institutions have signed on to the Fiserv P2P network, which we expect to grow dramatically over the next several years. We are also beginning to see financial institutions support mass marketing for P2P. For example, NFL fans may have noticed that Citibank ran a 15 second TV spot promoting not P2P but Popmoney during a playoff game on January 15 and it has run several times since. We also know that Allied Financial has been advertising Popmoney nationally on the radio. This marketing support has come via our customers and reinforces the belief that P2P enhances their consumer value proposition. With that, let me hand the discussion to Tom to provide more details on our financial results.

Thanks, Jeff, and good afternoon, everyone. As Jeff said up front, adjusted revenue growth was 6% in the quarter and adjusted internal revenue growth was 4%, the highest since the first quarter of 2008. Strong license sales in our financial segment drove top and bottom line performance in the quarter as the year-end buying behavior we saw the last two years repeated again in 2011. Revenue growth accelerated once again in 2011 with full-year adjusted internal revenue growth of 3% compared with 1% last year. Adjusted internal revenue growth improved in both segments. Payments growth was up 1 percentage point to 4% and the financial segment was up sharply to 3% compared to flat in 2010. Adjusted earnings per share increased 20% in the quarter to $1.27 on strong operating performance and grew 13% in the full-year to $4.58, which exceeded our original guidance range.

Strong revenue growth in the quarter, much of it from higher-margin solutions drove adjusted operating income up 7% to a record $325 million for the quarter. Adjusted operating margin was 30% in the quarter, an increase of 30 basis points, which includes an approximate 130 basis point negative impact from a discretionary profit sharing accrual and higher commissions related to the record sales performance in the quarter, much of which supports future revenue. For the full year, adjusted operating margin was down 20 basis points compared to last year. As the operating leverage from revenue growth and the success of our operational effectiveness initiatives were offset by investments in new solutions such as Acumen, P2P, and Mobiliti. Higher expenses in the corporate segment and the incremental employee compensation expenses recorded in the fourth quarter.

Now onto the segment results. Adjusted revenue in the payments segment increased 5% to $558 million in the quarter and increased 6% to $2.1 billion for the full year. Adjusted internal revenue growth was 2% in the quarter. Both year-over-year and sequential growth comparisons were negatively impacted by the completion of the Wachovia bill payment de-conversion, less bill payment processing days in the quarter, and a reduction in non-financial institution revenue resulting from the Durbin Amendment. Adjusted internal revenue growth in the segment was 4% for the full year as compared to 3% in the prior year. [Flow of] income remained at historically low levels. Bill payment transaction volume increased 4% in the quarter and 6% in the year, excluding the impact of the Wachovia de-conversion. The bulk of this de-conversion will anniversary in the middle of 2012.

Our debit business continued to perform well in the first quarter of the new debit interchange fee structure under Durbin. Debit transaction volume increased 18% in the quarter and 19% in the year, driven by the continued expansion of our client base and the above market rate section growth experienced by our clients, the great majority of which have assets below the $10 billion threshold of the Durbin legislation. Operating income in the payments segment increased 4% to $174 million and grew 5% to $656 million for the year. Adjusted operating margin decreased 30 basis points in the quarter to 31.2% and decreased 20 basis points for the full year to 31%. The continuing investments in Mobiliti, P2P, and Internet banking, along with the incremental employee costs pressured margins. In addition, the CashEdge results had a dilutive impact on segment margins in the quarter and for the full year.

Financial segment adjusted revenue was $540 million in the quarter and $2 billion for the full year, reflecting adjusted internal revenue growth of 6% in the quarter and 3% for the year. As we anticipated, we saw a significant increase in higher-margin revenue such as license fees in the quarter. That result combined with our steady core account processing growth contributed to the highest quarterly revenue growth rate in our financial segment in the last four years. Operating income in the financial segment was up a very strong 11% in the quarter to $178 million. Operating margin expanded by 140 basis points in the quarter to 33.1%, due largely to the expected increase in higher-margin revenue. For the full year, operating income grew 4% to $613 million compared with $591 million in 2010. And operating margin increased 30 basis points to 30.6%. Operating margin for the full-year was positively impacted by continued leverage in our core account processing business, incremental savings from our operational effectiveness initiatives, increased efficiencies in our item processing business, partially offset by solution investments such as Acumen, Relationship Advance, and our common loan origination platform.

Our adjusted effective tax rate of 37% for the quarter was in line with expectations and the 36% full-year rate is a healthy improvement over 2010. For 2012, we expect our adjusted effective tax rate to be in line with 2011 at approximately 36%. In addition to the continuing implementation of focused strategies that have had the cumulative effect of lowering our tax rate for the last couple of years, our rate estimate assumes also the renewal of the R&D credit in 2012. Free cash flow increased a strong 12% to $227 million in the quarter. Full year free cash flow was essentially flat at $734 million and was impacted by a $17 million increase in capital expenditures, which includes our data center transformation project and changes in working capital.

We had a $60 million increase in Accounts Receivable versus the comparable prior-year quarter, resulting from our strong revenue finish to the year. We anticipate the year-end spike in accounts receivable in 2011 will convert to cash in 2012, resulting in higher than typical free cash flow guidance, which Jeff will cover later. Free cash flow per share grew 5% to $5.09 for the year, as a result of our disciplined capital allocation. We paid off the $120 million in the quarter that had been added to our revolver associated with the acquisition of CashEdge and have a $0 balance on our $1 billion credit facility at year-end. We will also refinance our $1.1 billion term loan, which matures in November during 2012. At this time, we do not anticipate significant interest savings from a refinance, given the current rate structure and our bias towards longer-term debt maturities as part of our capital structure. We repurchased 8.8 million shares of stock in 2011 for $533 million which included 1 million shares in the fourth quarter for $58 million. This compares favorably to the 8.1 million shares repurchased in 2010, even as we completed several strategic acquisitions during the year. As of December 31, there are 4.7 million shares remaining on our existing repurchase authorization. With that, let me turn the call back over to Jeff.

Thanks, Tom. Our record sales in the quarter were up 28% over last year's also strong fourth quarter. Four year sales landed at 116% of quota, an absolute increase of 20%. Sales strength continued in areas aligned with our strategies including significant wins in channels, payments, and account processing. Examples of our many digital channel wins for the year include Navy Federal Credit Union for Corillian Online banking; Regions Bank for Corillian Business banking, and U.S. Bank for Mobiliti. We ended the year signing nearly 400 new Mobiliti clients and are position to exceed that number for sales in 2012. We added 435 new bill payment clients including the return of Zions Bank. We also gained nearly 200 debit clients during the year and had increased the number of clients within the ACCEL/Exchange debit network. Overall in 2011, we recorded more than 1,200 wins in bill payment, debit, and P2P.

We are pleased to announce that we inked a multi-year extension of our long-standing reseller relationship with Intuit. In addition to traditional bill payment services, we are working to enhance those client relationships through a set of payment solutions that should provide value over the next several years. In account processing, we continued to win over 50% of all of the competitive deals in the market. Momentum continued to build with five Acumen deals signed in the quarter and a total of eight US wins for the year. As we continue to win larger multi-product deals, as well as ramp-up our newer solutions, we continue to expect that revenue will be recognized over a 12 to 24 month period and that recurring revenue builds overtime. Given our experience with sales over the several years and the complexity of the opportunities we are pursuing, we expect sales cycles to remain long and that will have the effect of skewing revenue to the latter part of each year. Integrated sales were a very strong $71 million in the quarter. Once again, channels and payments were the most popular solutions, leading the way to $184 million of integrated sales for the full year, or 119% of our 2011 targets. Our operational effectiveness results were excellent with $18 million of benefit in the quarter and $45 million for the year, exceeding our 2011 target by 80%.

Our view of market conditions remains generally consistent with that of our third quarter call and investor day. 2011 ended with 110 regulatory actions impacting 92 banks and 18 credit unions, a reduction of about 40% from 2010. As important as the number, institutions impacted by regulatory actions in 2011 were much smaller than in previous years. Over the last four years, and contrary to some exaggerated estimates at the peak of the financial crisis, less than 500 financial institutions have been subject to a regulatory action in the United States. During that period, we lost less than 25 account processing clients due to actions, which is likely less than if we had been in a more typical M&A environment. In 2012, we expect the number of regulatory actions to continue to decline probably to less than 90 this year.

To date, there been 9 regulatory actions versus 11 last year. The notable activity continued to be very low with only three new charters issued through September 30 and we believe that level of activity will continue in 2012. We anticipate voluntary M&A to be about consistent with its current level. We expect IT budgets to be prioritized to areas that drive revenue, allow ease of movement within and across channels, and deepen customer relationships. We believe growth and technology spend will approximate the 2011 level with a bias towards banning in the second half of the year. Overall, we believe the end market is solidifying. The questions of institutional survival are increasingly rare and the discussions are now centered on moving forward in a new world of competitive banking.

Our key priorities for 2012 remain substantially the same, with an added emphasis on aligning our focus against the secular momentum we see in the market. Guidance for 2012 is based on an assumption that technology spending and the overall environment will be substantially similar to 2011. As I mentioned, we believe there has been a secular change in purchasing behaviors, which biases non-time-sensitive technology decisions to later in the year. This change in historic buying patterns have continued to have the effect of pushing more of our sales and revenue growth towards year end. For 2012, we expect total adjusted revenue to increase 4% to 6% and adjusted internal revenue growth to be in a range of 3% to 4.5%. Revenue growth for the year includes a negative impact of approximately 50 basis points from a reduction in revenue due to the Durbin Amendment, not sourced through financial institutions. Overall, we expect our revenue growth to be stronger in the second half of the year.

We expect 2012 adjusted earnings per share growth of 10% to 14% or a range of $5.04 to $5.20 compared to the $4.58 earned in 2011. Each year, our revenue and EPS guidance incorporates the impact of contract renewals that we expect during the year. Our 2012 guidance for adjusted revenue and adjusted EPS includes an estimate for the range of likely outcomes related to the possibility of an early renewal of our Bank of America bill pay contract. We anticipate that overall adjusted operating margin will increase 50 basis points or more in 2012. We also estimate the free cash flow for 2012 will increase 8% to 12% and that free cash flow per share will be in excess of $5.70 for the full year. Our 2012 integrated sales target is $200 million, and our operational effectiveness objective is $40 million, which will exclude any nonrecurring costs related to the multi-year cost saving effort. As I said upfront, we had a very strong year. Revenue growth is stepping up, sales results are reinforcing the value of our solutions, and we are benefiting from secular momentum in areas of new investment. The experience, talent, and commitment of our associates gives us confidence that we will deliver value for years to come. With that, Carol, let's open the line for questions.

(Operator Instructions)

Our first question is from Julio Quinteros, Goldman Sachs. Your line is open.

Hello, guys.

Hello, Julio.

Maybe just in terms of thinking about the guidance for the year, is there a way to sort of parse through the organic growth rate, the 3% to 4.5% between financial and payments to just get a sense for what you guys expected to drive that or is this fairly balanced view in terms of the growth expectations?

Yes, I would expect that over time our payments segment will continue to be above our financial segment growth rate and that's how you should model that.

Okay, great. And then, just in terms of context, as we started the year, there was a concern that a lot of the big banks and even some of the smaller banks could see a continued consolidation of branches, closures of branches, and now you have kind of this lower for longer situation with the Fed and continued NIM compression. But it sounds like you guys feel like that's more opportunity than it is risk. Can you just help us understand how that kind of a backdrop actually helps drive opportunity for you guys?

Yes, Julio, I think for us, what we see is a number of different solutions, many of which we profiled at Investor Day, have gotten a lot of attention as institutions are looking for ways to drive revenue. So whether it is with P2P or Relationship Advance, a series of different products like that, we're having some good success. By the same token, kind of the movement around branches, those kinds of things, you're seeing a lot of energy on the electronic channel side. So online banking, we announced a win in the quarter with Navy Federal Credit Union, they've decided that they are going to transform their Internet banking presence, U.S. Bank last year, Westpac the year before that, and so, and those are just some of the larger institutions.

But we are really seeing that energy across as institutions are trying to move both transactions and service to lower-cost channels, and mobile is also a derivative of that as well. So lots of energy on that side, and then there's a need for the institutions to start to wire the information and insights that are coming out of those channels together to create a better picture of the experience. So, from our standpoint, given that we put so much focus in those areas, we see that being fairly valuable. And then last, I would say that overall, as we see institutions looking to just kind of step down their cost structure given some of the spread pressures that now appear to extend out through '14, you see vendor consolidation and just general, more bundling, which to some extent gets to some of the larger sales that we have had but also gets a little bit to the longer implementation cycles.

That's helpful, thank you.

Sure. Thank you.

Glenn Green, Oppenheimer. Your line is open.

Thank you, good afternoon.

Hello, Glenn.

A few questions. I mean, I just want to make sure I heard you right, Jeff, on your technology spending comment, you're basically suggesting flat, which actually seems a little bit more subdued than that at the investor event and one of your peers sort of had their call yesterday and actually seemed pretty bullish for 2012, somewhat surprisingly. So it kind of sounded very cautious to me, surprisingly. Maybe a little color there.

Yes, Glenn, I may have misspoke if it came across as flat. What I was saying is we expect the general rate of IT spend to be consistent year-to-year. Which is what we said at Investor Day and what we also said in the quarter. We think that rate is -- we haven't seen the final numbers nor has anyone -- we think there was some growth during the year, but we think that level of growth has turned out to be less at the end of the year than people thought it would be at the beginning of the year, so--.

You're meaning the rate of growth, so if it ends up being 2% or 3%, that is what you're thinking for '12 also.

Exactly. Exactly. The rate of growth. But I also want to make it clear that within that rate of growth, we see far more spend being allocated to channels and payments and efficiency-oriented products, but areas in which you can change and differentiate your value proposition -- mobile is the one that comes to mind the most, especially in the larger institutions. People are biasing their spend decisions in those areas.

Okay. And then, you brought up the potential early BofA contract renewal. I want to make sure what you are messaging, because I would think if you renew it obviously later in the year, it's not going to really impact '12, it will impact '13. So I wanted to understand what you're communicating and, assuming we had an early renewal BofA, would that imply you might toward the lower end of your EPS range or just how should we be thinking about that?

So our intent was to make sure that we provided guidance that would incorporate the range of possibilities that could happen for an early renewal. It's not unusual that a contract of -- well, actually any of the larger contracts end up getting renewed early. And sometimes in renewals there are discounts, sometimes there are not. But what we did is we spent a lot of time to make sure that we had incorporated that range of outcomes so that's in our guidance. I think mathematically, to the extent that there was a discount given, right? And that certainly is within the range of possibility, if there was a discount. If it happened in January, it would likely be larger just mathematically than it would be in December. So from that, I think the map that you're thinking about is likely the right map. We should be clear, right? That we also wanted to try to avoid some negativity that was directed a couple of years ago or nearly three years ago now, when we renewed the Bank of America agreement after we had given guidance. So at this stage, given the expiration in '13, we thought we would be best to incorporated it into our guidance for the year. But let me -- I probably should add one more point, we are not sitting here today knowing that there is a number. Right? It is just a range of different possibilities that we have discussed, in terms of formulating our guidance.

Okay, I think I'm clear. Thanks I will jump back in queue.

Thanks Glenn.

The next question is from Dave Koning, Baird. Your line is open.

Hello, guys, great job.

Thanks, Dave.

Yes, in the payments segment, that the last four years, the margins have been remarkably stable kind of between 30% and 31.5% and I know you did a nice job explaining, CashEdge, some investments, and bonuses in Q4. But is it fair to say that given, that the ability to leverage a lot of that and what you talked about the Investor Day, that there is clear potential for several years of nice expansion in that business after four years of kind of pretty stable margins?

Absolutely, Dave, I mean and I will turn it over to Jeff. But the things that we have going on in there right now that are particularly impacting '12 is the number of the investments that we have in here, and I think I highlighted these on Investor Day; mobile is a great example. We have invested a lot in scaling up our ASP infrastructure and clearly that recurring revenue has not really even started to come on yet. And so we have a lot of that infrastructure build that is in the segment, along with a lot of investment in P2P, and then really in the online channel. We mentioned again another transaction with Navy Federal, we have had really a big ramp-up in our development operations in online banking and also in the ASP channel, just a lot of activity there. So we have had a good amount of investment which has kind of kept those margins fairly flat but if you look at our debit card business, you look at the bill payment business, you look at P2P which has really not started yet, those businesses have great economic characteristics, and those will continue to scale and incrementally add to margins.

Yes, the only other thing I would add to that, Dave, is we have been -- the Wachovia transition, which will really began occurring in early '10, late '09, right, so that has been holding down, that is now complete. And so we will have some compare issues, but from a -- it's out of the numbers, it's out of the numbers and so we should be able to not -- having to recover that relatively large client has certainly pressured our margins.

Yes, okay, good. And then just the one follow-up question. I think debt-to-EBITDA, trailing EBITDA about is not 2.2 times, it's well below and by the end of the year, if you just paid off debt, you would be at something like 1.5 times. Is there any reason for us not to expect you to keep it around the 2.5 times level? And would buybacks be kind of the most likely and then the next likely would be acquisitions?

Yes. I mean, I think our debt-to-EBITDA actually, Dave, I think I got around 2.4, somewhere in there. But it's well within our range of our target which is 2 to 2.5 and so we are comfortable with that amount of debt, especially with our EBITDA accelerating growth as we go into 2012. And so, we are fine with that and clearly, as you know, we are going to continue our disciplined capital deployment and share repurchase is really our benchmark from that standpoint.

Yes, I would say that the strategic acquisition that we did last year has put us in a very good place, a very good place in the market. And we have a significant amount of opportunity that we want to ensure that we capture. So I don't -- at this stage, it is hard for me to see a need to do acquisitions. It doesn't mean that we won't do smaller tuck-ins here and there, but from a kind of a global view of capital allocation, I mean, we feel like we are in very good shape in our product portfolio and we are going to be focused on execution. I mean, for us, we've put a lot of money into our products over the last few years. We've put a nice sum of money into acquisition last year. We are very, very motivated in putting this out into the market. We think one of the keys to accelerating transactions is integration into mobile. For example, it brings in a whole other consumer, potentially a new consumer and a new consumer who likes to transact. We are not fighting at point of sale, we are really looking for us to be able to accelerate DDA-based transactions and whether that is through bill pay or e-bill -- I'm sorry, whether that is around bill pay, or e-bill or P2P, account-to-account transfer, account opening, all kinds of other places that are nicely served by creating that mobile channel, again as an example, we have a lot of opportunity to execute and that's really going to be our focus.

Yes. That's great, thank you.

Thanks Dave.

Thank you. Ashwin Shirvaikar, Citi, your line is open.

Thank you. Hello, Jeff. Hello, Tom.

Hello, Ashwin.

I guess, first of all, congratulations on stepping up to the plate with your guidance.

Thank you.

The question I have is, on a quarterly basis, how should we expect adjusted segment level internal revenue to track? Are you sort of calling the bottom on payments internal growth rate trend here? And is the higher financial level of internal growth sort of here to stay through the year?

Yes, Ashwin, how I would put it, if you look at 2012 and I think we are pretty overall in his comments is that we are clearly going to have -- we are going to bias towards the second half, clearly, because we have seen a shift clearly as you saw in our financial segment in the fourth quarter, where we have these buying behavior by our clients that has tended to move out more to the third and primarily in the fourth quarter, particularly in that segment. So we anticipate a stronger second half. The other thing we have going on in the first half is the anniversary as Jeff talked about a little bit, highlighted the Wachovia de-conversion, which is out now but was in our base in the first half of 2011 so that is going to have a little bit more difficult comparing the payment segment. So again, we anticipate stronger second half growth rates, really in both segments over the first half.

And you had good sales. Any comment on unusual cost associated with converting the sales into revenues, you know, ramps and things like that? Anything unusual to watch out for?

No and I will turn this over to Jeff. As you mentioned, Ashwin, we had a fantastic sales quarter. I think we were at 170% of quota. And a number of these transactions are -- some of those will impact will impact '12 but a lot of those impact or '13 and '14. There are some fairly large transactions. We don't have any unusual costs associated with those. We did, in the fourth quarter, clearly have some incremental commissions and some of that -- we expect those commissions upfront. Some of that revenue will not hit until '13 or '14 but we don't have any unusual cost, some of the larger deals are more complex and take longer to implement but we don't have anything unusual from a cost standpoint.

It's interesting. One of the things -- one of the, I guess I'll say, phenomena that we have seen over the last couple of years is in connection with some of the challenges that FIs have had, when they're looking to make these investments, they're often looking to reduce costs, their own cost structure, to fund some of the investments. So take Internet banking, for example. One of the clients that we announced that we signed in this quarter, it's a very significant transformation of their technology, but we are also going to be hosting that for them. So there are all kinds of intricacies all revenue recognition where you are building and hosting and from our standpoint, we make those decisions not based on rev rec, we make those decision based on what create the most value and so we would rather have a larger deal even if it creates an issue around us deferring revenue for some period of time. And we do that any time we have the opportunity, we do that. So you'll -- to Tom's point -- you'll have those kinds of anomalies but from a cost perspective, beyond the commissions that Tom referenced, and we've had steadily increasing commissions because we've had steadily increasing strong sales performance. I would say that's the only issue. And to the extent there was any surprise in the fourth quarter, that was probably one of them. Our sales were so strong and that revenue is largely not in the quarter, that created a bit of a mismatch on the commission versus revenue benefit.

Okay. Understood. Last thing, if I may. Not so much for question because I think I know what you're going to say. But with the high proportion of investors, especially given your cash flow, and you're only going to do talking acquisitions. Any thoughts on a dividend?

We actually, as we, I think mentioned at Investor Day, we look at this issue every year. We think it's important. We know that that cash is not ours. We know it belongs to the shareholders, and our analysis to date has shown for companies like us, that are very, very disciplined in share repurchase, that the return differentials don't favor dividends. That said, the other thing that weighs on us right now is I would say the tax uncertainty around dividends. Right now we know share repurchase is advantageous to shareholders who are not selling because in fact, they are getting more value and it's on a tax-deferred basis. But we are paying a lot of attention to that. And we continue to do that. And we will continue to evaluate dividends and share repurchase as we move forward.

Great. Thank you guys.

Thank you.

Thank you. Tien-Tsin Huang, JPMorgan. Your line is open.

Thanks. Sorry. Good afternoon, good to talk to you all. Just a couple quick questions. I heard the steady bank IT outlook and the back-end loaded comments, I get that. But I guess it's a little bit more optimistic that what some of the bigger banks or the diversified tech suppliers are saying about financial services spends. I'm curious if that's more a function of maybe your bank lines being relatively healthier or maybe just a greater interest in outsourcing? Can you contextualize that for us, Jeff?

Sure. That's a good question. We think that the environment is become more stable just because more of the rules. Right? The more the roles are known and people are -- institutions, especially larger ones, are taking action to make sure that they can do what they need to do around growing revenue but really around growing earnings. Right, so on one hand, we are seeing people spend; on the other hand, you're also seeing some of the larger financial institutions take people-oriented actions and take steps to reduce their cost structure. The benefit that we have and the reason why we probably have more optimism than some is we are quite confident that the areas in which we have been investing in over the last several years, as well is existing solutions like bill payment, they're just not viewed as discretionary.

I haven't met a single quote, banker, right, someone who runs a large institution whether it's a credit union or a bank who is willing to defer a mobile decision. People just are not willing to do that and they are really looking for ways to drive revenue. And that right now is a good fit for us given where we have chosen to invest over the last several years. Don't get me wrong, I still think there is going to be a lot of profitability pressure in financial institutions. I still think we are going to be subject to price compression, as we have been. And I don't think there's anywhere near wallets being opened up very wide. So from that standpoint, all right, that's why we are taking, what I would say, a more pragmatic view. We think spend will be about -- I'm sorry should clarify -- the rate of technology spend growth will be about the same year-over-year. But we will see -- we think it will bias more to the areas in which we are well-suited right now.

Okay good. That's good color. And just a couple clarifications, The delta and the margin from our guidance for '11, was that all tied to the discretionary bonus or were there some other factors that I missed?

It's primarily that and the commissions as we talked about. We finishes the sales year really strong and a lot of that isn't impact revenue and '11, a lot of that is going to impact us later in '12 and into '13 and '14. And so that was a little bit higher than we planned. And then the discretionary profit sharing. That was about 130, I think, basis points I said on the quarter and that was the primary impact.

And the 50 bps you mentioned, tied to Durbin, what was that exactly? And then finally just Intuit and bill pay, was there a change in the scope there? Because I know that you're -- I guess FIS made some comments around Intuit as well. I'm just trying to reconcile that?

Yes, so we had been in discussions with Intuit, we signed a multi-year renewal of our reseller agreement. I know there had been some other discussions in the market. We spent a lot of quality time with Intuit and came up with a pretty interesting value proposition for Intuit and for us. And we think it is a win-win. And we believe we will have a relationship, an important relationship, with Intuit was quite a while. So we feel good about that. We recognize that it's a little bit different than what had been in the market previously, but we felt good about that. And Tom, why don't you take the--?

Yes, I think your other question was around the Durbin impact. And this relates to the -- this is not related to financial institutions. This is not related to our debit business. We do have a variety of contractual arrangements with non-financial institution clients, really our billers, which are going to be impacted by the lowering of the debit interchange, as you know, as mandated by Durbin. And so, we came up with an estimate and we have included in our 2012 guidance our best estimate of that revenue impact, which is negative by about 50 basis points. And so that's what we incorporated into our guidance.

Great, thank you so much.

Thank you.

Thank you. David Togut from Evercore Partners. Your line is open.

Thank you. David Togut. Good afternoon, Jeff.

Hello, David. How are you?

That's the second creative pronunciation today. Just to start off with, did you raise your operational effectiveness target for 2012? I thought you said $40 million, so if that's on top of $45 million, then you are saying a cumulative of $85 million through 2012?

That's correct.

And that's up from $65 million, previously?

That was our initial target. That's correct. We had such a strong year this year that over-performance just gives us a higher sum.

Yes.

And can you handicap for us the, I guess, relative difficulty of hitting that target and what has to go right and what could go wrong?

Instead of handicapping it, what I would say is, we've provided the target that we believe we are going to achieve. And if we didn't think we would achieve it we wouldn't give it. And that said, all of this takes work and energy and we will execute against -- we will do our best to execute against it, but we have a pretty high degree of confidence that we will achieve that.

And we had a good year one, David.

Yes.

Got it. And then you highlighted five Acumen signing's in the fourth quarter, eight through 2011 as a whole. Can you take us down into those signing's a little bit? How many of those were, let's say, de novo banks, how many of those were existing Fiserv customers, and how many were head-to-head competitive wins?

None of them were de novos. These are all -- they tend to be larger credit units. So they are all well-established credit unions. And every one of them was competitive. Now some of them were our clients on a platform that they decided to move to Acumen and any time a client decides to make a platform decision, they always decide well, if I'm going to make a change, I'm going to look at the universe out there. So from that standpoint, you always have that as a competitive scenario. There were a couple of them that are completely new to the Company. And all of them, all of the Acumen clients bought not just Acumen but bought large bundles of Fiserv content. So everything from bill payment to debit to GL to all kinds of things, but they tend to be very, very broad solution bundles. And part of it is we have said that from our standpoint, we think this technology is so important and so advanced that we want to be cautious about when we sell it. And for us to sell it, we want to select clients who want to make a very strong commitment to Fiserv. So that's really been our strategy so far with Acumen.

How many of the acumen signing's were new Fiserv customers entirely?

I think it's two or three. But we will follow-up with you on that.

Okay.

Because remember, David, many of these clients too are paying us, today they're in house clients, certain of them, and they're paying us existing maintenance. So when we move into these new bundles there is a good amount of incremental revenue, as Jeff was commenting, especially around the solution bundles.

The total incremental value of these deals is significant whether they are an existing client or not.

And most of this is 2013 and 2014 revenue?

It really -- most of it was not 2011. So it's starts to -- we start to convert clients in '12. But it will be -- so you'll start to see some of it come on in '12, more in '13, more in '14, more in '15. So it's going to step up like the majority of our other revenue.

Yes, I think David, we laid that out on Investor Day, where we had some revenue charges in there and that's what we will be kind of tracking along, too.

Just a quick final question, Tom, the 6% organic growth in financial segment, you highlighted the strong software signing's, the back-ended weighted nature of the sales cycle. Can you give us a little more granularity on the 6%, I mean, how much of that is a recurring number that we can expect?

I would say, you know, there's always a portion of that growth that is recurring but a large part of this is add-on license sales to existing customers. And clearly it just fell more of in one quarter, David, than typical. I mean, we had -- our license sales were probably up $30 million or $35 million from the third quarter. And so we had a bulk of them, and these are small typical licenses that are add-on to existing clients and so typically it's more spread out and again, remember that these are primarily sales to existing customers. These aren't new clients. So again, these are clients that are buying additional content from Fiserv. It just more fell into the fourth quarter. So when you bring the recurring nature of it, it clearly is a license fee but again we anticipate that those -- there's always going to be new products that we are putting through our system and so that add-on sale will continue, as we continue to develop and distribute new products.

I think one of the ways you may want to think about it, David, is we mentioned in the call that given what was saw this year and what we've seen the last couple of years, and some of the pressure that certainly exists on financial institutions, clients are holding onto their budgets, right, for a long time. And therefore, we expect -- we can see this very clearly in our numbers -- right, that we're going to see these spikes in during the years, during the fourth quarter, and we expect to see that again in 2012. If the spike didn't occur, we would expect that revenue to move around quarters, there's a level of these incremental license sales that's just natural and what we've seen over the last few years is, it's just moved to later in the year, which creates this spike. So, when you say, how much of the 6% can I count on? You may not be able to count on it in a quarter, but we are very confident that we have been stepping up our growth rate. Right and again, it's hard for us to predict on a quarter-by-quarter basis but on a full-year basis, right, that rate is stepping back up and we believe that what you saw in the fourth quarter will translate to '12 but we can't tell you exactly what quarter that will happen in.

Got it, thank you very much.

Thank you.

Thank you. The next question is from Chris Shutler, William Blair. Your line is open.

Hello guys, good afternoon.

Hello, Chris.

First question is on the 50 point Durban impact on the internal revenue growth for '12. Would that impact the margins as well?

There is going to be a slight impact to that, but it should not be substantial.

Okay and then the 4% to 8% internal revenue growth target you guys have laid for out for over a three-year period, so if you're looking at 2011 to 2013. Would you still expect to be able to hit that, even with the 50 basis point Durbin impact? Or maybe could talk about confidence around that at this juncture?

Sure. I mean, again, our theory is that guidance and, thank you, Chris, for noting that it's in any three-year period. I mean, we have no reason to believe that right now, that our guidance has changed. So we're not, let me be clear, because Tom is getting quite nervous. We are not giving guidance for 2013 at this juncture. But we believe our revenue is stepping up, began stepping, we went from minus 1% to 1% to 3%. This year we gave guidance that is 3% to 4.5% on an organic basis and we would expect to continue to see that -- to be a continuing step function in our growth rate.

Okay, that is helpful. And then on the Zash Pay, Jeff. Any new details you can provide there in terms of what the revenues is going to look like for Fiserv and maybe how most banks are charging for it today? And then, I guess, the other question would just be, what is the plans for the Zash Pay and Popmoney brands, I guess, are you considering consolidating the two? A lot of questions there.

So there a lot of question in there. So most banks are not charging right now. There are a few pieces of functionality that the banks -- that will be in the product in the second quarter that will I think change that. There are some areas like funding transactions to or from prepaid, things like that, where there are some revenue opportunities. We have zashpay.com, where we are charging for transactions and so we are seeing growth there. What I would like to do, and we are obviously looking at what is the best way for us to be in the market from both a branding and technology perspective. We anticipate those decisions to be made in the quarter. In the first quarter. And we are also going to start communicating transaction growth information in 2012. So when we release first quarter, we will actually have a lot more color on this.

Okay, great, thanks a lot guys.

Thank you.

Thank you. Greg Smith, Sterne Agee. Your line is open.

Yes, hello, thanks for that 2013 guidance.

Greg, don't do that to Tom.

Just kidding. The first question, the heightened expenses or the incremental expenses due to the profit sharing, is that in the corporate or is that blended in the segments?

Yes, we have it blended across the segments, so we allocate that back.

Okay.

So it will impact the margins in each piece of that.

Okay. Okay. Great. And then, Tom is there anything in the guidance for buybacks?

Clearly we do, right. We clearly have a -- we have a lot of difference scenarios that we run from a capital allocation standpoint and we are going to allocate our capital. This year, if you look back at 2011, we allocated some to a strategic acquisition and the rest was share repurchase. As Jeff indicated, we are going to continued down that strategy and we are going to be very disciplined with our capital deployment but clearly we have some capital deployment scenarios incorporated it into our guidance.

Okay. Great. And then just lastly, do you expect sort over the next few years for free cash flow to sustainably be above adjusted EPS? It seems like it has been but there's always a few puts and takes in any given year, but should we expect that to continue over the next few years?

Yes, I think you're going to see, I think it's going to track clearly net income from that standpoint over the long haul. And I think as you continue to see us and that's the cause here in clearly Q4, I mean, we just had a large revenue acceleration, and so as we continue to get back on accelerated growth track that we are on, we are going to be building working capital a little bit and receivables as we get to that next tier level. But clearly over the long-term, we expect that to be around that income growth and our CapEx is a little bit higher because of the data center thing that we had in the current year also.

Okay, great, thank you.

Thanks Greg.

Thank you. John Kraft, DA Davidson. Your line is open.

Good afternoon, gentlemen.

How are you, John?

I'm good. I just wanted to drill down a bit on the number of ACCEL/ Exchange deals signed. I realize that most of your clients are below the $10 billion mark, but I guess, I had assumed that in preparation of the April exclusively date, that you maybe you'd see a spike there. Is it just too early?

We, as you know, as you know well, John, the institutions are making decisions and, yes, a substantial majority of our debit business is below the $10 billion threshold. But we did, as we talked about at Investor Day, we did end up signing incremental clients on to ACCEL/Exchange, as a second network. And so we do expect to begin to see volume coming from that. But largely we think that will come -- I mean, some of these are still contracts in process. We don't think that will show up really in a measurable way until the end of the first quarter or even perhaps into the second quarter. But clearly we have secured some incremental clients from this -- from the legislation.

Okay good to know and then just one housekeeping for Tom. Any material termination fees in the quarter?

No, we had for the year, we had about $26 million of termination fees compared to $22 million last year. It was a little bit higher in the quarter, which is what we anticipated. Roughly $10 million in the fourth quarter compared to $4 million in the fourth quarter last year.

Perfect, thanks guys.

Thank you.

Thank you. And our last question today will be from Bryan Keane, Deutsche Bank. Your line is open.

Hello, guys. Most of my questions have been asked and answered. I just wanted to follow-up and dig in on a couple. On the financial segment, the 6%, I mean, that's an impressive number. So is that pretty much -- I heard the term fee was about $6 million higher, but that's pretty much all license sales and, I guess, Tom is there a year-over-year growth rate you can give me in license sales for that fourth-quarter to account for that big growth rate of 6%?

Yes, I mean, overall Bryan, it's up, our license sales are up not 10% but approximately in that general direction. And our license fees are up about $15 million. And we also have some other one-time fees in there for account upgrades and those sorts of things that happen in the fourth quarter. And also some services that we delivered to clients in that particular quarter also. So, overall, but the license fee component was a bigger component of that.

Hello, Bryan, just for clarity, when Tom talks about one-time fees, he's talking about product licenses from clients. He is not talking about that in addition to the license revenue. I just want to make sure we clarify that.

Yes, but it sounds like going forward in the first quarter because a lot of that growth is probably not going to be there. It will step down to a more normal growth rate that we see in financial.

Absolutely. I mean, we look at growth rates on a year-over-year basis. Right? I mean, because you're going to have -- in the fourth quarter we had a lot of things that fell into that particular quarter. Yes, we wouldn't expect. Bryan, for clarity, I know you aren't exactly asking but I will answer it anyway. We do not anticipate that we would have the same growth in Q4 that we are going to have in Q1.

No, I would not expect it but I did want to make sure that was, we were all thinking about that correctly.

We do believe, though, that just like the Company has been stepping up its growth rate, right, that the financial segment is also stepping up its growth rate. That's important.

And those license sales, that big increase, what is that in? What area inside of financial?

It's across the entire client base. One of the things that you have to continue to remember is we have over 5,500 core account processing relationships. And so we have number of products that we develop in each of those different platforms and so we're selling a number of different products into those existing client relationships. And it's primarily existing customers so when you think about 5,500 account processing relationships, there's just a lot of incremental opportunity to continue to deliver add-on value and that's what a lot of that is, it's really across the entire base.

Okay and then just finally for me, it was asked on Durbin Amendment, the 50 basis point, but I just want to make sure I understand it. It sounds like it's coming from the biller side that pressure will take place. Is that because you get a direct cut in the interchange or is that because you expect pricing pressure from the biller as a result?

Bryan, how I would put it is that, we have indicated that, you're right, it is in our biller business, and I'm not going to talk much more about that. The market in this business, as you know, is extremely competitive and I don't want to go into that much more detail but clearly, Durbin, given so that's the lower cost and that's really the impact on our revenue line from that standpoint.

Okay but do you see any impact from Durbin in a negative way from the financial institutions or you don't expect anything there?

No, nothing there at all, Bryan. This is all related to non-financial institutions.

And we wanted to make sure we clarified that because they're very different elements of the Durbin Amendment.

Yes.

Okay. Great, thanks guys.

Thanks, Brian. And thanks everyone for joining us this afternoon. If you have any further questions, don't hesitate to call our investor relations group. Thanks.

Thank you. This concludes today's conference. You may disconnect at this time.