Fiserv Inc (FISV) 2013 Q4 法說會逐字稿

Welcome to the Fiserv fourth quarter 2013 earnings conference call. All participants will be in a listen-only mode until the question-and-answer session begins following the presentation. Today's call is being broadcast live over the Internet at 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 link in the Events Section of its home page. The call is expected to last about an hour, and you may disconnect from the call at any time. Now, I will turn the call over to Stephanie Gregor, Vice President of Investor Relations at Fiserv.

Thank you, and welcome to our call. With me today are Jeff Yabuki, our Chief Executive Officer, Tom Hirsch, our Chief Financial Officer, and Mark Ernst, our Chief Operating Officer. Our remarks will include forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995.

We will make forward-looking statements about, among other matters, expected operating and financial results and 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 and the supplemental materials for today's call for an explanation of the non-GAAP financial measures discussed in this conference call, and for a reconciliation of those measures to the nearest applicable GAAP measures. These non-GAAP measures are indicators that management uses to provide additional meaningful comparisons between current results and prior reported results, and as a basis for planning and forecasting for future periods.

As a note, all of the data in the press release, supplemental materials and our comments today reflect our two-for-one stock split, which was completed December 16. With that, let me turn the call over to Jeff.

Thanks, Stephanie, and good afternoon, everyone. We closed out an excellent 2013, with solid fourth quarter results. We integrated Open Solutions, delivered new innovation to the market, grew sales and achieved our full-year financial goals, including our 28th consecutive year of double-digit adjusted earnings per share growth.

Adjusted revenue increased 10%, both in the quarter and for the year. Adjusted internal revenue growth was 4% in the quarter and 3% for the full year. Adjusted earnings per share increased 14% for the quarter and 18% for the year.

Adjusted operating margin increased 30 basis points for the year, due to high-quality growth in our recurring revenue businesses, the benefits of synergies, and operational efficiencies. Our strong financial performance translated into free cash flow of nearly $900 million for the year, and a stellar 20% increase in free cash flow per share, both measures exceeding our expectations for the year.

Sales also finished strong, attaining 138% of quota in the quarter before the strong performance of Open Solutions. Our market momentum gives us confidence in an accelerating internal revenue growth rate as the new revenue comes on-line.

Early in 2013 we provided three enterprise priorities to help you gauge our overall progress, and we're pleased with our results this year. The first priority was to continue to build high-quality revenue growth and meet our earnings commitments. Next, to expand market momentum into deeper client relationships with a larger share of our strategic solutions, and last, to deliver innovation and integration that enhances results for our clients with an important focus on Open Solutions.

As I mentioned up front, we met or exceeded each of our 2013 financial commitments. Our adjusted internal revenue growth rate increased to 3% from 2% in 2012. And our focus on high-quality revenue and operational efficiency allows us to drive strong earnings growth while investing for the future.

We also know that cash flow conversion matters, which is reflected in our 16% growth in free cash flow and 20% increase in free cash flow per share. We had strong consumer transaction growth in areas such as debit, person-to-person payments, and mobile. We also saw growth return in our electronic bill payment business, with transactions finishing the year up 7%, primarily from new client implementations.

Our second priority was deepening client relationships with a larger share of our strategic solutions. At our recent investor day, we discussed a variety of topics, including our account processing momentum in the mid-to-large bank and large credit union market segments. Since we met on December 10, we've closed four more sizable wins in these important market segments, further validating our strong value proposition for these institutions.

We also added more than 400 mobility clients and nearly 1 million new mobility ASP subscribers this year, more than doubling the number of users. Since launching our tablet ASP solution last April, we've signed more than 200 institutions and got up over 100 of these clients live in the fourth quarter. We remain focused on enabling our clients with a best-in-class digital solution as they transform the financial experience for their customers.

Speaking of which, our third priority was to deliver innovation and integration with an important focus on Open Solutions. Innovation is a critical market differentiator as we partner with our clients. As one of several proof points, we filed for 22 new patents in 2013 to further drive client success.

During 2013, we also received a number of third-party recognitions for our mobile technologies, and are generally recognized as having the leading solutions in the market. In 2014, we'll go live with a new user experience for our on-line banking solution, which reflects today's consumer preferences, including a seamless design across all digital devices.

We launched Snap-to-Pay, which allows a consumer to take a picture of their bill and easily set up a new biller in our bill payment solution. This product leverages camera functionality and encourages increased usage. Real-time movement of non-point of sale payment transactions is a unique opportunity where financial institutions can deliver both value to their customers and grow their revenue.

From zero, we signed over 150 institutions for Popmoney instant payments during the year. We believe that real-time will become the norm, and we expect to lead the charge in the new way money moves in this large untapped arena. Speaking of moving money now, same-day expedited bill payments were up more than 140% year over year, and we expect this growth to accelerate as we expand availability across the 1.5 billion bill payments we process each year.

One of our highlights is the integration of Open Solutions. The market's receptivity to our acquisition has been beyond positive, which is manifesting in less client attrition, a larger add-on sales opportunity than we anticipated, and meaningful sales momentum in DNA, and other acquired solutions such as Weiland account analysis and [Qnify] for account processing.

As I shared at investor day, we increased our original revenue and cost synergy targets to exceed $100 million and $60 million, respectively. We beat our original 2013 synergy objectives and are well positioned going into 2014.

We closed another 10 DNA sales in the quarter, bringing the total to 31 new sales, as compared to only 10 in 2012. Our new sales tend to be larger, multiproduct-licensed and outsourced implementations, which will primarily go live in the second half of 2014 and 2015, which means a substantial portion of this revenue is deferred into the future.

Earlier today, we announced that Washington Federal, one of the country's 100 largest banks, with 235 locations and assets over $14 billion, became the largest bank to ever select DNA. They were looking for an in-house, real-time account processing solution to anchor their technology vision.

DNA, integrated with market leading capabilities such as Corillian, Mobiliti and a variety of Fiserv's payment solutions will provide this rapidly growing institution the foundation for a differentiated customer experience. On that note, let me turn the call over to Tom to provide additional details on our results.

Thanks, Jeff, and good afternoon, everyone. Adjusted revenue for the quarter and full year increased 10% to $1.2 billion and $4.5 billion, respectively. Adjusted internal revenue growth accelerated to 4% in the fourth quarter, and was within the expectations we shared with you in the third quarter.

Internal growth in both the financial and payment segments was led by strength in our high-quality recurring revenue businesses. Full-year adjusted internal revenue growth of 3% was also in line with our expectations. Adjusted earnings per share for the quarter was $0.79, up 14% over the prior year's quarter, and for the full year increased 18% to $2.99.

Adjusted operating margin for the quarter of 30.5% was down slightly compared to the fourth quarter of last year. Margin performance was negatively impacted in two primary areas. As we previewed in the third quarter, corporate expenses were up in the fourth quarter, and given our strong finish, we also had higher variable compensation expense from both commissions and incentive compensation.

Overall, the corporate segment had a 100-basis-point negative impact on operating margin in the quarter. For the full year, overall margin increased 30 basis points to 30%, in line with our guidance. Overall, margin expansion was driven by high-quality revenue growth, excellent operational effectiveness results and open synergies, offset by a couple of larger headwinds coming into the year.

At the segment level, adjusted internal revenue and payments grew 6% in the quarter to $596 million. Growth in the segment for the full year was 5%, accelerating from 2% in 2012. Segment revenue growth was led by strong performance across a number of businesses in the segment.

Although we did see some continuation of the transactions slowing the industry experience at the end of the third quarter, we still recorded solid transaction growth. Debit transactions grew 13%, and we recorded 9% transaction growth in our bill payment business for the quarter. We added to our payments momentum with these mission critical solutions, signing 44 debit clients and 96 new bill payment clients in the quarter, and for the full year added 145 and 335 new clients, respectively.

Payment segment adjusted operating income was up 5% in the quarter to $184 million, and for the year increased 7% to $702 million. Fourth quarter adjusted operating margin of 30.9% is up slightly sequentially and down 50 basis points compared to the prior year's quarter, primarily due to the mix of revenue, including lower license revenue, and higher variable compensation, as I mentioned earlier. For the full year, segment operating margin was up 50 basis points to 31%, driven by growth in our scale businesses and operational efficiencies, partially offset by the revenue impact of the Bank of America bill payment renewal.

Adjusted revenue in the financial segment increased 15% to $600 million and 14% to $2.3 billion for the quarter and full year, respectively, primarily due to the acquisition of Open. Adjusted internal revenue growth in the financial segment was 2% in the quarter and flat for the full year. Revenue growth in the quarter was driven by our account processing and lending businesses.

Adjusted operating income in the financial segment was up 20% in the quarter to $208 million, and up 17% for the year to $761 million. Adjusted operating margin was strong in the quarter, increasing by 140 basis points to 34.5%, and by 60 basis points to 32.6% for the full year when compared to the prior year periods. Scale efficiencies and operational effectiveness savings, including open synergies, were the primary drivers for increases in adjusted operating margin.

The adjusted operating loss in the corporate segment for the quarter was $30 million, up sequentially and versus the prior year, as I discussed earlier. This was primarily due to higher variable compensation associated with a strong close to the year, unusually lower prior year expenses, and increased expenses associated with the implementation of a new HR system.

The adjusted effective tax rate for the quarter was 35.8% and for the full year was 34.8%, in line with our expectations. For 2014, we expect our tax rate to be slightly above 35%. We anticipate a number of discrete tax benefits, primarily in the second quarter, which should largely offset the combined negative impact of the R&D tax credit not yet renewed, and certain nonrecurring discrete tax benefits recorded in 2013.

We recorded a gain in our GAAP results related to a partial divestiture of a business within our StoneRiver joint venture. This after-tax gain of $54 million has been excluded from our adjusted earnings per share results. Given this divestiture and other activity within StoneRiver, we anticipate our after-tax adjusted equity earnings to be down about $5 million, or $0.02 per share, in 2014.

Operating cash flow was very strong in the quarter and had a record level of more than $1 billion for the year. Free cash flow per share was exceptional, increasing 20% to $3.33 as a result of earnings growth, improvements in working capital, and continued capital discipline. Total debt at year end was $3.8 billion, or 2.4 times trailing 12-months adjusted EBITDA, which is within our target leverage ratio.

Adjusted for our December stock split, we repurchased 2.3 million shares of stock in the quarter for $124 and for the year returned $587 million to shareholders through the repurchase of 12.6 million shares at an average cost of approximately $47 per share. There were 18.5 million shares remaining authorized for repurchase and 256.7 million shares outstanding at the end of the year. With that, I will turn the call back to Jeff.

Thanks, Tom. As I mentioned up front, sales, excluding Open Solutions, were strong, attaining 138% of quota in the quarter and 108% of quota for the full year. Excellent results in account processing and digital channels led our performance in the corner.

Actual total contract value for the year increased 6%, excluding Open, which is excellent performance given the record number of larger bill payment sales in the prior year. The TCV of our larger sales transactions has continued to grow, which is an important marker of future growth.

The aggregate value of our top 10 deals for 2013 was 20% higher than the prior year and more than 50% greater than the value in 2011. While the revenue from these transactions tend to come on slowly, due primarily to size and complexity, this tends to be high-quality recurring revenue that should provide an uplift to internal revenue growth over the next several years.

Integrated sales were $244 million for the year, up 29% over the prior year, beating our $210 million target easily. Sales were strong across a broad range of market-leading solutions, including bill payment, debit, statements, mobility, and source capture. We exceeded our operational effectiveness goal of $60 million, which includes the Open Solutions cost synergy target, by 35%.

We achieved $81 million of savings for the year, on the strength of greater than expected open cost synergy attainment and solid execution of our operational effectiveness objectives. Exiting year three of this five-year program, we've generated $188 million of annual savings, which puts us 50% ahead of our scheduled target.

The market environment has showed continuing stability. There were only five regulatory actions in the quarter and 40 for the full year, which is down 38% over 2012. We expect only a handful of regulatory actions this year.

Targeted M&A continues to be active, and we expect that trend to continue as institutions look for better ways to leverage their business model. Our view of the landscape remains the same as we highlighted at investor day, with financial institutions focusing their technology spend on solutions that generate revenue, deal with an uncertain, complex regulatory environment, or focus on operational efficiency.

Our key priorities for 2014 are generally in line with our 2013 priorities. First, to continue to build high-quality revenue growth while meeting our earnings commitments. Second, extend market momentum deeper into client relationships with a larger share of our strategic solutions, and third, deliver innovation and integration which enhances results for our clients.

Now, let me provide context for our 2014 guidance. As you know, our focus is to sustainably accelerate our revenue growth rate through the addition of high-quality revenue, which we define as revenue that is recurring, has high cash flow conversion, and is generally accretive to our Company operating margin. We are executing our plans and are pleased that our 2014 internal revenue growth expectation is within our long-term outlook.

In 2013, we increased our internal revenue growth rate to 3% from the 2% in 2012. As you saw in our release, we expect to achieve 4% to 4.5% internal revenue growth in 2014, which again steps up our growth rate at least 1%.

As we mentioned at investor day, we do have some notable headwinds impacting us this year, albeit at a reduced rate compared to 2013. In our biller businesses, we have some large client attrition, primarily associated with acquisitions of our clients. We also have a couple of large on-line banking implementations in our international operations that are going live that will have a negative impact on year-over-year growth.

We estimate that the more significant revenue headwinds this year are about half of what we dealt with last year, which provides a benefit to 2014 and should further abate next year. While we are clearly not giving 2015 guidance today, we expect to exit 2014, given current signings, backlog, and pipeline, pointed towards another incremental step up in internal revenue growth.

Now, let's move on to our actual outlook for 2014. We expect adjusted revenue growth of 4% to 5%, and as I just mentioned, we expected adjusted internal revenue growth of 4% to 4.5%. We expect adjusted earnings per share growth of 10% to 13%, or in a range of $3.28 to $3.37.

We anticipate growth in revenue and operating earnings to be stronger in the second half of 2014, primarily due to the mix of sales and the timing of client implementations. We estimate free cash flow per share will be up at least 10% to $3.65 or greater, on top of our exceptional performance in 2014. We also anticipate that adjusted operating margin will increase at least 50 basis points for the full year.

Our operational effectiveness target for 2014 is $60 million, which includes the impact of Open Solutions synergies. And last, our integrated sales target, which includes revenue synergies related to the Open Solutions acquisition, to be $250 million.

In closing, we're pleased with our 2013 performance. We acquired and integrated Open Solutions, moved our strategies forward, grew recurring revenue, delivered record earnings and free cash flow, and added to sales momentum, each consistent with the targets we laid out early in the year. And as important, the success we had last year sets us up for additional revenue growth acceleration along with strong financial performance in 2014.

However, none of this happens without the collective effort of our more than 21,000 associates who are committed to our clients and are truly the engine of your Company. With that, Angie, let's open the line for questions.

Thank you.

(Operator Instructions)

Our first question comes from Dave Koning from Baird.

My first question, bill payment, you've done a tremendous job accelerating revenue growth there with the signings. And you've had a few quarters of high single to low double-digit transaction growth. I'm wondering how much of that is from the new wins and how much is kind of underlying growth, and what's the sustainable growth over time in that business?

It's a good question, Dave. We -- clearly with the size of the conversions that we had in 2013, a lot of that growth came from migrating the new clients on the system. As they get on, we expect those newer institutions to move up to a more normal rate as we would see within our base.

And so we expect to have better than average growth from those larger institutions in 2014 as compared to their peers, who are more mature within our system. We have, as I mentioned, or as we've mentioned, we have some larger implementations coming on in 2014, and we think that will definitely help, and we have some platform changes that we're making. There was a release that we put out in the last month or so around the gamification of our experience, and we expect that will actually have some pretty intriguing sustainable growth characteristics, although we won't see that really until 2015.

I would say the only drag that we have, and we've had it for the majority of this year as well, is our largest client, which is obviously Bank of America. As we move through the repricing, Bank of America has just not grown at the level that we've seen across some of our other clients, and because of the size of that, it tends to drag on our rate a lot.

But across the universe, we feel good about where we are, we feel quite good about the implementations we have going on in 2014. And frankly, we ended up having a very strong fourth quarter, and those implementations will happen later in the year and into 2015 as well.

Great, okay. Just my second question, we got in touch with a bunch of banks lately and just asked them what they thought about EMV requirements that might be coming up. And certainly, there's a lot of moving parts still in how that's all going to play out. But one thing that kept coming up is they would say, we'll just ask Fiserv what to do when the time comes. And so it seems like that could potentially be a good opportunity, but I'm wondering how to think about that.

Is that something that you get paid for, to consult them and to send out all the new cards? How should we think about that?

Sure. And Dave, I think as you know, we have a couple of different businesses in that space. We obviously have our debit business, our debit processing business, and we have some consulting services that are in there as well. And we're working with clients to help them optimize their revenue, reduce their fraud, deliver more profitability on a card by card basis.

The second business that we have is our output solutions business, which is actually a plastics manufacturer. And so in that business we, actually, about a year, year and-a-half ago, we made significant investments to prepare for EMV, so we are quite ready for EMV. As that occurs, and as EMV moves through the system, which I believe the mandate is sometime in 2015, which will take several years to actually get fully rolled out, but we do expect that -- we would expect that to have a positive impact on our reissuing of cards.

It's hard to quantify exactly what that is, but I would certainly qualify that as a tailwind moving forward. I can tell you that as we sit here today, we have not assumed that the incidents that we're seeing in the market have any meaningful impact on the EMV time frame. That said, I do expect that the outcomes of these kinds of issues will, in fact, have some impact. And I think as we move through the year, we'll be able to give you better insights as to how that will impact our results.

Great, thanks, nice job.

Thank you.

Darrin Peller from Barclays.

I want to start off first with the guidance that you gave for both top line and first. When we look at end of year run rate and your payments growth rate being as strong as it was at 6%, and even financial obviously accelerating nice, had a fairly decent pickup. And we couple that with, I know some of the headwinds that you had been talking about abating at the end of December, rolling off, it just seems like the 4% the 4.5%, does that account for how much headwind? If you can get a little more granular with what actually rolled off from a headwind standpoint, what's coming on from a headwind standpoint, and than on top of that, maybe you can expand further?

It seems like the payments mix, being more mobile banking, being more bill pay, more pin debit, should drive really a better and better growth rate in that payment segment through the year and through 2015 as well, which one would think would drive a better accelerated growth rate on top of what you are seeing at the exit of this year. Is there any -- can you just kind of poke holes in what we're saying here and help us understand why there wouldn't be more acceleration?

Darrin, it's Tom, then I'll turn it over to Jeff. I think, as you know, our business model, as Jeff highlighted in his comments, when we bring on this revenue, we're extremely focused on high-quality recurring revenue, and it does it take time to build up. We've made, I think great progress; our guidance, as you know, internal revenue growth of 4% to 4.5%, coming off a year of 3%.

As to your specific question on the headwind side, we indicated last year that we had a little bit, around 1%, headwind coming in on a combination of two events. And we have about half of that coming into 2014, as Jeff highlighted in his prepared comments, both in our billing business and in our international. So, that's clearly helpful.

If you wanted to articulate that, it's about 50 basis points of help in 2014, but we're growing on top of that roughly 1%, given our actual internal growth rate that we had in 2013. So, that 1% is about $40 million. So there's always puts and takes in every year what we have, but again, I think you will see that momentum continue to build as we kind of go through the year.

We have a lot of our new business, our new clients that are coming on from Open primarily that is going to implement in the second half of 2014. And that should give us nice momentum, again, to kind of build off that as we leave 2014 and come into 2015.

And Darrin, I would say that if you take a look at the performance of the payments segment, or both segments, but really the payment segment, through the year, and we obviously had a better second half of 2013 than we did in the first half, and we would expect to see that same performance in 2014. I think one of the things that is going on, and one of the reasons why we are where we are in the guidance is, on top of the headwind issue, I mean we are obviously dependent upon our clients to go live. And there are implementations that have moved a little bit, and in some of these cases, it doesn't take very many implementations to have some kind of an aggregate effect, so that's one of the issues.

The other thing, frankly, is as we ended up the year, we mentioned we had quite a strong sales quarter, and we had absolutely a very strong sales year overall, but the mix of that business really biased much more to recurring revenue and more complex posted implementations. And that has a real -- as we shared at investor day, it has a real impact on how we can in fact recognize that revenue.

I think if you look at our balance sheet, you will see that the deferred revenue is growing. You can see how our cash flow looks, you've just got a number of those factors that come into play.

And the other piece of it, frankly, is as we sit here today, on February 5, there are a number of puts and takes that we can see in the landscape, and we think that where we are right now is the best place for us to be. We feel good about the fact that we're within our long-term outlook. We feel good that we're going to continue to step our revenue up through this year.

And as we mentioned, we're not giving guidance for 2015, but we do feel good about where we see our exit rate. Just like we had the 4% exit rate this year on the heels of better second half performance, we would expect to see a similar outcome, all things being equal on February 5 of 2014, as we exit this year. So we actually feel quite good about where we are from a revenue perspective, and we will see that build throughout the year.

Yes, no, that makes sense, especially as you see the increased percentage from some of the faster growth areas improve your mix. And you're right, the end of the year did certainly show up in that way.

Going one step further, then I'll turn it back the queue, on the financial side, we certainly are seeing momentum with RFPs. You are seeing a lot more deals signed. I would just love to hear your perspective, what exactly you think is going on in the market around the banks and your customer base that is really driving that much more demand today.

Is it vendor consolidation? Is it more just cost efficiencies that are pent up? Can you give us a little more color on how it's become so much stronger and if it's sustainable?

Darrin, when you talk about the RFPs, are you really talking about on the core account processing side?

Exactly. On the financial side, it's definitely taken a new level of growth and seems to have a new life to it.

I would say -- it's interesting that you say that, and Mark spent time talking about this at investor day. I'll give a little bit of perspective and let Mark answer the question. I don't think we would say there's more -- necessarily more RFPs. There are lesser banks in that space.

There is some M&A activity, and often when you see -- have M&A activity that in space, you end up having two banks coming together, and they decide to go to RFP. I think for us, we would say that we had not had the success that we've had in that space. I think we mentioned in our prepared remarks that not only had we won, I think, six deals when we talked on December 10 at investor day, but we've actually -- in the large bank space, we actually won three additional since then.

Was it seven? It was seven. Sorry, Tom corrected me. So we've -- it's really our value proposition that is resonating more, and frankly, I think that's what's starting to separate us. But Mark --

I've got to say, I'm not sure that we would conclude that we're seeing more RFP activity. You may be hearing about it in a way that you haven't historically, but the strict RFP activity looks pretty similar to what we've seen historically. It's a little bit different between banks and credit unions.

On the bank side, as Jeff mentioned, when you -- we are seeing more activity when two banks are coming together, and we are seeing some of that. And the consequence is, as many of these banks are looking for their own business plans and how they expect to grow into the future, they are, in fact, looking at their core platform and whether or not that platform can take them into the future.

I think something like Wash Fed, that we announced this morning is a great example of that. As they are rapidly growing, they knew they needed a different technology platform from which to enable that growth. We are seeing that, but it's probably not more activity, just maybe more prominent activity.

On the credit union side, that one I'd say is a little bit different. When we think about the credit union, I think this past year there was a lot of activity, induced in many ways by us and in our combination with Open Solutions. We don't think that is going to sustain at the rapid clip that you saw last year in terms of the amount of activity that's noisy in the market, but that remains to be seen.

Clearly, there is a bias toward leading technology in the credit union core comp processing world, and we think we are really well positioned with that, because of the DNA and the multitude of platforms that we have that position us well to be able to meet a variety of different credit union needs. So maybe more color than you were looking for, but I think we are pretty close to this market and feel good about where we're positioned.

Darrin, I would say -- I would make two other points that I think are important. One is a little bit more of a global point, and that is that, we talked about investor day is, this may be overly generous, but there's almost a democratization of the technology availability, in that these mid-to-large banks who are -- historically have competed with these larger banks, it's been very difficult for them.

Now, we are making -- generally making those kind of technologies available. So our value proposition, as these banks focus on areas like channels and payments and other kinds of things, they want that value proposition that looks a lot like the very large banks. And because of our market leading best-in-class technologies integrated into these cores, it's a much more valuable proposition.

And then the other point that's really important is, the Washington Federal deal that we announced today, we could not have responded to that RFP had we not owned Open Solutions, because we actually did not have a real-time in-house solution, and so we would have been excluded from that. And that transaction ended up being very attractive for DNA, but multiples larger because of all of the other add-on solutions that we add into that. Those kinds of things will end up not just seeding the financial segment, but actually the majority of revenue in that transaction will actually show up in the payment segment over time.

The other thing I'm going add to Jeff's comment, in that large bank segment, call it bigger than $3 billion banks, maybe up to $30 billion, this past year we won -- we landed new clients with four different platforms. That is the importance of having a variety of different technologies that meet different needs of different institutions that have different strategies.

The other part of the genesis of the question I had is from your investor day, hearing about all the larger, $3 billion to $30 billion size banks being an opportunity for you guys. But that's all been very helpful color, guys, thank you.

Thanks.

Thank you. Brett Huff from Stephens Inc., your line is open.

I just have one question, sort of bigger picture. You guys have amassed a really good set -- suite of services, and I think your other competitors are moving along in that way as well. What is -- can you outline your strategy as it differs from others?

It seems like you guys have had a lot of success with the cross sale, bill pay, card processing, et cetera. Are you -- is a proprietary system that you're implementing? Is it an open system? What is the strategy that allows you to win those deals?

Are you bundling? Are you pricing more aggressively? I just think your string of cross sales continue to be really impressive. And so what's the strategy of winning there for you?

There -- Brett, I wish it were as simple as a one size fits all answer. I would say that early on, if you think all the way back to 2006 when we introduced this, we were probably selling a little bit ahead of our value proposition. We were talking about integration, we were talking about what are those services that we can bring that will allow us to help our clients best serve their customers. And over the last several years, we have buttressed our integration.

We have real integration advantages in our payments platforms, we have real integration advantages in our channels platforms. We've looked for places where data allows us to provide new value. It's very early, and it's not meant to be a big data comment, but data ultimately will be very important in how this all works together.

We've clearly bundled in many cases. We know that at times we need to work with our clients to allow them to have access to more of our technologies, and we're willing to do that in a way -- we care a lot less, for better or worse, we care a lot less about the revenue that's created instantaneously. We care about the revenue that's created over time, and how do we think these clients will grow.

So we try to use more creative pricing strategies where we can, and where it helps our clients step into our technology. And we've actually done a fair amount is of that over the last year, and I'm really excited about some of the creativity that Tom and Mark and their teams have brought to bear on that.

Then the last piece is, our people really believe it's valuable. We have -- we spend a lot of time talking about the advantages that we bring. We reinforce it, we hold people accountable to delivering this value that we know is there for clients. But at the same time, if there's a client who doesn't want our solution, we're open to integrating other people's solutions in here.

It's not a proprietary -- we have many proprietary products, but it is not a closed loop. We are open to allowing other solutions to come into our market. In fact, if we don't have the best solution, we would encourage other folks to -- we would encourage integration with other solutions, so that's clearly part of our value proposition.

And then the last thing I would say is we've dramatically improved our referencability, because we've introduced a service model over the last couple of years that encompasses and brings together the fact that you can't have a single-service manager anymore. You have to have someone who can manage a holistic relationship. And that was one of the challenges that we had early on, and we've seen significant improvement in that area and much happier, much more engaged clients who are, frankly, happy to tell their friends.

One other thing I would add to that is, and Jeff talked about the fact that we offer clients to pick and choose or do what they want to do. But one of the advantages that our clients regularly report to us is they see that we have the market-leading surround solutions. And because of that market-leading position that we have with a variety of these additional add-on services, it actually allows people to have confidence to take a full suite from Fiserv rather than needing to go elsewhere. And that integration advantage that we build into our technology that we add on really is very real, that brings financial benefits back to our clients when they bring in Fiserv solutions.

That's helpful, just one last question. Any update on the mobile banking and the peer to peer revenue/business model? And then I'll get back in the queue, thanks.

Not -- I would say, if that's about real-time -- Brett, are you still on?

Yes, it's the mobile banking that you guys have had success with, is that going to be like -- you know that banking where it's $2 a user a month? Or where's the revenue model there, just on the Internet -- or the mobile banking piece? Or is it really going to be the add-on services of bill pay that you are giving away for free and you make money on the back end?

And then a separate question for Peter (multiple speakers), Peter, I know you guys have talked about trialing different --

As we sit here today, we have multiple ways for clients to acquire those technologies. You have a license and services model, you have a license, services and hosted model, and then we have the more broad solution, is an ASP subscriber-based model. We added nearly 1 million users to that model this year.

Our tablet solution works exactly the same way. We signed 200 clients in 2013 and got -- went live with 100 of them late in the fourth quarter, and that's on a subscription basis as well. So, it's any of those models, depends on the strategy of the institution.

We see this to be economically viable in its own right. And then integrated with our additional solutions -- I think one of the slides we had at investor day are things like source capture, mobile capture, P to P, and a variety of other kinds of solutions that are additive in the mobile wrapper. Thanks, Brett.

Thank you. Glenn Greene from Oppenheimer, your line is open.

Thank you. Good afternoon, guys.

Hello, Glenn.

First question, just want to get clarification on the Open sort of synergies that you're assuming into 2014. I think you sort of called out within the $60 million operational effectiveness and the $250 million integrated sales haven't included Open. Any way to give us some color and give us some perspective on how much of the total Open synergies should be realized by the end of 2014?

Yes, I think most of those synergies were realized in 2013, and we have another piece that's coming in in 2014. So I would say, again, the amount of synergy value from a cost synergy standpoint is less than 2014 than it was in 2013.

That being said, we continue to have good momentum with that. And the cost synergies, where we said greater than $60 million, that's going to be largely accomplished in two years, Glenn, to give a little perspective of that. And then a little bit in year three also, we'll have in some there in one particular area, so that's from a cost synergy standpoint.

I don't know, on the revenue synergy, clearly, it's going to be the other way. It's going to take a number of years as we continue to build that from an integrated sales target standpoint. We built in those revenue synergies. You saw our success in 2013 and our increased target in 2014, so that is going to continue to build over the next several years.

So the $250 million integrated sales doesn't assume a lot for Open in 2014, and then it sounds like you realized a fair amount of 2013 synergies already?

On the cost side.

Can you -- how much was that, of the total $60 million was realized in 2013?

I would say it's probably half, somewhere plus half of that. That I don't have that in front of me, Glenn, but it's somewhere around there. And there will be -- by the way, there will be an integrated sales piece this year related to Open. We have some good momentum there, and so that revenue synergy, that annual revenue will have a good year this year and more momentum as we head into 2015.

That's helpful. And just a different direction, you may have referenced this at the analyst event, but maybe for Jeff. Any change in your international aspirations, ambitions there?

No, we laid out three or four areas at investor day that we feel are good opportunities for us. They link to where we have competencies, they link to where we have relationships and leadership. And we shared -- there were a couple of areas in payments and some interesting areas in the account processing area.

And what we said is, we expected upon execution that would add about 1% of incremental internal revenue growth in 2016. So, we're executing that. It's early, but we remain confident that we can grow that piece of the business.

Obviously, the substantial majority of our growth is coming from the US operations, and so this is kind of an add-on. When we talk about our results, just don't have meaningful -- at the enterprise level, we just don't have meaningful international growth in our numbers.

We're going to be very careful, as Jeff hit on, around our business model, which is really, again, focused on high-quality revenue, accretive to operating margins with a very high cash flow conversion. You can see the strength of kind of our business model this past year with the -- our free cash flow per share at $3.33; 10%, again, ahead of our -- on top of our adjusted earnings per share. So we are going to be very focused on having the right business models internationally that are going to have those long recurring revenue streams, and it's very important in our discipline in that regard.

The key implication of that is, even the efforts that we have underway today are not going to show up in revenue growth for a couple years.

Understood, makes sense. One more quick question, just in terms of the FY14 organic growth. Does it assume any meaningful pickup in the cash hedge P to P business, or still working through the revenue business model there?

I think it will assume meaningful increase in transactions, but not a meaningful increase in revenue. It's still quite early.

Okay, great. Thank you.

Thank you.

Thank you. David Togut from Evercore, your line is open.

Good evening, this is Rayna Kumar for David Togut. Can you quantify your expected operating margin expansion between your payments and financial segments?

We don't give guidance at that particular level on a segment basis. I think, again, we don't see anything from a standpoint -- overall, our margin guidance is greater than 50 basis points. So I don't see any large variations from a standpoint of what we anticipate in the future, any unusual items from either segment as I sit here today, so I don't think there's going to be anything unusual from a modeling standpoint.

Okay. Could you call out the termination fees in the fourth quarter of 2013 and then the fourth quarter of 2012?

Yes, our overall, excluding Open Solutions, our term fees in the quarter were up about $5 million to $6 million, but our license revenue was down about the same amount. So they were up a little bit from a term fee standpoint, excluding Open, and again, down on license fee.

For the full year standpoint excluding Open, our term fees were flat and our license revenue was down about $10 million to $15 million. That, again, is around, as Jeff and Mark have highlighted really, a big focus on recurring revenue, our mobility platform, those type of demands in the marketplace, where the license revenue has kind of come down from those levels.

Got it. If I can just sneak in one last question, do you have any major bill pay renewals in 2014, and could you just give us an idea of how we should be thinking of bill pay transaction growth for 2014?

Yes, we don't give of on a -- we wouldn't be giving transaction growth guidance on a solution-by-solution basis. We expect to have good, solid growth in that business again this year. Each year we have some larger renewals, and this year is not dramatically different than kind of a normal year.

We'll have a couple, as we normally do.

Thank you.

Thank you.

Thank you. Ramsey El-Assal from Jefferies, your line is open.

Can you update us on the Open Solutions contribution to total revenues in the quarter? Is that anything you have ever broken out or would consider?

Yes, you actually -- for a large part, we disclose our acquired revenue. We're not going to do that on a go-forward basis, but clearly, that is the -- primarily the acquired revenue associated with Open that you see in the press release.

Okay, got it. Another question, in terms of the real-time payments capability, Popmoney is more of a consumer solution, but it would seem like the real-time capability could really help any business that has to authorize transactions up front, only to settle from the back end with ACH later, which obviously can lead to meaningful amounts of fraud loss. So are you speaking with or contemplating speaking with any non-bank heavy ACH settlers?

I'm thinking like a Paypal, or I know Target Red Card would be something where they're having to off the transaction and then settle with ACH later. How broad could use your use case become for real-time, outside of what you have discussed to date?

There is no question that the use case -- the use case is you take something like Popmoney, right, that is a very basic real-time use case. Being able to have an expedited bill payment, that's a pretty basic use case.

So C to C use cases are kind of the easy ones. C to B use cases get a little bit -- you kind of have that ladder of complexity or opportunity. We have thought about this very broadly in terms of the network effect possibilities.

By the same token, we want to drive significant value for issuers. We certainly have relationships with merchants and billers. We have larger relationships with issuers, and so we're really focused on the issuer base right now.

We're building the capability to be used as broadly as it can be used, but right now, issuers are our primary focus. And we do see, in talking to issuers, we've talked about this at investor day, that I think we used US Bank and PNC as examples of large institutions who were thinking about real-time, and we talked about US Bank using our Pep + Direct Connect capability as their real-time engine.

If US Bank decides to make that available to a merchant or a biller, that's fantastic, because they'll derive revenue from that. But we, at this stage, that is where our focus is, on the issuers.

Okay, great. Guys, thanks for your responses.

Thank you.

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

Just -- I always follow through with a pipeline, forgive me, but just want to ask again about sales conversions and timeliness of backlog conversion, things like that. Any change in what you're hearing on the ground there?

No, I think actually our pipeline is in pretty good shape. We had a big fourth quarter, and we have a healthy pipeline.

We'd always like that pipeline to be larger, but we are going to actually end up -- we had a very strong January. We announced, obviously, the Washington Federal deal, that was a large deal.

That was a big one.

Yes, we're in good shape on that front. Now, as we move throughout the year, we'll expect that pipeline to build, especially as we start thinking through some of the international opportunities. So the pipe feels like it's in reasonable shape, given where we are and the strong finish to Q4.

On the conversion timelines, it's one of the things I was talking about earlier, in that we do see some slippage there. There continues to be some challenges, especially in the largest banks, in terms of how they're prioritizing everything from last-minute regulatory changes to changes and challenges to their revenue model.

So we don't -- we're not anticipating -- I'd say it this way. We're not anticipating any aggressiveness or acceleration in implementation timelines, and in fact, I would say if you pressed us, we would probably say that we would see more slippage as opposed to acceleration anywhere, and we've accounted for that -- generally accounted for that in our guidance this year.

I'm asking because we cover some of the systems integrators as well, and we hear mixed things. But it does feel like there's a mix shift towards some of the mobility and some of the digital stuff that you're talking about. And of course, they're cutting in other areas also to reduce costs. So, how does -- how do you think the Fiserv portfolio fits, if that theme plays out? Because you sit in a lot of different places.

Do you think there will be more volatility this year or less, in terms of conversion? I caught what you said about the slippage, but trying to understand a little bit deeper the secular implication, if that question makes sense?

Yes, yes. So, if you take it down to the product portfolio level, clearly, since 2007, we've seen less discretionary spending across the entire portfolio. If you interject the impact of digital, and specifically mobile, tablet, those kinds of things, you're exactly right.

We've seen a product go from zero to really commanding a significant amount of the incremental spend. And because we know what IT spend is, obviously, something's got to give. The good news for us is, most of what we had been doing discretion -- on a discretionary basis has already left our portfolio.

We still have, believe me, we still have plenty of opportunities to see reduction. But a lot of what we do, a substantial majority of what we do, sits in these mission-critical places like core and ACH and on-line banking, and all kind of transaction processing which is just not -- it's not going to be -- that's not going to be on a discretionary basis. And because we don't have a gigantic services and license portfolio, a lot of what our revenue is, is on a click basis, we aren't seeing the kinds of big pressure that I think systems integrators may, in fact, be seeing.

It does put more pressure on the speed in which mobile and digital is moving, puts more pressure on to us invest, and to continue to make sure that we have the right products. As we showed at investor day, we referenced again today, we've completely reengineered our Corillian ASP experience, and that experience, which really reflects what's going on in the world today, that takes investment.

So those kinds of things do, on the bottom side, cause us to spend more money. But I think, as I think about our portfolio versus other portfolios, I think we have a portfolio that is biased to more growth over time and, frankly, more quality growth, as Tom talked about just a few minutes ago.

Great, thank you for that. Just one quick follow-up. The Open, how did that come in versus plan?

I would say that on virtually every front, Open has outperformed our expectations. There were lots of stories out there about the product, and you worry sometimes that's not product, it's people. This is a great group of people, we're excited that we have them in the Company.

The clients, just -- considering it was a competitive acquisition, we used to compete, the clients have been so open to the kinds of capabilities that we can bring. That's been, frankly, tremendous.

The costs we got out, as Tom referenced, we got out a little bit quicker than we thought we would, and we have another phase of consolidation that we'll be working on this year that will show up next year. And then on the revenue side, we're going sell hard, and I think that will all be positive.

31 wins as compared to 10 last year, and in fact of those 10, only 3 of them were within their own shop, 7 of them were actually through resellers. So, that's all been great.

I would say on the not as good front, frankly, there just wasn't as much current revenue as we were anticipating in 2013. Our current revenue was lower, and it was lower because we didn't get the level of reseller revenue that we had anticipated, or I would even say that we anticipated, that was built into their model. And surprisingly, the number of termination fees was dramatically less because we didn't lose very many clients.

So that's bad news up-front, but not having resellers in the base, not having termination fees in the base, we think it's very good. And we still feel like, as Tom shared at investor day, this will end up being somewhere 4 or less on an EBITDA multiple basis.

Understood. That's all very helpful. Thank you.

Okay. I think we have time for one more question.

Thank you. Kartik Mehta from Northcoast Research, your line is open.

Good evening, Jeff, Tom, and Mark. Jeff, there's been a lot of talk about brand consolidation, or at least banks looking to do there. Is there any positive or negative impact to Fiserv because of that?

Probably some positive and some negative impact to Fiserv. I would say in the near-term, as -- if you think about it, as banks consolidate, there could be some [sea] implications and things like that on teller systems or source capture licenses, and those kinds of things. But on balance, the notion of branch consolidation, I think is a very good thing for us. Because we sit in a very prime spot as it relates to providing the technologies that are going to be required to interact and build relationships with consumers.

And I think probably the thing that is most missed when we think about digital is, if branches really consolidate, I think -- if you think about the sea change in the model, which is probably 20, 30 years away, right, as people like me die off, you are going to have the requirement for the technology to facilitate the equivalent of a face-to-face relationship. And the dependence on that technology, and the predictive ability that will be necessary in that technology, those kinds of things will drive significant revenue opportunities for the companies who can figure that out. And frankly, we believe that we may not be ahead of the curve, but we're on the curve, and we're focused on that.

I mentioned that we had 22 patent applications filed in 2013. It's because we're creating new innovation that is focused on this converging technology. So I think over the long haul, it will be good for us.

It will probably be good for all the providers, and it's hard for me to see how it becomes bad. I think you'll see video and other kinds of technologies play an important role in that. So, right now I would say it's interesting, but I don't think there's a significant impact on us, so long as the institutions themselves are able to keep up with that trend.

Just one last question. Mark, you talked about RFPs, and maybe last year some of the credit union RFPs were created because of Open Solutions, and maybe what you were trying to get accomplished. But as you look into 2014, is there any difference that you are seeing in spending between credit unions and banks, or is it more normalized?

Well, I'd say it looks different. You have much more active consolidation and trends there in the banking side of the business than you do in the credit union side. But even there, you still have some of that going on in the credit union side of the industries.

Probably on balance, credit unions are more likely to look at technology to better enable member service, and therefore, they may be kind of more on the leading edge, looking for new technology. And I don't think there's any indication that's different in 2014 than where it's been.

But on balance, I don't know that we see different things going into 2014 than where we've been, other than the fact that the issues with the Open acquisition and the various kind of financial -- credit unions in particular that were in motion, that had to settle out in 2013, that's behind us now. So I think that's the big change going into 2014.

Well, thank you very much. I hope you guys have great night.

Thanks.

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Thank you. That does conclude today's conference. Thanks for joining us this afternoon.

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