Fiserv Inc (FISV) 2014 Q3 法說會逐字稿

Welcome to the Fiserv third quarter 2014 earnings conference call

(Operator Instructions)

As a reminder today's call is being recorded. At this time I will turn the call over to Stephanie Gregor, Vice President of Investor Relations at Fiserv.

Thank you and good afternoon. With me today are Jeff Yabuki, our Chief Executive Officer; Tom Hirsch, our Chief Financial Officer; and Mark Ernst, our Chief Operating Officer. Please note that this afternoon's earnings release and a supplemental presentation for the quarter are available on the investor relations section of our website at www.Fiserv.com.

Our remarks today will include 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 for a discussion of these risk factors.

You should also refer to our materials for today's call for an explanation of the non-GAAP financial measures discussed in this conference call along with 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.

Unless stated otherwise, performance comparisons made throughout this call are year over year and references to the year represent current year results through the end of the third quarter. And with that I will turn the call over to Jeff.

Thanks, Stephanie, and good afternoon, everyone. Results for the third quarter were strong across the board. We are executing on our business model, delivering value to clients and developing products and services that we believe will contribute to increasing our internal revenue growth rate into 2015 and beyond.

We achieved 5% adjusted internal revenue growth in the quarter led by 8% adjusted internal revenue growth in our payment segment. For the first three quarters of the year adjusted internal revenue growth is above 4% well within our guidance range and a solid increase over the 2% growth in the comparable period last year.

Adjusted operating margin performance continued to be healthy increasing 70 basis points in the quarter and year to date. The 31.2% rate in the quarter is the highest performance since the launch of our Fiserv 2.0 framework in 2006. We view operating margin as an important outcome of our business model and a key measure of the differentiated value that our solutions provide for Fiserv clients.

Adjusted earnings per share increased 10% in the quarter and is up 13% through September 30. Free cash flow was excellent in the quarter and is up 13% for the year to $674 million. Free cash flow per share, one of our most important performance metrics, is up 18% to $2.65 for the year.

Total sales in the quarter was up 27% over the prior year and has increased 14% through September. We are well-positioned to close out 2014 as one of our strongest sales years ever.

Now let me provide an update on our 2014 enterprise priorities, which as a reminder are: first, to continue building high-quality revenue growth while meeting our earnings commitments; second, extend market momentum to deepen client relationships with a larger share of our strategic solutions; and last, to deliver innovation and integration which enhances results for our clients.

Our first priority is centered on building our internal revenue growth rate on the back of high-quality sustainable recurring revenue. We are executing well against this priority.

Adjusted internal revenue growth to date is at the top end of our 2014 full-year guidance of 4% to 4.5%.We've seen strong execution across the majority of our existing businesses led by our payments, account processing, and online banking businesses and good take-up in our innovation-based solutions such as Mobiliti.

We continue to see strong adjusted operating margin performance which is an outcome of our growth and high-quality revenue and utilization of our operational efficiency [muffle]. Importantly, we are also starting to benefit as some of the investments we have been making, both in products and acquisitions, are beginning to scale.

As our recurring revenue solutions ramp, we expect this performance to support additional margin expansion over time. We are confident in our ability to continue expanding Company adjusted operating margin by at least 50 basis points annually, consistent with our long-term outlook.

Given our strong results to date, we have moved our adjusted earnings per share guidance up to $3.34 to $3.38 or a 12% to13% increase for the full year. We remain solidly on track across our key financial metrics.

Our second priority is to extend market momentum to deepen client relationships with a larger share of our strategic solutions.

We added 152 new mobile clients this quarter and now have over 2000 clients signed for our Mobiliti services. More than 270 institutions have gone live on Mobiliti this year alone with several hundred remaining in the queue. Mobiliti ASP users this year have grown more than 65% to over 2.5 million subscribers.

Speaking of leadership, our Mobiliti product was recently recognized by Ovum as the market leader in their global mobile banking vendor evaluation. Our award-winning technology allows for ease and extensibility and leadership in customer experience which is critical as the industry navigates a digital transformation.

We also saw an additional 116 clients to our Mobiliti tablet product this quarter and now have more than 20% of our mobile clients offering our tablet solution as part of their digital suite. We were very excited to sign our 50th new DNA clients since last year's Open Solutions acquisition. This performance is even more impressive when considering that the entire market, covering all banks and credit unions, has an average of less than 300 core account processing replacements each year. These results are indicative of a move by some larger institutions to consider platforms that have more modern technology, integration advantages with our market-leading products, and the benefits of real-time experiences.

Through September 30, 11 of the 50 new DNA clients are live including two of the larger credit unions in the country. Randolph Brooks Federal Credit union at $6.5 billion in assets and Navigant Credit Union, a $1.5 billion institution. Both of these clients are excited about their new technology platforms, and we look forward to serving them for many years to come.

Our market momentum goes well beyond DNA. As an example, we were pleased to extend our technology relationship in the quarter with First Republic Bank with $46 billion in assets for account processing and other services. This relationship came to Fiserv as part of the Open Solutions acquisition as well and is yet another example, of the opportunities we are forging with that client base.

Our third priority is to deliver innovation and integration which enhances results for our clients.

On our last call we mentioned the July launch of Agiliti, our cloud-based retail banking technology solution in the UK. In just a few months we have seen strong interest from both de novo and existing institutions which is fueling excellent pipeline growth. We expect our first live clients towards the middle of next year.

We are also establishing a beachhead with our new Mobiliti business product to help banks deliver digital capabilities to their coveted business customers. Interest in the solution is high, and we started adding new clients in the quarter. The solution should start contributing to revenue growth in 2015.

We have a number of new solutions pointed at the evolving ecosystem of real-time money movement through financial institutions. This area is increasingly in the spotlight, and we believe our assets which include payment rails, applications, channel capabilities, and intelligent positioning to risk tools and analytics are positioning us well in this emerging new reality. We are seeing early adopting financial institutions use these services to deliver value for the customers and to generate fee income.

Now let me turn the call to Tom to provide additional detail on our financial results.

Thanks, Jeff, and good afternoon, everyone. Adjusted revenue was $1.2 billion in the quarter and $3.5 billion for the first nine months of the year. Our adjusted internal revenue growth rate was 5% in the quarter and is above 4% year to date showing strong acceleration over the prior year and at the upper end of our 2014 growth rate guidance.

Adjusted operating income increased 7% in both the quarter and first nine months to $370 million and $1.1 billion respectively.

Adjusted operating margin was up 70 basis points to 31.2% in the quarter and expanded 60 basis points sequentially. Year-to-date adjusted operating margin is up 70 basis points to 30.5%. As Jeff mentioned we have an intense focus on growing our high-quality recurring revenue businesses. This effort include scaling up our newer businesses such as Mobiliti ASP, along with executing on our operational effectiveness initiatives, which contribute meaningfully to this strong margin performance.

Adjusted earnings per share increased 10% in the quarter and 13% year to date. As important, our earnings this year have converted into free cash flow for our shareholders at an even higher rate growing free cash flow per share by 18% to $2.65.

Now on to the segment results, adjusted internal revenue growth in the payment segment was 8% in the quarter and at 7% for the year. This strong growth was led by client and transaction growth in card services, digital channels, bill payment, and our output solutions businesses.

We signed 40 new debit clients in the quarter and have added nearly 100 for the year. In addition to offering compelling integration advantages, we continue to provide additional value for our clients through add-on services geared to enhance risk and fraud capabilities, EMV, tokenization, and other innovation needed to stay abreast of a rapidly changing payment landscape. The combination of adding new institutions and extending relationships of existing clients has enabled us to produce above market debit transaction growth of 11% in both the quarter and year to date.

We also signed 77 new bill payment clients in the quarter and have added 247 clients through September 30. Bill payment transaction volume grew 2% in the quarter and is up 4% in the first nine months. Although transaction growth this year has been negatively impacted by our largest client, we recently converted a larger bill payment client, and expect to implement a similar sized client by the end of the year.

We added 85 institutions to the Popmoney network in the quarter and now have over 2,300 institutions contracted to offer these services. We continue to believe in person-to-person payments as an important growth opportunity for the financial industry. In particular, we are seeing the emergence of instant payments as a top strategic priority at many larger financial institutions. Our pipeline for Popmoney instant payments is growing well.

Payment segment adjusted operating income grew 16% in the quarter to $201 million, and year-to-date adjusted operating income increased 9% to $566 million. Adjusted operating margin in the quarter of 32.9% was exceptional, increasing 210 basis points over the prior year. These results were primarily driven by growth in some of our newer recurring revenue solutions and an enhanced mix of overall business in the quarter. For the year, segment adjusted operating margin was up 50 basis points to 31.6%.

Adjusted internal revenue growth in the financial segment was 1% in the quarter and is up nicely at 2% versus flat in the comparable period last year. Adjusted internal revenue growth in both periods was primarily driven by gains in our account processing and lending businesses which includes higher one-time fees. Segment growth was negatively impacted by difficult comparisons in our international group and the lag associated with new implementations of account processing solutions with an emphasis on the backlog for DNA.

Adjusted operating income in the financial segment was down 2% in the quarter to $193 million but is up 5% to $581 million through September. Adjusted operating margin was 32.8% for the quarter and 33% for the year. Operating margin for the quarter was impacted by several factors including business mix and the timing of certain expenses. Financial segment margin performance for the year has been very strong increasing 100 basis points primarily driven by solid execution in our account processing businesses, the impact of operational effectiveness initiatives, including open synergies, partially offset by the current year international performance.

The adjusted operating loss in the corporate segment for the quarter was $24 million which is in line with the prior year and down $4 million sequentially.

Our adjusted tax rate increased to 34.7% in the quarter compared to 33.5% last year. The rate increase negatively impacted the results in the quarter by $0.02 per share. The adjusted effective tax rate through September is slightly lower than last year's at 33.7%. We expect our fourth-quarter adjusted effective tax rate to be approximately 36.5%.

We have received over $100 million in cash distributions from our Stone River joint venture this year including $63 million in the third quarter. These distributions are excluded from our reported free cash flow performance. Stone River continues to very effectively monetize the business through dispositions and refinancings. Gains related to dispositions are also excluded from our adjusted results. Given the reduced portfolio of businesses within Stone River, our adjusted equity earnings from this year are down about $0.03 compared to the prior year.

As Jeff mentioned earlier, a key benefit of increasing the level of high-quality revenue growth is strong free cash flow generation. In the first nine months of the year free cash flow grew 13% to $674 million. Free cash flow per share in the first nine months of the year was up 18% to $2.65.

Total debt at September 30 was $3.8 billion or 2.3 times our trailing 12 month adjusted EBITDA.

We remain committed to using our capital in ways that build long-term shareholder value. As an example, in the quarter we repurchased 4.2 million shares for $270 million. Through September 30 we have deployed $789 million repurchasing 13.3 million shares at an average cost of $59 per share. We have returned well over 100% of our reported free cash flow to shareholders in 2014.

As of quarter's end there were 245.3 million shares outstanding and 5.2 million shares remaining under our existing share repurchase authorization.

With that I will turn the call back over to Jeff.

Thanks, Tom. As we mentioned up front, sales for the quarter were strong at 128% of quota and 101% of attainment year to date. Importantly, actual sales were at a record level up 27% in the quarter. Total sales for the year are up 14%.

We are seeing strong demand across our product portfolio. In particular, there is growing interest in our large account processing services, digital channels, payments, including real-time solutions, along with early traction in our focused international strategy.

Integrated sales were also strong in the quarter at $70 million and are $172 million for the year. The leading solutions were Mobiliti ASP, bill payment, source capture, card solutions, and online banking. We are well-positioned to achieve our $250 million integrated sales target for the year.

We've recorded $50 million of operational effectiveness savings in the first nine months of the year or 83% of our $60 million annual target. Even with the majority of the Open Solutions cost synergies accounted for, we continue to see a long runway of opportunity and believe we will drive economic value for a number of years through our core operational effectiveness programs.

The client environment remained stable in the quarter. There were only four regulatory actions in the period and 19 year-to-date, which is just over half as many as last year. We expect regulatory actions will continue to approach normal levels, and we also believe M&A activity will remain quite active.

Financial institutions have generally remained committed to their spending plans, an improvement over the trailing off we have seen occur over the last several years. Technology spend continues to be weighted to areas such as digital experience, regulatory compliance, cost effectiveness, and solutions that enable financial institutions to generate additional revenue.

The meatiest and most significant industry discussions right now are centered on point-of-sale transactions including EMV issuance, data breaches, security, tokenization and of course, Apple Pay. Even the White House jumped into the fray in October pushing Chip-and-PIN forward for government payments. These programs, when taken together, should create a more secure payment experience and increase consumer confidence. We anticipate these changes to be a large opportunity and are prepared to help our clients make the transition in the rapidly evolving point-of-sale payments landscape.

As I mentioned up front, we entered the fourth quarter very well-positioned to meet our 2014 financial objectives. We continue to expect adjusted revenue to increase 4% to 5% and that adjusted internal revenue will grow 4% to 4.5% for the year, a meaningful increase over last year's 3% internal growth.

We have increased our expectations for full-year adjusted EPS growth and now expect growth to be in a range of 12% to 13% or $3.34 to $3.38. We still expect that adjusted operating margin will increase at least 50 basis points for the full year and that the combination of increased internal revenue and operating margin expansion will translate into at least 10% free cash flow per share growth or greater than $3.65 for the year.

We enter the final quarter of the year in a position of strength. We are executing well. We're on track for a step up in our internal revenue growth rate and fully expect to achieve our 29th consecutive year of double-digit adjusted earnings per share growth. These results, combined with our forward visibility, gives us confidence that we will see another increase in our internal revenue growth rate in 2015.

We recently completed our associate engagement survey and saw a meaningful increase in the overall level of engagement. We know it is our people and how they engage with our clients that makes the difference. We couldn't be more proud of the work our more than 21,000 Associates do each day to make your Company one of the world's most admired.

With that, let us open the lines for questions.

Thank you.

(Operator instructions)

First question, Ramsey El-Assal, Jefferies & Co.

Thanks, guys. How should we think about the long-term organic growth trajectory in the financial solutions segment? Is where it is kind of landing now sort of what we should be expecting in modeling going forward, or what are some potential inputs there that might see that accelerate a bit?

Yes, thanks, Ramsey. It is a good question.

We have said for several years now that we expected that our internal revenue growth rate would be able to step up each year for a number of years. And as we mentioned we've got a -- obviously we stepped up nicely for this year, and based on what we can see moving forward we expect to see another step up into 2015.

And that growth we did expect that it would have a bit of a bias for the payment segment given those kinds of solutions and the growth characteristics of that business. However, we are actually pretty bullish about what is going on in the financial segment. We mentioned we signed our 50th DNA clients in the quarter -- have 11 of them live, which means obviously 39 still in backlog, but we also are winning a number of large transactions across the landscape.

So, whether it is in our signature platform, Premier, or in DNA we have got a lot of good momentum and backlog. And we were just really starting to see those clients go live based on actually the signings that we talked about even last year at investor day, so we have good visibility there. We believe we will continue to step up, but we are also actually pretty excited about what is going on in our lending businesses.

We are seeing financial institutions realize that the lending area is and is the place over time where they are probably the most experienced at making money. And we are seeing solutions get evaluated and looking for potential upgrades both in the origination on and on the servicing side. So we see some nice map roads in both of those areas.

We think that will translate to some better growth for us moving forward in the financial segment. So I would say that we do expect that to grow -- to continue to grow. I would say that that will step but again be slightly less than the growth acceleration we're seeing on the payment site.

I would just add one more thing to that. It would probably be around international which is included in that particular segment. And as we mentioned on the call we had some very difficult comparisons and that probably impacting the Company overall by about 1%. So going into the financial segment by about 1% from a growth rate standpoint.

So I think we you look over the next several years, we're going to continue to grow that business. And that should help us accelerate growth in the segment overall as we look into the next couple of years.

And none of the softness you mentioned from the tough international comparisons none of that you perceive to be anything related to like a macro headwind from the different regions you're operating, and really just has to do with the tough compare?

That's correct, yes.

Yes, absolutely, we would say that on balance some of the technology solutions that we have introduced such as Agiliti in the UK actually are riding some macro tailwinds as opposed to the opposite. We're pretty focused on what we do internationally, so we feel good about the growth characteristics moving forward.

Okay, one last one for me. You mentioned you recently converted a larger bill payment client, and you expect to implement another similar sized client.

Maybe you can just give us an update or some commentary on sort of what sizable deals that maybe you've mentioned in the past remain in the sort of in the backlog pipeline waiting to be implemented. Once we get these two large deals sort of through, does that cap off the implementation cycle you launched several cycles ago with a nice big win?

Yes, the two clients that Tom referenced in his prepared remarks are the two remaining larger clients that we had called out, actually one of them even a couple of years ago. So we are finally starting to go live. That will anniversary late 2015. And so those named clients we would be through.

By the same token we have a couple of hundred bill payment clients that we've signed this quarter -- I'm sorry this year, and a number of them sizable. Not at the named level but the bulk of the clients we're still seeing a high level of attractiveness on that front. And we're also seeing good focus on expedited bill payment as one of the add-on capabilities across the entire network of several thousand bill payment installs. So, we think we're in pretty good shape moving forward.

Great. That's all for me. Thanks.

David Togut, Evercore.

Given the 50 new signings you've mentioned for DNA, at what pace will these signings actually convert over the next 12 months? And can financial organic growth get up to a mid-single digit level let's say by the end of 2015?

David, we are not in the business of giving guidance for 2015, and Tom would especially not want us to talk about the segment by segment guidance. What I would say is that the majority of the meaningful installs will start to come live at the begin -- I'm sorry, towards the middle of next year -- long install cycle so that will take some time.

And also remember that part of our core value proposition is not just delivering the account processing piece but also delivering many of the surround products, debit, channel, some of the payment solutions, risk, lending, so a lot of ancillary concepts that start to go live. That is the good news. The bad news is it takes a little bit longer to move through those implementation cycles.

So I think you'll see -- I actually do not hit our peak performance in the financial segment until probably into the 2016 timeframe just given the momentum that we have now.

And I will also tell you that as we mentioned in our prepared remarks we are quite enthusiastic right now about the kinds of evaluations that are occurring in the market in terms of larger institutions taking a look at the modern real-time oriented platforms that, frankly, had it not been for the acquisition of Open Solutions, we probably would not be in line for some of those larger institution evaluations. Those would be more dominated by the non-US players.

So that is going to also to give us momentum. As far as the longer-range modeling goes, I think we will say we'll continue to expect those step ups, and we will continue to keep you informed as to how our progress is looking.

Yes, David. I would probably just add to that as you see our payment segment year-to-date growth at about 7% compared to 4% at this time last year, and the financial segment's actually had 2% compared to flat. So we have seen some good growth there.

I think the other thing to Jeff's point is one of the important things around these deals and these large AP or the DNA deals is a lot of that surround revenue really shows up in our payment segment. So it is very important to note that a lot of bill payment and debit revenue continues to be shown in the payment segment of revenue growth while we will get the core processing revenue flows through financial it is really important driver of future success really in both segments, because that revenue shows up in both of our operating segments.

Understood. Just ratably it looks like you are ahead of year-to-date plan in terms of operational effectiveness, 83% of target. Do you expect it to significantly exceed the class takeout target this year as you have in the past?

We're on track as you well know. We're doing very well on the Open Solutions synergies, and so we're on track for good year in regards to that particular metric.

And we're very pleased, you can see it show up. As Jeff kind of highlighted, David, you've been with us for a long period of time or followed the Company. We had our highest margin in the third quarter since the launch of Fiserv 2.0 back in 2006.

So we're pleased with that, and a big part of that has been our operational effectiveness initiatives. And again we have more opportunities as we continue to look forward to continue to expand margins. As Jeff talked about, we're very confident that doing a number of things around the scaling our new solutions, our operational effectiveness initiatives and a host of other things.

Just a quick final question, Tom, third quarter term fees versus year ago and then September 30 share count.

Yes, as you are aware, David, the level of termination fees it really varies from period to period based on the number and kind of size of clients acquired. And just for little backdrop, termination fees are usually about 1% of our total revenues, and they really fluctuate year-on-year as you know. We believe overall these types of these this year are up across the industry. And we've seen the benefit this year from termination fees also.

Your specific question around the quarter term fees were up around $10 million in the quarter versus the prior year. And was roughly around $5 million in both of the segments. And as we head into the fourth quarter we expect a more difficult comparison just given the what we had in the prior year

And then September 30 share count?

I'm sorry. I think 245.3 million.

Perfect. Thanks so much. Appreciate it.

Adam Dahms from Baird.

Thanks for taking my question. You guys serve more banks than pretty much anyone, and we keep hearing that the banks are supposedly willing to give up about 15 bips of their interchange with regard to Apple Pay. I was wondering if you guys are hearing anything on either willing to give up this chunk of interchange? And then on that are there any potential economic benefits for Fiserv if these banks work to integrate these initiatives.

I would at least in the conversations that we've typically have with institutions, there is a level of energy and excitement around the pretense that Apple Pay -- and frankly other kinds of electronic transaction portals at point-of-sale will convert cash and to a lesser degree check transactions to electronic which will carry a level of interchange. So there has been a belief that that would in effect wipe out the amount of or at least an optimism that it will wipe out the incremental interchange or basis points that have been shared with Apple.

There's also some more technical stuff in quotes around card present and card not present rates in which there is an agreement that typically some transactions that are been treated as card not present will now be treated as card present given the security, and that changes the interchange rates as well. So I think there is kind of a net, net around that that it is going to have that has banks be willing to do this.

Great thank you. And any benefit is there any way you guys can kind of get in on this?

Yes, I'm sorry I missed that element of it. I mean obviously as a processor any of the transactions that are converted to a card-based transaction we've got. If there are debits, we've got debit processing fees.

We have network fees. We have -- and just one of the things that I like is training consumers to be more kind of more -- have a higher propensity to use a digital payment mechanism.

And so using your mobile phone at point-of-sale is going to make you just that much more interested in using your mobile phone for non-point-of-sale transactions, which as you know is a very important part of our business model, whether it is around bill payment or person-to-person transaction. So we like that training element as well.

Makes sense. Thanks a lot.

Tien-tsin Huang, JPMorgan Securities.

Great, thanks. Good results here.

I guess on the total page, I just want to as on the total sales 27% quite a strong, sounds like it's going to help fuel acceleration to next year. That make sense. Just curious has this continued into October and have client priorities just changed? Just want to get a little bit more color on what's driving this.

Yes, thank you, Tien-tsin. There are a couple of things going on the quarter.

We mentioned, you may remember, that after Q2, we were -- we had a little bit of a light Q2. We saw some transactions slip into Q3, and so we obviously picked those up. But we are seeing the institutions continue to spend. And, as I think you know, you're one of the folks who had been monitoring spending and seeing a trail off in the second half of the year the last several years.

And we're not seeing that kind of trailing occur, so we are seeing the interest in at FEI level continue to be there. We're seeing strong interest in activity on the lending side both from core financial institutions as well as some of the non-traditional banks, so some of the non-bank lenders who are out there making -- investigating and making purchases in that space and of course in the online digital channel space as well as payment.

So it is really a combination of all of those things coming together. As far as October goes, I hate to say this, but most sales forces take a little bit of a breather after they close a quarter. We are encouraged by how our pipeline looks moving forward, and we are frankly counting our strong finish to the year.

Got it. Good to know,

I guess as my follow-up I heard the incident payment demand and whatnot I'm curious, given a lot of talk about [Sandia] ACH again and the clearinghouse are creating this real time payment system I guess in parallel with some of the things that are out there. What does that mean, Jeff, for Fiserv? Is it good, bad, indifferent?

I would love to hear your feedback. Thanks.

Yes I think it is great news, actually. I mean the fact that there is almost unanimous support across the industry for a methodology that allows consumers and businesses to move money at the speed of their choice is quite positive. By the same token believing that the right answer in the near term at least is the construction of a new rail I think is unlikely to -- I have a hard time seeing how that solution allows consumers -- allows consumers and businesses to transact in the near term.

So I think you're going to see some kind of a set of hybrid solutions. I think we're all looking at what are the best ways to get to the end, which is allowing that choice in transactional speed. In the near to mid term I am highly confident that our solutions will play a role in how -- in how institutions will transact.

And I think it will allow us to bring the kind of choice that we have talked about to our applications such as bill payment and Popmoney that will fit very well into this new consumer experience that values speed potentially above all else. So, we are pretty bullish about it and pretty excited about it.

Makes sense. Appreciate the comments.

Paul Condra, BMO Capital Markets.

Thank you for taking my call. I wonder if you could maybe talk a little bit more about what you're seeing for EMV. I know you talked about potential opportunities there, but any deals that you are winning and any trends that you're noticing you could give or details on?

Sure, Paul. Thanks. The -- it is clearly lots and lots of conversations around EMV. Those conversations got a little bit more complicated around the Apple pay announcement just in terms of having mind share moving around, but there is no question that it is not a matter of if, it is just a matter of when.

We see all of the same data that you all see around the number of cards, both credit and debit, that are anticipated to move. Most of our card processing is centered around debit. Most of our card production is centered around debit.

We were very happy to see that for example Bank of America announced they are going to re-issue their debit cards this year with Chip. I think we've seen some of the other large institutions do that. We think that is very good news, both in terms of for the industry and for consumers around how they transact, but as well as for our business.

To the second part of your question really around deals that we are winning, we have a very good position. We really are not in a place that we can talk about it, but I would say that we are doing at least as well as we thought we would do if not better.

Now, again, very few cards have actually been reissued. We think that those reissue cycles will run over the next several years. I would guess that 2015 will be the lowest of all of the years, but there is going to be a lot of activity in that space over the next several years.

Thanks, that is helpful. And just trying to understand are your bank clients Apple Pay enabled and then if they want to be, do you have some kind of role to play in that?

Sure, so a number of our institutions are currently Apple Pay enable. And we work with our clients to make sure that they are enabled to do that things that are necessary to become -- to have become enrolled in Apple Pay. There's a lot of noise in the market right now around deadlines and dates, and I think much of that is settling out.

I think that yesterday there was announcement coming out of Apple that about 1 million cards are currently enrolled in Apple Pay, so obviously we are quite early. I think that is going to evolve. But as the processor to the client we do work in partnership to make sure that they have the capabilities that they need to participate in that program.

Thank you, nice quarter.

Thank you so much

Jim Schneider, Goldman Sachs

Good afternoon, thanks for taking my question. One question on bill pay, you talked about some -- the new large client win you have coming on at the end of the year and some of the other client wins. Do you think the bill payment transaction can get sustainably North of 5% for the foreseeable future as we go into 2015 and beyond?

I think -- I do think the natural rate of bill payment is actually in excess of 5%, just given the how transactions are electronifying. Today, something or -- in round numbers the number of paper payments related to bills are still around 50%, so there is a heck of a lot growth that is still available in the market. I think in order for that to happen you have got a couple of things that have to occur.

You have to continue to see this convergence between payment enabling and digital. I think that is one of the big catalysts that you see out there. You have got to have more opportunities for consumers to choose the speed of their choice or to select the speed of their choice when making a payment. That is a critical elements of it, and that is one of the things that we were talking about earlier around the creation of some of these rail. We are actually very enthusiastic in that area.

And then third we have to continue to win some number of transactions, the majority of institutions which we do very well. The majority of our growth in payments over the last several years has really come from -- has really come from winning new clients. We have got a lot of focus now on how do we make those clients more capable in terms of the experience in driving more payment volume.

The last thing I want to talk about, because I think it is really important, Jim, is in that business there are two ways that we grow revenue. We grow revenue on the basis of new transactions or additional transactions, and we grow revenue by increasing the average value of every transaction. And one of the areas in which we are very focused is on driving expedited payments, because we see that as an opportunity to take some of the 1.3 billion transactions that are in existence today, have them go a little bit faster and create more revenue per transaction.

We have risk capabilities. We have customization and other services that we are delivering in that space, and, frankly, that is an area where we have not done anywhere near all we can do. And I see that as a nice opportunity to drive revenue growth in parallel to driving just core transaction growth.

That is helpful. Thank you.

And then as a follow-up, with respect to your -- as we look into 2015 and looking at your 50 basis points or better operating margin target over the long term, can you talk to how much of that is just going to be driven by normal leverage in the business versus how much do think you can wring out in terms of additional cost synergies above and beyond the open cost synergies that you have realized in 2014? Any kind of color on additional synergies would be on the cost side would be helpful.

Yes, so let -- Tom, why don't you?

Jim, is your question right around open? Are the general -- we are going to continue down the pathway of our operational effectiveness initiatives, and so that is going to be clearly a component of what we're going to have over the next three years. But it is going to be combined with the scaling of our solutions things like Mobiliti, where we have made a number of investments and we are getting to a nice scale position. As we move forward over the next several years so again it is early for 2015 from a guidance standpoint, but it is going to be a combination of activities.

And, Jim, I would say I don't have the data in front of me, I will have Stephanie follow-up with you. But we still have a fairly large pool of operational effectiveness saves in which we have identified. And then we basically look to optimize our effort across the Company putting some of it to growing internal revenue putting some of it to continuing to take out and restructure our expenses and our processes to deliver more value. So we still have a good sized pool there.

But I think to your question, we are going to see a fair amount of leverage over the next few years in scaling some of these solutions like the Mobiliti ASP solution that we talk a lot about. We are up to I think the number was 65% growth in subscribers to 2.5 million. If you look at our payments margin over the last couple of years, you will see that those margins have been under pressure, because most of our investments have been in the payment segment over the last couple of years.

Those are now starting to convert, and we will see that leverage come through in our results.

That's helpful. Thank you.

Chris Shutler, William Blair and Company.

Hello, guys, good afternoon.

First on Mobiliti, I know that you're seeing pretty strong uptake there. Maybe just, Jeff, can you remind us the revenue model can you give us some rough sense of where revenue stands today for Mobiliti? And if you look at usage within your FI client base, what percentage of end clients that actually have access to the platform are using it today?

So, good questions, Chris. The model -- there are three core variations of the Mobiliti model. There is a license and services straight model. So the larger institutions, the US banks of the world, we sell them the license, we work with them on a services basis, and then we continue to work with them to modify as they deem appropriate. And then they would pay us on kind of a seat basis.

The second variation of the model is taking the first piece and then adding hosting. So we would actually host it in our data centers, and we do that for several larger claims.

And then the third one is really the ASP model. So, we build it, we run it in our data centers. And the model for that is the institutions pay us for each of the users we refer to them as subscribers on a monthly basis. And they would be paying us on the basis of are they using sort of the core phone piece alone? Do they have tablet on top of that?

And then we also have been talking about Mobiliti for business which is the next iteration of our ASP or our cloud-based offering. So those are the three different revenue models that we have today.

As far as the overall revenue, we do not break that out. Historically at investor day we've talked about where we sit in that business. I'm sure we will do the same thing when we do our investor day in June.

Probably what I can tell you is I think we are still in the fairly early innings of what that mobile opportunity looks like as compared to where our online banking business is. If you think about the users, one of the benefits -- one of the embedded benefits that we have is that historically especially for the smaller institutions Mobiliti integration occurs through the online banking platform. And because we have tens of millions of users using that platform it is a simpler and easy for way to go and, we believe over time those institutions will end up selecting us.

There's still a very large number of institutions who have not yet selected Mobiliti. And we believe that that will continue to grow for us over time.

Great, thanks. And then just a couple of real quick follow-ups.

One is on the buyback, and you guys have been quite aggressive this year I think 789 repurchased relative to kind of 460 to 580 the last couple of years last time this year. Just any kind of thoughts why maybe you have been more aggressive?

And then secondly the depreciation and amortization line look like it fell off a decent bit sequentially. Just want to make sure as we model that got going forward that it should be fairly consistent with Q3 levels. Thanks.

Yes, I will take the share repurchase question, and I will let Tom deal with the more technical one, and then he can comment as well.

But on the share repurchase question, remember last year we also acquired Open Solutions, so that was a fairly hefty allocation of capital. And we've said over time is we're going to allocate our capital in a way that we think makes the most sense for shareholders, and that we use share repurchase as our capital allocation benchmark.

We have not completed any acquisitions this year. And we believe that the combination of increasing internal revenue growth, market momentum and the margin runway that we see that we believe that we've got an attractive business over time and therefore the repurchase has made sense. And we will continue to look at that on a period-by-period basis.

Yes, Chris, regarding -- I will take this off-line with you, but just to me when I look at the cash flow statement it is relatively consistent for the nine months with where we were in the last nine months and even on a quarter basis. Let me take that off-line and give me a shout and then we can go through that.

Sounds good. Thanks a lot.

Ashwin Shirvaikar, Citigroup.

Thanks. Good performance especially on the margin front.

The question I have is of the margin improvement that you had in total what was the -- is it possible to separate out the contribution of operating effectiveness versus synergies to make it open the extent you still have them? It has an impact on growth go forward expectations I guess with regards to how long it is you continue improving margins at the space.

Yes, Ashwin, let me start with it, and then Tom and Mark can add in as it make sense.

It is difficult to look at all of the contributors to margin on a pure vertical or siloed basis. We have a number of different contributors, operational effectiveness, which includes kind of the core muscle that we have built over the years to re-engineer our cost structures and our processes to be more effective. You have got the synergies from Open. You've the scaling of some of our solutions.

But then offsetting that you have investments in new technologies and other areas in which we know we have to build so that we can continue to grow our level of high-quality sustainable revenue growth. And so in any year we are making trade-offs that allow us to invest the amount of money that we need to invest at an enterprise-level.

One of the things that we've talked about a lot was we could have higher margins if we did not see opportunities to invest. Thankfully, we're in a situation where we do have that.

And so we use those levers simultaneously to make sure that we are in a place where we can grow the business over a long period of time and also expand margins. And when -- certainly even when certain strains of revenue come in in a different way we are always looking at what are the kinds of things that we can do to continue to make sure that we are making the right investments so that shareholders benefit and clients benefit over a long period of time.

One thing I would add to that is to your point about so how sustainable is that 50 basis point or greater margin expansion, and how many years is that good for. Sitting here today we can clearly see plenty of re-engineering opportunities across the company in the portfolio and things that we do that give us high confidence that long-term objective is in a fact long-term attainable objective

That is good to know. One follow-up question on a separate topic which is bill pay, where obviously you guys have had a lot of good I guess market share driven growth. But as you sort of look at what is left, right, you already signed a lot of large client. Do you see sort of a law of diminishing returns with regards to you have to now sign a lot more midsize clients in order to achieve the same thing that you did with the signing of TD or rails or so on.

I'm sorry I didn't mean to cut you off.

That's all right.

I would say that we are in the fortunate position to have a nice market share across the largest institutions in the US. And where we have to go moving forward is in the kind of the middle of the market where we actually have a surprisingly low level of penetration.

So we have a very attractive penetration rate across the top 20 institutions, and -- but if you look at the top 20 kind of the-- I'm sorry the number 21 that call it the number 50, we are surprisingly lowly -- low penetrated in those markets. And so we have real opportunities. And if you go back and look at press releases over the last couple of years, you will see that we are just beginning to win in those spaces.

So we will not have the one big win probably but we will have two or three wins that'll actually look bigger than those one wins. So we're still pretty optimistic and pretty bullish about that end of the market.

But I do want to also reinforced that today we are still seeing a tiny percentage of the payments per household that are actually being executed even by our most loyal users. So, I do think there is a big opportunity for there -- for us in that space, and some of the conversions that we talked about earlier should also help that. And then lastly we obviously have the revenue per transaction commentary that we talked about earlier, so still a lot of opportunity in that space overall.

Absolutely. If I could squeeze one more in.

Is there any benefit or detriment either way I'm just kind of you know opening it up for you with regards to what happens with the bill payment business as your real time payment business kind of grows? Is there cost benefit you can get from that, or is it not related? I'm just asking.

Yes, well actually we shared a little bit of this at our last investor day. We are actually quite bullish that the bill payment business will benefit in two ways by real time.

First is that some percentage of the 1.3 or so billion transactions per year will get converted to a real time transaction and that will drive value for the financial institution and then drive some incremental revenue for us on a per transaction basis.

But I actually think the biggest opportunity is not the conversion of the existing clients, but I think there is an educational element that is missing in the market that when someone wants to pay a bill right now they are not thinking about going to their bank. So they are not even bothering to go to the bank aggregator site to do that. They're going to biller direct, they are going to a walk in counter. They are doing whatever they are doing, but they are not going to the aggregation site.

And that should bring in in my opinion many, many, many more transactions than we're seeing today that will not only add to the transaction count but actually come in at a higher level. That is really not my opinion. That is the opinion of the market participants that we are merely supporting as we go there technology out.

Understood, thank you, guys.

Kartik Mehta, Northwest Research.

Good afternoon, Jeff, Tom and Mark. Jeff, question for you, you've talked a lot about Mobiliti. You've talked a little bit about Popmoney and bill payment, and maybe you already do this.

But, if you don't, is there an opportunity for you to create a payment gateway of sort to sell to the banks. And by payment gateway something that where bank have bill payment, Mobiliti or Popmoney all on one screen to be able to sell to its consumers ff that make sense?

Yes, we do see that, and that is a bit of how we have operate today. It is one of the reasons why we have said that the online banking and the mobile experiences are so important. And so to the extent that we can provide that, we think we have a very significant advantage in delivering our non-or beyond point-of-sale payments capabilities.

So bill pay, Popmoney, transfer payments -- I'm sorry, Transfer Now, those kinds of things. And then when you rapid the speed the right kind of speed of choice and then the intelligence that underlies that, we think there is a definite advantage to us.

And, frankly, we have seen this playing out in the market for the last three or four years. The reason why we have done so well in areas such as account processing is we are delivering this very full bundle of not just any technologies but award-winning innovative technologies that our clients get. And when the account processing selection processes occur we always hear, hey, we are selecting Fiserv on the benefit of the integration advantages that we can deliver.

And then, Jeff, there's been a lot of talk, and you've talked about EMV and just the change in the payment landscape that is happening. Are there any holes you need to fill as a result of these new changes and the need to acquire any technology or services that would position you better to win deals?

No, I mean we are actually quite well-positioned right now. We have built our own -- again one of the investments that we have been making is building out our capability to make sure that when the EMV cycle starts, that we are absolutely ready to go. And that is across our card solutions businesses as well as our output solution businesses, so we are in very good shape in that area.

And Tom just a clarification I want to make sure I understood you right. Tom, did you say that your termination fees in Q3 2014 were $10 million greater than Q3 2013?

That's correct. About $5 million in each segment.

Perfect. Thank you very much.

Bryan Keane, Deutsche Bank.

Hi, this is Ashish Sabadra calling on behalf of Bryan Keane. Thanks for taking my question.

Quick question on the payment segment. Tom, you provided some high-level commentary

So my question was more around the payment segment. So, Tom, you highlighted strength -- broad-based strength in the payment. What I was just wondering if you could just parse out was there any particular strength and particular things which are strong in that segment in this quarter? And just the sustainability of the growth in the fourth quarter and going forward? Do you get hit into some tough comps going forward?

I don't think -- I think overall we always look at our year-to-date metrics and our payment segment is at about 7% up from 4% in the prior year. And as I put in my comments we just really had in the quarter at least good growth among all of our areas. So whether that be card services, our digital channels business which is in our payment segment, our output solutions business, our bill payment business from a revenue growth standpoint. So we just really good growth and that's also in our year-to-date business by a number of the businesses that are included in that segment.

And as Jeff kind of highlighted around areas like bill payment, et cetera, we have some good opportunity in the future to continue to do better than what we're doing today from an opportunity to continue to grow transaction value and then revenue in areas like our bill payment business. So we are pleased with our progress, but we continue to believe we have very good opportunities in each of those different areas which comprise online banking, Mobiliti, our output business, our bill payment business and continuing really superb performance in our card services business with tran growth of about 11% on year-to-date basis.

So again we expect over the next several years that segment is going to continue to grow well, and we have some good opportunities for further growth

That's great. Just a quick one on the financial segment side, the operating margin there.

You highlighted that there was some impact from business mix and timing of sort of expenses, but it has been trending really well for the full year. So as we think about the margins and specifically in the price segment for the rest of the year and going forward, there are some synergy, partiality's to open synergies opportunity. So how should we just think about the margins just for the fourth quarter and then going forward?

Yes we are not going to get into fourth quarter quarterly guidance. We're comfortable with the guidance for the full year, and I think it's Jeff and Mark have kind of highlighted we have very good visibility and continuing to grow margins in both of our operating segments through a combination of scaling of our newer solutions, continued growth in our operational effectiveness. And really our business model, which we believe is really a differentiator as far as both a differentiator of our solutions and continuing to focus on high-quality revenue in both segments, ie, scaling of revenue inside our businesses both in the core account processing segment and also in our payment segment on our larger businesses.

So, that is the key to drive the back row that we ensure that our revenue growth is coming from those high-quality sources which allows for margin expansion and kind of free cash flow growth. And those are really the drivers of what we see going forward and that should continue.

That is good. Thanks for taking the question.

Thanks everyone for joining us this afternoon. If you have any further questions please feel free to contact our investor relations teams. Have a nice day.

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