Fiserv (FISV)

Q2 2011 Earnings Call

July 26, 2011 5:00 pm ET

Executives

Thomas Hirsch - Chief Financial Officer, Principal Accounting Officer, Executive Vice President, Treasurer and Assistant Secretary

Jeffery Yabuki - Chief Executive Officer, President and Director

Mark Ernst - Chief Operating Officer and Executive Vice President

Analysts

Julio Quinteros - Goldman Sachs Group Inc.

Christopher Shutler - William Blair & Company L.L.C.

David Togut - Evercore Partners Inc.

David Koning - Robert W. Baird & Co. Incorporated

Tien-Tsin Huang - JP Morgan Chase & Co

Kartik Mehta - Northcoast Research

Ashwin Shirvaikar - Citigroup Inc

Peter Heckmann - Avondale Partners, LLC

Glenn Greene - Oppenheimer & Co. Inc.

Presentation

Operator

Compare to:
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» Fiserv's CEO Discusses Q1 2011 Results - Earnings Call Transcript
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Welcome to the Fiserv's Second Quarter 2011 Earnings Conference Call. [Operator Instructions] Today's call is also being broadcast live over the Internet at www.fiserv.com, and is being recorded for future reference. In addition, there are supplemental materials for today's call available at the company's website. To access those materials, go to the company's website, then click on the Access Presentation link on the home page. The call is expected to last about an hour, and you may disconnect from the call at any time. Now I'll turn the call over to Jeff Yabuki, President and CEO of Fiserv.

Jeffery Yabuki

Great. Thanks, Kim. Good afternoon, and thanks everyone for joining us for our second quarter call. With me today are 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, adjusted internal revenue growth, adjusted earnings per share, adjusted operating margin, free cash flow, sales pipelines, acquisition and our strategic initiatives. Forward-looking statements may differ materially from actual results and are subject to a number of risks and uncertainties. Please refer to our earnings release, which can be found on our website at fiserv.com for a discussion of these risk factors.

You should also refer to our earnings release for an explanation of the non-GAAP financial measures discussed in this conference call, and for a reconciliation of those measures to the nearest applicable GAAP measure. These non-GAAP measures are indicators that management use this to provide additional meaningful comparisons between current results and prior-reported results, and as a basis for planning and forecasting for future periods.

Please mark your calendars to attend our annual Investor Day, which will be held in New York on Tuesday, October 11. Invitations will be sent out in August, and we hope you will be able to attend this important event.

Let me start by saying we are pleased with our results for the quarter and for the strong start to the year. We see continued momentum in adjusted internal revenue growth. Our Payments segment continued its strong performance, again, achieving 5% internal revenue growth in the quarter. Adjusted earnings per share of $1.13 was up a very solid 13% versus the prior year. Through the first half of the year, adjusted internal revenue growth was 3%, and adjusted earnings per share increased 10%.

We also had exceptional sales performance in the quarter, achieving the highest dollar value of regular attainment in the company's history. Overall, our first half performance was ahead of our internal expectations on most key financial measures, including revenue growth, earnings and sales. We made several strategic moves in the quarter that we believe will further enhance the revenue growth and earnings profile of the company. We announced an agreement to acquire CashEdge, which adds strong capabilities within digital channels and electronic payments. We also completed a $1 billion debt refinance in the quarter, which significantly lowers our debt costs, extends our maturities and increases our capital flexibility.

We're investing in high-value solutions that should add to our significant base of recurring revenue, some of which is reflected in our sales results. And while adjusted operating margin for the quarter was down slightly versus the prior year, as we build out these newer products, margin increased 100 basis points sequentially to 29.3% in the quarter.

Free cash flow was $335 million for the first 6 months of 2011, a decrease of 5% compared with the prior year, primarily due to timing of capital expenditures and working capital.

As we said at the start of the year, we remain focused on 3 key enterprise priorities in 2011: First, to deliver an increased level of high-quality revenue growth and meet earnings commitments; next, to center the Fiserv culture on growth, leading to more clients, deeper relationships and a larger share of our strategic solutions; and third, to deliver innovation that increases differentiation and enhances results for our clients.

For the first 6 months of 2011, adjusted internal revenue growth was 3%, an improvement of 3 percentage points compared with the first half of 2010. Growth was broad-based, with a notable exception being the expected decline in our check processing business, which resulted in a 1 percentage point drag on our overall growth rate in the 6-month period.

Our account processing businesses continue to deliver solid revenue growth, while also focusing on the distribution of highly valued solutions such as debit, Internet banking and bill payment to our thousands of core clients. And while the near-term operating margin results reflect the combination of investments in new solutions, the incremental costs of bringing on new business and some unusual items in our Corporate segment, we've delivered double-digit earnings per share growth in the first half of 2011.

Our second objective of creating a growth-oriented culture is making a difference. The impact, which should be even more apparent as a result of that focus bolster our revenue growth in 2012 and beyond. Our record sales attainment in the second quarter included over 280 wins for our key bill payment, debit and P2P solutions, and that's in a single quarter.

Sales of Acumen, our next-generation account processing platform continued to accelerate as 2 large credit unions, Randolph-Brooks Federal Credit Union and TruStone Financial Credit Union committed not only to Acumen, but to a number of additional integrated solutions that should continue to drive value over time with these clients.

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