Fiserv's CEO Discusses Q3 2011 Results - Earnings Call Transcript

Fiserv (FISV)

Q3 2011 Earnings Call

November 01, 2011 5:00 pm ET

Executives

Peter Holbrook - Vice President of Investor Relations

Jeffery Yabuki - Chief Executive Officer, President and Director

Mark Ernst - Chief Operating Officer and Executive Vice President

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

Analysts

Greg Smith - Sterne Agee & Leach Inc., Research Division

Peter J. Heckmann - Avondale Partners, LLC, Research Division

Glenn Greene - Oppenheimer & Co. Inc., Research Division

Julio C. Quinteros - Goldman Sachs Group Inc., Research Division

Ashish Sabadra - Deutsche Bank AG, Research Division

Brett Huff - Stephens Inc., Research Division

Ashwin Shirvaikar - Citigroup Inc, Research Division

Tien-Tsin T Huang - JP Morgan Chase & Co, Research Division

John Kraft - D.A. Davidson & Co., Research Division

Darrin D. Peller - Barclays Capital, Research Division

David Togut - Evercore Partners Inc., Research Division

David J. Koning - Robert W. Baird & Co. Incorporated, Research Division

Presentation

Operator

Welcome to the Fiserv Third Quarter 2011 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 references.

In addition, there are supplemental materials for today's call available at the company's website. To access those materials, go to the company's website and click on the Access Presentation link on the 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 Peter Holbrook, Vice President of Investor Relations at Fiserv.

Peter Holbrook

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

Our remarks 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, acquisitions and other strategic initiatives. Forward-looking statements may differ materially from actual results and are subject to a number of risks and uncertainties. Please refer to our earnings release, which can be found on our website at fiserv.com for a discussion of these risk factors.

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

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

Jeffery Yabuki

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

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

Let me say upfront that we're pleased with our performance, which was in line with our expectations for the quarter and the full year. We delivered 12% growth in adjusted earnings per share to a record $1.16 in the quarter. Given our strong performance to date and visibility into the fourth quarter, we are raising our full year EPS guidance to $4.54 to $4.60. This performance is particularly impressive considering the investments that we've made into our new solutions this year.

Adjusted internal revenue increased 2% versus last year's third quarter, which was our strongest growth quarter of 2010. We continue to make progress in growing our level of sustainable recurring revenue. On a comparative basis through September 30, we're about 2 full percentage points higher in year-over-year internal revenue growth. Third quarter revenue was impacted by timing of some higher margin revenue, such as license fees, continue to migrate to the fourth quarter, which is a consistent trend over the last couple of years. Tom will provide further insights on our fourth quarter outlook later in the call.

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

Free cash flow through September 30 decreased 5% from the prior year to $507 million, primarily due to the timing of capital expenditures and changes in working capital, which we generally expect to reverse in the fourth quarter. Excluded from the calculation of free cash flow was a $54 million cash distribution that we received from our 49% interest in StoneRiver, which continues to provide solid value.

We've been focused on 3 key priorities for 2011. First, to deliver an increased level of high-quality revenue growth and meet our earnings commitments. Next, to center the Fiserv culture on growth leading to more clients, deeper relationships and a larger share of our strategic solutions. And third, to deliver innovation that increases differentiation and enhances the results for our clients.

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