Fiserv's CEO Discusses Q4 2011 Results - Earnings Call Transcript

Fiserv (FISV)

Q4 2011 Earnings Call

February 02, 2012 5:00 pm ET

Executives

Peter Holbrook - Vice President of Investor Relations

Jeffery Yabuki - Chief Executive Officer, President and Director

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

Analysts

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

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

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

Ashwin Shirvaikar - Citigroup Inc, Research Division

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

David Togut - Evercore Partners Inc., Research Division

Christopher Shutler - William Blair & Company L.L.C., Research Division

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

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

Bryan Keane - Deutsche Bank AG, Research Division

Presentation

Operator

Welcome to the Fiserv Fourth 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 and click on the Access Presentation link on the home page. [Operator Instructions]

Now I will turn the call over to Peter Holbrook, Vice President of Investor Relations at Fiserv.

Peter Holbrook

Thank you, Carol, and welcome to our fourth quarter earnings call. With me today are President and CEO, Jeff Yabuki; Tom Hirsch, our Chief Financial Officer; and Mark Ernst, our Chief Operating Officer.

Our remarks today will include forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. We will make forward-looking statements about, among other matters, adjusted revenue, adjusted internal revenue growth, adjusted earnings per share, adjusted operating margin, free cash flow, free cash flow per share, sales pipelines, acquisitions and our strategic initiatives.

Forward-looking statements may differ materially from actual results and are subject to a number of risks and uncertainties. Please refer to our earnings release which can be found on our website at fiserv.com for a discussion of these risk factors. You should also refer to our earnings release for an explanation of the non-GAAP financial measures discussed in this conference call, and for a reconciliation of those measures to the nearest applicable GAAP measures.

These non-GAAP measures are indicators that management uses to provide additional meaningful comparisons between current results and prior reported results, and is 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. Let me say upfront, 2011 was an excellent year. Revenue growth continued to accelerate on the strength of record sales, differentiated solutions and strong client relationships. We delivered record earnings per share and took important steps to benefit our growth, earnings and capital structure for years to come. We are very well-positioned entering 2012. Our results in the quarter were strong.

Adjusted revenue grew 6% and adjusted internal revenue growth of 4% was the highest quarterly performance in nearly 4 years. Our full-year adjusted internal revenue growth continued to climb, increasing 3% in 2011 versus 1% last year.

Adjusted earnings per share was up 20% in the quarter to $1.27 and increased 13% to a record $4.58 for the year, $0.04 above the high end of our original EPS range. Adjusted operating margin for the quarter increased 30 basis points over last year's strong Q4 performance and 100 basis points sequentially. Adjusted operating margin for the full year was down slightly to 29.2%.

Free cash flow of $734 million was essentially flat due primarily to increased capital expenditures and timing of working capital which we generally expect to reverse. Free cash flow per share increased 5% to $5.09 for the full year.

Free cash flow and free cash flow per share over the last 4 years have grown at a cumulative annual growth rates of 14% and 19%, respectively, reflecting the strength of our business model and consistent execution of our strategies. We allocated over $1 billion in capital in 2011, split about evenly between strategic acquisition and share repurchase.

We also refinanced a large block of our debt at historically low rates while extending our average duration by nearly 50%. Our balance sheet is strong, and we remain within our targeted debt-to-EBITDA range.

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

Adjusted internal revenue growth accelerated in both segments in 2011. The majority of our growth continues to be from high-quality recurring revenue in our existing businesses. Innovative new solutions such as Mobile, P2P and Acumen are important element of our plan to further accelerate growth and are just beginning to ramp. Adjusted EPS growth of 13% marked our 26th consecutive year of double-digit growth. Earnings grew while investing in these new solutions that should have the dual benefit of accelerating revenue growth and expanding margin.

Fostering a step change in our revenue growth is a rationale for centering the Fiserv culture on growth. The record success of our single sales organization is a proof point to that focus. We have significantly increased our expectations for sales performance in each of the last 2 years, and that's leading to better results.

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