Fiserv, Inc. (FISV)

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Fiserv, Inc. (FISV)

Q4 2009 Earnings Call Transcript

February 2, 2010 5:00 pm ET


Jeff Yabuki – President and CEO

Tom Hirsch – EVP, CFO and Treasurer


Bryan Keane – Credit Suisse

David Koning – Robert W. Baird

John Kraft – D.A. Davidson

David Cohen – JPMorgan

Ashwin Shirvaikar – Citigroup

Brett Huff – Stephens Inc.

Julio Quinteros – Goldman Sachs

Greg Smith – Duncan-Williams, Inc.

Karl Keirstead – Kaufman Brothers

Parisa Rogman [ph] – Barclays Capital

Kartik Mehta – Northcoast Research

Chitra Sundaram – Cardinal Capital



Welcome to the Fiserv fourth quarter 2009 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 recorded and is also being broadcast live over the Internet at In addition there are supplemental materials that will be referenced on today's call available at the company's website.

To access those materials go to the Company's website at and click on the access presentation link on the home page. The call is expected to last about an hour. You may disconnect from the call at any time. And now I would turn the call over to Jeff Yabuki, President and CEO of Fiserv.

Jeff Yabuki

Thank you. Good afternoon and thanks for joining us for our fourth quarter 2009 earnings conference call. With me on the call today is our Chief Financial Officer, Tom Hirsch.

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 growth, adjusted earnings per share, adjusted operating margins, free cash flow, sales pipelines and our strategic initiative Fiserv 2.0.

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 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 of 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.

Let me say upfront that we are pleased with our results for the quarter. Adjusted internal revenue growth was back into positive territory, capitalizing on the strong fundamentals of our business model. Earlier in the year we shared our belief that revenue growth momentum was building, which would produce quarter-over-quarter improvements and positive revenue growth by yearend. As you've seen by our results today we delivered on that expectation.

That said, 2009 was by any measure a challenge. We began the year with an unprecedented level of economic uncertainty. The financial services sector was eager to the point where some industry punned its question of the long-term viability of the entire system. Through the economic turbulence we were confident and remain so today in the long-term prospects of the financial services industry, and also that the structure of the U.S. banking system would perceive. I will comment about the environment later in the quarter. Our confidence in the longevity of the industry was matched by the strength of our business model and the diversity of our client base.

We finished 2009 on a high note with strong fourth quarter financial performance and December sales results that were the highest in the company's history. Each of these markers is an important sign leading to higher levels of sustainable revenue and earnings growth. Our 2% adjusted internal revenue growth rate in the quarter was at the top end of our recent guidance with total GAAP revenue also increasing 2% to $1.06 billion. Adjusted earnings per share in the quarter were $0.94 and free cash flow in the quarter exceeded $160 million. Despite market conditions, we grew adjusted earnings per share 10% in 2009 to a record level of $3.66. Free cash flow of $668 million was also an all-time high; and as important, free cash flow per share was up sharply to $4.30.

We clearly felt the impact if the environment on our top line with adjusted revenue declining just under 1% for the year. This decline included headwinds such as significant reductions and termination fees, which were indicative of the market challenges. Full year adjusted operating margin increased more than 100 basis points through favorable shifts in our business mix and strong execution of our operational effectiveness initiatives.

Based on strong performance in the quarter and for the full year, we increased the amount of our discretionary profit sharing as compared to 2008. As Tom will explain in a moment, the incremental accrual negatively impacted our consolidated margin in the quarter by about 100 basis points. We asked our associates to work hard as ever in 2009 while managing costs extraordinarily well. They stepped up to the challenge, delivered strong results and continued to partner with our clients.

You will recall that we had three key enterprise priorities in 2009. First, to meet our earnings commitments while maintaining capital flexibility. Next to continue integration efforts with an increased focus on revenue opportunities and product innovation. And third, to enhance our go-to-market approach leading to increased sales results to new and existing clients.

To our first priority, we delivered 2009 earnings within our original guidance range. For the year we grew adjusted earnings to a record level of $3.66 per share and increased adjusted operating margin by 110 basis points. Our earnings growth is particularly notable in light of the significant decline in high margin termination fees and flow income versus 2008. We delivered $668 million in free cash flow during 2009, up 11% for the year and at the very top of our original guidance. We also actively managed our capital in 2009 through the repurchase of 4.1 million shares of stock and $475 million of debt repayment.

We continued to focus on our second priority of delivering market facing integration. We had a strong finish to the year generating over $40 million of integrated sales in the quarter and $117 million for the full year. This was 30% more than our 2009 objective of $90 million and 36% higher than 2008. Our numerous sales wins, many of which were competitive takeaways, validates the Fiserv clients want the integration of our market leading products, such as online banking, bill payment, source capture and debit processing with our industry leading account processing solutions. These client benefits were evident across our payments solutions with 407 bill payment wins and 215 new debit clients this year. Over the last two years, since the acquisition of CheckFree, we have added 1,370 new client relationships in these two strategic payment solutions. And, we still have a significant amount of penetration opportunity ahead.

We also capitalized on several product innovation opportunities in 2009. We invested in Acumen, a powerful new account processing platform for credit unions, which has experienced tremendous success in Canada winning a substantial majority of all of the deals at play. Importantly, we recently won our first US client, Christian Community Credit Union, a $500 million credit union that is within the larger segment of that market where we expect Acumen to gain material share over the next several years.

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