Fidelity National Information Services, Inc. (FIS)

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Fidelity National Information Services (FIS)

Citi Financial Technology Conference

November 7, 2012 02:20 PM ET


Gary Norcross - President & COO

Mike Hayford - CFO



Unidentified Analyst

Situation. If you could just kind of tell us where you are, what changed between 2Q and 3Q? Was it just a better negotiation on your part? Was it perception of value that changed? If you could go through your thoughts.

Gary Norcross

Why don't I talk a little bit about the business relationship and then Mike can talk about the financial side, but obviously we've had a longstanding relationship with M&I Bank. We've had a longstanding relationship with Harris Bank. But they were on different products and Harris Bank M&I Bank. We've bought to the market’s attention in second quarter because we knew that the conversion was coming up like Q3, early Q4 and we knew that we had not worked through the contractual arrangements. So we brought up the fact that pulling these two together we had always said that one plus one was not going to equal two.

What transpired as we were working the implementation, what's transpired is what we think is a great long-term relationship. So what we ended up doing was, we moved a lot, we converted M&I Bank off of one of our core platforms that we were providing on an outsourced basis. We converted it onto another one of our core platforms that BMO Harris actually runs in-house. Now what's interesting is, we have an application management agreement with them. so what that means is, while its our software running in their data center, it’s our people doing the work. So one of the things that transpired through the arrangement is we extended that agreement for another five years and we also increased the size of that arrangement. We also at that point in time though then combined our bill payment under our bill payment platforms, we combined our debit. There were a number of ancillary product wrapped around the core that we also converted and all of those products were on an outsourced basis including stuff like mobile banking. So all of that got extended to full five years which is very positive from our standpoint.

When we went through conversion which we've already gone through the conversion now which was prior to the call, honestly this was one of the biggest core banking conversions that have occurred in North America. What came out of that was all of the things that FIS worked on, frankly went very, very well. I mean in a conversion this size you’re always going to have some issues. What I think executive management realized that at Canada, those issues just did not occur and frankly did not occur on the FIS products and services. So really was a great come.

We've sensed that conversations with executive management of Bank of Montreal. Obviously in Canada, they saw the value of that and we think there is tremendous opportunity now to do more business with the Canada Bank as well. So we’re excited about that arrangement where it can go.

Mike Hayford

Just so with color on the numbers, and again, I think it’s a little bit of challenge for us. We don't want to be in a situation where we brought to the market, we just moved de-converted M&I from the MI platforms, and moved it over to another and here is the financial impact after the fact. So second quarter we tried to give some certain expectations what was going to happen on the timing of that but did not have our agreements, I hammered out with BMO Harris.

So we (inaudible) second quarter M&I is a very unique client, a portion that FIS came out M&I as the technology stop. So it’s the subsidiary of M&I and we did virtually everything for M&I. so it’s very unique. People always say do you have other clients that could consolidate that, have that impact, the answer is no. we don’t have other relationships like we have with M&I and because some of the people sought answer, a lot of the people that follow us over the years knew a fair amount about that M&I relationship and the size we felt it was important to share that with everybody.

So that's what we did in the second quarter. Net on a run rate basis, it’s about $60 million EBITDA hit to FIS, unmitigated, that's the hit of M&I moving over the Harris BMO platform. As we work through the deals during the quarter, and then we said in 2013, we expect the termination of settlement fee that would mitigate half of that 60 million in 2013 that was the message we gave on the second quarter call. as we worked out the arrange as you can see, it worked out better. I don't think it was a negotiation. I think we have a better relationship today than we did three months ago.

The terminations of settlement, there is a relationships we settled out, we ended up with $40 million term selling fee in 2013 and then two other (inaudible) one is the special services is part of the five year extent, the level of the professional services, the level of support. So its supporting the applications that BMO Harris has, that we do for them is higher than we had originally anticipated. And so that's going to mitigate a chunk and we have another business arrangement, I'll call it, that we’re settling up with BMO Harris. We can speak the specifics but it will be a deal that we complete with them hopefully soon and that we anticipate to about $10 million EBITDA on going impact positive EBITDA.

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