Fiserv (FISV) Earnings Report: Q4 2015 Conference Call Transcript › media › xtranscript › 2016 › Q1 › 13445919.pdf · 2016-02-03 · addition to technology solutions, we

CompanyName:FiservIncCompanyTicker:FISVSector:ServicesIndustry:Diversif iedServices

EventDescription:Q42015EarningsCallMarketCapasofEventDate:21.57BPriceasofEventDate:93.04

©2014TheStreet,Inc.Al l R ightsReserved Page1of22

Fiserv(FISV)EarningsReport:Q42015ConferenceCallTranscriptThefollowingFiservconferencecalltookplaceonFebruary2,2016,05:00PMET.Thisisatranscriptofthatearningscall:

CompanyPart icipants

StephanieGregor;FiservInc.;VPofIRJeffYabuki;FiservInc.;CEOTomHirsch;FiservInc.;CFOMarkErnst;FiservInc.;COO

OtherPart icipants

DavidTogut;EvercoreISI;AnalystRamseyEl-Assal;Jefferies&Co;AnalystDavidKoning;RobertW.Baird&CompanyInc;AnalystGlennGreene;Oppenheimer&Co;AnalystTienTsinHuang;JPMorgan;AnalystKartikMehta;NorthcoastResearch;AnalystJimSchneider;GoldmanSachs;AnalystDarrinPeller;BarclaysCapital;AnalystAndrewJeffrey;SunTrustRobinsonHumphrey;AnalystMosheKatri;SterneAgee&Leach;AnalystPaulKondra;CreditSuisse;Analyst

MANAGEMENTDISCUSSIONSECTION

Operator :

WelcometotheFiserv2015fourthquarterearningsconferencecall.

(OperatorInstructions)

Asareminder,today'scallisbeingrecorded.

Atthistime,I'llturnthecallovertoStephanieGregor,VicePresidentofInvestorRelationsatFiserv.Ma'am,youmaybegin.

StephanieGregor (VPofIR):

Thankyou.Goodafternoon.

WithmetodayareJeffYabuki,ourChiefExecutiveOfficer;TomHirsch,ourChiefFinancialOfficer;andMarkErnst,ourChiefOperatingOfficer.PleasenotethatourearningsreleaseandsupplementalpresentationforthequarterareavailableontheInvestorRelationssectionofFiserv.com.

Ourremarkstodaywillincludeforward-lookingstatementsabout,amongothermatters,expectedoperatingandfinancialresults,anticipatedbenefitsrelatedtoacquisitionsandourstrategicinitiatives.Forward-lookingstatementsmaydiffermateriallyfromactualresultsandaresubjecttoanumberofrisks




anduncertainties.

Pleaserefertoourearningsreleaseforadiscussionoftheseriskfactors.

Youshouldalsorefertoourmaterialsfortoday'scallforanexplanationofthenon-GAAPfinancialmeasuresdiscussedinthisconferencecall,alongwithareconciliationofthosemeasurestothenearestapplicableGAAPmeasures.Thesenon-GAAPmeasuresareindicatorsthatmanagementusestoprovideadditionalmeaningfulcomparisonsbetweencurrentresultsandpriorreportedresultsandasabasisforplanningandforecastingforfutureperiods.

Unlessstatedotherwise,performancecomparisonsmadethroughoutthiscallareyear-over-yearmetrics.

Withthat,I'llturnthecallovertoJeff.

Jef f Yabuki(CEO):

Thankyou,Stephanie.Goodafternoon,everyone.

Wecappedoff2015withfourthquarterperformancethatallowedustoexceedthemajorityofourfinancialmetricsfortheyear.ThesestrongresultswereinspiteofQ4revenuethatwasabitlightversusexpectations,drivenprimarilybydelaysinEMVcardpersonalizationandlowerthanplannedlicenserevenue.

Overall,performanceinthesecondhalfof2015wassolid,including5%internalrevenuegrowthinboththethirdandfourthquarters.Thesegrowthresults,combinedwithrecordfourthquartersales,shouldsetthestagetoexpandourinternalrevenuegrowthratein2016.Theorganizationachievedanunprecedented30thconsecutiveyearofdouble-digitadjustedearningspersharegrowth.Intheprocess,weexpandedadjustedoperatingmarginby120basispoints,grewadjustedoperatingincomeby8%,andbroke$1billioninfreecashflowforthefirsttime.

Weanticipatestrongresultsagainin2016.Weprovidedinternalrevenuegrowthguidanceof5%to6%,consistentwithourstrategicobjectiveofsteppingupourgrowthrateanaverageof50to100basispointsperyear.Wealsoexpectanotheryearofdouble-digitadjustedearningspersharegrowth,atleast50basispointsofadjustedoperatingmarginexpansion,andarecordleveloffreecashflowpershare.

AsyousawonJanuary20,weannouncedtheacquisitionofcertaindigitalbankingandpaymentassetsoftheCommunityFinancialServicesbusinessfromACIWorldwide.Thesecomplementarysolutionsarestrategicallyalignedwithourgoalofenablingclientstotransformtheirfinancialservicesexperience.Inadditiontotechnologysolutions,wewillalsowelcomeagroupofhighqualityclientsandcommittedassociates.

Weexpectthistransaction,whichissubjecttoregulatoryapprovalandothercustomaryconditions,toclosetowardstheendofthefirstquarter.Weestimatethepurchaseprice,includingthetaxbenefitsandrunratesynergies,toberightaround5timesEBITDA.Wewillsupplyadditionalfinancialinformationafterthetransactioncloses.

Atthebeginningoftheyear,weestablishedthreekeyprioritiestohelpyouassessourperformance,whichwerefirst:tocontinuetobuildhighqualityrevenuewhilemeetingourearningscommitments;second,buildandextendclientrelationships,withanincreasedemphasisonpaymentandchannelsolutions;andthird,deliverinnovationandintegrationwhichenablesdifferentiationandvalueforourclients.

Reportedinternalrevenuegrowthof4%fortheyearwasshortofourguidance,aswecouldnotovercometherevenuedelayresultingfromtheunanticipatedimpactofthelagbetweenEMVcard




manufacturingandpersonalizationwementionedinQ3.Butforthatnegativeimpact,internalrevenuegrowthforthefullyearwouldhavebeen5%.

Wesawgoodgrowthacrossmanyofourrecurringrevenuebusinesses,suchascardservices,billersolutions,digitalchannels,andaccountprocessing.Importantly,wecontinuetobuildourcapabilitiestosteadilyaccelerateourinternalrevenuegrowthrateintothefuture.Theseareasofhighqualityrevenuegrowth,combinedwithourfocusonoperationalefficiency,drovestrongadjustedoperatingincomegrowthof8%and120basispointsofadjustedoperatingmarginexpansion.

Full-yearadjustedearningspersharegrew15%,whichwas$0.04abovethetopendofouroriginalguidance;andweachievedarecord$4.23infreecashflowpershare.Weagaindemonstratedthestrengthofourbusinessmodelandlikeourtrajectorygoinginto2016.

Oursecondprioritywastobuildandextendclientrelationships,withanincreasedemphasisonpaymentandchannelsolutions.Januarymarkedthethree-yearanniversaryoftheOpenSolutionsacquisition.Byanymeasure,thistransactionhasbeensuccessful,addingamodern,innovativeaccountprocessingtechnologysolution,talentedassociatesandapassionateclientbase.

Todate,wehavesigned75DNAclientsanddeliveredsubstantialvaluetotheexistingclientbasethroughhighqualityadd-onsolutions.Fortheyear,28newDNAclientswentlive,including9financialinstitutionswithassetsgreaterthan$1billion;andofthe9,6wentliveinthefourthquarter.Weanticipatethattheserecentimplementations,alongwiththeplanned2016activity,willprogressivelyincreaserevenuethroughoutthisyear.

Weaddedanumberofprivilegedclientrelationshipsacrossmultipleaccountprocessingplatformsinthequarter.Forexample,UnitedNationsFederalCreditUnion,the28thlargestcreditunionintheUS,withapproximately$4.3billioninassets,selectedDNA,alongwithasuiteofintegratedsolutions,toservicemorethan115,000memberslocatedin200nationsandterritoriesaroundtheworld.

SuffolkCountyNationalBank,withassetsnearing$2billion,selectedthepremieraccountprocessingplatform,alongwithafullsuiteofpaymentandchannelsolutions,includingRetailandBusinessOnline,Mobiliti,BillPayment,Popmoney,andSourceCapture.ByselectingFiservasasingleprovideroftheseservices,theseclientsexpecttoamplifytheirtechnology,streamlineoperations,andenhancetheirclients'experience.

Inadditiontonewclients,weremainfocusedondeepeningexistingrelationships,withanemphasisonourpaymentsandchannelsolutions.Ourintegrateddebitandcreditvaluepropositionscontinuetoresonatewell.Andinfact,weaddednearly50newdebitclientsinthefourthquarteralone.Forthefullyear,wecontractedtoaddmorethan700paymentsolutionsacrossCardServices,BillPaymentandPopmoney.

Inaddition,we'vesignedmorethan260institutionsforournewCardValetsolution,whichprovidesvalueattheintersectionofmobileexperienceandcardpayments.Weadded43%,morethan1.2millionsubscribers,toendtheyearwithover4millionusersonMobilitiASP.WehaveseveralimportantMobilitireleasesqueuedupthisyear,whichshouldenhancefunctionalityandextenduserengagement.WealsocontinuetogainmomentumwithMobilitiBusiness.Thissolution,initsinauguralyear,added60clientsinthequarter,andwenowhavemorethan100businesseslivewiththousandsofunderlyingusers.

Ourthirdpriorityin2015wastodeliverinnovationandintegrationwhichenablesdifferentiationandvalueforourclients.AtourinvestorconferenceinJune,wehighlightedsixofourinnovation-basedsolutions,Agiliti,Mobiliti,DNA,EMV,Now,andIPS,thattogetherformanimportantpartofourinternalrevenuegrowthaccelerationstory.Weexitedtheyearwithourthesisintactandcontinuetoexpectsequentialgrowthrateincreasesinthe2016to2019period.




Duringtheyear,weexpandedthebreadthofourPopmoneynetworkthroughbusinessdisbursementsandcharitablegiving.Duringthequarter,wesignedapaymentagreementwithCare,oneoftheleadinghumanitarianorganizationsintheworld,toacceptdonationsusingPopmoney.Throughthisrelationship,millionsofconsumerswillnowhavetheoptiontousePopmoneytomaketheworldabetterplaceonepaymentatatime.

Oneofournewestinmarketinnovations,ImmediateFunds,gainedimportanttractioninthequarter.Thissolutionenablesfinancialinstitutionstheoptionofprovidingconsumersrealtimeaccesstodepositedfundsacrossthechanneloftheirchoice.Evenaftersigningourfirsttop10banktoImmediateFundsinthequarter,thepipelineremainsstrongforthisrealtimerightnowsolution.

ClientfocusonEMVremainsheightenedandactivitylevelsareincreasing.Cardmanufacturingacceleratedagainthisquarterandbacklogisbuilding.WehavemuchbetterlineofsightintoEMVmanufacturingandpersonalizationactivitygoinginto2016.Accordingly,weexpectstrongEMVgrowth,withvolumenearingourexpectedpeaksinthemiddlequartersoftheyear.

WesignedoursecondclienttoAgiliti,ourUKcloud-basedaccountprocessingsolution,inthefourthquarter.TandemBank,adenovoinstitution,selectedAgiliti,pairedwithourMobilitisolution,tobringitsuniquedigitalbankingexperiencetothemarketlaterthisyear.InJanuary,CornerstoneMutualServicessignedwithAgilitiasthebankingplatformfortheUKcreditunionexpansionproject,withplanstoinitiallymigrateupto40UKcreditunionsin2016.OurAgilitipipelineremainsstrongasweheadintotheyear.

Finally,weclosedaverysmallBillerSolutionsacquisitioninJanuary,buyingHewlett-Packard'sEnterprisesconveniencepayservicesbusiness.ThisexpandsourbillerfootprintthroughamodernSaaSplatform,enablingelectronicpaymentacceptanceforabroadrangeofbillers.Weanticipatethebusinesswillgenerateroughly0.5%oftotalrevenueandthatthesynergyadjustednetpurchasepricemultiplewillbearound3timesEBITDA.Withthat,letmeturnthecallovertoTomtoprovideadditionaldetailonourfinancialresults.

T omHirsch (CFO):

Thankyou,Jeff,andgoodafternoon,everyone.Adjustedrevenueforthequartergrew5%,to$1.3billion,andincreased4%,to$4.9billionfortheyear.Internalrevenuegrowthwas5%inthefourthquarterandup4%forthefullyear,including100basispointsand80basispoints,respectively,ofcombinednegativeimpactfromFXandtheunanticipatedEMVcardpersonalizationdelays.Ourfull-yearinternalrevenuegrowthratewouldhavebeen5%,excludingtheunanticipatedimpactoftheseitems.

Ourrevenuefortheyearisataleoftwocities,asourprocessingandservicesrecurringrevenueincreased5%,evenafterthenegativecurrencyimpact.Ontheotherhand,productrevenuewasshortofplanfortheyearanddeclinedcomparedto2014,dueprimarilytolowerthananticipatedbaseandEMVrevenueinourOutputSolutionsbusinessandlowerthanplannedlicenserevenuefortheyear.Wecontinuetobuildhighqualityrecurringrevenue,whichiskeytoourlong-termgrowthprofile.

Adjustedearningspershareforthequarterwasup12%overtheprioryear,to$1.00.Full-yearadjustedearningspershareexceededthetopendofouroriginalguidancerange,growing15%,to$3.87.Full-yearadjustedoperatingmarginperformancewasupaverystrong120basispoints,to31.7%,drivenbyhighqualityrevenuegrowth,expensediscipline,andacontinuedfocusonoperationaleffectiveness.Adjustedoperatingmargininthequarterincreased10basispoints,to30.7%,withcomparisonsnegativelyimpactedbythetimingofourfallclientconference,revenuemix,andhigherexpensesinourcorporatesegment,whichbyitselfnegativelyimpactedmarginby50basispointsinthequarter.

Atthesegmentlevel,ourPaymentsbusinessesdelivered6%internalrevenuegrowthinthequarterand5%forthefullyear.GrowthwasprimarilyledbyourCardServices,BillerandChannelsbusinesses.Our




OutputSolutionsbusinesssawbasebusinessmomentuminthefourthquarterandEMVdemandwasstrong,aswehadanticipated.AlongerlagbetweenmanufacturingandpersonalizationofEMVcardsledtoanadditional$7millionrevenuedeferralinthequarter,ontopofthe$9millioninthethirdquarter.

OurclientspurchasedalargeamountofmanufacturedEMVcardproductin2015whichhasnotyetbeenrolledouttotheircustomers.Givenvisibilityanddemand,weanticipatethatEMVrevenuewillacceleratesubstantiallyinto2016,asourclientsmoveforwardwiththefinalcardpersonalizationanddistributetheEMVcardstoconsumers.

Weagainleveragedthepowerofourintegratedcardvaluepropositionandfinishedtheyearwithaverystrongsalesquarter,signing49newdebitclientsandatotalofnearly150fortheyear.Debittransactionscontinuetogrowabovemarket,withhighsingle-digitgrowthfortheyear.

Ourindustry-leadingBillPaymentandPerson-to-PersonPaymentSolutionscontinuedtogrow.Fortheyear,BillPaymenttransactionsgrewinthelowsingledigitsandPopmoneytransactionswereupover20%.InQ4,wedeliveredthefirstreleasesupportingourIntegratedPaymentStrategy,orIPS,whichformsanewintegratedbillpayment,P2Pandtransferexperience.

Theearlyreturnsareencouraging,asweexpectfurthergrowthinthesepaymenttransactionsin2016andoverthenextseveralyears.AsJeffmentioned,MobilitiASPuserswereupsharplyyear-over-year,gainingover40%andcrossingthe4millionsubscriberthreshold.Wecontinuetobelievedigitaltransformationisforgingalongrunwayforrevenuegrowthinbothdigitalsubscribersandtransactionalservices.

Paymentssegmentadjustedoperatingincomewasexcellent,increasing11%inthequarter,to$224million,andfortheyearwasup9%,to$840million.Segmentadjustedoperatingmarginexpanded150basispointsinthequarter,to33.6%,andwasup130basispoints,to33%,fortheyear.Thisstrongperformancewasdrivenbyhighqualityrevenuegrowthandoperationalefficiency,evenaswecontinuetoinvestintargetedinnovation.

AdjustedrevenueintheFinancialsegmentwas$631millioninthequarterand$2.4billionfortheyear.InternalrevenuegrowthintheFinancialsegmentwas4%inthequarterand3%fortheyear.Thissolidperformance,whichincludesanegativecurrencyimpactof60basispointsinthequarterand70basispointsfortheyear,wasledbyouraccountprocessingandlendingbusinesses.AdjustedoperatingincomeintheFinancialsegmentwas$195millioninthequarterand$826millionfortheyear.Adjustedoperatingmargininthequarterwaspressuredbythetimingofexpenses,includingourfallclientconferenceandbusinessmixinthequarter.Full-yearadjustedoperatingmarginwasexcellent,up120basispoints,drivenbygrowthinourscalebusinesses,suchasaccountprocessing,andthebenefitofouroperationaleffectivenessinitiatives.

Corporatesegmentnetadjustedoperatingperformanceinthequarterwasinlinesequentiallybutupovertheprioryear,primarilyduetothetimingofexpensesandanincreaseincertainconsultingexpenses.Thisyear-over-yearincreaseinexpensereducedoverallcompanyoperatingmargininthequarterby50basispoints.

Ouraffectedadjustedtaxratewas34.6%inboththequarterandyear.Theadjustedeffectivetaxrateforthequarterwasslightlylowerthanexpected,duetotherenewaloftheR&Dtaxcreditoffsetbythetimingofotherdiscretetaxitems.Oureffectiveadjustedtaxratewasup60basispointsforthefullyear,duetolowerdiscretetaxbenefitsin2015thantheprioryear,whichequatestoabouta1%,or$0.04pershare,negativeimpactonthisyear'sadjustedEPSgrowthrate.Weexpectouradjustedeffectivetaxratetobe35%in2016.

Wegeneratedover$1billionoffreecashflowin2015.Freecashflowpershareincreased11%,to$4.23,




9%higherthanouradjustedEPSof$3.87.Webelievethecombinedbenefitsoffocusingonhighqualityrevenue,alongwithdisciplinedcapitalallocation,willcontinuetoproduceexcellentfreecashflowpershareresults.

Wereceived$36millionofcashdistributionsfromourStoneRiverjointventurein2015,whicharesubstantiallyexcludedfromourfreecashflowresults.InJanuary,wereceivedanadditional$140milliondistributionrelatedtothesaleofanunderlyingbusiness.Sincetheformationoftheventurein2008,wehavereceived,includingtheproceedsfromtheoriginalsaleofour51%interest,over$1billionofgrossdistributions.Thejointventurehasfairlylimitedassetsremaining,giventhesuccesstodate.

Totaldebtatyear-endwasupabout$500millionsincethebeginningoftheyear,to$4.3billion,butisstillonly2.3timestrailing12-monthadjustedEBITDA,wellwithinourtargetleverageratio.

Werepurchased4.5millionsharesofstockinthequarterfor$422million.Fortheyear,werepurchasedover17millionsharesatanaveragecostoflessthan$85pershare,returningnearly$1.5billiontoourshareholders.Weannouncedanew15millionsharerepurchaseauthorizationinthefourthquarter,andatyear-end,had17.4millionremainingsharesauthorizedforrepurchase.

Withthat,letmeturnthecallbackovertoJeff.

Jef f Yabuki(CEO):

Thankyou,Tom.

Strongsalesinthequarterledtoa3%increaseinTCVoverlastyear'srecordlevel.Inadditiontothewinsmentionedearlier,wehadexcellentresultsacrossmostofourbusinessesinthequarter.Full-yearsaleswasshortofexpectations,primarilyduetoareductioninthenumberoflargerin-yearnewclientsalesclosedcomparedtothelastseveralyears,whichweexpectwillreversein2016.Pipelinetrendsarestrong,includingamoretypicalnumberoflargertransactions,whichshouldbodewellforafasterstartthisyear.

Integratedsaleswereoutstandingatnearly$90millioninthequarterand$257millionforthefullyear.StandoutsincludedCardServices,BillPayment,Mobiliti,andCustomStatements.

Weachievedoperationaleffectivenesssavingsof$64millionin2015,wellaboveourgoalof$50million.Savingsthisyearweredrivenprimarilybystrongresultsinprocurementandworkforceoptimization.AfterthesuccessfulcompletionofourAtlantafacilityconsolidationin2015,wewillfurtherprogressourrealestateanddatacenterinitiativesthisyear.Youalsorecallfromourinvestordaythat2016kicksoffournewfive-year,$250millionoperationaleffectivenessprogram.Ouroperationaleffectivenesstargetfor2016is$40million.

OneofthebiggerstoriesintheenvironmentlastyearwasincreasingFIM&Aactivity,whichweexpectwillcontinue.WeviewtheFedrateincreaseforthefirsttimeinadecadeasgoodnewsforbanksandawaytohelpfundneededincreasesinITspend,asinstitutionslookforwaystokeepupwiththebroadchangesacrossthetechnologylandscape.

Thereisnoquestionthatdigital--specificallymobile--ishavingadramaticimpactonthebankingexperience.Branchesareindeclineandthepaymentworldismoredynamicthanever,whichwebelievewillleadtomeaningfulopportunity.Financialinstitutionsareincreasinglylookingattechnologyproviderstohelpthemnavigatethesechangingtimes.Webelievethetrendsinthemarketalignwellwithourinnovation-basedagendaandshoulddrivefurthergrowthoverthenextseveralyears.

Withthat,let'smoveto2016.Ourthreekeyenterprisepriorities,whichremaingenerallyunchanged,arefirst,continuetobuildhighqualityrevenuewhilemeetingourearningscommitments;next,buildand




enhanceclientrelationshipswithanemphasisondigitalandpaymentsolutions;andthird,deliverinnovationandintegrationwhichenablesdifferentiatedvalueforourclients.

For2016,weexpectinternalrevenuegrowthtobeinarangeof5%to6%.Ourroadmapforrevenueaccelerationincludescontinuedgrowthinourscaledhighqualityrevenuebusinesses,incrementalcontributionsfromourinnovation-basedsolutions,andlessnegativeimpactfrombothcurrencyandthelagbetweenEMVcardmanufacturingandpersonalization.Ashighqualityrevenuecomesonslowly,weagainexpectahighergrowthrateinthesecondhalfoftheyear,andthatwilllikelybuildsequentially.

Weexpectadjustedearningspersharetogrowinarangeof12%to15%,or$4.32to$4.44fortheyear.Wealsoexpectadjustedoperatingmarginexpansionofatleast50basispointsandthatfreecashflowpersharewillbegreaterthan$4.70fortheyear.Lastly,forguidancepurposes,wedonotexpecttheACIassetacquisitiontohaveamaterialimpactonouroperatingresultsthisyear.

Onbalance,weperformedwellin2015andshowcasedthepowerofourbusinessmodel.Althoughwefellabitshortonreportedrevenue,weachievedour30thconsecutiveyearofdouble-digitadjustedearningspersharegrowth,droveexceptionaloperatingmargin,anddeliveredanotheryearofstrongfreecashflow.Wealsoaddedmeaningfulnewinnovationtooursolutionportfolioandarewellpositionedfortheforeseeablefuture.Ourresultsareaproductofthecommitmentanddedicationofour21,000associatesaroundtheworldwhostrivetobetheirbest.I'mgratefultobepartofacompanythatdeliverstoday,whilecreatinganevenbrightertomorrow.

Lastly,aswesharedwithyouinQ3,weexpectthistobeTom'sfinalearningscallasourCFO,andwethankhimforthemanycontributionshehasmadetosupportthesuccessofourclients,associates,andyou,ourshareholders.Ontheselectionfront,wehavebeenverypleasedwiththesignificantinterestinthisimportantroleandareontracktohaveasuccessornamedandinplacethisquarter.

Withthat,Operator,let'sopenthelineforquestions.

QUESTIONS&ANSWERS

(OperatorInstructions)

Operator :

DavidTogutwithEvercoreISI.

DavidT ogut (Analyst-EvercoreISI):

Goodafternoon,JeffandTom.Congratulationsonthestrongfreecashflowgrowth.Nicetogooutonahighnote,Tom.

T omHirsch (CFO):

Absolutely,David.


Justmovingintosomeofthetargets,your2016operationaleffectivenesstargetof$40millionislessthanwhatitwasin2015.

Whatwerethedriversbehindthat?

T omHirsch (CFO):

Ithink,David,we'reinthefirstpartofournewprogramandsothere'sanumberofdifferentitems.Sowe




anticipatethatthisisgoingtoaccelerateonayear-over-yearbasis.Wefeelhighlyconfidentinthatnumber.We'redoingalotofthings,asJeffindicatedinthescript,aroundourrealestateanddatacenterconsolidation.Andmostofthoseimpacts,we'redoingalotoftheconsolidationactivitiesaroundourdatacenteroptimizationeffortsin2016,whichisnotgoingtohavethefullrunratebenefituntillargely2017and2018.Andsothat'sprobablythebiggestdriverinthatcase,becauseit'salittlebitdifferentthanthebenefitswehadin2015,whichwerefocusedalotonprocurement.

Sothebenefitsaregoingtoscaleupaswegothroughthenextfewyears,alongwithcontinuedontheworkforceoptimizationside.Buthat'sreallythebiggestissuethere.


Understood.Andthenwhatisthe2016salestarget?

Jef f Yabuki(CEO):

David,intermsofgrossnumbers?


Intermsoftotalnewbookings.Youmentionedyoufellalittleshortfor2015.

Jef f Yabuki(CEO):

Wefellalittleshort.Wetypicallydon'tsupplythatnumber,theactualnumber.Butwedoexpecttohavehighersalesgrowthin2016versus2015,andthatwillbereflectedinourquotafortheyear.


Gotit.Okay.AndthenjustonequestiononyouracquisitionoftheACIWorldwidedigitalassets.Howshouldwethinkaboutthe$50milliontaxbenefit,overwhatnumberofyearsisthatrecognized?Andisthatanincomestatementitemorjustacashflowitem?

T omHirsch (CFO):

It'sjustacashflowitem,David.Sothat'sthediscountedvalue,orthenetpresentvalueofthosetaxbenefitsovera15-yearperiod.

Jef f Yabuki(CEO):

Right.Sothe50istheNPV,David.Soactuallythegrossnumberwouldbemeaningfullylarger,butthatistheNPV.


Gotit.AndthenTom,finaltime,whatwastheDecember31sharecount?

T omHirsch (CFO):

Iactuallyhadthatwrittendownonmypieceofpaperhere,David.Wehadroughly225.3millionattheendofDecember.AndattheendofJanuary,weboughtbackaboutanother2millionsharesinthemonthofJanuary.


Gotit.Thankssomuch.




Jef f Yabuki(CEO):

Thankyou.

Operator :

RamseyEl-AssalwithJefferies.

RamseyEl-Assal(Analyst-Jefferies&Co):

Hello,guys.Iwaswonderingifyoucouldhelpusunderstandthedynamicwithyourclientsintermsofthemordering--havingyoumanufacturecardsandthendelayingthepersonalization.Isitjustaquestionofthey'renotturningovertheircardholderbase,intermsofreissuingcards,asfastastheyhadintended?Orwhat'sthedynamictherethat'scausingthedelay?Itseemslikethey'reputtingonefootinthewaterbutnottheother.

MarkErnst (COO):

ThisisMarkErnst.Letmetakethatreallyquick.Fundamentally,whatwe'reseeinghappenwithclientsisthattheywereworkingontheirowninternalschedulestogetEMVcardsreadyandoutthedoor.Wejusthadabitofadelayinhowmanyofthosewerefinallyissuedtotheirconsumers.Andsomeofthatisasystemsreadinessissue.Andsomeofthatwasjustthetimingwithwhichtheywantedtogothroughwiththereissueprocess.

Butbecauseoftheconcernsthathavebeenoutthereintheindustryabouttheavailabilityofchips,wesawalotofpeoplepushingforthemanufacturingtogetdoneandputthatintotheirinventory,inanticipationofneedingtogetthereissuesdone.SoIthinkit'sacombinationofbothalotofinternalprocessdifferencesbyaclient,butveryimportantly,concernovernotcomingupshortonEMVchipavailability.

T omHirsch (CFO):

Ithasbeenalongerleg,Ramsey,andweanticipatedthatwenormallysee,becausetheseclientsareactuallypaying,obviously,forallofthisproductandtakingtitletothecards,also.Soithasbeen,toMark'spoint,forus,it'sbeenverysurprisingthisyearthatwe'dseethat.Butobviouslyovertime,thesecardsaregoingtogetissuedoverthenextyearandtwoandthatcycle'sgoingtodramaticallyreduce,webelieve,becausethey'regoingtobeissuingthesecardstotheirconsumers.


Okay.Thatwasmynextquestion.Andthisisprobablyaratherobviousquestion,butthere'snoriskthatthedeferredrevenuenevergetsimplemented,right?Thisissortoflikemoneyinthebank,inthesensethattheseplasticswillgetreissued,it'snotlikethey'lljust--thatdeferredrevenuewouldneedtobeadjustedatsomepoint.It'sjustamatterofwhen,ratherthanif.

T omHirsch (CFO):

That'scorrect.Becausetheypaidusforthese.Wereceivedthecashanddeferredtherevenue.Andsoit'sgoingtogetrecognizedwhenthosecardsareultimatelyshippedtotheendconsumer,andthat'sgoingtohappen.Soit'sjustamatteroftiming.

AndasIthinkJeffindicatedonhispreparedremarks,welookat2016rightnowandwesee,atleastinitially,themiddlepartoftheyeartobewhenalotofpersonalizationisgoingtooccur.Butwecontinuetowatchitclosely.Butthosecardsaredefinitelygoingtogetissuedoverthenexttwoyearshere.




MarkErnst (COO):

Ithinkeveniftheyweren'tissued,forsomebizarrereason,thetitleswerealreadytransferred.Sothereisnoriskofnotrecognizingthatrevenue.

Jef f Yabuki(CEO):

Andthechipsactuallyhaveafinitelife.SoRamsey,toyourpoint,it'salittlebitofanoddity.Ialsothinkthecommunity--primarily,thisisacommunitybankissue--thecommunitybanksaremakingdecisionsonthetimingoftheir--shouldtheydoamassreissue,shouldtheydopartialreissues?Therearealotoffactors.SoyousawtheFIlandscapekindofignoretheissue.Andthenallofasudden,itbecameveryurgent.Andthentheyboughtthem,andthentheyhadtothinkaboutwhat'sthebestwaytogetthemdistributed?

Theotherthingtokeepinmindisthecardsdon'thavethesamelevelofvalueifthemerchantsaren'tliveontheirend.Andsowearejustreallyseeing--andwe'reallseeingit,everyonceinawhilenow--finally,amerchantsays,allright,well,youhavetoputyourcardinthemachine.Sothatlandscapeiscomingtogetherandtheend-to-endequationisbeingbuilt.Weexpectthatwillcontinuetobuild,andthatwillmatchupwellwiththeinstitutionsdecidingtosendthecardsouttotheirconsumersandgetthemfinallypersonalized.


Gotit.Okay.AndlastoneforTom,fittingly.Thehigherexpensesinthecorporatesegmentthistimearound,thatwasreallyall--canyougiveusalittlecoloronthat?Thatwasrelativelytransientandshouldcorrectgoingforward?

T omHirsch (CFO):

That'scorrect.Wehavealittletimingissue.Ifyoulookat,wehadaboutthesamelevelofexpensesaswehadinthepreviousthreequartersthisyear.Wejusthadlastyear'sfourthquarterwasvery,verylow.Sowehadsomeone-timeitemstherethatweremoreofabenefit.Andyou'regoingtoseeusaround--wehadabout$100millionforthefullyearforthecorporateandothersegment.Andthatshouldbeprettymuchwhereit'satin2016.


Okay.Fantastic.Thankssomuch.

Operator :

DavidKoningwithBaird.

DavidKoning (Analyst-RobertW.Baird&CompanyInc):

Guys,greatjobagainthisyear.

Jef f Yabuki(CEO):

Thankyou,David.


Firstofall,itsoundslike,withtheacquisitions,itsoundslikenotoverlymaterial,butaretheyintheEPSguidancerightnow?




Jef f Yabuki(CEO):

Sowehad--aswetalkedabout,wehadtwoacquisitions.Wehadasmallbilleracquisition,avery,verysmallbilleracquisition.Sothatisinourguidance.WebelieveACI--thenumbersareinourguidance,aswell--theresults,becauseofwhenitwillcloseandhowit'sgoingtocomeon,wethinkit'sgoingtobefairlyimmaterialtoournumbers.

Whenitcloses,inthenextquarterthatwereport,we'llgivesomemoreinsightsintothat.Wealsothinkthatthemajorityofthesynergiesinthisdeal,itwilltake--wehavetotransitionthesolutionsover.Thesearerecurringrevenuekindsofsolutionsthathavetomoveintoourdatacentersandthingslikethat.Soitprobably--wewon'tseethebenefitofthesynergieslikelyuntil2017.That'simportantwhenwethinkabouthowtheearningswilleffectivelycomeon.


Great.Thatmakessense.AndwhatweretermfeesinQ4?Anddoyouexpectthemtobesimilarin2016astheywerein2015,justgiventheM&Aenvironmentinbanksisalittlehighrightnow?

T omHirsch (CFO):

Wedon'treallyseeanychangewiththatonayear-over-yearbasis.Theywereupjust,Ithink,$1millionor$2millioninthefourthquarteroverlastyear.Soaboutthesame,butupslightly,Dave.


Okay.Great.Well,that'sallI'vegot.Nicejob.Thanks.

Operator :

GlennGreenewithOppenheimer&Company.

GlennGreene (Analyst-Oppenheimer&Co):

Thankyou.Goodafternoon,JeffandTom.Thefirstquestion,maybejustalittlebitmoregranularityonthekeycatalyststodrivetheaccelerationintheorganicgrowth.Iknowyoutalkedaboutitatahighlevel.ItsoundslikeacombinationoflessdragsfromFXandEMV.Butmaybemoreofthepositives,howmuchincrementaldoyouexpectfromEMV,maybeDNA,Mobiliti?Justalittlebitofcolorofthekeyhighleveldrivers.

Jef f Yabuki(CEO):

Sure.Glenn,letmetakeitandthenTomandMarkcanaddin,asneeded.SowhenIthinkaboutthedriversofthegrowthaccelerationin2016,youhave,aswelaidoutatInvestorDay,welaidoutthatwewerethinkingaboutourgrowthintwoseparatebaskets;themomentum-basedgrowth,whichisreallythemassofthecompanyinourexistingbusinessportfolio,andthenwehadsixsolutionsthatwehighlightedasrepresentativeofareasofinnovation-basedgrowth.Weactuallytalkedabout12;butwehighlighted6.

Andsofromeachofthose6areas,Agiliti,DNA,EMV,Now,IntegratedPayments,orIPS,andMobiliti,weseeeachofthoseareascontributingsomelevelofincrementalgrowthin2016.Itwon'tsurpriseyoutoknowthatwe'renotgoingtotalkaboutitspecifically.Butonanorderofmagnitudebasis,wedidlayoutatInvestorDayhowwesawtherampcomingyearoveryear.Andsoweexpectsomeincrementalbenefitin2016,evenmorein2017,evenmorein2018.Sowehaveahighdegreeofconfidenceandvisibilitythat'sgoingtohappen.Sothat'spointone.




PointtwoisweexpecttohavealittlelessdragfromFX.WeexpecttonotbesurprisedbythislagbetweenEMVcardmanufacturingandEMVcardpersonalization.Sowethinkthatwillturn,aswell.Sowhenyouaddallofthoseup,itgivesusaprettygooddegreeofconfidence,andfrankly,agooddegreeofvisibilityintohowwegetfrom2015into2016,whichwebelievewillactasastepto2017.


Okay.Nextquestion.OntheACIassets,justtomakesureI'mthinkingaboutitrightbecauseIthinkyousuggested5timesEBITDA,includingsynergies,andIassumethat'sincludingthetaxbenefit.Also,isthatimplyingrunrate$30millionEBITDA,onceyou'vegotthesynergiesfullyborne?

Jef f Yabuki(CEO):

Listen,thatmath,evenIcando.Iwouldsaythat'sprobablyareasonablewaytothinkaboutit,yes.


Okay.Andthentherevenuecontributionandhowyou'regoingtofinanceit.

Jef f Yabuki(CEO):

SoIbelievewesaidit'sbetween1%and2%ofourrevenues.Andagain,wewanttowaitandsee.Numberone,wedon'thaveagoodsense,wedon'thaveaperfectsenseatleast.Wehaveagoodsense,butnotaperfectsenseforwhenit'sgoingtoclose,andtherefore,howmuchrevenuewe'regoingtobringinthisyear,whichiswhywe'regivingtherange.Butit'sinthatrange.Soonafull-yearbasis,it'sinthatrange.Andthenwefinanceitoffofourrevolver.


Okay.Andthenjustremindmeonemoreonthegrowthdriver,whereareyouintermsofthebigaccountsandBillPayconversionsthatyouhaveinyourpipeline?What'sconcludedatthispointandwhat'sstilltocomein2016?

Jef f Yabuki(CEO):

AllofthelargeBillPaywinsthatwehadbeentalkingaboutbeforearenowon.They'reallcompleted.NowthatI'vesaidthat,theremaybeasmallportionofoneoftheinstitutions,whichisamulti-charterinstitution,butthey'resubstantiallyonboardatthispoint.

Nowrememberthatoneofthethingsthatwe'redoing,andTomreferenceditinhisremarks,isthroughourIntegratedPaymentStrategy,whichisanewexperiencethatbringsBillPay,Transfer,andP2Ptogether;effectivelythat'sintroducinganewexperiencetoallthemorethan24millionBillPayusers.Andwethinkthat'sactually--Tomreferencedtheearlyreturnsarepositive.We'reseeingaveryniceacceptanceandtherefore,utilizationofthisnewexperience,whichwillbechunkedoutoverbasicallythenext12to18months.

T omHirsch (CFO):

AndIthinktoyourquestionontheaccountprocessingside,Glenn,justtoaddtothat,Ithinkwe'veseensome--wehadanumberoflargerinstitutionsgoliveinthefourthquarteronourDNAsolution,andonelargeclient,inparticular,alsoconverted.Andso,thosearegoingtobebringingonmorerevenueaswegointo2016and2017,clearlybecauseofthesurroundimpactandasthoserollin.Butwehadagoodconversionquarterinthefourthquarter.

Jef f Yabuki(CEO):




AndwestillhaveafairlylargebacklogofDNAconversionsmovingforward.


Okay.Great.Thanksalot.

Jef f Yabuki(CEO):

Thankyou.

Operator :

TientsinHuangwithJPMorganSecurities.

T ienT sinHuang (Analyst-JPMorgan):

Thankyou.Goodafternoon.Justacouplequestionsonthe--first,onthelicensesale,whydidyousaythatwasbelowplanagain?Wasthatcyclicalorsomethingmore--?

T omHirsch (CFO):

Wehadsometimingwiththat.Anditjustwasn'tasstrongthisyear,withafewdealsinbothourinternationalandourchannelsareathatwejustdidn'thitoninthefourthquarterthatpushedoffinto2016.Andit'snotalargenumberforus,asyouknow,becausethelicenserevenueisfairlysmall.Butacoupleofthosedeals,wewerejustalittleshortonthelicenseendinthecurrentyear.


Gotit.Andthenonthelargedealscomingback,that'snicetohear.We'veheardthatwithsomeofotherplayers,aswell.Whatkindofprojectsareyouseeing?IsitmoreontheAccountProcessingorIntegratedorDNAfront?Justanycolorwouldbegreat.

Jef f Yabuki(CEO):

Yes,itis.Actually,it'saprettybroadswathoflargerdeals.IwouldsaythatwehavethemintheAccountProcessingspace,OutputSolutions,BillerSolutions,someactuallygood-sizeddealsinthecardworld.Weactually,Ithinkabitofanabsenceofthem,orofthesamenumberin2015,alotofpipelineworkgotdone.Andsoit'sfairlybroad.It'snotinjustasinglearea.It'sprobablyinfourorfiveareas.


Sototheextentthatsomeofthesecloseearlyonintheyear,couldtheyconverttorevenuesin2016,andisthatassumed?

Jef f Yabuki(CEO):

Yes,someofthemcould.Largedealstypicallytake12to18monthstoconvert.Sosomeofthemcould.AndIwouldsaythatourguidanceassumesthatwehavenormalconversioncycles.


56

Allright.Great.Thanks.AndTom,allthebesttoyouagain.

T omHirsch (CFO):




Okay.Thankyou.

Jef f Yabuki(CEO):

Thankyou,TienTsin.

Operator :

KartikMehtawithNorthcoastResearch.

KartikMehta(Analyst-NorthcoastResearch):

Goodafternoon,Jeff,Tom,andMark.Jeff,outofcuriosity,theconversationyou'vehadwithbanks,anythoughtsaboutspendingastheylookinto2016?Iknow,wehearalotaboutenergyandmaybetheexposureisn'tasgreatforyourclients.Butjustthoughtsonhowthey'rethinkingaboutspendingfor2016.

Jef f Yabuki(CEO):

Yes.Clearly,therearesomeinstitutionsthatarebeinghitontheenergy/oilissue.Sothatishavingsomeimpact.ButIwouldcallthatrelativelynarrow.Themajorityofthebankingindustryseemstobeatorslightlyaboveintheirquote,budget,forwhatthey'regoingtospendontechnology,andthere'salotofenergyonmobileandonlending.Lending,there'salotofnoiseinthemarketonalternativelenders.Soyou'vegotalotoffocusonhowtothinkaboutanewlendingexperiencethatstartstomergemobilewithdata,realtime,speed,thosekindsofassetsandattributes.Soyou'vegotthatgoingon.Andyou'vegotafairamountofthoughtaroundbranchtransformation.

Andsoallofthatleadstogood,healthyconversations.We'llseehowitendsupattheendoftheyear.Butbankswereprettybullishgoingintothisyear.Ithinkthecurrentlevelofturmoil,there'salittlebitofawaitandseemarketturmoil.Butonbalance,Ithinkwe'reatleastatthelevelthatwewouldhaveseenforlastyear,withabiasup.


Andthenfinally,you'vetalkedalotaboutEMV.AndIunderstandjustthebasicopportunityyouhavetoreissuecards.Butasyou'velearnedmoreaboutEMV,anyotheropportunitiesthatyou'reseeingthatmaybemedium-termorlong-termthatcouldgenerateadditionalrevenueforyou?

Jef f Yabuki(CEO):

Idon'tknowifIwouldsaythatIseeadditionalopportunitiesdirectlyrelatedtotheEMVcarditself.Idoseethatthereisatremendousamountofactivityinthepaymentspaceoverall.Andso,thatwaratpointofsalecontinuestobequiteinteresting,andfrankly,justsomuchenergyaroundrealtimenon-point-of-salepayments.Sothetypesofpaymentdiscussionsarebecomingverydifferent.ButexclusivetoEMV--(multiplespeakers)

MarkErnst (COO):

Theonlythingthatreallycomestomindisthatwe'reobviouslydeeplyinvolvedinalotofconversationsabouthowtokenizationofalldifferenttypesofpaymentscouldbeaffected.AndI'dsaythat'sanadjuncttowhat'shappeningwithEMV.


AndsoMark,doyouneedtoacquireanyassetsortechnology?Ordoyouthinkwhereyouareisgood




enoughrightnowforyoutotakeadvantageofsomeofthose?

MarkErnst (COO):

I'mnotsurethere'salotyouwouldacquire,perse,inthatspace.It'smoreabouthowyouwouldsetupyouroperationstoprovidetokenizedservices.Sowe'relookingatallthat.


Thankyouverymuch.Appreciateit.

Jef f Yabuki(CEO):

Thankyou.

Operator :

JimSchneiderwithGoldmanSachs.

JimSchneider (Analyst-GoldmanSachs):

Goodafternoon.Thanksfortakingmyquestion.Jeff,IwaswonderingifyoucouldmaybestartoffontheinstalledtargetsforDNAin2016?Idon'tthinkyoumaybeprovidedthatinyourpreparedscript.Ithinkitwas30in2015,andyoudid28?Canyoumaybesharewithuswhatitlookslikeforthisyear?

Jef f Yabuki(CEO):

Youknow,Jim,Idon'tactuallyhavethatnumberoffthetopofmyhead.We'lldosomeworkandgetbacktoyou,andthenwe'llmakesurethatwetalkaboutitmorebroadly.Butitlikelywouldnotbe28thisyear.It'llbealittlebitlowerthanthat.Andthenofcourse,we'llhavethebenefitofalloftheconversionsthatwemovedinin2015willannualizein2016.


Okay.Andthenjustaclarification.IwanttomakesurethatIfullyunderstand,ontheACIcontributionforthisyear,itsoundslikebythetimeyougetitclosed,it'salittlebitovera1pointcontribution.IwanttomakesurethatIheardyouright,thatisincludedinthe5%to6%full-yearrevenuegrowthguidance.

Jef f Yabuki(CEO):

No.The5%to6%isinternalrevenueonly,notacquiredrevenue.Soallacquiredrevenueisexcludedfromthatcalculation.Totaladjustedrevenuewouldbehigherwhenyouincludetherevenue.Wewereonly--IwasonlytalkingabouttheimpacttoouradjustedEPS.


Iunderstand.Andthenonefinalone.Justintermsofthemarginexpansionpotential,youobviouslydeliveredverystrongexpansionthisyearandyou'reguidingtoalittleover50bipsfor2016.Beyondtheprogrammaticcostsavingsimpactthatyououtlinedofthe$40million,arethereothermix-relatedorotherbenefitsthatcouldpotentiallydriveupsidetothat50bipsofexpansion?

T omHirsch (CFO):

Yes.Ithinkwe'reobviously,Jim,comingoffaverystrongyearwherewedelivered120basispointsofmarginexpansion.Andoneofthekeythingshasbeenthedrivingofthequalityofrevenuethatwehave.IfyoulookatourPaymentsrelatedsegment,thePaymentssegmentmarginswereupnicely.Andthatisa




functionofthathighqualityrevenue.

Clearly,wegaveguidancein2015ofgreaterthan50basispoints.I'mnotsayingwe'regoingtooutperformbythatextent.Butourguidanceisgreaterthan50in2016.Andourbusinessmodelisfunctioningwellandwe'regoingtocontinuetopushthosewaters.AndIthinkI'mmostpleasedbyistheopportunitywehaveoverthenextyearstocontinuetodrivethathighqualityrevenueandscale,alongwiththisadditional$250millionofoperationaleffectivenesssavings,thatwehavegoodvisibilityintooverthenextseveralyears.


Thankyou.Andgoodluck,Tom.

T omHirsch (CFO):

Thanks,Jim.

Operator :

DarrinPellerwithBarclaysCapital.

DarrinPeller (Analyst-BarclaysCapital):

Thanks,guys.Imayhavemissedthis,butdidyougiveasenseintothegrowthbysegmentbetweenthePaymentsandFinancialintermsofthat'sembeddedinyourguidancefortheyear?

T omHirsch (CFO):

No,wedidnot.Wedon'tgivesegmentguidance.Butyoucanclearlytell,Darrin,thePaymentssegment,justgiventhefactthatEMVandIPSandafewotherthingsthatwetalkedabouttherearebigdriversofgrowththat'sgoingtocontinuetobehigherthanourFinancialsegment.


Okay.Thanks.Ijustwanttonowhoneinforamomentonthecompetitivedynamicsaroundtherealtimesolutionsyouguyshaveclearlybeendoingwellon,whetherit'sthroughDNAorotherplatforms.Butitfeelslikethere'sbeenalotofdemandinthemarketforthatandyouhavetherightsolutionsforthat.

Canyoujustcommentonhowmuchdemandthereisgoinginto2016aroundthatspecificoffering,capabilityoncorecountandwhatthecompetitivedynamicisoutthereforsimilarofferings?Again,morefortherealtimesolutions.

Jef f Yabuki(CEO):

Sure.AndDarrin,you'rereallytalkingaboutontheAccountProcessingside,notonthePaymentsside,isthatright?


That'sexactlyright,yes.

Jef f Yabuki(CEO):

Sothere'salotoftalkaroundrealtimecoresystems.Andthereisalotoflookinggoingon--notalotinrelativenumbers,butalotonarelativebasistowhatwe'veseenhistorically--forlargerinstitutionslookingatwhatwouldittaketoconvertrealtime.There'sacoupleoflargermid-tiersthatareinthe




processofdoingconversionsrightnow.Sothereisfocusoutthere.Weseesomeofthemoreprogressiveinstitutions,inthe$1billionto$10billionspace,takingalookatthat.Butwehaven'tseen,beyondDNA,we'venotseenalotofmovementinthemarket.

Andfrankly,asIsitheretodayandIthinkaboutthelargertransactionsthathavebeendoneoverthelastthreeorfouryears,Ican'tthinkofa--Ihonestlycannotthinkofarealtimesolutionthatwedidnotwinthatwenttoanyoneelse.SoIonlyraisethatbecausetheothersolutionsthatarebeingchosenarenotrealtime.Sothatmeans--thatmaymeanthattherealtime,it'sstillearly,oritmaymeanthatoursolutiononarealtimebasisisoneofthebettersolutionsinthemarket.It'sprobablyalittlebitofboth.

Ithinkit'sstillveryearlyinthatgenesis.Rememberthatonthecreditunionsideofthecommunitybasedinstitutionspace,they'reallrealtime,andtheoldthriftsarerealtime.Soyoureallyhavethecorebankingworldasthefocusforrealtime.AndIthinkwe'llcontinuetoseethatoverthenextthreetofiveyears.Butwe'reearly.


Okay.Justlastquestionfromme.Iappreciateit.Haveyouguysexpressedanyinterest--doyoufindyourselvesatallinterestedingrowingintothemuch,muchlargerglobalFIsintheworldthatwe'veseensomeofyourcompetitorstryingtodo?Andonthatnote,youmentionedtalkingaboutinternationalacquisitionsdowntheroadatsomepoint.Anyupdateonthatfront,intermsofappetitenow?

Jef f Yabuki(CEO):

Sure.Sotheshortanswerisno.ButafterI'vesaidthat,wedoprovidechannelservices,soourCorilliansolutionandourMobilitisolution,tosomeofthelargerbanksintheworld,whetherit'sANZorBankofIrelandorWestpac.Anumberofclientstoday,we'redoing[niche-y]solutions.Wearenotinthebusinessofdoinglargeglobalbanksonthecoresystemsside.Wearenotinthebusinessofdoingservicestolargeglobalbanks,unlesstheysupportoneofourlicensedtechnologies.Wehaverisksolutionsinanumberof,again,niche-ysolutions.Butwe'renotgoingintothatlargeservicesandlicensespace.


Allright.That'sveryhelpful,guys.Thankyouagain.

Operator :

AndrewJeffreywithSunTrustRobinsonHumphrey.

AndrewJef f rey(Analyst-SunTrustRobinsonHumphrey):

Hello,guys.Goodafternoon.

Thanksfortakingthequestion.Recognizingthatwe'reonlytalkingabout100basispointsorsoofrevenuegrowthfromEMV,totheextentthatweseearampin2016inthemiddlequartersandthenostensiblytheratmovesthroughthesnake,aswethinkabout2017,doyouhaveenoughlineofsighttosaythat2016isn'tabulgeyearforrevenuegrowth?Canweexpect,overtime,recognizingyou'renotguidingto2017today,butcanweexpectovertime,allelsebeingequal,agradualimprovementinorganicrevenuegrowth?Orarewegoingtobetalkingaboutdifficultcompsagainstthemidpointof2016whenwegetoutayearfromnow?

Jef f Yabuki(CEO):

Soletmetrytoanswerthisandmakesurethatwe'vegotitanswered,andTomandMarkwillhelp,asneeded.Soyou'llrememberwhenwelaidthisoutatourInvestorDayinJune,welaidoutayear-by-year




view,andthattherewouldbetwosourcesofrevenuethatwethoughtwewouldbenefitfrom.WethoughtwewouldbenefitfromtheEMVcardissuanceitself,whichisboththemanufacturingandthepersonalization.

Andwebelievedthatwewouldalsobenefitascardsgotintoforceandwewereprocessingthosedebitorcredittransactions,thatwewouldhaveasmallliftonourprocessingrevenue,andthatovertime,thatpieceespecially,wouldbuild.WealsoanticipatedthatEMVwouldprimarilyhappenbetween2015and2017.Andwe'renotcomingoffthatviewatthisstage.

Andthenwhenwegettofullboat,becausethesecardsexpirelikeeveryothercardsexpire,thatwewillgetintoaverynaturalreissuecycle,aswe'vealwaysbeenin.Andsowhiletheremaybeaslighthumpinaquarterorinquarters,thatwedon'tseethattobehavingameaningful--strikethat--amaterialimpactonourcompsmovingforward.NowifeverysingleinstitutiondecidestoissueinthemiddleofQ3in2016,thatcouldcreateaproblem.Wedon'tseethathappening.Ithinkit'shighlyunlikely.AndIdon'tthinkanyonecouldactuallymakethathappen,fromamanufacturingandpersonalizationperspective.

That'salong-windedwayofsaying,wecan'tpredictthefuture.Ican'ttellyouwhat'sgoingtohappenonquarterlycomps,forsure.Butonayear-by-yearbasis,Ifeellikeoncewegetinto2017,thatwe'regoingtodefinitelyseethatsmoothingthatwelaidoutatInvestorDay.Andifyougobackandtakealookatthat,Ithinkthat'sprobablythewaythatlaysout.

T omHirsch (CFO):

Ithinktheotherthing--andthenMark,Iknowyouhaveacomment,too--Ithink,Andrew,rememberourbuildistogrow50to100basispointsonanannualbasis.AtInvestorDay,youcouldseewehaveanumberofdifferentmovingpartsthere.Aswelookout,Ithink,longer--andJeffjustreallyhitontheEMVsideofthis--butyoulookatdifferentthingslikeIPSoryoulookatthingslikeAgilitioryoulookatthingsliketheNownetwork,thosearefactoredinovertheselongerperiodcycles,whichis2016,2017,2018,2019,becausewe'rereallytryingtobuildthisbaseof50to100basispoints,onaverage,eachyear.AndsoMark,Idon'tknowifyouwanttoaddtothat.

MarkErnst (COO):

TheonlyotherthingIwasgoingtosayaboutEMVis,andJeffandTomhaveitright,thatwewillseethebiggerupliftnowin2016over2015,andthenitstartstoflattenoutbecausewedon'tgettheramp,butwedohavethecontinuedlevelofreissue,asJeffpointedout.TheonlyotherthingthatwetalkedaboutatInvestorDaywasthepotential,intheeventthatprepaidbecomesacardtypethatadoptsEMV,thatcontinuestobeabigopportunityforus.Butsofar,we'renotseeinganythinginthemarketthatwouldsuggestthat'slikelytohappensoon.


Okay.Allright.Thathelpsmeout.Thankyou.Andthen,Tom,again,kudostoyouandthejobyou'vedone.We'llmissworkingwithyou.You'vedoneaparticularlygoodjobinthelastcoupleyearsofimprovingworkingcapital,whichisexceptional,Ithink,foraprocessor.It'snotsomethingweoftenthinkabout.Howmuchworkingcapopportunityisthereleftintermsofbeingadditivetocorefreecashflowfromoperations?

T omHirsch (CFO):

Ithinkwe'vegoneprettyfarwiththat.Ithinkourbusinessmodel,though,willcontinuetostayveryhonedinonthat.WhatImeanbythat,you'renotgoingtoseealotofreceivablegrowthinthiscompany,becauseofhowourhighqualityrevenuesaregoingtoturnintocashflow.Sowe'vedoneaverygood




jobatoptimizingthat,soIdon'tthinkthere'salotthere.

Therearealwaysalotofdifferentthings,aswetalkabout,whethertheybetaxbenefitsthroughacquisitions,whetheritcontinuestobeontheCapExside,whichagain,yousawhigherlevelsthisyearbecauseofourAlpharetta-typedeal.That'sgoingtocomebackdowntonormalnextyear.Andso,Idon'tthinkanythingreallychanging,fromthatstandpoint.


Okay.Wonderful.Thankyou.

T omHirsch (CFO):

Thankyou.

Operator :

MosheKatriwithSterneAgee.

MosheKatri(Analyst-SterneAgee&Leach):

I'veappreciatedthecoloronthebigpictureandthefeedbackfromsomeoftheFIclients.Obviously,we'reaboutamonthintothefirstquarterofthecalendaryear.Isthereanythingthatmakesyouworriedaboutthepossibilityofbudgetslippagesoranysortofpullbackinspending,giventhemacroenvironment?Thanks.

Jef f Yabuki(CEO):

Sure.IwishIhadafullyreliablecrystalballforthis.Iwouldsaythatvolatilityinthemarkethaseveryonefeellikethere'svolatility.Andwejusthavetocontinuetowatchthat.Thebeautyofthemajorityofthesolutionsthatweprovideis,they'renotdiscretionary.Andwithallofthedigitaltransformationthat'soccurringinthemarkettoday,there'sarealneedforinstitutionstoinvestandtokeepupwithwhat'sgoingon.

Consumerexpectationsaregrowingsorapidlybecauseofeverythingthat'sgoingonintheretailworldandinthenon-financialservicesworld,thatthoseexpectationsarerequiringinstitutionstoinvest.It'sverymuchbecomingnon-discretionary.AndsoIcontinuetobelievewe'regoingtoseesolid,solidgrowthinthosekindofsolutionsin2016andintheforseeablefuture.


Andthenifyoulookatyourrevenuebase,isthereawaytoquantifywhichpartoftherevenuesaregeneratedfromwhatyoucalldiscretionaryandnon-discretionary?Socanweassumethatmaybe80%,90%ofyourbusinessisrecurringandcriticalfortheday-to-dayoperationofyourtypicalFI?

Jef f Yabuki(CEO):

Idon'tknowthatthere'smuchthatwedothat'snotimportanttotheFI.Wehaveverysmallbusinessesthataredata-orientedbusinesses,whichIguessyoucouldarguearenotnecessarilymissioncritical.Buteventhethingsthatwesellthatare,quote,discretionary,it'shardtoknowifyouhavetoupgradesoftwareonasolutionthatyouusetomanagerisk,thatpurchasemaybediscretionary;somayhavesomewiggleroom,butmuchofwhatwedoisnon-discretionary,fromthatperspective.Idon'tthinkwe'reevergoingtoseeawholelotofvariabilityinanyyear,almostregardlessofthesituation.

Butclearly,Ihavethesamecrystalballquestionthateveryoneelsehas.Webelievethatthebanking




industryrightnowisinprettygoodshape.Therateincreaseswillmovethroughthisyear,andIthinkthatwillbegenerallygoodforbanks.I'mtalkingaboutnotprospectiveincreases,butjusttheDecemberraise.AndIthinkthatwillbegood.Andwe'llseehowtheeconomydevelops.Ithinkthatwillbetheultimatelynchpinforhowbanksdecidetoinvestoverthenextyear.


Verygood.Thanks.

Jef f Yabuki(CEO):

Thankyou.

Operator :

Thankyou.OurlastquestionisfromPaulKondra,withCreditSuisse.

PaulKondra(Analyst-CreditSuisse):

Hey,goodafternoon,guys.Thanksforhavingmeon.Acouplequickones.The$250millionoperationaleffectivenessplan,isthatasix-yearplan,sothat's$40millionor$50millionayear?

MarkErnst (COO):

Yes,it'sfiveyears.Butyes,that'sexactlyright.Andit'sgoingtorampalittlebit,likeItalkedaboutearlier.


Okay.Andthenlastly,justtoreturntoEMVonelasttime.Isitpossiblethatthisgoesonlongerthanyou'reexpecting,thatmaybeyoudon'tgetthissurgeinmid-2016,butit'sjustkindofasteadyrampoverthenextcoupleyears?

Jef f Yabuki(CEO):

Wefeelreallygoodaboutthesurgein2016,primarilybecauseweknowwhat'sbeenmanufactured,weknowwhathasnotbeenpersonalized,weknowwhatisn'tpersonalized,weknowwhat'sbeenordered.Soweactuallyhaveprettygoodvisibilityintowhat'sgoingtohappenin2016.Wedon'thavealotofvisibilityrightnowintowhat'sgoingtohappenin2017,exceptforwe'llknowwhohasnotissued.Andremember,you'vegot,in2017,Ibelieveit's2017,you'vegotonemoreliabilityshiftthat'sgoingtohappen.

SowefeelreallyprettyconfidentabouttheEMVatthelevelthatwehaveincorporateditintoourguidance.Isupposeitcouldgoalittlebithigher.Itcouldalwaysgoalittlebitlower.Butit'sprettysolid,atthisstage.

T omHirsch (CFO):

Andremember,Paul,thattheclientshavepaidforalotofthemanufacturingstuffalready,sothey'regoingtowanttoissuethesecardswhentheycan.Andagain,wehavetowaitforthat,butasJeffindicatedrightnow,wefeelgoodaboutwherewearein2016andgoinginto2017,also.

MarkErnst (COO):

TheonlyotherthingI'daddtothatis2015wasreallythewildcardyear,fromourperspective,becausewedidn'tknowhowfastfinancialinstitutionsweregoingtoadoptEMVandwhethertherewouldbeamassreissue.Thatdebateisprettymuchbehindusnowandwecanseewhatourclientsaredoingand




howthey'reapproachingit.Sowehaveprettygoodlineofsightintowhatwethinkisgoingtohappennowin2016.

Jef f Yabuki(CEO):

OneotherpointIwouldmakeis,actuallyinQ4,wehadmoredemandforBINconfigurationthanwecouldactuallyconvert.Sowereallysawthissurgecomingintotheyear,whichagain,helpssupporttheconfidence.Andremember,evenifwehaveabitofablipupin2016,whichwebelievewewill,wedothinkthatwe'llgettoasteadystatelevel.Wedon'tseethatEMV--wedothinkthatEMVwillbeconstantonacardmanufacturingandpersonalizationbasismovingforward,solongasplasticisbeingissued.AndIthinkthat'sgoingtobeissuedforaverylongtime.AndthenalayerofuptickonthepremiumprocessingelementofEMV.

T omHirsch (CFO):

AndIthinkI'dalsojustcheckoutwhatMarkwentoveratInvestorDay,becauseit'sprettywellholdingasfaraswhatweanticipatedwherewe'dbe,alittlesofterin2015,obviously,butnonetheless,it'srampingaswethoughtitwouldthere.


Okay.That'sgreat.AndJeff,maybejustlastthoughtsonPopmoney.There'salotofcompetitioninthatspacenow,andIknowyou'vebeenreallyexcitedaboutthatbusiness.Anymodificationsorchangestoyourview?

Jef f Yabuki(CEO):

No.ItissomethingIstillamveryexcitedabout.ItistakinglongertogetscalethanIwouldhaveliked.ButIamveryoptimisticabouttherunwayforthesolution,giventhepairingofP2Pwithrealtime,whichIthinkchangestheexperiencedramatically.AndthentheotherusecasesthatwehaveforPopmoneydisbursementsandsomeofthecharities,wethinkareveryimportant.

Andthenthelastthingis,we'vegotanewtechnologythatwearedeliveringin2016.WecallitCard-FreeCash.Anditisawayforourdebitclients,ourATMclients,tobeabletoaccessmoneyatanATMwithoutacard,usingthebank'smobilesolution.Well,that'sactuallygoingtobebrandedPopmoneyacrosstheUS.Sothatbrandwillshowupacross20,000ATMs,30,000ATMs.

Soagain,wehaveagoodlevelofcomfortthatitwillgrow.Yes,it'scompetitive.Butovertime,IstillbelievethebanksaregoingtobetheultimatewinnersoftheP2Pbattle.


Thanks.Congrats,Tom.

T omHirsch (CFO):

Thankyou,Paul.

Jef f Yabuki(CEO):

Thanks,everyone.Weappreciateyoursupport.

Ifyouhaveanyfurtherquestions,pleasedon'thesitatetocallourInvestorRelationsGroup.

Haveagoodevening.




Operator :

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Fiserv (FISV) Earnings Report: Q4 2015 Conference Call Transcript › media › xtranscript › 2016 › Q1 › 13445919.pdf · 2016-02-03 · addition to technology solutions, we