Jul 26, 2007
TRANSCRIPT SPONSOR
Executives
Mary Wagnor - VP of IR William P. Foley - Executive Chairman Lee A.
Kennedy - President and CEO Jeffrey S. Carbiener - EVP and CFO
Analysts
Kartik Mehta - FTN Midwest Paul Bartolai - Credit Suisse Julio Quinteros - Goldman Sachs David Koning - Robert W. Baird Gregory Smith - Merrill Lynch Andrew Jeffrey - Robinson James Kissane - Bear Stearns Peter Heckmann - AG Edwards Tien-Tsin Huang - JP Morgan Brad Holt - Stephens Incorporated
Operator
Ladies and gentlemen, thank you for standing by, and welcome to the Second Quarter FIS Earnings Call. At this time, all lines are in a listen-only mode.
Later there will be an opportunity for questions and instructions will be given at that time. [Operator Instructions] And as a reminder, this conference is being recorded.
I'll now turn the conference over to Vice President Investor Relations, Mary Waggoner. Please, go ahead.
Mary Wagnor - Vice President of Investor Relations
Thank you, Kathy, and good morning, everyone. Joining me today to review our second quarter results and the pending acquisition of eFunds, are Bill Foley, Executive Chairman; Lee Kennedy, President and Chief Executive Officer; and Jeff Carbiener, Chief Financial Officer.
In addition to being recorded, this call is being audio cast live over the internet. Telephone replay information is included in today's press release and a replay will also be available on our website.
Our discussion will contain references to non-GAAP and pro forma results in order to provide more meaningful comparisons between the periods presented. As in the previous quarters, the 2006 and 2007 GAAP results presented in today's press release have been adjusted to improve comparability.
Reconciliations between GAAP and non-GAAP results in schedules showing historical detail are provided in today's press release which is also available on our website. The reconciling items include restatements to reflect the certainty and FIS combination as if the merger had occurred on January 1, 2006, the exclusion of merger, acquisition and integration costs, certain stock compensation and debt restructuring charges and the gain on the sale of Covansys stock.
Before we continue, I would like to remind you that some of the comments made on today's call will contain forward-looking statements. These statements are subject to the risks and uncertainties described in our earnings release and other filings with the SEC.
The Company expressly disclaims any duty to update or revise such forward-looking statements. Now I will turn the call over to our Executive Chairman, Bill Foley.
William P. Foley - Executive Chairman
Thanks, Mary. Good morning, everyone, and thanks for joining us today.
FIS reported another strong quarter with revenue growth of 15.1% and EBITDA growth of 10.9%, driven by excellent performance in each of our business units. Our sales results have been outstanding and our pipeline remains strong.
During the second quarter, we sold 4.1 million shares of Covansys' stock at an average price of $33.30 per share. Pretax proceeds total $136.4 million and the after-tax gain was $58 million.
In early July, we received the proceeds of $294 million for the remaining 6.9 million shares and 4 million warrants and an after-tax gain of $100 million, which will be included in our third quarter results. Total pre-tax proceeds on Covansys transaction were $430 million and the after-tax gain is estimated at $197 million.
The cash was used to pay down our existing credit facilities. Also during the quarter, we completed the purchase of Applied Financial Technology, a provider of quantitative and predictive risk management analytics for the mortgage industry.
AFT expands our presence in the secondary mortgage market and is a solid fit with our existing product line. Now, I'd like to take a few minutes to discuss our pending acquisition of eFunds.
On June 27th, we announced that we had entered into a definitive agreement to acquire eFunds in an all-cash transaction valued at approximately $1.8 billion or $36.50 per share. The transaction will be financed with approximately $1.6 billion of new debt.
eFunds is a great fit for our company and will strengthen our competitive positions in risk management and electronic processing services. eFunds has a strong recurring revenue base, solid EBITDA margins and will generate excellent cross-selling opportunities.
Our products and services are highly complimentary, particularly in the areas of debit, prepaid card processing and risk management services. In addition, eFunds will increase our offshore BPO and professional services capabilities which should reduce future programming and back-office costs.
The merger is subject to customary regulatory approvals and approval by eFunds shareholders. The Hart-Scott-Rodino was completed on July 10th, and the preliminary proxy was filed by eFunds yesterday, and we expect the transaction to close by the end of the third quarter.
It was a good quarter for our company, and we are pleased with our progress in increasing our topline and bottomline organic growth rates. Now, I'll turn the call over to Lee, who will provide more detail on the eFunds and the second quarter results.
Lee A. Kennedy - President and Chief Executive Officer
Thank you, Bill. Good morning, everyone, and thanks for joining us this morning.
I'll begin with a few additional comments regarding our merger with eFunds followed by a review of second quarter results. I will conclude with an update on new customer signings and key initiatives.
Jeff Carbiener will follow me with a detailed financial report. As Bill mentioned, eFunds is a great strategic fit for our company.
The combination will strengthen our competitive positions in several key businesses. eFunds, 4400 EFT, debit and ATM customers will increase the scale and broaden the product set of our E-payments business.
The combination will also strengthen our debit switching, prepaid card, risk management, offshore programming and BPO outsourcing capabilities. eFunds' leading prepaid product line fills a product gap for FIS domestically and internationally.
Our prepaid card services are currently outsourced to a competitive third-party service provider. The merger with eFunds will also trade a broad range of strong new risk management products and services, particularly in the areas of new account openings, check clearing, and deposit verification services.
eFunds' 9,000 risk management customers are an excellent distribution channel for our new institution risk management products that we discussed in our first quarter earnings call. We believe that eFunds' comprehensive debit reporting database can be leveraged to provide additional risk management capabilities that will generate strong value to our financial institutions and third-party customers.
Many of these risks, analytic product and services will be delivered through our core processing and TouchPoint platforms, which will reduce the institution's operating costs and improve the quality of service provided to its customer base. There is an excellent international market for eFunds debit, ATM, switching and prepaid card services, and these capabilities are a natural extension of our core processing and payment services product suites.
Finally, eFunds offshore BPO and professional services operations will add more scale and bench strength to our overseas operations. In addition to leveraging these resources to lower our costs, they will be made available to our customers to enable them to take advantage of lowering outsourcing...
lower-cost outsourcing services. We expect to generate approximately $65 million in cost savings, driven primarily by reductions in corporate overheads, technology, procurement and operational support.
The staffing of our integration team is nearing completion, and the project plans for combining the two companies will be completed and in place prior to closing. We are committed to continue our highly successful track record of generating strong revenue and cost synergies from acquisitions, and we are pleased with our progress to date.
I'll now continue with the business review. We were very pleased to report another quarter of strong revenue and earnings growth.
Consolidated second quarter revenue reached a record $1.2 billion, which is a 15.1% increase over prior year. The strong growth was driven by 16% growth in transaction processing services and 13.3% growth in lender processing services.
Consolidated EBITDA increased 10.9%, and cash earnings per share came in at $0.59, which is a 15.7% increase over prior year. Transaction processing services excellent third quarter growth was driven by a 44.3% increase in our international business.
And continued strong growth in IFF and EBS, lender processing services also generated excellent results. Overall LPS grew 13.3%, driven by double-digit growth in appraisal, default and title and settlement services.
This is a significant accomplishment given the continued weakness of the US mortgage market. New sales also remain strong across all business channels.
Yesterday we announced a new seven-year home equity line processing agreement with Wachovia, the nation's fourth largest bank. Under the agreement we'll process Wachovia's 2 million-plus home equity and second mortgage loans on our MSP processing platform.
We will also provide home equity card processing services, which will enable Wachovia's customers to access home equity credit lines with a credit card. This is a great competitive win for our company, which further demonstrates our ability to leverage technology, products, services, and most importantly sales resources across business unit lines.
At our recent Investor Day, we discussed the challenges that home equity lenders are facing and described how our MSP platform would help solve them. Wachovia represents a significant pioneering step in penetrating this large, untapped, growing market.
Wachovia is one of our largest customer relationships, and we believe we have a significant opportunity to provide additional products and services that will improve their operating efficiencies and increase the level of service that they provide to their customers. The demand for mortgage information services also remains strong, driven by an accelerating trends towards outsourcing default and appraisal services.
During the quarter, we signed new default service agreements with several leading lenders. We also completed an exclusive agreements, which provides additional outsource appraisal services to one of the top five banks in the country.
This is also a big win for our company. And, once again, we proved that we can provide outsource appraisal services to large lenders at a lower cost base and with a very high level of accuracy and independence, which is very important for large lenders in this day and era.
Our domestic and international banking businesses also generated strong new sales. In UBS we continued the implementation of several channel solution products at one of the nation's largest banks.
In addition, we are pleased to announce that Bank of the West and BCP Peru will install several TouchPoint channel applications. BCP, the largest bank in Peru, will implement a wide range of TouchPoint platforms including, teller, new account opening and sales and servicing.
BCP will also install our express integration software, which provides real-time connectivity between the bank's customer TouchPoints and its core processing system. In short, we will provide the technology and professional services to connect and integrate every service application that the bank is currently operating.
We are also pleased with the strong growing demand for our real-time profile core banking system. During the quarter, we completed a new agreement with a leading international retailer, and expect to sign two large direct banks in the very near future.
We also signed an eight-year contract with a leading bank in Australia for credit processing services, and Lloyds Bank for commercial loan processing services in its affiliates throughout Europe. ISS also achieved excellent sales results, particularly in card processing, royalty, and item processing services.
During the quarter, we signed a large multi-type [ph] agreement with Marion & Polk Schools Federal Credit Union, which is a leading federal credit union located in the state of Florida. We will provide a broad range of integrated card processing royalty and EFT services.
On June the 23rd, we successfully converted more than 1 million BB&T credit cards to our new base 2000 card platform, on schedule and on budget. BB&T, which is the nation's 12th largest bank and our largest domestic card processing customer, represents our initial entry into the domestic mid-tier card market.
And it's one of our most significant cross-sell wins. The BB&T conversion was a large project involving over 100 FIS technology and operating people personnel.
I want to thank our entire conversion team for the outstanding job that they did to converting this important strategic customer. Before turning the call over to Jeff, I will provide a brief update on key international products and initiatives, beginning with our item processing business in Brazil.
The implementation of our new image-based processing system is proceeding as planned. It remains on schedule.
I am pleased to report that this business reached breakeven in the second quarter. Turning to our card processing joint venture, at the request of ABN Amro, we will delay the conversion of its credit card portfolio by approximately six months to allow ABN to complete the integration of Sudameris Bank, which was acquired in 2003.
We now expect to complete the ABN Amro and Bradesco portfolio conversions by mid-2008 to accommodate ABN's request. We do not expect the six-month delay to materially impact profitability for 2007 and 2008.
Our existing Brazilian card business is generating stronger than expected organic growth, which should compensate for the slight delay in the conversion schedule. In summary, we are pleased with our second quarter results and the strong performance by each of our business units.
The acquisition of eFunds is an exciting opportunity for our company which should generate solid growth opportunities and strengthen our product and service offerings. We will provide additional information on the closing date and integration plans as soon as it is practical to do so.
That concludes my second quarter review, and I'll now turn it over to Jeff for the financial report. Jeff?
Jeffrey S. Carbiener - Executive Vice President and Chief Financial Officer
Thanks, Lee, and good morning. Today, I'll focus on the key performance drivers and metrics for the quarter beginning with revenue growth.
As Lee mentioned, second quarter consolidated revenue increased 15.1% over prior year, driven by 16% growth in TPS and 13.3% growth in LPS. The 16% increase in TPS revenue was driven by strong growth in EBS and IFS and another quarter of exceptionally strong growth in international.
International revenue increased 44.3% to $143.3 million, driven by very strong results in card processing, particularly in Brazil, strong core bank sales across EMEA, Asia-Pacific and the western hemisphere countries and revenues from our Brazilian item processing operation. Excluding revenue from the Brazil BPO, international grew 22.3%.
As we've discussed on prior calls, while we are very pleased with these results, we believe the growth in 10 to 12% range excluding the Brazil BPO and card processing operations is a more sustainable level. The revenue growth in the second half of the year will also be impacted by the revised card conversion mentioned by Lee and modifications to one of our BPO customer contracts which will reduce revenue expense and certain passthrough costs will now be paid directly by the client.
IFS revenue increased 9.1% to $297.1 million in the quarter, fueled by growth across multiple product lines with the strongest contributions coming from item processing, credit card services and E-business, which includes ATM and EFT processing as well as online banking services. EBS revenues increased 11% to $270.1 million, driven by continued strong demand for channel solutions, commercial loan processing and outsource technology services.
We are pleased with the overall growth in TPS during the quarter and contributions of each of our market segments. Lender processing revenues increased 13.3% to $462.5 million, driven by 20.3% growth in information services and 4.5% growth in mortgage processing services.
The $11 million of decline in LPS and other revenue represents the December 31, 2006, divestiture of a majority interest in Finraize. We continue to experience excellent growth in default, which is the strongest contributor to the 20.3% growth rate in mortgage information services.
The accelerated growth rate in the second quarter was driven primarily by the increased appraisal volumes from a number of customers including a substantial increase in market share from one of the nation's largest banks. We also experienced double-digit growth in title and supplement services, which was driven by increased volumes from a number of our larger customers as well as the greater percentage of orders coming from higher revenue generating traditional title products.
Mortgage processing revenue was $97.3 million the second quarter of 2007, which was a 4.5% increase over prior year. The number of the loans processed increased 3.9% to $28.6 million.
We're meeting all project deadlines and remain on budget for the conversion offer the Chase mortgage portfolio in 2008. The bank has recently confirmed a first quarter implementation date for a portion of the portfolio and the remaining loans will be converted six months later.
We're scheduled to complete the conversion of the Wachovia home equity portfolio by mid-2008. Moving on to EBITDA.
Consolidated EBITDA increased 10.9% to 299.6 million, while the consolidated EBITDA margin was 25.5% compared to 26.4% in the prior-year quarter. TPS EBITDA increased 16.3%, driven by strong growth in IFS and EBS, and the TPS EBITDA margin was 22.4% compared to 24.1% in the second quarter of 2006.
While it did generate leverage on new sales in all TPS channels during the quarter, three factors impacted margins during the quarter. First, higher costs from the check division, including estimated communication costs associated with the previously announced data set; second, Brazil BPO, which did breakeven from an EBITDA standpoint during the quarter, but still reduced total TPS margins; and, third, a difficult comparison in international excluding Brazil as the prior-year quarter included a number of high margin license sales.
These three factors, most of which are non-recurring, combined to reduce TPS margins by over 200 basis points during the quarter. Lender Processing Services EBITDA increased 5.4% compared to the second quarter of 2006.
On a sequential basis, the LPS EBITDA margins improved 70 basis points to 32.2%, driven by leverage from strong revenue growth in default services and stringent cost management which improved the tax services margins. Lower volumes in tax and property exchange combined with a significant increase in lower margin appraisal volumes continue to impact year-over-year margin comparisons.
The impact of the increase in lower margin appraisal revenues actually drove approximately 70% of the 250 basis point decline in year-over-year LPS margins. Corporate expense totaled 21 million compared to 18.8 million in the second quarter of 2006.
The increase is attributable to a $4 million increase in stock option expense, which was partially offset by expense efficiency. Turning to cash earnings.
Cash earnings, which we define as net income plus after tax purchase amortization, totaled $115.3 million or $0.59 per diluted share, which is a 15.7% increase over the prior year quarter. The increase was driven primarily by the strong growth in operating profits and the lower effective tax rate.
The increase was partially offset by a 4.7 million decrease and after-tax purchase amortization to $23.9 million compared to $28.6 million in the second quarter of 2006. Approximately $2.2 million in pretax charges were incurred in the second quarter in conjunction with the migration of the Safety Data Center for Little Rock.
These costs are substantially complete and no longer will be reported separately. Moving on to free cash flow.
Free cash flow, which we define as net income, plus depreciation and amortization, less capital expenditures, was $125 million during the quarter compared to $101 million during the second quarter of 2006. Capital expenditures totaled $79.9 million, which was in line with our expectation.
The uses of free cash flow during the quarter included debt paydowns of $185 million, acquisitions totaling $45 million, $a 13 million earn-out for the 2004 BankWare acquisition and $9.6 million in shareholder dividends. Also, as Bill mentioned, we received pretax proceeds of $430 million for the Covansys shares, $136 million of which was received in the second quarter.
We had a net $37 million use of working capital during the second quarter due to the impact of the higher than anticipated revenue growth of 15%, continued strong growth in default services for which we received payment for many of the services upon sales of foreclosed properties, and acquisition related activity including payment of the previously mentioned $13 million earn-out. At quarter end we had approximately $221 million in cash, and recourse debt of $2.76 billion net of the $185 million paid out.
I'll conclude with a few comments about our outlook for the remainder of the year. Revenue and EBITDA growth for the first six months of 2007 totaled 14.1% and 12.4% respectively, which is higher than our full-year guidance.
Given this strong start to the year, and a solid EBITDA pipeline, we are raising our full year revenues guidance to growth of 9% to 11%. Our revenue assumptions take into account annualization of the WaMu appraisal and Brazil BPO revenues which both began service in the third quarter of 2006.
The previously mentioned changes to Brazil BPO tax free revenues which will reduce consolidated revenue growth by 40 to 50 basis points, a more sustainable growth rate of 10% to 12% in our international businesses, excluding Brazil. The new conversion schedule for the Brazilian card portfolio and slightly more difficult comparisons for default services growth rate which exceeded 50% in the first half of the year.
We still anticipate that EBITDA growth will approach the high end of our previously communicated range of 10% to 12% and also reiterating our guidance for cash earnings per share of $247 to $253 per share, based on average outstanding shares of $196 million. Our pursuit of strategic acquisition influenced stock buy backs during the first half of the year.
However, we do anticipate that stock repurchases of up to $100 million before year end. Our guidance excludes the impact of the eFunds acquisition, which is expected to be neutral to 2007 cash earnings per share and accretive to cash earnings per share in 2008.
We will provide additional guidance regarding eFunds transaction, once we have completed the integration plan, finalize the financing terms, completed our analysis of purchase accounting entries and determined the amount of the estimated purchase amortization. Now, I'll turn it back to, Lee.
Lee A. Kennedy - President and Chief Executive Officer
Thanks, Jeff. And again, thanks for joining us this morning.
Operator, we're now ready to field questions. Question and Answer
Operator
[Operator Instructions] We'll go first to the line of Kartik Mehta with FTN Midwest. Please, go ahead.
Kartik Mehta - FTN Midwest
Good morning. I wanted to ask you a little bit about the eFunds acquisition.
As you looked at your customers that you currently have, were they asking for a products that eFunds has to offer. So I guess what I'm trying to get to, is that going to make a cross sale easier to accomplish with the eFunds acquisition?
Lee A. Kennedy - President and Chief Executive Officer
I think there has always been a high demand for eFunds products and services, especially as it relates to debit switching, debit card processing, prepaid card services, keep in mind that we have not traditionally owned and operated our own prepaid card capabilities. We've always outsourced those to a third party.
And because of that we really haven't actively pushed the product even though there has been strong demand. So I think both domestically and internationally our customers have asked us for the products that eFunds has in place, and we do believe that by picking up those products and integrating those products into our core processing capabilities for practical.
We will create a very strong demand and it will be high cross-sell opportunities, so across the board, absolutely.
Kartik Mehta - FTN Midwest
What would you say the organic growth for the... for eFunds is as you look at the Company the way it’s structured now?
Jeffrey S. Carbiener - Executive Vice President and Chief Financial Officer
I think that they’ve had a lot of noise in their numbers because of acquisition activity and divestiture activity and also, certain contracts that were bound to exit once they spun off from deluxe. But if you strip all that activity out, their organic growth rate over the last 3 years has been around 6%.
Kartik Mehta - FTN Midwest
So Jeff, I'm assuming that you believe that that organic growth you will be able to improve that organic growth because of the cross-sale opportunities that present themselves.
Jeffrey S. Carbiener - Executive Vice President and Chief Financial Officer
Yeah. I think what we've said is, we still have a lot of work to do to nail down the 2008 numbers.
But we don't think that including eFunds in our results will make us back off our prior communications on growth for 2008. There is some pretty good strong upside, once we get the two companies put together and the sales organizations integrated, so, yes.
Kartik Mehta - FTN Midwest
And one last question on that. Lee, you said that you would get out of a prepaid contract you have with a third party.
I'm assuming that obviously will save you money as you bring that in-house. But you have included that in $65 million in savings or is it potential upside to savings?
Jeffrey S. Carbiener - Executive Vice President and Chief Financial Officer
No, we really view at on the sales side. I think it's going to generate incremental revenue opportunities and strong cross-selling.
But it’s not inclusive in the $65 million that we've disclosed and discussed.
Kartik Mehta - FTN Midwest
Thank you very much.
Jeffrey S. Carbiener - Executive Vice President and Chief Financial Officer
You're very welcome.
Operator
We have Paul Bartolai with Credit Suisse. Please, go ahead.
Paul Bartolai - Credit Suisse
Good morning, just a follow up on eFunds, I know you got something you guys are still going through the plan. But any possibility of some sense of the timing of the cost savings, and perhaps, I know, with this Certegy merger, you guys, to some extent try quantify some of the cost and opportunity, any chance of any more color on those issues?
Lee A. Kennedy - President and Chief Executive Officer
Yeah. I think we’re going to be a little bit more clear, once we complete the integration plans and that will happen gradually over the next few weeks.
So once we get the timeframe better defined, we'll come back and we'll give you when we think we're going to generate the cost savings and the revenue list. I think it’s safe to say that we're going to go after it aggressively like we did with Certegy.
So, just keep in mind the progress and success we had with Certegy, and I see no reason why we can't duplicate those efforts with eFunds.
Paul Bartolai - Credit Suisse
Okay. Fair enough, and just switching to, some of the revenue growth in TPS, obviously a nice pick up in IFS and enterprise.
I think in the past you quantified some of the cross-sell success you had. I mean was that the key driver that you saw there, and any chance to quantify any of the success you've had?
Lee A. Kennedy - President and Chief Executive Officer
Yeah. On the IFS side we just continue to do...
high level of cross sales activity and success, led by loyalty programs being cross-sold into the existing customer base, card processing programs growing at a very strong rate, in-processing programs at a very strong rate. So it’s pretty much been the same as in the past, a lot of good product activity is across the board.
On the EBS side, really TouchPoint application and work that we're doing, big strong demand for that, big strong projects that are going on as we speak, and that has driven a lot of that increase. I'll give you a few numbers on the IFS side just you’ll see the strength.
Last year, we talked about the new contract and the new sales and the contract value that was generated from those sales, and we had record quarters, quarter in, quarter out, if you look at where we sit year to date, we've generated about, I think, $304 million in total contract value this year. That compares to last year's record year of $257 million in total contract value signed during the first six months.
So we're 18% up on prior year which was already a strong year And if you look at that $304 million it’s a very good balance between sales of item processing solutions, eBusiness solutions, card costing solutions and core. And that’s really the case in all of our businesses.
If anything at all, the rate of success in selling and cross selling products and services and selling existing products into the marketplace has accelerated. It has not decelerated.
So looking out into the future, we're in a really good position to continue this growth rate.
Jeffrey S. Carbiener - Executive Vice President and Chief Financial Officer
Yeah. And then switching to margins, you guys mentioned some of the issues in TPS.
Given what's going on, it seems like we should still expect to see a pretty nice acceleration in the back half especially with issues with Brazil spending, declining into profitability ramping up there, is that fair?
Jeffrey S. Carbiener - Executive Vice President and Chief Financial Officer
Yeah. That's fair.
I mean many of the factors we talked about there, such as difficult comp in international and some of the one-time costs were checked, those were no-recurring. We expect to go back to a state of margin expansion in TPS or greater margin expansion in TPS in Q3 and Q4.
Paul Bartolai - Credit Suisse
And then, can you just clarify again, Jeff, the comment you made about, did you say the total impact from those factors you mentioned was 200 basis points?
Jeffrey S. Carbiener - Executive Vice President and Chief Financial Officer
Yes, a little bit over 200 basis points, split roughly equally between each of those three factors.
Paul Bartolai - Credit Suisse
Okay. Great.
Thank you.
Jeffrey S. Carbiener - Executive Vice President and Chief Financial Officer
Welcome.
Operator
Your next question is from Julio Quinteros with Goldman Sachs. Go ahead please.
Julio Quinteros - Goldman Sachs
Great, thanks. Hi, guys, real quickly.
Can you just line up the portfolio conversions that are still sort of on deck if you wouldn't mind just repeating a couple of those from, I guess, starting with the Brazilian situation and kind of going forward through 2008?
Lee A. Kennedy - President and Chief Executive Officer
Sure. We have two major conversions still remaining in Brazil.
All the programming associated with those conversions are on schedule and on track. The first conversion that will take place will be ABN Amro, the second follows, but shortly thereafter by Bradesco, that will occur throughout 2008, and we'll have it completed by the end of the year.
Most of the business will be on board at that time. In addition to it the Chase conversion we have completed the programming for Chase, essentially.
We're ready to go and waiting for their clearance, they’ve given us a start date where their sub prime portfolios will move and be converted in early 2008 followed by the prime conversion, which will take place I think in the third quarter of 2008. So every major conversion associated with the large amount of new sales that took place last year, and keep in mind we had about $3 billion in new sales in total contract value, that were affected last year, are on schedule, on budget, and will achieve the quality results that we want.
Wachovia, that will be mid-2008, and we've already initiated and put together the work plans, and we're working on that conversion as we speak.
Julio Quinteros - Goldman Sachs
Okay. I'm sorry, just on the ABN AMBRO, is there a timeframe for that one?
Lee A. Kennedy - President and Chief Executive Officer
Probably to be first quarter... by mid-first quarter of 2008.
Julio Quinteros - Goldman Sachs
Okay. Got it.
And then just going back to the offshore BPO comments you made following the eFunds acquisition, what is the expected offshore headcount that you guys will have?
Jeffrey S. Carbiener - Executive Vice President and Chief Financial Officer
We pick up about $3500 offshore resources by adding in eFunds. Which again, that should allow...
and we've talked a lot about margin expansion within FIS, and that’s depended on or relying on the fact that we're going to be able to offshore a lot of those resources within LPS that are data entry and function and this will allow us to accelerate that to get a much broader base to go.
Julio Quinteros - Goldman Sachs
What’s the current headcount sir?
Jeffrey S. Carbiener - Executive Vice President and Chief Financial Officer
Current headcount, about $2,000.
Julio Quinteros - Goldman Sachs
$2,000. So $2,000 plus another $3500?
Lee A. Kennedy - President and Chief Executive Officer
That also gives us capability operating offshore call centers, which we really clearly we don't have in place today. So it’s an extension of the type of service offering we've had in the past, too.
Julio Quinteros - Goldman Sachs
So you'll have total of $5500 including eFunds?
Lee A. Kennedy - President and Chief Executive Officer
That's correct.
Julio Quinteros - Goldman Sachs
Great. Thank you.
Lee A. Kennedy - President and Chief Executive Officer
You're welcome.
Operator
Your next question is from Dave Koning with Robert W. Baird.
Go ahead, please.
David Koning - Robert W. Baird
Yeah. Good morning and nice results.
Lee A. Kennedy - President and Chief Executive Officer
Thank you.
David Koning - Robert W. Baird
I was wondering in the lender services division, is it fair to expect a little bit of deceleration in the second half, just given some of the commentary around Countrywide. And then you mentioned a little bit tougher default comparison going forward, but then to see a little acceleration again in the first half of '08 as you anniversary that divestiture from last year.
Lee A. Kennedy - President and Chief Executive Officer
The pipeline that we have out and the contracts that we almost have done, if they come in within the next 30 to 60 days, we're not going to see a marked deceleration in that business at all. It is very, very strong.
We expected to continue to be good driven by the new sales pipeline that we have out there.
Jeffrey S. Carbiener - Executive Vice President and Chief Financial Officer
To be realistic, though, we did have a very large contract with that WAMU contract, that was contributing about 1.5% almost close to 2% now to our over all consolidated growth rates but those age out the second half of the year.
Lee A. Kennedy - President and Chief Executive Officer
Yes. That will age out.
David Koning - Robert W. Baird
And then, just secondly, you mentioned a lot about your... the India BPO capabilities.
There is some public companies now that have spun out of captive organizations that aren't too much bigger than what you're soon going to have. Would that ever be a thought that you would--that you would start taking work from other--from other companies and then eventually spin out and monetize that asset?
Lee A. Kennedy - President and Chief Executive Officer
The plan is that we have in front of us is to make those resources available to our customer base. So that they can leverage resources and generate lower costs.
So that is the first step. I think at this point in time that the objective and the reason why we bought into those operations was to provide capability that we would control in-house for our own efforts and our own projects.
We just have to wait and see down the road what that means, if it's anything above and beyond that. But currently, we want the resources focused on our projects and to help us get costs out of our operations which they will enable us to do clearly.
David Koning - Robert W. Baird
That's great. Thank you.
Lee A. Kennedy - President and Chief Executive Officer
You're welcome.
Operator
And next we have Greg Smith with Merrill Lynch. Go ahead, please.
Gregory Smith - Merrill Lynch
Hi, guys. With regards to the 8K this morning and this issue with the stolen records, can you provide us an update where we stand with this and just where we can get comfortable that this is an isolated incident that you'll move past and won't obviously be something that recurs?
Jeffrey S. Carbiener - Executive Vice President and Chief Financial Officer
What I would say is that the 8K update was simply an update on the number of records we see. The facts and circumstances around the occurrence have not changed, it remains a single employee who had access at a very high level to data, remains isolated to that one employee, stealing data from us.
The distribution network that was utilized by that employee remains the same, very, very limited. The uses of the data remain the same, strictly for marketing purposes.
We've confirmed on every account identified that there is no fraud and even with the higher record counts we feel this has not had a material impact on our financial statements. The only thing that has happened, as the parties that have been identified proceeds through the investigation, they have identified a few additional records within their databases.
That is what they're in the process of doing. As they identify additional records we're going through the same process we communicated before, which is to notify the customers and talking through what their options are.
Gregory Smith - Merrill Lynch
Okay. Good.
On eFunds is there any specific revenue cannibalization that you see, that you know may be revenue that could potentially go away?
Jeffrey S. Carbiener - Executive Vice President and Chief Financial Officer
We've identified, as you always do with acquisitions, a few accounts that we want to... we consider to be somewhat higher risk, but we factor those into the numbers, and the good news is they’ve been calling us on those accounts, we have a real good shot at keeping them.
So we'll let you know more about that as we get a little bit deeper into it, but there is not going to be, we believe, big surprise or swings in the numbers one way or another versus the way we viewed it, when we put this deal together.
Gregory Smith - Merrill Lynch
Okay. And then Lee, you talked about, I think, you said you talked about going after the mid-tier card processing market given your success with BB&T.
Is this something you are going to go aggressively after. It seems like it’s already put you penetrated for everything and has to be a take away.
Lee A. Kennedy - President and Chief Executive Officer
Greg, it is penetrated. Obviously, you've got a couple processors out there that have all the share.
The good news is that we've been able to leverage some of our existing relationships and tie the card processing service into that relationship and cross-sell that product. So we'll continue to do that.
We're out in front of all of our customers going through the product range that we have and we expect to be able to pick up additional business as we move into the future. We also think there is a really good strong opportunity to pick up additional key lock credit card processing and provide those services to key lock mortgage institutions that we service on the mortgage side.
So there is a good combination there, and some good lift there, and by having a consolidated package it makes enormous sense for an institution to buy from one organization.
Gregory Smith - Merrill Lynch
Yeah. Our platforms are largely built and operating.
So incremental customers that you bring on, you wouldn't require significant development expense. Is that correct?
Lee A. Kennedy - President and Chief Executive Officer
As they come on with relatively high leverage and really good margins, so the answer is no on that.
Gregory Smith - Merrill Lynch
Okay. And just one last quick on expense.
Was the stock comp expense in the quarter higher than what you had originally anticipated?
Jeffrey S. Carbiener - Executive Vice President and Chief Financial Officer
No, it was pretty much right on what we had anticipated.
Gregory Smith - Merrill Lynch
Okay. It’s just up from the prior year.
Jeffrey S. Carbiener - Executive Vice President and Chief Financial Officer
Well, it’s little over 8 million.
Gregory Smith - Merrill Lynch
Thanks, a lot, guys.
Jeffrey S. Carbiener - Executive Vice President and Chief Financial Officer
You're welcome.
Operator
We will go next to Andrew Jeffrey with Robinson Humphrey. Please go ahead.
Andrew Jeffrey - Robinson Humphrey
Hi. Thanks.
Good morning, to drill down a little bit more, Lee, I mean, clearly resurging performance in the community banks this quarter, could you talk a little bit about how much of that improved organic revenue growth is coming from market share? And then market share gains?
And also whether or not there's any cyclical or counter cyclical component to community bank processing spend, or would you expect demand to be pretty consistent through the cycle?
Lee A. Kennedy - President and Chief Executive Officer
Well, to answer the first question, notice that the revenue that's generated through cross selling, additional products and services to our existing customer base, is well over 65% of our new revenue comes from those sources. But yeah, when you look at our customer base, the penetration of products to customer is still very, very low and the runway that we have for new sales extends out for a long period of time.
So if we do nothing more than continuing to hit home runs or singles by selling additional products, then we're going to do very, very well with that. We are picking up market share from some of our competitors within select product lines, but that’s not what is driving the lion's share of the revenue lift that we had in IFS.
Jeffrey S. Carbiener - Executive Vice President and Chief Financial Officer
One of the things that is so attractive about the eFunds purchases, yes, there's probably some revenue cannibalization that will occur, but the bottomline is, we gain access into 9 to 10,000 new institutions that we can take pick-up multi-cost set instruments sell deeper into. Again, our success is selling into existing relationships with new products...
Lee A. Kennedy - President and Chief Executive Officer
And the nice thing about the community bank and credit union market is that it really isn't cyclical at all. It is a very little cyclicality.
As you know, we've been involved in that business for close to... that market for over 30 years and we have never experienced big swings geared and tied back to the state of the economy.
So that’s a good, strong protected market. It’s very predictable and it's very stable.
Andrew Jeffrey - Robinson Humphrey
If I look at your performance on a cross-sell basis and an organic revenue growth base, at least this quarter, high single-digits compared to your biggest competitor, you're clearly outperforming. Do you attribute that to more consistent sales force structure, better execution, better products or is it some combination thereof?
Lee A. Kennedy - President and Chief Executive Officer
I think, it’s a combination. Keep in mind that when we put Certegy together with FIS, we concentrated on a number of things that we thought would accelerate the growth rate of that business, starting with integrating the sales force right out of the chute.
We have one sales organization that represents all of the product that we carry. We have team specialists that are assembled around that sales organization to provide the product information, leverage relationships the right way.
We have strong accountability and that has given us a significant lift. But in addition to that, we also gained some really strong traction and strong competitive positions by taking the steps necessary to integrate a lot of these product capabilities and integrate them into our core processing systems.
We're still the only provider of payment services and core processing capabilities that’s able to offer these to an institution on an integrated basis. It cuts the cost to the institution and increases the level of services to the customers that they serve.
So there is a couple of different things. There's product capability, it's a wider range, it's an integrated capability, it’s an integrated sales team.
So there is three or four factors that have played into this that have really given us the lift that we generated.
Andrew Jeffrey - Robinson Humphrey
And one more quick one if I may, just turning attention to the big bank market. Do you still foresee meaningful core upgrade cycle and any new competitors in that market with which you're going to have to contend?
Lee A. Kennedy - President and Chief Executive Officer
The activity level that we're currently experiencing in core system replacement is stronger than it has ever been. More and more of the banks are looking at replacing their core processing systems with new technologies that drive down the expense and give them a more flexible platform and our profile card our core processing system does that very thing.
Where you have a few of the largest banks in the country currently doing tests on it and studying the flow and the output and the efficiency ratios, so, yes, if anything at all, that has moved up considerably. The demand for TouchPoint applications and our express applications is very, very strong.
The pipeline is very full and a lot of the revenue lift that we had over the past quarter or two, has been generated directly from those products and those capabilities. So we're getting good traction and we're getting good lift.
So we think both of those products are winners and the new product in the future clearly will be core side and online core processing system.
Andrew Jeffrey - Robinson Humphrey
Thank you very much.
Lee A. Kennedy - President and Chief Executive Officer
You're welcome.
Operator
We'll go now to Jim Kissane of Bear Stearns. Please go ahead.
James Kissane - Bear Stearns
Yes. Thanks.
Jeff, can you give us the general margin trends for the different businesses in the two segments, especially the lender, for example, where mortgage processing margins up year-to-year?
Jeffrey S. Carbiener - Executive Vice President and Chief Financial Officer
Yes, mortgage processing margins were up slightly. I'm not going into each of the components.
What I'll say is, when you look again at the overall margin comparison versus prior year, the 30/2/2 versus the 30/4/7 in the prior year, most of that degradation is just simply business mix, the fact that we have much better quarter than we anticipated in appraisal, and appraisal is just a lower margin business, it's going to run in the min-teens margin and that's because you have to pay the appraisers. So that really is the single biggest asset that impacted margins.
The product lines that we did some expansion in, yes, in mortgage, yes, in default, those are the two biggest. We still have some negative impacts from our tax business associated with the declining volumes that we talked about over the last two quarters, but the one thing that I'll say is that the impact in Q2 on tax and margins we about half what it was in the first quarter.
So we continue to see that piece of business improve as we're able to get costs out and we get easier comps.
James Kissane - Bear Stearns
I think you touched on it, but I think I missed it just the working capital last quarter was a bit of a drag. Did that reverse this quarter?
Jeffrey S. Carbiener - Executive Vice President and Chief Financial Officer
No, it didn't, but what I would point to is the primary factors, the fact that we had said we expected to start see it turning around. But we also had a revenue expectation that was closer to the 10% to 11% range.
You know we exceeded all our expectation on revenue growth by 5%. You apply that to the overall revenue base that is about a $50 to $60 million in incremental revenue, which is going to drop about $30 million to increased receivables.
That's a good thing, the fact that we're growing faster than we thought and using up a little bit more working capital. So that's probably the biggest factor that changed from the guidance that we gave all last period.
James Kissane - Bear Stearns
Okay. For the full year, bottomline free cash flow is still tracking your expectations?
Jeffrey S. Carbiener - Executive Vice President and Chief Financial Officer
Based on our revenue growth expectations for the second half of the year we don't expect to see further working capital drains and we should start to see some of the positive moves that we talked about last quarter.
James Kissane - Bear Stearns
Okay. And last one, just, ex-Brazil, can you give us some sense on the growth in international revenue?
Jeffrey S. Carbiener - Executive Vice President and Chief Financial Officer
Ex-Brazil, BPO, it was at 22% growth rate, again, that came from both our processing... our card processing side and from the core banking side which each grew more than 20%.
James Kissane - Bear Stearns
Excellent. Thanks.
Operator
Your next question is from Peter Heckmann with AG. Edwards.
Please go ahead.
Peter Heckmann - AG Edwards
Good morning, could you talk about the organic growth rates for revenue excluding currency, and I think what, a couple small acquisitions and maybe the small divestiture?
Jeffrey S. Carbiener - Executive Vice President and Chief Financial Officer
Very small impact. That rounds out to about 14.9%.
We've got positives from these small acquisitions, we've got the takes from things like the Finred [ph] sales we had at the end of last year. And then, currency, currency had about a probably a 5% to 6% impact on international revenues, which translates to a very small impact on overall organic growth rates.
Peter Heckmann - AG Edwards
That helps in size and acquisitions. Can you discuss the current debt markets and talk about the eFunds financing, whether you have committed terms in place, still working on those and talk about the existing debt and how much we've been able to fix through swaps.
Lee A. Kennedy - President and Chief Executive Officer
Yeah. I'll start with the existing debt.
We've been able to fix about $1.2 billion of our debt. We've fixed the LIBOR Reg on that debt, and so we have about 40% of our term on our revolver fix.
And we also have our 200 million Certegy bonds, that are actually fixed at 4.75%, so in total we have well over half of our debt fixed, which is a good thing. Looking forward to the financing, currently what our plan is, and we are in the middle of negotiating final terms, what we're looking to do is to amend our current facilities and we'll have to make some changes, obviously with those amendments.
Some of the principal things that we're talking about right now are the addition of security, of the allowance of $2.1 billion of additional debt, some changes to min and max coverage ratio. And we need to add a new pricing tier because we're priced on fixed on a leverage basis.
Additionally right now we're going after a $1.6 billion new seven-year senior secured term B facility, which we expect to be able to price out at LIBOR plus 150.
Peter Heckmann - AG Edwards
Okay. Great.
And then just the last question. In terms of on the eFunds business, combining some of there expertise and check verification and guarantee, can you talk about the share you'll have in that business when combining with Certegy?
Lee A. Kennedy - President and Chief Executive Officer
That's really not going to alter the share all that much. They're really in a different market.
They provide pretty much their only verification services so and we don't provide that currently in a big way within the Certegy operation. So, it's not going to swing it all that much.
Peter Heckmann - AG Edwards
Okay. Thanks.
Lee A. Kennedy - President and Chief Executive Officer
You're welcome.
Operator
Thank you, we now have a question from Tien-Tsin Huang with JP Morgan, please go ahead.
Tien-Tsin Huang - JP Morgan
Thanks, Jeff. I think you gave the new sales growth number for TPS at 18%.
Can we get the same metric for lender processing?
Jeffrey S. Carbiener - Executive Vice President and Chief Financial Officer
I'm sorry. The new sales figure at 18%.
Tien-Tsin Huang - JP Morgan
I think you mentioned new sales growth or total contract value was up 18%, I didn't quite catch what exactly that was for.
Jeffrey S. Carbiener - Executive Vice President and Chief Financial Officer
Correct. That was strictly for the IFS group.
Tien-Tsin Huang - JP Morgan
Okay.
Jeffrey S. Carbiener - Executive Vice President and Chief Financial Officer
...about 304 million in total contract value in the first six months versus about 250 to 257 or so in the prior year.
Tien-Tsin Huang - JP Morgan
Can you comment broadly on new sales growth for both of the divisions?
Jeffrey S. Carbiener - Executive Vice President and Chief Financial Officer
Well, I think when you're looking at our growth rates from the standpoint looking at LPS, a lion's share of our growth is being driven by market share gains. So I mean, you got to look at the dynamics you're dealing with within the lender processing industry.
We're dealing with organic volume degradation, right. And you're not seeing increases in origination or refinance activity.
So our growth is really being driven by increasing share in areas like appraisal, where as we mentioned, we saw or we got additional volumes from one of the nation's largest bank as well as from a number of other customers that have started to push more market customers towards us as their margins get stressed and they're looking for lower cost or alternatives. You know, I can give you that story across all of the product lines.
So when you look at our growth rate, it's pretty much all from taking share. Other than default where we are getting some lift from the increase in that foreclosure rate, if you kind of look at it this way, our organic growth rate when we first launched the company was between 4% to 5%.
So it's pretty safe in assuming that the incremental growth that we've had is all from taking share from our competition or getting additional volumes from the existing customer base that we service. So we've had some really good strong sales success in each and every business.
$3 billion last year and the run rate this year is very considerable also.
Tien-Tsin Huang - JP Morgan
Okay. I definitely commend you for that.
I remember that from the Certegy days in terms of new sales productions.
Jeffrey S. Carbiener - Executive Vice President and Chief Financial Officer
Well, thank you.
Tien-Tsin Huang - JP Morgan
On the lender margins, I know you gave some detail there but just to clarify. Given the strength in the lower margin appraisal work should we expect lender margins to stay in this, you know, 24% or 25% range for the balance of the year, or do we have more cost cutting initiatives that have yet to hit the P&L?
Jeffrey S. Carbiener - Executive Vice President and Chief Financial Officer
We have a number of factors, you have cost cutting initiatives, we have talked about those in prior calls. We're trying to right-size our headcount in divisions where we have volumes that are decreasing.
But when we've given guidance before, on lender processing margins, we said that our goal for 2007 was to bring in margins at or maybe slightly above the 2006 level. But the I want to caveat that thing that is subject to changes in business mix.
And clearly, in Q2, with the growth in appraisal being much higher than we expected we had a business fix issue that's going to bring margins down, like we said, 70% of the drag on Q2 margins was due to appraisal. That being said, we do expect to see sequential...
continued sequential quarter-on -quarter growth in LPS margins to through the rest of the year. Based on cost cutting initiatives, based on the age out of that WAMU appraisal deal that we've talked about before, various things.
Lee A. Kennedy - President and Chief Executive Officer
Yeah. And also keep in mind that $50 million is in cost savings that we picked up over the last year or so were directly related to the Certegy integration efforts and merger.
There is still a considerable amount of cost takeout that we have in our company that we're currently working on, and hopefully over the next year or so, we will be able to reduce our cost base pretty significantly in some of our areas, such as technology, procurement and also in the eFunds area as we integrate that company.
Jeffrey S. Carbiener - Executive Vice President and Chief Financial Officer
The one thing I would say too, you've got to keep in mind, that, you know, considering the industry we're operating in on the lender side, the fact we're able to carry consistent quarter-on-quarter 30% plus EBITDA margins is a very good story
Tien-Tsin Huang - JP Morgan
Got you.. Two more other quick questions.
Applied Financial Technology, that acquisition, what was the annual run rate of that business, in revenue?
Jeffrey S. Carbiener - Executive Vice President and Chief Financial Officer
It's less than 0.5% of overall growth.
Lee A. Kennedy - President and Chief Executive Officer
About 10 million.
Tien-Tsin Huang - JP Morgan
Okay. So it is small.
Then, lastly, CapEx any update on guidance for this year, and next as well? That would be helpful, thanks.
Jeffrey S. Carbiener - Executive Vice President and Chief Financial Officer
We're going to still trend towards the 300 that we told the market. We said next year we felt we could achieve 250 and those numbers stand.
We're not changing those.
Tien-Tsin Huang - JP Morgan
Terrific. Thank you.
Jeffrey S. Carbiener - Executive Vice President and Chief Financial Officer
You're welcome.
Mary Wagnor - Vice President of Investor Relations
Operator, we have time for one more question.
Operator
Yeah. That will come from Brad Holt [ph] with Stephens Incorporated.
Please go ahead.
Brad Holt - Stephens Incorporated
Good morning, everybody.
Jeffrey S. Carbiener - Executive Vice President and Chief Financial Officer
Good morning.
Brad Holt - Stephens Incorporated
On the... you had talked about the $100 million buyback is that contemplated in your guidance or not?
I forget.
Jeffrey S. Carbiener - Executive Vice President and Chief Financial Officer
Yes. We re-contemplated, I believe, just a little under 100 million in our guidance.
Brad Holt - Stephens Incorporated
Okay. And then can you just explain again at a high level for me with this great revenue growth why not increase guidance on the EPS line?
Jeffrey S. Carbiener - Executive Vice President and Chief Financial Officer
Well, we've guided revenue growth. We said that we ran in the 14.1% range, we got it down to 9 to 11.
We've given you the factors that bring you down into the high single-digits. The major contracts.
We then stepped in and we said we do expect to increase margins as we move through the remainder of the year, but it is on a lower revenue growth rate. So we're basically coming in fairly close to expectations, on our EBITDA expectations, which then flows down to the bottom line.
One of the things that does impact your EPS guidance is that we're running at a higher share count than anticipated, than we had anticipated when we gave guidance at the beginning of the year, which is having a negative impact.
Brad Holt - Stephens Incorporated
Okay. And last question is the corporate...
or the SG&A ex-corporate went up sequentially. What was the driver of that?
Jeffrey S. Carbiener - Executive Vice President and Chief Financial Officer
I'll give it in total. I mean, you're going to see some variance on that, but I mean we've been maintaining between 10% and 11% from an SG&A percentage standpoint pretty consistently over the last few quarters, and I think it will stay within that range, but you'll see some variability.
Brad Holt - Stephens Incorporated
Great. That's all I had, thank you.
Jeffrey S. Carbiener - Executive Vice President and Chief Financial Officer
You're welcome.
Mary Wagnor - Vice President of Investor Relations
Thank you for joining us this morning. Please remain on the line for the telephone replay information.
Operator
Thank you. And ladies and gentlemen, this conference will be available for replay after 1:30 pm today through midnight Wednesday August 1st.
You may access the AT&T Executive Playback Service at any time by dialing 1-800-475-6701. And entering access code 877965.
International callers dial 320-365-3844, and using the same access code 877965. That does conclude our conference for today.
Thank you for your participation, and for using AT&T Executive Teleconference. You may now disconnect.