May 1, 2009
Executives
Jeff Yabuki – President and CEO Tom Hirsch – EVP, CFO and Treasurer
Analysts
Tien Tsin Huang – JP Morgan Bryan Keane – Credit Suisse First Boston John Kraft – D.A Davidson & Company David Koning – Baird Darrin Peller – Barclays Capital Franco Turrinelli – William Blair & Co. Glenn Greene – Oppenheimer & Co.
Julio Quinteros – Goldman Sachs Chitra Sundaram – Cardinal Capital Tobi Shai [ph] – Cowen & Co. Scott Kessler – Standard and Poor's Paul Bartolai – Credit Suisse First Boston Matthew Roswell – Stifel Nicolaus
Operator
Welcome to the Fiserv First Quarter 2009 Earnings Conference Call. All participants will be in listen-only mode until the question-and-answer session begins following the presentation.
Today's call is being recorded and is also being broadcast live over the internet at www.fiserv.com. In addition, there are supplemental materials that will be referenced on today's call, available at the company's Web site.
To access those materials, go to www.fiserv.com, and click on the Access Presentation link on the home page. The call is expected to last about an hour.
And you may disconnect from the call at any time. Now I will turn the call over to Jeff Yabuki, President and CEO of Fiserv.
Jeff Yabuki
Great. Thanks.
Good afternoon, everyone. Thanks for joining us today for our first quarter 2009 earnings conference call.
As always I'm joined by our Chief Financial Officer, Tom Hirsch. Our remarks today will include forward-looking statement within the meaning of the Private Securities Litigation Reform Act of 1995.
We will make forward-looking statements about among other matters, adjusted revenue growth, adjusted earnings per share, adjusted operating margin, EBITDA, cash flow targets, sales pipeline, our CheckFree integration efforts, the disposition of certain Fiserv businesses, and our strategic initiative Fiserv 2.0. Forward-looking statements may differ materially from actual results and are subject to a number of risks and uncertainties.
Please refer to our earnings release which can be found on our Web site at www.fiserv.com for a discussion of these risk factors. You should also refer to our earnings release for an explanation of the non-GAAP financial measures discussed in this conference call and for a reconciliation of those measures to the nearest applicable GAAP measure.
These non-GAAP measures are indicators of management uses to provide additional, meaningful comparisons between current result and prior reported results. And is a basis for planning and forecasting for future periods.
Let me say upfront that I'm pleased with our results for the quarter and our strong start to the year. As we shared with you at the beginning of 2009, we anticipated that the environmental factors would pressure revenue growth in the first half of the year and it has.
In these times, we are intensely focused on serving clients well while taking actions that enable us to continue building our business for the long-term. Strong execution of our plan led to solid earnings and cash flow growth in the quarter.
Adjusted EPS grew 10% over last year to $0.88. Our industry leading free cash flow grew 9% to $189 million and up 15% on a per share basis.
Adjusted revenue declined in the quarter by 3% compared with last year's first quarter, which was also our highest revenue growth quarter in 2008. The vast majority of this expected drop was related to external factors such as almost nonexistent termination fees, weak lending markets, low interest rates, and spotty discretionary spending.
This was partially offset by good performance in our account processing and payments businesses. Acquisitions impacted revenue by less than 1% in the quarter.
Excluding unusual items, our first quarter internal revenue growth rate would have been 1%, including 4% growth in our payment segment. Overall revenue for the quarter was within our internal expectations.
As I shared last quarter, our key three priorities for the year are, first, to meet our earnings commitment while maintaining capital flexibility. Next, to continue integration efforts with increased focus on revenue opportunities and product innovation.
And third, to enhance our go-to-market approach leading to increased sales results to new and existing clients. We are on track to meet our full-year earnings commitments.
As I mentioned, we delivered 10% growth in adjusted earnings per share and 9% growth in free cash flow. This performance in light of the expected weak revenue led to adjusted operating margin of 27.9%, which improved on both a sequential quarter and year-over-year basis.
The combination of our strong business model, a focus on providing highly valued products to clients and the growing culture of operational excellence led to the margin expansion for the quarter. On the capital front, we reduced our debt by $100 million, repurchased shares opportunistically and increased our available cash by $80 million in the quarter.
We are continuing to build upon our strong financial position while maintaining capital flexibility given the potential opportunities across the landscape. Our second priority, continuing integration efforts with an increased focus on innovation again showed progress in the quarter.
We generated $21 million in incremental operational efficiency savings in the quarter, more than a third of our full-year objective. You will recall that this metric now combines the results of our historic Fiserv 2.0 efficiency initiatives with the CheckFree synergy savings.
Since completing the CheckFree acquisition, we have now generated $77 million of savings versus our $100 million annual synergy target. While we remain focused on cost actions, more of our collective effort is now shifting to product innovation and growing revenue.
Electronic bill payment sales were again strong. Even in a difficult environment, we signed 107 new clients in the quarter, including 38 competitive wins, a higher takeaway rate than 2008.
The initial rollout of our new Corillian online banking platform is proceeding well with significant interest in the state-of-the-art products. While we are excited about its prospects we still don't anticipate product revenue until 2010.
We continue to integrate the organization and win new business. Whether a client is looking for account processing, bill payment, debit services, revenue enhancement consulting, risk management or hundreds of other relevant solutions, we are facing off to the market with far fewer internal boundaries than ever before.
We believe we can say with candor there are no shortcuts to integration. It's a monumental effort to integrate businesses and assimilate cultures.
The CheckFree integration activities that we've been executing for the last 17 months have positioned us to serve the market in unique ways now when clients needed most. At this point, we believe that the majority of the basic integration is behind us.
We are enthusiastic about our position in the competitive market in this extraordinary time. Our third priority is to enhance how we go to market.
During the quarter, we rolled out a new market approach in brand identity. The financial services industry is changing and so are we.
Our new identity speaks to an organization that is vibrant and energized. We are unified in our commitment to be our best for clients.
The market is asking for more integration of our businesses and products and we are delivering. We estimate that our February 23rd launch effort yielded more than 200 million media impressions through global advertising and editorial coverage in newspapers, trade publications, and on the World Wide Web.
Our marketing and business teams turned their hard work and commitment into a fantastic launch. And what you've seen so far is only the start.
We've also been increasing our investment in innovation and some of that is game changing. An example of one such investment is data analytics.
Our ability to provide financial institutions with relevant insights based on their customer data has the potential to change the way consumers access financial services and interact with their institution. The quality of these insights will be directly proportionate to the number of relationships and hence the amount of available data clients have with us.
This is just another example on how a highly integrated relationship can deliver more value to clients. All in all, it's a very good start to the year.
With that, let me turn the call over to Tom for a more detailed discussion of our financial results.
Tom Hirsch
Thank, Jeff, and good afternoon, everyone. I will refer to the supplemental information included in the slide presentation which, as we mentioned earlier is available on our Web site.
As shown on Slide #3, adjusted revenue in the quarter was $989 million, down 3% from the prior year, excluding the results of Fiserv Insurance. Acquisition related revenue contributed less than 1% for the quarter.
Adjusted EPS in the quarter was $0.88, up 10% over the prior year. Adjusted operating income was $276 million for the quarter.
As shown on Slide #4, adjusted operating margin increased 210 basis points to 27.9% compared to the prior year. Operating margin increased sequentially by 110 basis points with strong improvement in both of our operating segment.
We have continued to expand operating margins over the last couple of years through operating efficiency initiative, CheckFree acquisition synergies, improved business mix, and high quality, new revenues. As we have shared over the past several years, we are focused on businesses that deliver incremental value for our clients and that are also scalable across our system.
Examples of these businesses include bill payment, debit and EFT processing, and our bank and credit union account processing businesses. We took a charge of $15 million or $0.06 per share in the quarter related to an announced reduction of approximately 700 employees or about 3.5% of our total work force.
This action which occurred late in the first quarter was primarily targeted in those businesses most impacted by negative market forces including our lending and investment services operations. The announced reductions will occur throughout 2009.
A large part of these cost savings will be used to fund increased investment to enhance our competitive differentiation, deliver more value to clients and drive future revenue growth. We continue to focus on a high quality business that contributes to our very strong free cash flow characteristics.
Total free cash flow grew 9% to $189 million in the quarter. The cash flow growth was positively impacted by our continuing attention to capital management and working capital improvements.
Free cash flow per share increased 15% in the quarter to $1.21 and continued to exceed adjusted earnings per share. Adjusted internal revenue declined by 4% in the quarter.
As shown on Slide 5 of the presentation, we continue to be negatively impacted by some significant items which carried over from last year. The home equity processing business, the large bill payment contract repricing, lower flow income, and in this quarter, negative currency impact and much lower termination fees.
Adjusting for these items, our growth rate was 1%. Home equity processing revenues were $23 million in the quarter, down $19 million from the $42 million generated in the first quarter of 2008.
This alone reduced total company internal revenue by 2 percentage points and financial segment internal revenue by more than 3 percentage points. As in the fourth quarter the revenue reduction resulted primarily from the negative market impact on home equity processing revenue and the absence of any home retention product revenue in 2009.
This month in April, we began to see healthier levels of new home retention volume. For context, we anticipate that April revenue in this business will be in excess of $10 million, a much better start to the second quarter.
Although we expect volatility in this business will continue, we are encouraged by the current level of home retention activity and the quality of the near-term pipeline. As a reminder, the negative impact of the home equity business on our free cash flow and operating income is not significant.
This is evidenced by the strong financial segment margins in the quarter. The high margin contract termination fees we received in the quarter were extremely low.
Termination fees decreased significantly to $1 million in the quarter compared with $17 million in the prior year. This decrease impacted total company internal revenue by 1 percentage point and financial segment internal revenue by 3 percentage points.
The low termination fees in the quarter reflect a slowdown in merger and acquisition activity among financial institutions. While at bodes well for future recurring revenue, the material decrease creates comparability challenges in terms of revenue, earnings, and margins.
We expect a similar comparable decrease in termination fee revenue in the second quarter with somewhat more normalized comparisons in the second half of 2009. As a reminder, termination fees were about $18 million in last year's second quarter.
For the fourth consecutive quarter, we had a negative impact from the combination of low interest rates on our float income and a large client renewal we announced in early 2008. The negative impact to our internal revenue was 1% for the company and 2% in the payment segment.
We anticipate the impact of this negative drag to dissipate for the remainder of the year as we anniversary the large contract renewal and year-over-year interest rate variances tighten. The payment segment of adjusted revenue was $487 million, net of the pass-through cost for postage.
Adjusted internal revenue growth in the quarter was 1%. And would have been 4% without the impact of the large client repricing, currency and float.
Soft revenue in the investment services business reflective of equity market challenges was more than offset by solid performance in our output solutions and payment-driven businesses. We realized strong, double-digit transaction growth in our EFT and debit processing businesses in the quarter.
The much higher growth rates came on two fronts. First, we are adding new clients to our platform, reflecting the great progress we have made in extending these capabilities to our account processing clients.
In addition, we see a higher underlying transaction growth rate as the community-based institutions appear to be much earlier in the debit maturity curve. Segment operating income was up 11% to $155 million in the quarter.
First-quarter adjusted operating margin of 31.9% was up 280 basis points over last year and 60 basis points sequentially. We continue to gain leverage from higher margin products and services, synergy benefits from our CheckFree acquisition and strong results in our output solutions group.
The financial institution segment generated revenue of $509 million in the quarter, down 7% compared with the prior year. Adjusted internal revenues contracted by 8% in the quarter.
Excluding the impact of home equity processing, termination fees and currency, internal revenues were down by 1% for the quarter, consistent with the fourth quarter 2008 performance and our expectations. Operating income in the financial segment was $137 million for the quarter, down $1 million from the first quarter of 2008 in spite of the decrease in revenue.
Let me highlight several contributors to the strong operating income and margin performance in the quarter. As I highlighted earlier, we continued to build our community-based account processing business, delivering more products and solutions to existing clients and generating significant operating leverage as a business.
These market leading businesses comprised about 70% of total segment revenue and had a strong quarter. Even in this difficult environment, these businesses continue to grow revenue in the mid-single digits excluding termination fees, which translates to attractive bottom line result.
Second, the areas of large revenue decreases came from lower margin businesses such as lending and check processing. Also and importantly, our higher margin license fee revenue was in line with the first quarter of last year.
And finally, the negative currency impact on revenues in the segment had a negligible impact on our bottom line due the currency impact on expenses and proactive cost management efforts. These factors helped us achieve a 27% operating margin in the segment, up 180 basis points year-over-year in spite of the negative impact of termination fees.
As we've mentioned, we generated $189 million of free cash flow for the quarter. First quarter capital expenditures were $45 million, down from $50 million last year and were about 5% of adjusted revenue.
Our adjusted EBITDA for the quarter was 334 million. As Jeff highlighted during our year-end call, we are being even more pragmatic in allocating capital this year to ensure optimal flexibility.
We repurchased approximately 780,000 shares in the quarter at an average cost of $32.42 per share. We also repaid about $100 million of revolver debt and after all of that, still added $80 million of cash to our balance in the quarter.
We have about 500,000 shares remaining in our current share repurchase authorization. Our effective tax rate was 38.2% for the quarter, just slightly lower than the 38.5% effective tax rate we expect for the balance of the year.
Net interest expense was $54 million in the quarter and that should continue to trend down as our average debt balance declines. Now I'd like to turn the call back over to Jeff.
Jeff Yabuki
Thanks, Tom. Sales results started slowly ending the quarter at 85% of quota.
However, we're having a strong April, which will get us much closer to our 100% of quota target. This appears to reflect the longer than typical sales decisioning process that began last year.
We continue to see more interest in larger, complex sales opportunities as a result of the environment. Overall pipelines remain solid across most of our businesses and we're cautiously optimistic about our full year sales performance.
Integrated sales for the first quarter were $20 million. While performance in the quarter was slightly lower than ratable attainment against our.
$90 million target for the year, sales increased 43% or $6 million over the level achieved in the first quarter of 2008. Our leading areas of success in the quarter were payments and efficiency-based products.
Before I wrap up, let me quickly update you on our view of the environment and guidance for 2009, which is generally similar from where it was when we originally provided our 2009 outlook. The number of regulatory actions so far this year continues to fit comfortably within our range of expectations.
29 banks have been subject to takeover by the FDIC in 2009, which represents less than one quarter of 1% of all financial institutions in the U.S. Coupled this with an almost nonexistent level of bank mergers so far this year.
And in total, we could actually see a slower decline in the number of depository institutions this year than we had in the past. In any event, we continue to expect that the current pace of actions is far less draconian than the pessimists would have us believe.
We remain about even our wins and losses since the commencement of the regulatory actions. Keep in mind, however, that even when closures occur the processing revenue doesn't leave the system, it merely follows the accounts.
Traditional de novo activity is still at a near standstill and unfortunately we have no reason to expect that to change in the near-term. We remain actively engaged with parties that exploring alternatives to capture the opportunity that does exist in the face of the rapidly changing bank market.
Although pressured, we anticipate technology spending across the community banking space to be about flat in 2009, slightly lower than we estimated originally. As these institutions struggle with larger assessments from their respective deposit insurance bodies, we continue to expect weak technology spending at the larger institutions.
Although there has been recent movement toward industry stabilization, we don't anticipate a come back in discretionary spending this year. Lastly, as I mentioned, we continue to see reasonable sales activity as larger financial institutions look for innovative ways to reduce their infrastructure costs.
Given our results for the quarter and view on the environment, our 2009 guidance remains unchanged. We expect adjusted EPS growth in the range of 10% to 14% or $3.61 to $3.75 per share and continue to anticipate better results in the second half of the year on an absolute and comparative basis.
We expect free cash flow growth of 6% to 10%, and adjusted internal revenue growth in the range of 0% to 4%. We expect that adjusted operating margin will exceed the 50 plus basis point improvement we mentioned at the beginning of the year, but do not anticipate that the margin expansion for the full year will approximate this quarter's performance.
As I mentioned upfront, we are very pleased with our results. We believe that the myriad of challenges in the environment demand caution as we proceed throughout the year.
Accordingly, we are taking a view that any perceived overperformance in the quarter is best viewed as derisking our 2009 outlook. Finally, I'd like to recognize the dedication of our nearly 20,000 associates around the world, who are working harder than ever with our clients in this extraordinary time.
The quality and commitment of our people continue to make the difference. With that, let's open the line for questions.
Operator
Thank you. And our first question comes from Tien Tsin Huang.
Your line is open.
Tien Tsin Huang – JP Morgan
Hi, thanks so much. Hope you can hear me?
Jeff Yabuki
Sure, we got it.
Tien Tsin Huang – JP Morgan
Thanks. Jeff, I guess I'll just start and ask the obligatory Fis and Metavante deal.
How does the sort of change or go to market strategy? Does it create an opportunity here take share in the interim does it elevate the need for Fiserv to do a large deal and add scale?
Maybe just some overarching thoughts there?
Jeff Yabuki
Sure. And I didn't know if that would be the very first question, but we certainly anticipated it near the top.
We've been saying for a while that we think industry consolidation is a good thing and that hasn't changed at all. We had anticipated that, that someplace in the competitive landscape people would try to begin to come together to maybe more closely emulate what we've been able to accomplish over the last couple of years.
And so we certainly see that this is an attempt to do that. We do think this is going to be a very large and complex integration.
Obviously, the synergies have been announced are significant. And we don't obviously know anything more than anyone else about how that's going to come out.
But we know that even for us we spent the last 18 months or so, working pretty hard on this, and there's a lot of pick and shovel work, and it's difficult to find the right balance between internal and external and we're pleased that at this stage we believe we can shift the majority of our focus to the external environment. So from that standpoint, we think that there may be opportunities for us.
But it's a good market, and I think everyone will fare relatively well. I think the most important point though is regardless of who comes together in the marketplace, after that combination or any other combination, we still have the leading positions and account processing, bill payment, risk, we have great position in debit, and many, many others.
So, we think it will be – it will take some time to see how it actually comes together. We think clients will have an opportunity to vote on what they think the best thing is and we're going to look at this as opportunistically as we can.
Tien Tsin Huang – JP Morgan
Does it change your thinking at all in terms of M&A and your appetite to do M&A?
Jeff Yabuki
Not at all. I mean, we believe that for us we have the majority of the products that we need for here in the U.S.
I think it's possible that we could end up doing an acquisition outside the U.S. in order to bolster whatever it is we end up determining that we want to do outside the U.S.
And we've not made that determination yet. But we think we have what we need here.
We may continue to do smaller acquisitions or tuck-in acquisitions. We think there's a lot of opportunity in the marketplace.
And as Tom mentioned, it's one of the reasons why we did things in order to increase our flexibility as those opportunities become available later on in – in the year and probably into next year frankly.
Tien Tsin Huang – JP Morgan
Great. Thanks for that, Jeff.
I guess I'll just ask a business question on the –great job on the cost side obviously. With the risk the – I think the 700 employees, is that incremental to the $60 million in savings that you were targeting for fiscal '09 or is this part of that plan?
Tom Hirsch
No, it was really in those areas of the business that really just been impacted by the external market environment. Our lending businesses as you know in the home equity processing area just given the volume declines there, investment services business, and a little bit in our check-processing business, so those are incremental outside of that targeted amount that we had there.
Jeff Yabuki
Yes. I would say just one other point on that would be obviously the market; the market is changing, as we kind of saw what was going on in the external environment.
It's been important for us to make sure that we have the means to invest in the market or invest in the innovation opportunities that exist in the market and we wanted to take this opportunity to reengineer a little bit further our businesses so that we had a higher capacity to invest where I think other people are going to be much more internally focused on what they have within their own structure, we did a lot of that over the last couple of years. We saw another opportunity to notch that up a little bit.
And then redirect into investments those kinds of dollars. So it's incremental, it's a change; it's a permanent change to our cost structure.
And it just gives us even more flexibility.
Tien Tsin Huang – JP Morgan
Okay. Great.
Thanks so much.
Jeff Yabuki
Thank you.
Operator
Your next question comes from Bryan Keane.
Bryan Keane – Credit Suisse First Boston
My questions are on the segment margins, both financial and payments were a lot stronger than I anticipated. So Tom, I guess my question is to you.
How should we think about margins in those two segments going forward?
Tom Hirsch
Again I think we did have a good quarter from a segment operating margin standpoint in both. And it has been something, Bryan, over time as we highlight on investor day and in our discussions that we've really continued to focus on the types of revenue that we have, the businesses that we have scale in, including our account processing, our payments businesses, along with the operational efficiency initiatives that we continue to focus on.
And we're not giving guidance obviously by segment. But as Jeff indicated, for the full year, we are going to do better than our 50 plus margin improvement.
It's not going to be at the level that we experienced this quarter because we're going to continue to make additional investment in a number of different areas of our products. In the mobile area, in our consumer insights, in integration around EFT, continuing the bill pay area, et cetera.
So for right now, we had a good margin quarter, just on a comparability basis our license fees in the quarter held up nicely compared to the prior year and our existing business. And so we're managing the business tightly.
But we're going to do better than 50 plus our guidance but clearly not at the levels that we had in the current quarter, just because of some incremental investments that we want to make over the course of the year.
Jeff Yabuki
Yes. Bryan, I would say that one of the things that happened in the quarter that we hoped would happen but couldn't at the time we gave our outlook share because it was too early is the license fees and the license revenue as Tom mentioned did hold up nicely.
But we're seeing a lot of mix benefit. So as we've lost some of these revenues, as these lower margin revenues have left, they've been replaced by much more profitable revenue because they're going – the revenue is being produced in places where we have scale.
So Tom mentioned the account processing where about 70% of the revenue in that segment is in the account processing business. Well, when you add when these transaction growth occurs, the incremental margins to do another transaction are obviously quite high.
And so we got much more mix benefit in the quarter between that and the holding up of the license revenues than we anticipated at the beginning of the year.
Bryan Keane – Credit Suisse First Boston
Okay. And Tom, just a clarification.
The internal revenue growth is zero to four. That's the adjusted guidance.
Is there a reported organic growth we should think about it and maybe the five point drag; is that about right that we saw this quarter?
Tom Hirsch
Yes. It is the reported result.
So that was the reported result accompany, Bryan, is minus four. As you know, lot of the adjustments that we made for home equity, the large client termination fees, those are going to get much better as we go through the year.
So, our guidance is zero to four reported. So the first quarter was minus four.
Adjusted result is 1%. But as you know, lot of those items are going to fall off as we go through 2009 as those comparables improve.
Things like termination fees, as you know, the first half of 2008 was very high around 35 million and we don't anticipate a lot in the first half of 2009, which is really good for the long term of the business, but obviously the year-over-year comparison can be difficult from that standpoint.
Bryan Keane – Credit Suisse First Boston
Okay. Let me just make sure I got that.
It's a reported internal revenue growth guidance is zero to four or that the adjusted one with some of the add backs that we saw –
Tom Hirsch
It's reported, Bryan.
Bryan Keane – Credit Suisse First Boston
Okay. Alright.
I just wanted to clarify. And then last question from me.
Jeff, obviously lot of talk about the Fis-Metavante acquisition or proposed acquisition. Does it put Fiserv at any disadvantage or on the flip side of that is there any new opportunities that this presents?
Jeff Yabuki
Well, let me I guess be clear. I don't think it puts us at any disadvantage whatsoever.
We don't do a lot of business; we don't do a lot of competition with Metavante. And Fidelity [ph] although we all likely do business together, so we do have to get along to some extent.
I think the opportunity is created, Bryan, if you go in and look at what they announced originally in their synergies, I mean they're taking a lot of cost out of areas – I think as I recall on areas like payments and account processing and other – in other areas where we are pretty strong. So from our standpoint, because we've just gone through it and we know how hard this integration work is and the – what we accomplish on a cost synergy level is way less than what, what that merger contemplate.
So, we think that it's possible that others in the industry will not be quite as externally focused as we will. And so we're turning a lot of energy to the external market right now.
We would have done it anyway, but we think this gives everyone something a little bit more to talk about. And we think we're able to talk about the fact that our integration is largely behind us.
And that we can serve them in a more proactive way. So it's going to create conversations and we're hopeful that that will turn to opportunity.
Bryan Keane – Credit Suisse First Boston
Okay. Last question from me, Jeff, just on pricing, can you talk about how pricing looks in the core industry and then maybe if this acquisition does take place, then does that mean potentially less pricing competition going forward?
Jeff Yabuki
Yes. At least the anecdotes that I've seen would not say that there's been any material deterioration in the pricing environment versus where it was, say, in the fourth quarter of last year.
That's not to say that there isn't a lot of pricing activity because there is. But I would say that that at least the economic theorists would say that the lesser number of competitors, the more rational those remaining eight competitors or nine competitors will be.
So my guess is, frankly, based on the people in the industry that it probably won't change. So I don't think that we're going to see any change to the pricing environment, but time will tell.
Bryan Keane – Credit Suisse First Boston
Okay. Congratulations on the quarter.
Jeff Yabuki
Thanks, Bryan.
Operator
Our next question comes from John Kraft.
John Kraft – D.A Davidson & Company
Good afternoon, gentlemen. Nice work on keeping the costs down.
Jeff Yabuki
Thank you.
Tom Hirsch
Thanks.
John Kraft – D.A Davidson & Company
Tom, I wanted to go back to something you said about the EFT transactions and the community banks being so strong. I guess really the question is how did those trend throughout the quarter?
And what did they look like in April? And I guess attached to that is what similar transactions for bill pay might have done throughout the quarter and how they trend?
Tom Hirsch
Yes, I think – and I I'll hit and then turn it over to Jeff a little bit to give some color on this topic. But John, as you know, over the last years, as we highlight on investor day, we've been really focused on integrating our debit processing EFT into a lot of our core products.
And that integration is nearly complete. And as part of our theme too, integration sales initiative, we've been focused on distributing that to our 6,000 institutions that we have (inaudible) processing with.
As you know, I think we were about – we started off maybe 20%, 25% penetrated and we continue through our integration to deliver more value to our clients and continue to sign more and more clients. We signed another 50 I believe in this quarter of new relationships.
And so that has really helped. And I think when you look at community-based institutions; our debit processing is not in a very large institution.
It is in a smaller mid-tier institutions. And so we're just seeing increased consumer activity around those volumes.
So it's a combination of both market share gains and volume increases.
Jeff Yabuki
And John, I would say that the comparables were a little bit odd as I'm sure you know for the quarter, because Easter was in a different period. Easter across the quarter line.
But I would say that we actually saw acceleration in each of the months of the quarter. So we had – obviously like everyone else, I think January was a little bit slow.
But we got nice pickup and we saw that in March and we've continued to see that. So we actually had escalation in April versus March.
So I would say we feel very good about what we're doing and the largest, most important driver of our growth is the integration point that Tom made earlier. We've been doing a lot of – of selling to our clients delivering the debit and EFT capability into the account processing group and it takes time for that mass to build up because community-based institutions don't have the marketing machines that the larger institutions have.
So in that business, while we have a very strong leading position, we don't have such a large position like we do in bill pay that it's – you can start to see the benefit of the debit EFT integrated sales starting to now move our volumes and we would anticipate that those volumes as we've been saying for a while will now continue to push us at levels that are higher than some others. On the bill pay side, you have a little bit of the opposite effect, where we're doing lots of bill pay services, but because the CheckFree business that we acquired is so large, it's a little bit like I would guess Visa and MasterCard, the law of large numbers; it's hard to move that.
But one of the things that we're benefiting from is revenues are coming in and even though it's not moving the growth rate or the transaction rate yet because we don't have enough movement on the maturity curve that's Tom referenced, we've continued to see good underlying transaction growth in that community-based institution group that we don't break out separately. So we feel pretty good about that.
Bill payment volume did get stronger throughout the quarter as well. So net-net we think we have some reasonable momentum moving into the Q2 and the remainder of the year.
John Kraft – D.A Davidson & Company
Okay. Good to hear.
And then can you also just remind us again what percent of your revenue is currently discretionary, software related?
Tom Hirsch
Our software licenses have typically been roughly about 5% of the total revenues, John.
John Kraft – D.A Davidson & Company
And then so professional services another five or so?
Jeff Yabuki
In that range.
John Kraft – D.A Davidson & Company
Okay.
Jeff Yabuki
Yes.
John Kraft – D.A Davidson & Company
And last question just regarding the severance and one-time costs. Are you expecting to have any run-off there into Q2 as well?
Tom Hirsch
No. We have accrued all of the expense we've finished
Jeff Yabuki
We haven't paid it all out yet.
Tom Hirsch
Sure.
Jeff Yabuki
Didn't paid all yet, but we picked it up in the accrual right away.
John Kraft – D.A Davidson & Company
Got you. Okay.
Thanks, guys.
Jeff Yabuki
Thank you.
Operator
Our next question comes from David Koning.
David Koning – Baird
Hey, guys, nice job.
Tom Hirsch
Thanks, Dave.
David Koning – Baird
I guess first of all on the mortgage business, I guess the loan modification business now that virtually had no revenue in Q1, but it sounds like $10 million just in April alone, if that's a $10 million a month through Q2, it looks like in the ballpark of flat year-over-year with the $50 million you did in Q2 of last year, is that fair to say?
Tom Hirsch
No, Dave. What we tried to give – this business did about $20 million of revenue in the first quarter in total.
Our home equity business. We spent about $23 million.
We anticipate a minimum of $10 million of revenue just in April as some of the HRM has started to ramp up in that particular month. So, we don't know what that means for the remainder of the quarter, but as we indicated the pipelines are good, we continue to see more volume there, but it's not $10 million incremental in HRM, it's $10 million for the entire business.
David Koning – Baird
Yes.
Tom Hirsch
That makes sense?
David Koning – Baird
Yes I think so. So it means that in the quarter though, you'd end up with about $50 million in that total business if you did about $10 million per month in the loan modification.
Jeff Yabuki
Yes. I'm sorry, Dave.
It's $10 million in total HRM plus the home equity processing so, just $10 million that in that line of business. So if you annualized it for the quarter it would be 30 if you continued at April's run rate.
Instead of 23 now 30 plus. Yes, 30 plus, because we said April will be at a minimum of $10 million of revenue.
So we do have some good pipes there. We see the volume coming in, but it can be volatile, so we again want to be cautious in regards to what we put out there.
But the key characteristic there again is this is good revenue but again, it is lower margin as we said over the last several years as this business has come down. We have exceedingly been able to increase our operating margins in the segment.
David Koning – Baird
Okay. And then so the two kind of headwinds or the moving parts that dissipate a little bit in Q2, one would be on the mortgage business and the other would be the repricing, those would be kind of the two biggest ones that have the potential to kind of go away in Q2?
Jeff Yabuki
That's correct. And then obviously the large client reprice and the float.
David Koning – Baird
Yes.
Jeff Yabuki
Floats going to get better too as we go quarter by quarter.
Tom Hirsch
It's going to continue to be negative. But the delta is going to get a little bit easier.
David Koning – Baird
Okay. Good.
And then I guess the other thing is, is it fair to say you expect EBIT to grow sequentially throughout the year?
Tom Hirsch
Yes. We continue, as Jeff indicated in his comments, Dave, that we still anticipate that the second half is going to be better than the first half of the year, both on an absolute and a comparative basis as we indicated.
So we continue – that's our guidance for the year. So we anticipate a stronger second half than we do in the first half especially on a comparative basis given what we have to compare with in '08.
But we should continue to continue to grow as we go through the year.
Jeff Yabuki
Yes, Dave, I think the only other thing that is a little bit challenging. One of the things that's challenging in the second quarter is the big delta – big gap again in termination fees.
So that is still a pretty big hole you have to fill. We're assuming we're going to have a pretty low level of collected termination fees in the second quarter of this year and what was it last year?
18?
Tom Hirsch
18.
Jeff Yabuki
18 million.
David Koning – Baird
Okay, great. Thank you.
Tom Hirsch
Thank you.
Operator
Your next question comes from Darrin Peller.
Darrin Peller – Barclays Capital
Thanks, guys. Just to quickly follow-up on the severance cost item.
I think you mentioned – you may have mentioned this around the $15 million one-time. But how much will that generate in annualized savings maybe this year and next?
And are there going to be additional items like that?
Jeff Yabuki
Yes. I think we said overall for the – we think in the range of $25 million to $30 million when it's fully ramped up on annual basis.
But again, as we indicated, we announced this action in the first quarter we accrued the entire cost. We paid about roughly 50% of that severance in the first quarter and will pay out the rest as we go through the remainder of 2009.
So the full ramp-up of that will be as we go into 2010. And as Jeff highlighted earlier, we are going to be investing a lot of that from those businesses into other things within our business as we go through the year.
Darrin Peller – Barclays Capital
Alright. And then just, Tom, quickly, incomparables are expected to improve in the second half of the year.
But first quarter, if you look at it, it was still I think negative 4% or reported one percentage adjusted growth of total revenue. Based on your guidance, it would imply a fairly meaningful pickup in certain revenue streams in the second half of the year.
So can you just help us understand some of the economic assumptions underlying your view of 0% to 4% total reported revenue growth for the year?
Tom Hirsch
Yes, I mean, I think overall we started off here in the first quarter. We have some good things from a standpoint of our EFT businesses and our payments businesses that continue to ramp up, with new clients.
We again believe that from a home equity standpoint, that business is extraordinarily low, at $20 million. We anticipated that business was going to ramp up in the low modification area.
We continue to have very good sales in our service bureau and account processing businesses. So we see a lot of good things in the base business that we should be able to build on off of the first quarter.
And again, we see sequential improvement as far as our organic revenue growth rate as we go through the year, with the second half being the big improvement from where we were in the first half of the year.
Jeff Yabuki
Yes. And basically, Darin, you got the easing of some of the items that on stage 5 of the slide deck, you got the things going the wrong way that will be adding back, as Tom said a minute ago.
Something like the large client repricing. That's now out of the system.
So you end up taking that pressure away and these businesses are businesses that keep growing. So –
Darrin Peller – Barclays Capital
Right.
Jeff Yabuki
The tran volume is there, it's just getting hidden a little bit by some of the negativity and as the negativity compresses, you just end up creating the benefit.
Darrin Peller – Barclays Capital
Okay. So with negative 4% reported revenue this quarter and 0% to 4% full year reported, it's probably a correct assumption to assume that – I guess you're looking for roughly 6% or more revenue growth in the second half of the year to offset that.
Jeff Yabuki
Yes. I mean on a quarter basis, you have to ramp-up as you kind of go through the year to get to that particular range.
And we again, our guidance is 0% to 4% on a reported basis, we had 4% minus and wilder expectations, lot of the things like termination fees, the home equity process are going to get much better. We had 5% negative impacts just from those as we look at them kind of one-time type items along with underlying growth in the business.
But we continue to manage the business very prudently. But we do anticipate that the growth rates are going to improve as we go through 2009.
Darrin Peller – Barclays Capital
That's great, guys. Appreciate it.
Jeff Yabuki
Thank you.
Operator
And our next question comes from Franco Turrinelli. Thank you, your line is open.
Franco Turrinelli – William Blair & Co.
Good afternoon, gentlemen.
Tom Hirsch
Hey, Franco.
Franco Turrinelli – William Blair & Co.
Hey, first I apologize, Tom. We were scribbling frantically, but we're not fast enough.
We need to learn shorthand. Can you go back over some of the uses of cash in the quarter in terms of debt paydown, share buyback, et cetera, et cetera?
Tom Hirsch
Yes. And regarding what we do with our cash flow, I think as we highlighted, our free cash flow was very strong in the quarter, about $189 million generated in the first quarter, about $1.21 per share.
And we have our cash flow statement on page 8 of the press release. But about $100 million we used for debt paydown, about $25 million we used for the purchases of stock, and then we put about $80 million in our cash balances.
As Jeff indicated and I have is that, we want to have a lot of flexibility just given the environment. And so that's basically where we allocated that capital in the first quarter.
Franco Turrinelli – William Blair & Co.
And is that kind of – I guess I'm trying to figure out if that kind of a relative allocation is what you think you might do in the future or are you being particularly cautious right now with debt loads or – what insight can you give us on future plans?
Tom Hirsch
I would just say that we are being particularly cautious as we were in the first quarter. That doesn't necessarily mean that's what we'll do going forward.
We will allocate our capital as you know over the last several years. We have done that in a number of different ways.
We will allocate it first internal investment, we'll meet our debt commitments, but then we will allocate capital to both acquisitions to the extent they're there and additional share repurchase. And that would be our plans for this year like any other year.
It's just that we were much more cautious just given the environment that we had in the first quarter of the year.
Franco Turrinelli – William Blair & Co.
But remind us, Tom, you have no material debt repayments and the leverage of the business is quite acceptable I think to the management team, right?
Tom Hirsch
Yes. That's correct.
I mean, we have certain ratios we want to hit from our standpoint as far as giving us the flexibility going forward from a debt-to-EBITDA standpoint. And we're marching towards those target.
But again, we have some available cap that we will continue to deploy as we go through the year, outside of debt repayment.
Franco Turrinelli – William Blair & Co.
I have a question for you. I'm very, very interested in your comment regarding the Corillian product.
And also what you were saying though about budgets remaining constrained by other demands on companies, on banks profitability this year.
Jeff Yabuki
Yes.
Franco Turrinelli – William Blair & Co.
What I'm kind of interested in is what do you think it's going to take to kind of reach the tipping point of a large scale, pick back up if that's not said properly, but you know what I mean, in IT budgets. Because it feels like we've been waiting for so many years for that core processing replacement cycle that never actually seems to show up.
But I'm kind of wondering if you feel that, you now got the product to cause that cycle to start once things get a little bit better
Jeff Yabuki
Yes. That's obviously an interesting question.
I've been here for about 3-1/2 years now and every year is going to be the year of the core replacements and I bet it was 10 years at least before that. My take is there is going to be less reticense – I'm sorry, there's going to be continuing reticense, less reason for people to spend the money on a real core replacement at the larger level.
I just think there's so much economic pressure right now. I think it's going to be a couple of years more before anyone's here – I think people are going to continue to talk about it, Franco.
But I just don't see it happening in terms of people going in and ripping out their core. Now there are a couple of institutions who are looking at that right now.
And so we're involved in that and others are as well. But to have that happen on a scale basis, even if you could find the product that would make everyone want to switch, the level of effort that it would take to do multiple institutions simultaneously which I think be very challenging.
The Corillian online product is not as much a core product as it is a fully integrated online banking and basically a digital channel for financial institutions to be able to offer all of their wares via the digital channel. That is merely an integration into the core where you can, to some extent, remediate the rationale for having to swap out the core with Corillian online.
That's one of the reasons why I think we're having a lot of interesting demand on the product. I think we do a fair amount of installation on that product this year and start the season revenue and better transaction growth in 2010 and beyond.
Franco Turrinelli – William Blair & Co.
Thank you.
Tom Hirsch
Franco, I just add to what Jeff indicated. He may want to comment on this a little bit too.
I think in the small and mid-tier though, we continue to see good activity from a standpoint of looking at outsource solutions, and we've seen that trend kind of accelerate to go into those mid-tier institutions where they're looking to outsource more of their core processing solutions. So we continue to do well in that particular area, but we continue to see an appetite there from that standpoint too.
Franco Turrinelli – William Blair & Co.
And to go back to the several questions that have been asked about the internal growth ramp-up in the back half of the year, that ramp-up is – does not incorporate any improvement in the IT budgets or IT spending habits of the banks relative to what you're seeing so far, right?
Jeff Yabuki
No. Exactly right.
That guidance or outlook is consistent with what we talked about on the phone today. So kind of flattish in the community banking sector and a very low level discretionary spending at the large institutions.
Franco Turrinelli – William Blair & Co.
Great. Thank you very much.
Jeff Yabuki
Thank you.
Operator
Our next question comes from Glenn Greene.
Glenn Greene – Oppenheimer & Co.
Thank you. Good afternoon, guys.
Jeff Yabuki
Hi, Glenn.
Glenn Greene – Oppenheimer & Co.
Just a first question, I was wondering if you could just give us a little more color on actually the bookings trends that you realized on the quarter. And if there's any way you could give us color on the backlog of conversions that may happen towards the back half of the year.
To get us more comfortable with that sort of organic growth ramp other than the comparison issues that obviously have subsided in the back half.
Jeff Yabuki
Yes. I mean, Glenn, you probably know as well as we that most of our revenue because it's recurring transactional oriented revenue is not contingent on giant pipelines of booking deferred revenue, those kinds of things.
So for us, while we certainly have about 5% of our revenue is in license oriented and maybe little less five in professional services related to installation and those kinds of things, we just don't have the kinds of large deals that can swing our growth rates in a material way. Therefore, we don't think sharing kind of the bookings or that kind of a pipeline is necessarily insightful to our future performance.
For us, what matters most is transaction volume, wins in the account processing space, those kinds of things, and obviously around the smaller ticket license revenues that we have. So because we have over 700 different products, there's a lot of different movement that has to occur.
It's just that where we sit right now, we have a degree of comfort that we will as these comparable issues diminish that based on the results that we've had in the last few quarters and on occurring revenue that we've been able to basically layer into the company that we have a – a good degree of confidence that we will be able to deliver revenue growth for the full year within the 0% to 4% guidance.
Glenn Greene – Oppenheimer & Co.
Okay. Different direction.
The bank consolidation at the large bank market with a lot of events that obviously happened in the Fall, JPMorgan, Washington Mutual, Wells, et cetera. Some of those positive, some of them negative for you perhaps.
I was wondering if you could just give us some sense for what the impacts may or may not be and if – what color you're getting from the banks and having discussions with them in terms of either pricing or whether they're going to give you more business, perhaps take more business in-house. How is that sort of working out?
I know some of it's a benefit for you. But some may perhaps be a drag.
Jeff Yabuki
That's a great question, Glenn. Obviously, we're going to win some, and we're going to lose some.
And whether that sets up the 29 bank level of regulatory actions this year or at the larger level, Wachovia, National City, WaMu, those kinds of things. What I would say is we've won the ones that we thought we would win and we've lost the ones that we thought we would lose.
But net-net, we believe – we've accounted for that and for purposes of thinking about our 2009 results and we think that the, we're pretty balanced in that win-loss rate at least for now.
Glenn Greene – Oppenheimer & Co.
Okay. That's very helpful.
Thank you.
Jeff Yabuki
Thank you.
Operator
Our next question comes from Julio Quinteros.
Julio Quinteros – Goldman Sachs
Hi. This is Julio sitting in for (inaudible).
We just had a question on the operating margin side. You said 50 basis points plus for the whole year.
But the first quarter came in 210 BPs. It was an increase of 210 BPs.
Could you give us a sense of like what the margin progression will be throughout the year?
Jeff Yabuki
Yes, Julio, it's difficult to tell you exactly what the progression is. And obviously we don't give quarterly guidance so we can't do that.
What we said when we gave guidance originally is that our margin target was 50 plus and what we said today is it will definitely be plus to 50, but it won't be as high as it was this quarter. So, I think – I think from our standpoint, it also depends on what revenue we bring in and what are the margin characteristics of those revenues but it will be about 50.
And I think we're quite comfortable saying that at this stage.
Tom Hirsch
Yes, I think to the point that we made earlier is that we did increase over 200 basis points this quarter. We gave guidance at 50 plus.
We are going to do better than that. But there are a number of investments as we've talked about that we want to make as a company in line with obviously hitting our commitments as far as our earning numbers go for the year.
So we want to be able to get as many of those investments as we can to drive long-term growth and that's going to be our focus.
Julio Quinteros – Goldman Sachs
Hey, Tom, sorry, it's Hoolio. I just jumped on.
I've been going back and forth. One quick follow-up and I apologize if I missed this on the organic growth assumption from this quarter kind of to that 04 target.
If I heard correctly I think you guys have some things that are falling off in terms of the drag. But I guess I'm wondering if you look at it – and I don't know if this is possible or not, but if you look at it icon more like a same-store sales growth, are you expecting to actually grow the base of clients that you have in terms of revenue or is it just that the optics get better because you have some of these drags kind of falling off into the back half of the year?
Can you kind of –
Tom Hirsch
Yes. Absolutely.
I think it's a combination of both. Obviously, as a company, we had about 5% impact on our negative 4% from a number of different items.
So I think that – we don't anticipate having as we get a large part of those as we get into the second half of the year. But it is also the signing as we talk about, new EFT relationship, new service bureau transactions, new sales to existing clients, continued run rate improvement in our businesses.
So it's a combination of both of those things. And our businesses overall, many of them have continued to perform very well.
We've obviously had businesses like home equity processing, we had the large client reprice and the float and other things that have happened there. But our base business forecast as we go through the year is improvement as far as the run rate of those revenues go.
Julio Quinteros – Goldman Sachs
Okay. Great.
Thanks, guys. Good luck.
Jeff Yabuki
Thanks, Julio.
Operator
Our next question comes from Chitra Sundaram. Thank you.
Your line is open.
Chitra Sundaram – Cardinal Capital
Yes, actually, most of the questions are answered. So just quick follow-up on the license fees.
Was there any quarter last year where the license fee as a percentage of total revenues might have been materially different from the 5% that where it typically falls?
Tom Hirsch
It can change, it can go up and down by quarter. I mean, when you're talking 5% of rev, you can have some quarters that can be higher by segment.
We're not going into that as far as that level of detail. But overall, it's been roughly 5% of revenues.
But that can vary by quarter. Typically, sometimes the first quarter's been stronger.
We had a good fourth quarter in one of our segments in 2008. So it can vary by the nature of the type of business.
But overall 5% and it's been on either side of that by quarter. But we don't really manage the business in that fashion.
So again, that 5% is a pretty good fashion for the full year.
Chitra Sundaram – Cardinal Capital
Yes, I know, I know. But after all we do look at these things on a quarterly basis.
So I just wanted to understand there has been any in the second quarter, third quarter and fourth quarter where it was either materially low number or materially higher number than one would typically expect so that it doesn't come out as a surprise.
Tom Hirsch
Chitra, typically, typically in our business we're going to have good first quarter license, kind of if you just thought about it on a normalized noncomparison basis, the first quarter is going to be a little bit higher. The second and third quarters are going to be weaker, the third usually going to be weaker than second and the fourth is going to be stronger.
Chitra Sundaram – Cardinal Capital
Okay. I see that's very helpful.
Thank you. And congratulations.
Tom Hirsch
Thank you.
Operator
Our next question comes from Moshe Katri. Thank you.
Your line is open.
Tobi Shai – Cowen & Co.
Hi. Hi, Tobi Shai [ph] for Moshe.
Two questions. One, the 0% to 4% reported revenue, internal revenue growth guidance is still pretty wide.
If you can please provide us what factors or variables basically are factored into the low end versus the high end of that range? And the second question is I guess what's your long-term target for internal revenue growth?
Tom Hirsch
Well, I think from our standpoint the reason why it's wide is there's a heck of a lot of variability in the market and we want to respect that for purposes of giving our performance outlook. So, I don't know if we can add anything to the points that we were making earlier, but we think it's right, that's the right range for us given where we are right now.
I'm sorry, what was the second question?
Tobi Shai – Cowen & Co.
What's the long-term target for internal revenue growth?
Tom Hirsch
Yes. I mean, the long-term target for internal revenue growth for the company is 6% to 9%.
And when we did our most recent investor day, we indicated at the time that we thought that the performance in this – in this extraordinary time would be far less. And I think it was 2% to 4% – 2% to 6%.
So, basically taking it down a few points on both sides.
Tobi Shai – Cowen & Co.
Thank you.
Tom Hirsch
Thank you.
Operator
Our next question comes from Scott Kessler.
Scott Kessler – Standard and Poor's
Thanks a lot. This is Scott Kessler from Standard and Poor's Equity Research.
A couple of questions. Can you comment on what percentage of your revenues is currently recurring in nature?
Tom Hirsch
We have always given a range of 80% to 85% as far as our recurring revenue.
Scott Kessler – Standard and Poor's
Okay. And so that hasn't changed at all over the last I guess couple of quarters.
Jeff Yabuki
I think if anything it's gotten a little bit higher.
Tom Hirsch
Yes. A little bit higher with the decline in the overall and some of the home equity and other parts of that business.
Scott Kessler – Standard and Poor's
Right. Okay.
My second question is, Jeff, you referenced international and opportunities there. Can you talk at all about some of the business and offerings that you're thinking about and looking at outside the U.S.?
Jeff Yabuki
Sure. Scott, I mean, we actually today operate in about 60 countries around the world in areas like risk, retail account processing, some of the other areas, some of the payments areas.
And so we're really taking a look at based on, where are the best opportunities and reps of the world, looking at what we do well, and then taking a look at what will we have to do investment-wise whether it be organic investment or acquisition oriented investment. And then we're actually in that process right now.
And at our Investor Day in the Fall, we're going to talk about what we see as our strategy. So it's probably premature for me to talk much more about that, but it's basically having a more I think a more defined approach to the rest of the world.
Scott Kessler – Standard and Poor's
Okay. Because I'm looking and obviously everyone on the call is probably well aware of the fact that I guess for last year, for example, I think you guys posted 5% of your revenues from international sources.
Do you have kind of a longer term vision of what kind of percentage you'd be looking for from international?
Jeff Yabuki
It's – I think from our standpoint, until we understand strategically what makes sense for us, it's difficult to even say over the long-term what that number should be. So I think it's probably best waiting until September or we're going to cover that in more detail.
Scott Kessler – Standard and Poor's
Okay. And the last and I would imagine the second question that you guys are probably expecting – I'm going to ask it, but I'm going to ask it in a gentle fashion, which is, can you comment at all on the class action lawsuit that was filed earlier this month by Zamansky and Associates?
Jeff Yabuki
We've obviously issued statements on this. I would say we think the case has no merit.
We're going to vigorously defend against the assertions. This is litigation where related to some businesses that we acquired prior to 1996.
Businesses that act as custodians with individual felt directed IRAs. As you know, these are accounts, these self-directed IRAs.
The people who own these accounts are solely responsible for selecting their financial advisors and the underlying investments. We're not investment advisors, we don't claim to be investment advisors and we don't counsel or advise anyone on what to buy.
Our role is to follow the account owner's advice, each account owner acknowledged in writing that we didn't provide investment advice or investment management. It's obviously a difficult on a lot of people were injured by what Madoff did and that's a terrible thing.
And unfortunately, the class action lawyers are going to look to – to try to do what class action lawyers do. All I can tell you is we are absolutely confident that these allegations have no merit and we are going to – to make sure that we are exonerated accordingly.
Scott Kessler – Standard and Poor's
Alright. Well, that's encouraging to hear.
Thanks a lot.
Tom Hirsch
Thank you.
Operator
Our next question comes from Paul Bartolai.
Paul Bartolai – Credit Suisse First Boston
Thanks, good afternoon, guys.
Jeff Yabuki
Hi, Paul.
Paul Bartolai – Credit Suisse First Boston
Just a couple quick follow-ups here. First on the margins and financial, you guys ran through the benefits there, but still just trying to make sure I understand, kind of given the strong growth this quarter and the margins especially given the termination fees relative to the margin performance in the past couple of quarters.
I mean, can you maybe give us a better sense of what changed kind of and to drive that big jump in margins in financial?
Tom Hirsch
Yes, I mean, I think as I encourage you to go back to our remarks on that. But what I will say is that the first thing is the revenue decline that we had on a quarter-over-quarter basis compared to last year, about $25 million of that came from our home equity business.
That did not result as we've indicated, we have done a lot of expense management in that particular business over the last year. So that did not have any incremental impact, negative impact on our operating income from a standpoint of a year-over-year comparison.
Nonetheless, that revenue did come down. Now the other piece that did come down that was higher margin revenue was the contract termination fees.
And what we've done is we've replaced that in our account processing businesses, I've highlighted at investor day. That's about 70% this particular segment.
That business continues to layer on incremental revenue at a very good rate. Its service bureau, account processing, transaction processing and so that layering on top delivered some very strong incremental margins in the quarter along with some solid additional product sales declines for license fees.
So that incremental piece was very helpful. We also had some declines in revenue that offset that increase in revenue in account processing in our Check business and our international business, which again we have taken cost out of those businesses and those were lower margins to begin with.
So that revenue decline did not really impact operating income either. And on the other side, the final thing is, as a company, what we've been saying for the last two years, three years, is that we have continued to focus on building good revenue streams in our scalable businesses.
We have a lot of operational efficiency initiatives that we're doing inside the company and some of that came through in the quarter also. And those are primarily the key components there.
Really a very good product mix in the quarter, aligns with our overall strategy, and we'll continue to be focused on that going forward.
Paul Bartolai – Credit Suisse First Boston
But was it really that different from the trends that you would have seen in the fourth quarter? I guess I don't understand really what changed from, 4Q to 1Q where (inaudible) the big margin expansion year-on-year versus 4Q where you had a pretty big drop.
Tom Hirsch
Yes, the fourth quarter we typically have a different mix of business that typically hits the fourth quarter than we do in the first quarter. If you go back historically, you'll see some of that also.
When you look at the fourth quarter compares to the first quarter, we have a different mix of business around both license fees which are generally stronger in the fourth quarter – first quarter in this particular segment. We have a lot of professional services revenue that we typically close out in the fourth quarter.
That also impacts this particular margin. We also had some costs in our home equity processing business even though the revenues were flat.
We actually made more money because of the cost takeouts that we have been taking out of those businesses as that revenue has declined. So that business lost a lot more money in the fourth quarter than it actual did in the first quarter.
And then again, some of the currency impacts on the quarter-over-quarter basis, the revenues come down, the expenses come down the same. And that was replacing the first quarter by higher margin incremental revenues in our account processing business.
Paul Bartolai – Credit Suisse First Boston
Okay, but there's really nothing that you would call kind of one-time in 1Q?
Tom Hirsch
No, the only thing I continue to say is the license fees in our account processing business were very strong. I mean, they were good.
They were solid with the first quarter of 2008. Now, that has high incremental margin obviously.
And that's something we watch. But typically the first quarter has been higher historically.
And that kind of – we had a good quarter in that regard in those license fees compared to something of what we did in the fourth quarter.
Paul Bartolai – Credit Suisse First Boston
Okay. Great, thanks, guys.
Jeff Yabuki
Thank you.
Operator
Our next question comes from Matthew Roswell. Thank you, your line is open.
Matthew Roswell – Stifel Nicolaus
Yes. Good afternoon.
Thank you, gentlemen. It's been a long call so I'll try and keep them really short.
Jeff Yabuki
Thanks.
Matthew Roswell – Stifel Nicolaus
Just wanted to – the $255 million short-term debt, that comes due this year, correct?
Jeff Yabuki
That's correct. We have 250 that's due at the end of the year in December.
Matthew Roswell – Stifel Nicolaus
Okay. So that' due in December.
And then on the – the margins, I know it's been done to death already. Wanted to make sure – you mentioned that you got $21 million associated with the CheckFree synergy, target 60.
You're still good on that, correct?
Tom Hirsch
Absolutely. And that 21 is a combination of both CheckFree and our regular operational efficiency initiatives.
But for the CheckFree acquisition, we said at the time of the deal we were going to do 100, we've done 77. And we're well on our way to that target.
Jeff Yabuki
And we got a little bit more in the quarter than we anticipated originally.
Matthew Roswell – Stifel Nicolaus
Okay. And then if I could slide one in that you're probably not going to answer, Fiserv 2.0, you decided to set out some really nice sales targets that you beat.
Are you comfortable setting any sales targets for sort of the outward facing initiatives you've been talking about?
Jeff Yabuki
No. Not at this point.
Tom Hirsch
I had to try.
Jeff Yabuki
I understand.
Matthew Roswell – Stifel Nicolaus
Thank you very much.
Tom Hirsch
Sure. Thank you.
Jeff Yabuki
Well, thanks, everyone. I know the call went a little bit longer.
If you have any further questions, please don't hesitate to call our IR team. And have a nice day.
Operator
Thank you. That does conclude today's conference.
And you may disconnect at this time.