Feb 3, 2010
Executives
Jeff Yabuki – President and CEO Tom Hirsch – EVP, CFO and Treasurer
Analysts
Bryan Keane – Credit Suisse David Koning – Robert W. Baird John Kraft – D.A.
Davidson David Cohen – JPMorgan Ashwin Shirvaikar – Citigroup Brett Huff – Stephens Inc. Julio Quinteros – Goldman Sachs Greg Smith – Duncan-Williams, Inc.
Karl Keirstead – Kaufman Brothers Parisa Rogman [ph] – Barclays Capital Kartik Mehta – Northcoast Research Chitra Sundaram – Cardinal Capital
Operator
Welcome to the Fiserv fourth quarter 2009 earnings conference call. All participants will be in a listen-only mode until the question-and-answer session begins following the presentation.
Today's call is being recorded and is also being broadcast live over the Internet at www.fiserv.com. In addition there are supplemental materials that will be referenced on today's call available at the company's website.
To access those materials go to the Company's website at www.fiserv.com and click on the access presentation link on the home page. The call is expected to last about an hour.
You may disconnect from the call at any time. And now I would turn the call over to Jeff Yabuki, President and CEO of Fiserv.
Jeff Yabuki
Thank you. Good afternoon and thanks for joining us for our fourth quarter 2009 earnings conference call.
With me on the call today is our Chief Financial Officer, Tom Hirsch. Our remarks today will include forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995.
We will make forward-looking statements about among other matters, adjusted revenue growth, adjusted earnings per share, adjusted operating margins, free cash flow, sales pipelines and our strategic initiative Fiserv 2.0. Forward-looking statements may differ materially from actual results and are subject to a number of risks and uncertainties.
Please refer to our earnings release which can be found on our website at 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 results and prior reported results and as a basis for planning and forecasting for future periods. Let me say upfront that we are pleased with our results for the quarter.
Adjusted internal revenue growth was back into positive territory, capitalizing on the strong fundamentals of our business model. Earlier in the year we shared our belief that revenue growth momentum was building, which would produce quarter-over-quarter improvements and positive revenue growth by yearend.
As you've seen by our results today we delivered on that expectation. That said, 2009 was by any measure a challenge.
We began the year with an unprecedented level of economic uncertainty. The financial services sector was eager to the point where some industry punned its question of the long-term viability of the entire system.
Through the economic turbulence we were confident and remain so today in the long-term prospects of the financial services industry, and also that the structure of the U.S. banking system would perceive.
I will comment about the environment later in the quarter. Our confidence in the longevity of the industry was matched by the strength of our business model and the diversity of our client base.
We finished 2009 on a high note with strong fourth quarter financial performance and December sales results that were the highest in the company's history. Each of these markers is an important sign leading to higher levels of sustainable revenue and earnings growth.
Our 2% adjusted internal revenue growth rate in the quarter was at the top end of our recent guidance with total GAAP revenue also increasing 2% to $1.06 billion. Adjusted earnings per share in the quarter were $0.94 and free cash flow in the quarter exceeded $160 million.
Despite market conditions, we grew adjusted earnings per share 10% in 2009 to a record level of $3.66. Free cash flow of $668 million was also an all-time high; and as important, free cash flow per share was up sharply to $4.30.
We clearly felt the impact if the environment on our top line with adjusted revenue declining just under 1% for the year. This decline included headwinds such as significant reductions and termination fees, which were indicative of the market challenges.
Full year adjusted operating margin increased more than 100 basis points through favorable shifts in our business mix and strong execution of our operational effectiveness initiatives. Based on strong performance in the quarter and for the full year, we increased the amount of our discretionary profit sharing as compared to 2008.
As Tom will explain in a moment, the incremental accrual negatively impacted our consolidated margin in the quarter by about 100 basis points. We asked our associates to work hard as ever in 2009 while managing costs extraordinarily well.
They stepped up to the challenge, delivered strong results and continued to partner with our clients. You will recall that we had three key enterprise priorities in 2009.
First, to meet our earnings commitments while maintaining capital flexibility. Next to continue integration efforts with an increased focus on revenue opportunities and product innovation.
And third, to enhance our go-to-market approach leading to increased sales results to new and existing clients. To our first priority, we delivered 2009 earnings within our original guidance range.
For the year we grew adjusted earnings to a record level of $3.66 per share and increased adjusted operating margin by 110 basis points. Our earnings growth is particularly notable in light of the significant decline in high margin termination fees and flow income versus 2008.
We delivered $668 million in free cash flow during 2009, up 11% for the year and at the very top of our original guidance. We also actively managed our capital in 2009 through the repurchase of 4.1 million shares of stock and $475 million of debt repayment.
We continued to focus on our second priority of delivering market facing integration. We had a strong finish to the year generating over $40 million of integrated sales in the quarter and $117 million for the full year.
This was 30% more than our 2009 objective of $90 million and 36% higher than 2008. Our numerous sales wins, many of which were competitive takeaways, validates the Fiserv clients want the integration of our market leading products, such as online banking, bill payment, source capture and debit processing with our industry leading account processing solutions.
These client benefits were evident across our payments solutions with 407 bill payment wins and 215 new debit clients this year. Over the last two years, since the acquisition of CheckFree, we have added 1,370 new client relationships in these two strategic payment solutions.
And, we still have a significant amount of penetration opportunity ahead. We also capitalized on several product innovation opportunities in 2009.
We invested in Acumen, a powerful new account processing platform for credit unions, which has experienced tremendous success in Canada winning a substantial majority of all of the deals at play. Importantly, we recently won our first US client, Christian Community Credit Union, a $500 million credit union that is within the larger segment of that market where we expect Acumen to gain material share over the next several years.
We also continued to invest in next generation products such as Mobile Money, P2P payments and analytics as a service, all of which are center stage in the dialogue with our clients. We continue to optimize our expense structure in 2009 generating over $100 million of cost savings, well ahead of our $60 million target for the year.
The majority of the above target savings came from better than expected cost synergies resulting from the CheckFree acquisition. While we are ahead of our original timetable with our cost saves, we continue to identify new opportunities to optimize our overall cost structure.
The over performance in cost saves has provided a larger opportunity to invest during a dynamic time in the market. We are committed to making strategic investments in products today that will create value for clients and secure our market leadership position for years to come.
To our third priority, as we shared with you at Investor Day, we believe we can improve our growth rate by changing how we go to market. We made important progress which is reflected in our sales results and in particular the fourth quarter of this year.
We won several large integrated account processing transactions during the year, such as American Savings Bank and Tesco Bank, which are illustrative proof points of our market strategy. Importantly, the changes that we have made over the last several years made these types of deals possible and we expect there will be even more market recognition of our strategy moving forward.
In addition to the steps we took last year, we have made organizational changes in 2010 to further capitalize on the significant market opportunity with increased speed, agility and focus. As part of these changes, we’ve added leadership talent to the organization and also reconfigured our go-to-market approach.
First, we created a single global sales organization which will include new sales and enterprise account management. Tom Warsop, who as you know, was one of our group presidents, will assume the Chief Sales Officer role and lead our go-to-market efforts.
In addition to Tom’s three years at Fiserv, he spent nearly 18 years at EDS in a variety of leadership roles with a majority of his time focused on leading their efforts in large complex enterprise sales and also service delivery across the financial services industry. As you witnessed at Investor day, Tom brings a high degree of experience, expertise and passion to the position.
Our organization is excited and enthusiastic about these changes as they recognize the power of going to market as one Fiserv. We expect these changes to lead to increased win rates as well as higher levels of product penetration across the mid and large tiers of the market.
We also combined the majority of our payments and Internet banking businesses under one group which will be led by Steve Olson. We believe that the convergence and payments technologies along with our focus to unlock the material EDA based payments opportunity warranted the combination of these important market facing solutions.
Our account processing and related businesses will now be led by Steve Tait who joined Fiserv in November of 2009. Steve brings over 25 years of progressive senior leadership experience with roles at Xerox, the Gartner Group and was most recently President and CEO of RSM McGladrey.
Steve has a deep understanding of technology and services which will serve us well in leading this important area of the Company. Mike Gianoni, who most recently led our investment services business, becomes a group President leading our financial institutions group.
In addition to investment services, this area includes risk, lending and revenue enhancement solutions which are delivered around the world. We are excited about the changes we are sharing with you today.
We believe they will have a positive impact on our results in 2010 and well beyond. We are focused on achieving heightened levels of profitable growth and we will continue to lead in a way that delivers superior results for our clients, our shareholders and our associates.
Now, let me turn the call over to Tom for a deeper dive on financial results.
Tom Hirsch
Thanks Jeff and good afternoon, everyone. I am pleased to report that we closed the divestitures of the loan fulfillment solutions business and the remaining portion of our trust business known as Fiserv ISS in the fourth quarter.
These dispositions complete the majority of the work that we started several years ago to reshape your Company. As we shared at Investor Day this repositioning has allowed us to focus our resources on a more tightly integrated set of complementary businesses where the track of scale, network economics and better long-term growth prospects.
Throughout my discussion today, I will refer to the supplemental information included in the slide presentation. You will note this quarter that our results are a bit easier to understand as the dispositions and one-time items are largely behind us.
Our fourth quarter adjusted internal revenue grew 2% over the prior year which is at the top end of our guidance for the quarter. Total GAAP revenue also increased 2% to $1.06 billion.
Adjusted EPS in the quarter was $0.94, up 6% compared with the prior year and excludes a $0.04 per share benefit primarily related to the reversal of a pre-acquisition liability associated with the acquisition of CheckFree. Adjusted operating income was $283 million for the quarter and $1.11 billion for the year.
Our year-to-date adjusted operating margin of 28.7% increased to 110 basis points compared to 2008 due to an improved business mix and operating efficiencies. Adjusted operating margin in the fourth quarter was 28.1%, a decline of 20 basis points from 2008.
As Jeff mentioned, given our strong performance in the quarter in the year, we elected to double the amount of discretionary profit sharing for all eligible associates in 2009 which resulted in approximately $10 million of incremental expense in the quarter. This item, which negatively impacted margin by roughly 100 basis points in the quarter, was intended to reward the strong performance of our associates and to partially offset compensation actions instituted in 2009.
Turning to slide six, adjusted revenue for the year was down slightly just under 1% as our business model showed its resiliency during one of the most challenging years that the financial industry has ever seen. This resiliency is a product of our high level of re-occurring revenue, large client base, long-term client contracts and a mission critical nature of our products and services.
Notwithstanding the environment, the quality of our earnings has never been better. We generated record adjusted earnings of $3.66 per share, an increase of 10% over the prior year, and expanded operating margin by more than 100 basis points compared with 2008.
In fact, since 2006 we have sustainably improved company operating margins by almost 600 basis points from 22.9% to 28.7%. Our earnings and margin growth in 2009 is even more notable in light of the reduction in high margin termination fees at flow income.
We generated a record $668 million of free cash flow for the year. On a per share basis, free cash flow per share grew 16% in 2009 to $4.30 per share compared with $3.70 per share in 2008.
Our free cash flow per share was 17% higher than our adjusted earnings per share in 2009. These results reflect strong working capital management and consistent capital allocation.
While we recognize that free cash per share will not grow at a level that far in excess of earnings each year, we do believe our model will provide free cash flow in excess of adjusted earnings over the long-term. Now on to the segment results.
The payment segment generated 2% adjusted internal revenue growth in the quarter with adjusted revenue of $513 million. On a year-to-date basis adjusted revenue was $1.95 billion, up 1% over the prior year.
We continue to see attractive growth in our debit, online banking and bill payment businesses which make up the majority of the payment segment. Transaction volumes from our debit products continue to accelerate much more rapidly than the market.
As an example, debit and network transactions grew a strong 24% in the quarter and 20% over the prior year. The above market growth rates are a result of strong integrated sales to our comp processing base and the earlier adoption of debit by consumers served by our community base institutions who are still building up their monthly usage.
The debit client base continues to expand at a healthy level with over 200 client wins in 2009 which were larger in size, and term, than in the prior year. New bill payment, sales were also strong with the signing of over 400 new clients in 2009.
Many of which were competitive takeaways. While most of our client transactions volume grew at double-digit rates in 2009, overall transaction volume growth for the year was somewhat muted by lower than anticipated volume at some larger clients and also the acquisition of the client which specifically impacted fourth quarter volume growth versus the same quarter last year.
We remain very bullish in the solutions set and the underlying revenue growth which we can see today. Adjusted operating income for the payment segment was $164 million in the quarter.
Adjusted operating margin of 32.1% was up 80 basis points over the year. For the year, segment adjusted operating income was up 7% to $617 million and adjusted operating margin was up 170 basis points to 31.7%.
The increase in adjusted operating margin in this segment for both the fourth quarter and the year was driven primarily by strong operating leverage in our transaction based businesses and operational efficiencies from the CheckFree acquisition. The financial institution segment generated revenue of $497 million in the quarter, up 1% compared with the prior year.
For the full year, revenue was down 3% to $1.94 billion compared to the prior year. Adjusted internal revenue was flat in the quarter and declined 4% for the year.
Excluding the $7 million reduction in termination fees in the quarter, internal revenue growth would have been approximately 2%. And for the full year, excluding the $35 million decline in termination fees, internal revenue would have declined about 2%.
The very low termination fees reflect a slowdown in voluntary merger and acquisition activity among financial institutions that we have witnessed all year. Although we expect termination fees to remain at low levels in 2010, they will not be a material drag on our revenue growth rate.
In spite of the tough environment, we managed the segment well and finished the year strong. We continued to generate high quality earnings in this segment reflecting the power of thousands of privileged relationships.
Market leading products and proactive management. While adjusted revenue in the financial segment declined by $50 million or 3% for the year, expenses in the segment declined by $74 million or 5%, leading to an increase in adjusted operating income for the period of $24 million to $569 million.
These results drove the 190 basis points expansion in margin to 29.3%. The strong margin improvement was driven by several factors including strength in our account processing businesses and disciplined focus on operational efficiency which served to offset the negative impact of the reduction in high margin termination fees.
For the quarter, operating margin in the segment increased 90 basis points to 28.5% compared with the prior year due primarily to strength in our recurring revenue, account processing businesses, strong license revenue from add on products and renewals and operating efficiencies. These positive benefits were partially offset by the accrual of the incremental profit sharing, continued expense actions to align revenue and cost in businesses such as item processing and higher commissions and employee costs related to the very strong finish to the year.
We continue to proactively manage capital expenditures, ending the year at $198 million, the same as last year's level or approximately 5% of adjusted revenue. We also recognized that capital expenditures are only one component of how we invested in our products and solutions with labor and operating cost being the most significant element of our investment cost.
A majority of which is expensed directly through the income statement. Our strong fourth quarter free cash flow allowed us to repay $140 million of debt in the fourth quarter of which $120 million was a prepayment of our December 2010 debt payment and $475 million for the year.
Net interest expense was $51 million for the quarter and $212 million for the year. We expect that the combination of expired fix rate interest rate hedges and debt reduction will reduce interest expense at least $15 million for 2010 subject to the timing of borrowings, repayments and other areas of capital deployment.
We repurchased 1.1 million shares for $47 million in the quarter and more than 4.1 million shares in 2009 for a total of $175 million. As of yearend, we have 2.2 million shares remaining in our repurchase authorization.
2009 was the first year in our 25 year history that we did not make an acquisition. A clear sign of our capital discipline across the Company.
However, we will continue to evaluate potential acquisitions that allow us to expand our solution set and build scale. Our effective tax rate for the quarter was 38.3% and 38.1% for the year which excludes the impact of a $7 million GAAP income tax benefit or $0.04 per share, related to the settlement of CheckFree purchase accounting tax reserve in the third quarter which also was excluded from adjusted EPS.
We anticipate our 2010 tax rate to approximate our 2009 rate of 38.1%. Now I'll turn the call back over to Jeff.
Jeff Yabuki
Thanks, Tom. Fourth quarter sales and December in particular were strong across the spectrum of financial institutions in both new client wins and integrated sales to existing clients.
In addition to winning more than our fair share in the community sector, we provided new services to clients including Bank of the West, First Bank and Wells Fargo as evidence of our increasing penetration among larger financial institutions. As a result of our strong finish, we achieved exactly 100% of sales quota for the year.
We actually achieved an incredible 250% of quota for the month of December, giving us even more revenue growth momentum entering 2010. Although our better than expected fourth quarter sales results have expectedly reduced pipelines, we remain encouraged by the breadth and depth of the sales opportunities we are pursuing going into the New Year.
We expect that the combination of new opportunities and enhanced go to market approach will lead to even better sales results in 2010. That said, we continue to expect long sales cycles and somewhat unpredictable timing of actual sales with payment throughout the year given the external environment.
As I mentioned upfront, we made great progress going to market as one Fiserv with $42 million of integrated sales in the quarter, an increase of 40% over the prior year. We finished the full year with $117 million in integrated sales, 30% ahead of '09 and 36% ahead of 2008.
The leading areas of integrated sales were in payments, customer channels, such as Internet banking and branch, and efficiency based products. Before I get to our outlook, let me update you on our view of the environment and our key priorities for the year.
In 2009, there were 158 regulatory actions impacting 140 banks and 18 credit unions, well within our range of expectations for the year and slightly less than 1% of all institutions. This, combined with the very low level of organic acquisition, served to slow the extrapolated decline rate of depository institutions in the US in 2009.
As we have now seen, the assets and accounts of failed institutions don't go away. They are almost always assumed by another institution.
We are intimately involved with these activities and track closely the impact of these wins and losses on our client base. Since the beginning of the acceleration in regulatory actions in 2008, our account processing client base is down a net of two clients.
Stated in terms of where the FI subject to the resolution lands from a core account processing prospective. Given the size and diversity of our client base, we continue to believe that the net impact on our core account processing base in terms of numbers of clients, will be about neutral over time and very similar to that of normal M&A activity.
For 2010, we expect the number of regulatory actions to accelerate and to be within the range of 200 to 250 with actions likely tapering off towards the end of the year. We expect de novo activity in 2010 to remain at low levels with some slight uptick possible towards the end of the year depending on the regulatory environment.
Additionally, we believe that the number of institutions that switched their core account processing systems will, as we witnessed in 2009, remain at lower levels than we have seen historically. For context, we believe that the number of actual core account processing buying decisions made during the year dropped by about 30% from the 2008 level.
Combining the fact that fewer institutions will likely switch their account processing with our substantial increased win percentage over 50% of all core switchers chose Fiserv in 2009 versus 42% last year, should go well for us given the size and the diversity of our client base. We have three key priorities for 2010, when taken together should position Fiserv to expand its industry leading position and build long-term shareholder value.
Our priorities are first, to deliver positive internal revenue growth and meet earnings commitments. Second, to center the Fiserv culture on growth, leading to improved enterprise win rates and a higher share of our strategic products.
Third, to provide innovative solutions that increase differentiation and importantly enhance results for our clients. Our outlook for 2010 is based on the core assumption that the environment will be generally similar to that of 2009 albeit less volatile as we march towards 2011.
We expect financial institutions to continue to be pragmatic with their technology spending decisions and that overall budgets will be in a range of flat to slightly up. However, we believe that spending may bias towards the second half of the year and expect new material client investments to be moderated against their business results.
We also assume that discretionary M&A activity will again be low given the number of likely regulatory actions and therefore termination fees will remain at an extremely low level. Last, given the current interest rate outlook we expect float revenue in 2010 to be similar to 2009.
We expect our 2010 adjusted internal revenue growth to be in the range of 1% to 3% which should include stronger growth in the payment segment. Our guidance for the year includes the impact of foreign currency which should not be significant.
Given market conditions, we expect 2010 adjusted earnings per share growth of 8% to 11% or in the range of $3.96 to $4.07 compared with the $3.66 earned in 2009. We expect earnings to be stronger in the second half of the year due to our normal business cycle and the timing of revenue recognition from new sales wins.
We expect the company adjusted operating margin will increase at least 50 basis points over the 28.7% achieved in 2009. We will continue to make investments in 2010 that support stronger competitive differentiation and higher levels of revenue growth.
These investments include areas such as our Acumen account processing platform, small business services, person to person payments, biller network, integrated debit, Mobile Money, and sales and account management. As always, we will balance our level of investment with our earnings commitments, adjusting our levels as necessary for changes in the market environment.
We anticipate free cash flow will approximate operating earnings growth and increase 5% to 8% over the record level attained in 2009 of $668 million. Our integrated sales target for 2010 is $105 million and our target for incremental operational effectiveness is $40 million.
Based on reaching the 2010 target level phase, we will have achieved our goal of $250 million of operational efficiencies, a full year earlier than originally anticipated. Given our strong performance in this area over the last several years, we will update you with the revised operational effectiveness goal at our 2010 Investor Day.
We are pleased to have provided our owners with earlier access to that value. Finally, our 2010 guidance considers various scenarios for the allocation of capital including internal investment, debt repayment, acquisitions and share repurchase.
We will make actual capital allocation determinations throughout the year as appropriate under the circumstances. 2009 was a challenging year by any definition.
In the most difficult macroeconomic conditions in the last 70 years, we delivered record levels of earnings per share and free cash flow. As important, we continue to enhance the quality of our earnings as seen through adjusted operating margin.
We exceeded our integrated sales and operational effectiveness goals by a wide margin and continue to deepen the integration of our solutions and enhance how we go to market. We didn't expect it to be easy and it wasn't.
The strength of our 20,000 associates who make it happen every day is one of our key differentiators. I am proud of what our people have done over the last year to help our clients navigate the turbulence and find unique opportunities to win.
This attribute along with the leading technology solutions in the industry forms our basis for optimism moving forward. While we expect 2010 to continue to be challenging, we are up to the task and more than ready for what lies ahead.
With that operator, let's open the line for questions.
Operator
(Operator Instructions). Our first question will come from Bryan Keane.
Your line is open.
Bryan Keane – Credit Suisse
Hi, guys. Congratulations on the solid quarter.
Jeff Yabuki
Thanks, Bryan.
Bryan Keane – Credit Suisse
I just wanted to ask about the record December sales. Jeff, do you think that was the end of the year budget flush or a little bit of a breakthrough in spending, just help me understand that.
Jeff Yabuki
Brian, it's really a combination of a variety of factors. It is the end of the year rough to get some things done that the institutions were clearly going to need in the year, and that was really complicated by those long sales cycles that we were talking about last year and thankfully -- the kind of the cut off at the end of the year, the December 31 dead line made some of that stuff happening.
But we made some of that happen, but we also saw frankly good demand for some of our replacement bill payment products and debit products, and really just a lot of momentum from the flags that we were planting all year that we've been talking about in our go to market approach which led the very strong sale, and again the majority of those sales were not product oriented sales. They were nice recurring revenue multi-year kinds of agreements with both new clients and add on services to existing clients.
Bryan Keane – Credit Suisse
Now, normally I would have thought that would create a little bit of a spike in the first half of the year, but it sounds like it going to be more spread out throughout the year if you just give us some color on that.
Jeff Yabuki
Sure. The reason why, especially on these transactions that tend to be competitive takeaways, you have got the near term license fees or the simple products that are add on products that get put in a fairly short period of time, but for most of our revenue, as you know, they tend to be client conversion.
They take a fairly long amount of time. People can sign an agreement in December for something that doesn't expire until June or April or even September depending on how long those conversions are, and we are unable to recognize the revenue until a later point of time.
So that's really we saw a lot of that in our sales in the month of December and really in the fourth quarter and so because of our recurring revenue model we can start to see how that's going to layer in.
Bryan Keane – Credit Suisse
Okay. I might have missed this Tom, but did you give the license sale and professional services I guess year-over-year growth rate?
Tom Hirsch
Yes. Overall Brian, as we have been saying all the year, we had a good quarter as far as our license revenues go in the fourth quarter, they were up over the prior year, roughly around $6 million to $7 million over the fourth quarter of 2008.
For the year though, our license fees are down about 10% overall just given the environment. So that's a little clarity there.
Again they are roughly around 5% of our total revenues around $200 million for the year.
Bryan Keane – Credit Suisse
Okay. Last question for me, Jeff, I was a little surprised to see no acquisitions from Fiserv this year.
Obviously that's a little against history. Can you talk about what that pipeline looks like and your appetite to make acquisitions going forward?
Jeff Yabuki
Sure. We talked during the year that the biggest challenge that we had in thinking about acquisitions was how to price transactions given what was going on in the market environment.
And so frankly it wasn't that we weren't active, our teams were fairly active looking at a lot of different potential transactions. We just didn't see transactions that either made sense for us or that got over the finish line by the end of the year.
We still see a lot of interesting opportunities especially in areas that take advantage of our network economics, so products that might be in the payments area, risk area, those kinds of things, and just as importantly acquisitions that take advantage of the scale of Fiserv. So we are looking.
We maintain a pretty high standard in how we are going to allocate our capital and whether that is to share repurchase or acquisitions or to debt repayment. We view them all equally important, but I suspect you'll continue to see us pretty active in the acquisition market.
Bryan Keane – Credit Suisse
Okay. Thanks again.
Jeff Yabuki
Thank you, Brian.
Operator
Our next question will come from David Koning. Your line is open.
David Koning – Robert W. Baird
Great job on the revenue reacceleration.
Jeff Yabuki
Thanks, David.
David Koning – Robert W. Baird
I guess my first question is you talked about EPS being a little more back half weighted, but I am wondering a little bit on the revenue growth. You had great reacceleration this quarter, the comp actually gets even easier into Q1 '09.
So I am wondering if you expect the growth to stay stable at that 2% level starting off the year, or maybe you can just talk little bit about how you see growth throughout the year.
Tom Hirsch
David, we are going, we still anticipate a stronger second half and some of that has to do with the as Jeff highlighted, the sales wins and the revenue is going to fall in, and the fact that we did have a very strong quarter from a Q4 standpoint. And generally as you know some of our businesses have typically -- our normal business has been little stronger in the third and fourth quarter if you look back at the last couple of years.
So we are not going to comment on overall growth rates by quarter because that's not how we manage the business, but I do think again the second half kind of little bit stronger than the first half of 2009.
David Koning – Robert W Baird
Okay.
Jeff Yabuki
And Dave just let me add one thing. I do think you’ll see year-over-year improvements.
And again, we are not going to give quarterly guidance, but just given the trend that you’ve seen, we would expect to see kind of continuing improvements on a year-over-year basis, but we do believe that based on what we've seen both in the pipeline as well as what’s closed, that we'll see kind of larger deltas come in the second half of the year.
David Koning – Robert W Baird
Great. And then the one other one, corporate expense kind of climbed throughout 2009, I think it started out the year at 16 million and ended the year Q4 was 22 million.
Is that something that continues at that 22 million number or is going to settle back a little bit?
Tom Hirsch
Yes I think it’s going to probably average out. We have a number of things from the corporate standpoint that we are doing Dave, during the year regarding our initiatives around our branding, a lot of the across company initiatives around our enterprise services framework and other investments that we're making.
So I think if you look at from an average basis, that’s a pretty good run rate as we head into 2010.
David Koning – Robert W Baird
Great. Well, thanks.
Nice job.
Jeff Yabuki
Thanks Dave.
Operator
Our next question will come from John Kraft. Your line is open.
John Kraft – D.A. Davidson
Good afternoon gentlemen.
Tom Hirsch
Hi John.
John Kraft – D.A. Davidson
I just was wondering if you might be willing to break out segment wise, or maybe put some sort of brackets around the growth expectations by segments for 2010.
Tom Hirsch
Yes I think again John, Jeff kind of highlighted earlier in the script comments that we anticipate over the longer term that again our payment segment is going to be a little bit higher than our core account processing segment, mainly because, as you are aware in the financial segment, we do have the check processing business in there, and the characteristics of that business are clearly different than what we have in our payment segment around debit and bill payment. Over the haul we are not going to give specific guidance by segment, but we anticipate that that segment is going to have a little higher growth characteristics than we will in the financial segment.
John Kraft – D.A. Davidson
Okay, that's fair. And then moving on to the new Acumen product, can you talk about what specifically motivated the Christian Community Credit, and is there a pipeline that’s pretty robust for that product once you kind of signed the first one?
Jeff Yabuki
Sure, John. I mean, it's purely a technology play and this is a client who has been – had actually been a Fiserv client, and so knew us well.
And it was time from their standpoint to move to a modern technology real-time Java 24 by 7 type platform, and we've had significant success up in Canada. We were winning around 80% of the deals that we are engaged in, and we believe we talked about at Investor Day.
This platform was actually designed in conjunction with a group of very large credit unions in the US who we worked with them to design this platform to meet the needs of these larger credit unions, which actually is a space where we have done very poorly over the last several years. So this product was absolutely design to meet the needs of clients who want to be outsourced with the most modern technology available, frankly in the world, and Acumen is meeting those needs.
So that was the reason why they did it, and the pipeline is very robust. I would say just to manage expectations, it's early.
This will be our first US installation, but we believe that just based on the folks who helped us design the system, the user group per se, who was involved in it that just based on the names that are in that group that I think we’re going to see a lot of positive momentum in that over the next probably 12 to 36 months.
Tom Hirsch
And we've done very well up in the – I think Jeff highlight this in the international marketplace, and we’ve a number of wins in that particular area, so it does have a lot of momentum.
John Kraft – D.A. Davidson
Sure. Thanks guys.
And then I guess last question. Jeff, if you could just repeat the comment you made, you said since the acceleration in regulatory actions in 2008, you've had equivalent of net two clients loss, what was the comment?
Jeff Yabuki
Yes, John. Not surprisingly each week we pay attention to of the institutions that are under a resolution, are they our account processing clients or not?
And so if you go back to the middle of 2008 through the end of December, we are down two clients, which means that of all of the 158 that were in 2009, and I think the 50 or so that were in 2008, if you take the clients and those – the clients that assumed the institution. So if a Fiserv client assumes a Fiserv client, that's a neutral, and or a win.
And if a Fiserv client goes to a competitor's institution who we don't do the core processing for, then we count that as a loss. So if you add that all up, net of the low 200s were down two clients.
And so the point that we are trying to make is that is actually not at all different than you would see if there was organic acquisition going on, and so net we are actually in pretty good shape, and that was the point we were trying to make.
John Kraft – D.A. Davidson
Got it. Thanks guys, that's it for me.
Jeff Yabuki
Thank you.
Operator
Our next question will come from Tien-Tsin Huang, your line is open.
David Cohen – JPMorgan
This is David Cohen for Tien-Tsin. I wanted to ask, there has been obviously lots of news around government involvement with the banks, and the latest proposal I saw, it sounds like there might be money go going to community banks to help with lending.
Would you talk about – and obviously until anything gets set it is hard to know, but what – some of the regulatory related dynamics are for the banks and how that’s going to affect you?
Jeff Yabuki
Yes. Well we can – we’ll give it a shot.
I mean, there are a lot of obviously things going on as it relates to regulation, changes to Reg E, the whole fee question, interchange those kinds of things, so there is clear pressure. And I think the administration's proposal to take some of the TARP money and take that $30 billion or so and funnel it back to community-based institutions to try to jumpstart lending, I think those are very good things.
I think the tone at least as we can see it, the tone in Washington has become more favorable to community-based institutions. We think that’s a good thing.
But frankly we believe that there is going to be a lot of energy around thinking about repricing within the institutions, how they price DDAs, how do they price services, and what would those implications be on the end consumer? From our perspective, we don't see that having a material impact on what we do.
In fact we find ourselves involved in these strategic discussions with the institutions, and that we believe that there will be, not surprisingly technology implications to these kinds of changes. And so we expect that that will be generally positive to us in what we are thinking, and we think that the war for consumers throughout the institutional level will actually put a premium on those technologies that are stickiest and most differentiating.
It’s one of the reasons why we are choosing to invest in a number of different initiatives so that we can help our clients be more differentiated as they face off to the consumer.
David Cohen – JP Morgan
Great. And how did the item processing business perform in the quarter?
Tom Hirsch
Yes, we don’t give guidance by a specific business, but clearly, as you are aware, that business checks continue to decline anywhere from 5% to 7%. So we continually have migration over to electronics, but that’s been happening for a period of time, and we continue to take the actions we need to do from an expense standpoint, but we continue to have a number of opportunities, they are also from a picking up more business as far as larger clients in that particular area that we continue to work on.
But, again, we continue to manage that business tightly. It definitely has different characteristics as it’s transitioning over to electronics, but we manage our expenses tightly and we plan again some more sizable wins to be able to increase that volume over our infrastructure that we have in that business.
Jeff Yabuki
And I think it’s probably fair to say that the item processing business continued to pressure our growth rate in the fourth quarter as it did in each of the other quarters during the year.
Tom Hirsch
Absolutely.
David Cohen – JP Morgan
Okay. And then last question, it looks like the bill payment transactions and the e-bills delivered may have decelerated.
Am I looking at those numbers right, and is that something that we should expect to continue or could that pick back up as we go into 2010?
Tom Hirsch
I think as I kind of highlighted, and I’ll turn this over to Jeff also is that we -- I think we have growth there of roughly 5% in the quarter for bill payment transactions. I did put a note down there that it’s roughly been around 8%.
We did have a client that got acquired and we lost the remittance only volume. So, from that standpoint we had a decrease, but excluding that it was around 8% on average and what I would say is for the majority of clients that we have in bill payment, we are definitely seeing double digit increases.
We have some larger clients in that particular area of our business that were fairly flat for the year, that kind of the volume and account increases weren’t as great as we anticipated. So, the larger clients weren’t growing as much, but the flags that we were planting, the majority of our clients are growing in the double digit area, and clearly I also highlighted in the debit area the growth of roughly 20% in transaction volumes that we have experienced in 2009.
So, with that I’ll turn that over to Jeff to see if he has any other comments on that.
Jeff Yabuki
Yes. I would say that because right now the concentration and I’ll just talk about e-bill for a moment, there is a fairly large concentration of e-bill utilization in the largest institutions.
And so to the extent that the growth is muted at all at the larger institution level as we’ve seen for the last couple of quarters, it has some interim impact on our growth rate in e-bill. And e-bill, we believe, is a powerful driver of bill payment moving forward.
We like what we are seeing on the underlying trend basis and we’ll look forward to hopefully in 2010 as the larger institutions put more energy on re-revving their growth rate, we think that will free up some of the pressure that exists on our e-bill rate right now. So, yes, there was a little bit of a deceleration, but we don’t find any cause for concern at this stage.
David Cohen – JP Morgan
Great. Thanks very much.
Jeff Yabuki
Thank you.
Operator
Our next question will come from Ashwin Shirvaikar. Your line is open.
Ashwin Shirvaikar – Citigroup
Thanks. Nice quarter, guys.
Jeff Yabuki
Thanks.
Tom Hirsch
Thanks.
Ashwin Shirvaikar – Citigroup
My question, if I could, thanks for the December sales comment. Could you follow up and maybe talk about what you are seeing in January this year?
Not sure if you can do that?
Jeff Yabuki
What I will say is, obviously we can’t talk in any detail, but I would say is well our -- the pipeline clearly was drained a bit in December. I’ve been surprised at the level of current activity -- positively surprised that the level of current activity in January because one of the things that happened all of last year is we kept talking about the elongation of the sales cycle, and so even though there was a lot that came out of the pipeline in December, because those pipelines were so large, there is still a significant amount of activity out there.
And so it’s one of the reasons why I remain very optimistic about the fact that we’ll actually have higher absolute sales performance in 2010 than we did in 2009. It’s really based on the stronger start that we see to the year versus where we were last year and especially given weight to how strong December was.
Ashwin Shirvaikar – Citigroup
Okay. And could you comment on the pricing that you are seeing on recent contract activity both on the bill payment and debit side of things, as well as, the account processing side of things?
Jeff Yabuki
Sure. And I would say on bill payment and debit, really, there haven’t been any material changes in the pricing environment.
My over arching comment would be there’s been very few, if any, material changes in the pricing that we are seeing in the market. I would say that we are still seeing a fair amount of activity, of sales activity on the debit and bill pay side as we talked about with over 600 wins in that area for us in 2009 and a lot of runway moving forward.
On the account processing side, the only thing I would say, as I noted in our prepared remarks, there were about 30%, we think, it’s preliminary, but we believe there’s about 30% less switches occurring in 2009. And so there are fewer opportunities out there that are being chased and that always increases the level of competitiveness across the industry.
But, again, probably the best news is those of us who have been operating in this business for a long time, whether it’s us or any of the other players, we’ve been dealing with a declining market for quite a while, and so at least we believe people understand the importance of playing in a way that allows people to price things in a way that makes sense.
Ashwin Shirvaikar – Citigroup
Got it. And if I can have one more question just on margins.
And obviously you guys have done a good job with margins so far, but is there a structural limit to where margins can go, and two ways I look at this, one is you get some margin improvement each year just from existing margin and growth rate differentials across the two segments, but can each of those segment margins go up as well and what can you do with corporate expense?
Tom Hirsch
Yes. I think that’s a great question.
I think as we’ve shown over the last, as we kind of highlighted in our script that our margins over the last three years have been up about 600 basis points. So I think one of the things you have got to remember is that the business model that we have does have a lot of fix costs in our infrastructure as we have reshaped the companies that we have.
And so for it's been the payments in our account processing and the service bureau, clearly we have some incremental higher margins when that additional business comes on. I do continue to believe that we have opportunity to expand margins going forward.
Clearly because of that revenue model and secondarily as we highlighted, we have continued to have a lot of programs on the operational efficiency side. We made good strides there and I highlighted on Investor Day, some of the opportunities we still have for efficiency around data center and shared services and other things that we'll continue to work on in the Company.
So I don't think you can say year-over-year we are going to do 200 basis points, but our guidance for 2010 is 50 basis points plus and I think over the longer term the model continues to have available leverage in it.
Ashwin Shirvaikar – Citi
So the next couple of years there really isn't a reason why you shouldn't get that at least 50?
Tom Hirsch
Yes, that is our long-term guidance and it's always -- there's always a number of investments that we like to make and we always will monitor that very closely to meet our earnings commitments that we have as a Company.
Ashwin Shirvaikar – Citi
Okay. Thank you.
Jeff Yabuki
Thank you.
Operator
Our next question will come from Brett Huff. Your line is open.
Brett Huff – Stephens Inc.
Thank you, and thanks for taking my call. Congrats on a nice sales quarter.
Jeff Yabuki
Thanks.
Brett Huff – Stephens Inc.
Three questions. Number one, can you give me just some color on how the conversations go as you succeed more often at larger and larger institutions?
I understand it's usually a sale of an ancillary solution and things like that, but can you go through how those conversations go and how you are being more successful?
Jeff Yabuki
Brett when you say larger institutions, what type of solution are you talking about?
Brett Huff – Stephens Inc.
Well, I guess just generally like the example that is in my mind is the Wells Fargo note that you had in your press release around the ACH business you had, but it could be any.
Jeff Yabuki
The situation with any of the larger institutions, if you take the top 35 institutions in the US, we have enterprise relationship management folks who are responsible for managing those relationships and it's really a matter of getting in and understanding what the institutions have, what it is that we have that can meet those needs. But probably most important is building creditability as a partner to those institutions so they trust you with the next alternative solution or the next problem that you can solve together.
And one of the big benefits of acquiring CheckFree was CheckFree had relationships with 21 of the top 25 institutions on bill payment and a variety of relationships that came out of the legacy care businesses. So we have found ourselves, to some extent I think the enviable position, of having great relationships at pretty important levels in these institutions and they take time to work, but we find a fair amount of creativity in those institutions in working with us on a variety of our current, and some of the solutions that we are working on today that are new and not even in market, looking at how can we do things with some of those folks maybe in areas like P2P and analytics where we can work together to change some of the paradigms in the financial services product delivery system today.
So it's a -- you can't give a precise answer, but it's about relationship. These are big time buyers of best of breed so you have to have the best products.
You put those together and we find ourselves having a lot of conversations on a day-to-day basis.
Brett Huff – Stephens Inc.
Thanks. On the sales, I know you spent a lot of time and effort trying to get your sales in a way that you like it.
It sounds like that has obviously been paying dividends all year. When you looked at 2010 you give us an integrated sales number, but again any color on sort of what is the sales force going to be focused on at particular products, larger clients, cross sales, etcetera?
Jeff Yabuki
That's a great question. To some extent it depends on which segment of our sales force because we have our sales force, the sales force that works with the top five institutions in the US does not look the same as the sales force that works with the community banking force.
So to some extent it depends on those segments of the base. However, what I would say is they are primarily focused on what solutions do we have that can help those clients to be most successful.
I'm sorry but I have to give a little bit of that motherhood and apple pie answer, but that really is the answer. So what do we have in our portfolio that’s going to help the clients and the clients have been focused on areas around operational efficiency.
So things like source capture, some risk management solutions, things like that. Payments are very big news.
There is a lot of energy around what can you do was these payment types begin to converge. A lot of discussion on P2P mobile.
So kind of the ability to access. I've been frankly surprised that the energy around mobile where you are seeing the financial institutions well ahead really of the application capability that’s in the market, but mobile is a big deal.
And then for us, we’re very focused on where we have solutions that we believe are strategic to the Company and strategic to the client. So Internet banking, embedded with bill payment with analytics capability, the ability to talk to consumers where they are with targeted personalized messages to all around digital transformation.
Those are very big deals. That’s why you are seeing 1370 payment sales over the last two years.
I'd like that to be substantially higher moving forward because those kinds of solutions, not only are they strategic for the client, but they create sticky relationships between the consumer and that FI and that benefits to us over the longer haul.
Brett Huff – Stephens Inc.
It's helpful and then just, just last question. You’re talking about probably a better half, better second half in terms of revenues, but can you distinguish that potential ramp from revenue recognition versus do you have the same opinion in terms of sales and I guess my question is how are you handicapping sort of bank spending, or signing deals in the second half versus today?
Jeff Yabuki
Well, unfortunately, the only basis I have to consider that is what we saw in 2009 and we saw much more in actual sales in the second half of '09, really in the fourth quarter of '09 than we did in any other time in the year. So my guess or my prognostication is that we will see higher levels of sales in 2010 back half than we will in the first half.
So I think we'll see that actually follow.
Brett Huff – Stephens Inc.
Great. Thank you.
Jeff Yabuki
Both revenue and sales.
Brett Huff – Stephens Inc.
Great. Thanks for your time.
Jeff Yabuki
Thank you.
Operator
Our next question will come from Julio Quinteros. Your line is open.
Julio Quinteros – Goldman Sachs
Hi, guys, sorry. I want to go back to the Analyst Day presentation, the long term performance characteristic slide, where on that slide you had adjusted earnings per share of 11% to 18% and the normal target of 15% to 19%.
If trying to reconcile that back with the 8% to 11% target for calendar 2010, are we looking at a subcurrent kind of a run rate here or is there something in the way that pieces are moving through the model that gets us to the 8% to 11% versus the 11% to 18% that I was thinking for earning growth?
Jeff Yabuki
It's a great question. From our stand point when we put that out, we try to talk about that as being how we believe we will perform on average over any three-year period.
We will fall within that range. So you think about this year, we were negative one on our internal revenue growth and about 10% on EPS.
This year we've given guidance of 1 to 3 which wraps the bottom end of that and we've given guidance on adjusted EPS of 8 to 11. So again it wraps the bottom of it.
What I would tell you is we have a couple of things that we are paying a lot of attention to and that is, there are competitive dynamics in the market right now that give us a lot of energy around investing in products, many of which we talked about today, whether they would be Acumen account processing platform, our new integrated debit platform, P2P analytics, to name a few, but the importance of getting them into the market quickly and planting those flags because we see the clients want those kinds of services right now has had us increase our investment to levels that are going to be higher than we would do if were normally running the business. So, we are basically moving more investment into this period and we believe that will lead to better revenue growth in 2011 and better earnings growth in 2011 because we are basically consolidating more investment into this period.
And as a safety net in the event that the world doesn't perform the way we believe it is, we'll have the ability to cut back on that. And as you know, most of our investment is not in the form of CapEx.
It's in the form of OpEx which runs through our P&L. So we bear the full cost of those investments in the year we make them or in the years that we make them, and that's the down side.
The upside is we get the leverage later on. And I would say the last thing that probably matters a lot to us is given all of the uncertainty in the environment we just don't see any reason to get ahead of ourselves.
We want to put out numbers that we are very confident in and that we will manage to those numbers as we see the environment shaping up. As we get somewhat past February the 2nd.
Julio Quinteros – Goldman Sachs
Okay, great. Thanks guys.
Good luck.
Jeff Yabuki
Thank you.
Operator
Our next question will come from Greg Smith. Your line is open.
Greg Smith – Duncan-Williams, Inc.
Hi, guys.
Jeff Yabuki
Hi Greg.
Tom Hirsch
Hi Greg.
Greg Smith – Duncan-Williams, Inc.
Tom, you said that free cash flow should be above adjusted or could be above adjusted net income over the long term and I am wondering what accounts for that potentially permanent difference, and if that's the case, is there a better way to even report adjusted net income to sort of reflect that?
Tom Hirsch
When I said and I think as you know, our history on this Greg has been good. When you look at '09 and '08, our free cash flow per share was roughly $4.30 per share in 2009 and our adjusted earnings which as you know, adds back the after tax intangible amortization or non cash intangible amortization was $3.70, so that was significantly higher.
And I think, over time what I said is, we've done a great job in the working capital and CapEx area. We also have certain add back like share base comp that are normally going to enhance your free cash flow over time over adjusted earnings.
So I think all I'm saying is that over time, over the long haul our free cash flow is going to grow at or above our adjusted earnings and mainly because of the add back of the share-based comp. The work we do and our working capital and really the capital discipline that we have on capital expenditures which we just have that throughout our organization as you can see, we typically have less or about the same of CapEx as depreciation.
So that's where we are at with that.
Greg Smith – Duncan-Williams, Inc.
Okay, that's great. And then I guess, Jeff, is there any possibility or have you considered, or are you considering repricing the online bill payment business given the fact that you are getting killed on the float side?
Jeff Yabuki
The answer is we look at our pricing strategies in a fairly regular basis, and what I don't want to do, Greg, is make a short-term decision that we'll regret for many, many years to come. I don't think you'll run into too many people that think the interest rate will stay down at this level for an extended, and I don't know what an extended period of time is, but for an extended period of time.
And therefore, while we look at it, we are not highly motivated to switch that because as you know, the margin on float income is relatively high. And so, we just don't want to do something in the short run that will hurt us.
Greg Smith – Duncan-Williams, Inc.
Okay. And then just last one, a quick one.
Back to Tom, the profit sharing, the 100 basis points of profit sharing, did that run through both segments?
Tom Hirsch
Yes, it did. It was primarily in the financial segment.
You see a larger predominance in that segment, but it went through financial payments and corporate mainly because of the number of employees that are in the financial segment. So you'll see a higher proportion in that segment, that's why you saw higher expenses in that area.
Greg Smith – Duncan-Williams, Inc.
Okay, but some of that did run through all three because it was kind of across the board?
Tom Hirsch
That's correct. We allocate that back.
Greg Smith – Duncan-Williams, Inc.
Okay perfect, great. Thanks, guys.
Jeff Yabuki
Thank you, Greg.
Operator
Our next question will come from Karl Keirstead. Your line is open.
Karl Keirstead – Kaufman Brothers
Thanks for taking my questions, two quick ones. Can you run through what the couple of reasons are that the free cash flow growth will come in below the adjusted earnings growth in 2010?
And then secondly, you mentioned in answer to a question just asked that the competitive dynamics were intending you to increase our R&D investments. Can you elaborate on that, and in particular discuss what kind of changes you are seeing in the sales front with the Fidelity Metavante merger?
Thanks Tom Hirsch Just in regards to the free cash flow, I think what we've done is we've given guidance of 5% to 8% in 2010 and just to back up, it's been repetitive on the call, but we really have two outstanding years of free cash flow per share growth. In 2009, we grew our free cash flow per share 16% and adjusted earnings about 10%.
And we had the same record going back into 2008. That being said, the 5% to 8% is one or two percentage points lower than our adjusted EPS guidance mainly because clearly we have some capital allocation to share repurchase there.
So that is a little bit higher, but it is roughly in line with our overall adjusted earnings growth in 2010. And clearly as we look into 2010, if you look back at '08 and '09 we actually had a very positive benefit of working capital changes mainly because we've driven down our accounts receivable, our CapEx, et cetera, and as we look into '10 with our plan increase in revenue growth, receivables are just going to build a little bit more CapEx.
So it just 1% or 2% lower which is really not significant from that standpoint. I will turn it over to Jeff on the other question.
Jeff Yabuki
Again, I think the challenge there is we are optimistic that we are going to see the revenue growth and that revenue growth should turn, it will turn to AR especially based on how we think the world is going to react in 2010, and I think 1% is about $7 million. So, it doesn't take much to get that changed, but again over any extended period of time we'll end up outperforming EPS on the free cash flow side.
On the competitive side, there really are two dynamics that are causing us to want to increase our level of investment. Number one, it is just all of the transformation that is going on and how financial services are being delivered to consumers and the regulatory pressure that is being put on there.
So whether it is around analytics, how can we help our financial institution clients to better understand their customers, so they can serve them the way they want to, or whether it's delivering a new payments oriented technology or technologies that help the clients reduce fraud as debit is growing so rapidly. We see a lot of interest in, because the institutions have seen the sea change occurring, they are looking and motivated to view new technologies that could actually change how they do business and that's a good thing.
On the competitive front, as it relates to our competitors, that is actually less of the issue than it is on the transformational side. I would say that one of the reasons that we didn't do a transaction in 2009 is we did not want to be distracted by the integration that it takes to do a deal.
And we know what that is like because we spent the last year and a half prior to that working on integration and we are proud of the work we did there, but we know it takes a lot of time and effort and we wanted to shift our energy from really being focused on cost reduction to being focused on innovation and how you can serve the market in a better way. So those are the catalysts to say we are going to make larger investments this year so that we can see better and improved revenue and earnings growth in 2011 and beyond.
Karl Keirstead – Kaufman Brothers
Jeff Yabuki
Thank you.
Operator
Our next question will come from Darrin Peller. Your line is open.
Parisa Rogman – Barclays Capital
Hi, this is Parisa Rogman [ph] filling in for Darrin. Just have a couple of quick questions.
One on client budgets, I know you mentioned your outlook assumes that sales by growth still going to remain somewhat long, but its flat to slightly up. Do you think there's any upside to that or are you seeing any catalyst for discretionary spending?
And just, my second question was just around the transaction based payment businesses. Is your guidance assuming material pick up in transaction growth or is it more about adding the core account processing clients and cross selling to them?
Jeff Yabuki
Sure. To the earlier point I would say that the catalyst for discretionary spending, I don't think there's any environmental catalyst.
I just don't see the world, I don't think we are going to wake up in July and find the world dramatically better than it is today. And I think that on balance people are saying there are a few things that we need to do and we are going to focus on those few things, but we also have to focus on banking better, and I don't mean to say that in a pejorative way, but when I'm out talking to clients, a lot of people are talking about we want to get back to basics.
We want to serve our clients; we want to make good decisions. So there is a lot of internal energy from that perspective.
Where the catalyst exists is on an institution by institution basis. Some institutions are spending a lot of money and some institutions are not spending any money and so while in the aggregate it comes out to be this kind of what we think is flat to slightly up.
It really is a little bit bimodal in how healthy are those institutions and what impact -- how does that flow through their technology budget. So I don't think the industry on balance will have a catalyst that will dramatically improve discretionary spending, but there are good size pockets of the industry who are looking at spending pretty healthy amounts of technology because they see advantages in changing their model at a time when the market is pretty dynamic.
Tom, do you want to take the transaction side?
Tom Hirsch
We haven't assumed anything different. Our typical business is like we talked about debit and check et cetera, so we really haven't assumed any significant changes from where we are today.
Parisa Rogman – Barclays Capital
Okay. Thanks.
That's helpful.
Jeff Yabuki
Thank you.
Operator
Our next question will come from Kartik Mehta. Your line is open.
Kartik Mehta – Northcoast Research
Good afternoon or good evening, Jeff. I wanted to find out from you if there is any segment in the financial institutions that are performing better than the others.
So are credit unions doing better or are there certain asset size of community banks that are doing better than others or is it about the same across the whole field?
Jeff Yabuki
I would say that asset side is probably not the indicator right now of doing better or not. I think it's more geographic depends on where the exposures are for the financial institutions.
I think that to me that feels like a better jumping off point that assets, and I think there are a number of institutions that are challenged right now. I think most of them will get through it, but there will be a segment of them that will not make it, but those institutions that don't make it are getting merged into others and you are seeing some of these community based institutions that I've decided to step up and grow and there are a number of them out there that are looking to multiply the size of their institution by whole numbers and not by percentages.
So that's pretty exciting in working with them.
Kartik Mehta – Northcoast Research
What's the impact of not having or having lower amount of de novo activity? 2010 looks like that will be the second year in a row that de novo activity has been lot lower than it has been in the past.
What type of impact does that have to revenue?
Jeff Yabuki
De novo activity does not have a big impact on current year revenue in terms of it doesn't really move the needle. What happens though is de novos over time often become the future termination fee clients, so they are getting acquired that has been something is happened.
And you can look, if you take a look at the, if you cross the de novo charge, so ET your de novo growth and you look at the number of resolutions or the regulatory actions, you see as regulatory actions fight de novos go down. And as regulatory actions start to taper, you see de novo start to grow.
And so we are expecting to see that kind of a lift in the future. So they don't have a big impact in any one year.
I suspect if you saw five or six years of very low de novo activity, we would probably be having another conversation.
Kartik Mehta – Northcoast Research
And then finally Tom, I think you said interest expense in 2010 would be about $15 million lower than 2009. Do you anticipate that somewhat of straight line impact throughout 2010 or is it more heavily weighted first half second half?
Tom Hirsch
I think it should be pretty well straight lined, and I think we said $15 million or a little bit more, in excess of that, but yes we expect to be straight lined through the year.
Kartik Mehta – Northcoast Research
Okay. Thank you very much.
Jeff Yabuki
Thank you.
Operator
Our last question will come from Chitra Sundaram. Your line is open.
Chitra Sundaram – Cardinal Capital
Yes. Thank you.
The question I have was on the corporate overheads are at 22 million a quarter. If that would explains the fact that over the last four, five quarters SG&A as a percent of sales has been building up sort of, trying to drive revenue growth by investing.
Is that sort of how we should think about it?
Tom Hirsch
No, I mean I think when you look at that, what’s in that, I think you are referring to the corporate and other segment.
Chitra Sundaram – Cardinal Capital
Yes.
Tom Hirsch
Yes, we really have, out of the $3 billion of expenses that we have as a company, 2.8 roughly adjusted expenses, only about $50 million are in that segment. So it's a fairly small amount of actual expense.
It did increase over the prior year. Again I kind of hit on that a little bit because we had the increased branding.
We have some company-wide – our development of our enterprise services framework and a few other things in that particular area that have increased over the prior year in 2008, and again I think the commentary is, looking forward, if you took the average of the year as far as the expenses they are – I think that's a pretty good run rate as you look into 2010.
Chitra Sundaram – Cardinal Capital
Okay, so you are not expecting a step change in SG&A as we sort of try to go back and to grow --
Tom Hirsch
No, no, no.
Chitra Sundaram – Cardinal Capital
Okay, the other thing was on incremental margin. We talked a lot about being a high fixed cost business, can you give a sense of what the incremental margins generally would be?
I am assuming it's more on the payment side than on the financial side but can you me just color?
Tom Hirsch
Yes, I think again, it really, given the diversity of our product portfolio, it's really hard to say. I think clearly in most of our products there is higher incremental margin than clearly what our margins dictate, what our best margins are.
Clearly in the payments area, debit, bill payment, in our service bureau, our outsourcing business, particularly in account processing, really where we have those scale businesses I think is where you have that higher incremental margin. And really as we look forward, that's being offset by some of the incremental investments that we talked about in our script that we are making, and they are not going to get into percentages because every business is a little bit different, but those scale characteristics of what we have today clearly has a higher incremental margin than what we reflect here for our adjusted operating margins.
Chitra Sundaram – Cardinal Capital
Thank you so much. Congratulations.
Tom Hirsch
Thanks Chitra.
Jeff Yabuki
Thanks Chitra. Thanks everyone for joining us this afternoon.
If you have any further questions, please don't hesitate to call our IR team.
Operator
That does conclude today's conference. Thank you for your participation.
You may disconnect at this time.