Oct 26, 2010
Executives
Thomas Hirsch - Chief Financial Officer, Principal Accounting Officer, Executive Vice President, Assistant Secretary and Treasurer Jeffery Yabuki - Chief Executive Officer, President and Director
Analysts
Brett Huff - Stephens Inc. Christopher Shutler - William Blair & Company L.L.C.
Bryan Keane - Crédit Suisse AG David Koning - Robert W. Baird & Co.
Incorporated Tien-Tsin Huang - JP Morgan Chase & Co Kartik Mehta - Northcoast Research Darrin Peller - Barclays Capital John Kraft - D.A. Davidson & Co.
Ashwin Shirvaikar - Citigroup Inc Richard Cheever - SunTrust Robinson Humphrey Glenn Greene - Oppenheimer & Co. Inc.
Operator
Welcome to the Fiserv Third Quarter 2010 Earnings Conference Call. [Operator Instructions] Today's call is being recorded and is also being broadcast live at the Internet at www.fiserv.com.
In addition, there are supplemental materials for 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 Webcast link on the homepage.
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.
Jeffery Yabuki
Good afternoon, and thanks everyone for joining us for our third quarter earnings call. With me today is Tom Hirsch, our Chief Financial Officer.
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 internal revenue growth, adjusted earnings per share, adjusted operating margin, 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 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 that 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.
Before I get to the results, thanks again to each of you who attended our annual investor conference a few weeks ago. We shared our views of how we intend to create value through a focused set of market strategies that should accelerate revenue growth and enhance our franchise over the next several years.
We also shared our next wave of Fiserv 2.0 targets, including nearly $1 billion of integrated sales and an operational effectiveness objective of $250 million, both of which will be important parts of our focus over the next five years. And to provide finer clarity, we updated the long-term performance expectations for the company.
We're excited about our plans and the impact we believe they will have on the market. We will talk more about this when we give our 2011 guidance in February.
With that said, let me say we are very pleased with our performance in the quarter. The organization came together and delivered strong growth results in revenue, earnings and sales.
Our year-to-date financial performance has been consistent with the expectations we shared at the beginning of the year. The growth trend we are on should create solid momentum going into 2011.
As you will recall, we have three key enterprise priorities, which we believe should be used to keep score in 2010, as well as measure our strategic progress. Those priorities are: First, to deliver positive adjusted internal revenue growth and meet our earnings commitments; next, to center the Fiserv culture on growth, leading to improved enterprise win rates and a higher share of our strategic products; and third, to provide innovative solutions that increase differentiation and enhance results for our clients.
Adjusted internal revenue growth has accelerated, as expected, over the course of the year from negative 1% in the first quarter to over 3% in the current quarter. This quarter's 3% internal growth is the highest since the second quarter of 2008.
Importantly, we continue to build our recurring revenue across the company. Internal revenue growth for the year-to-date is 1%.
Adjusted earnings per share grew 13% to a record level of $1.04 in the quarter, and are up 10% for the year-to-date. The earnings growth is even more impressive considering the increased investments we are making to further enhance our long-term growth profile.
Free cash flow through September 30 has increased 5% to $532 million. The timing of working capital changes, including increased tax payments, impacted free cash flow as we expected in the quarter compared to the prior year.
Adjusted operating margin continued to expand, increasing 50 basis points in the quarter and is up 40 basis points on a year-to-date basis. We are clearly on track to achieve our full year financial goals.
Our strong sales performance, both in the quarter and year to date, is evidence of the progress we are making against our second priority, to center the Fiserv culture squarely on growth. Sales results in the quarter were just shy of the record level we achieved in the fourth quarter of 2009 and quota attainment is now over 100% for the first nine months of the year.
Last quarter, we announced that the Westpac Group, the second-largest bank in Australia, selected our solutions to transform its online banking presence. This quarter, we announced an expansion of our relationship with U.S.
Bank, the fifth largest commercial bank in the U.S. Already a bill payment client, U.S.
Bank chose Corillian Online to enable the delivery of integrated banking, bill payment and personal financial management tools to retail banking customers through the online channel. This is another proof point supporting what we believe is the early stage of a global renewal of the online banking channel.
Our industry-leading solutions position us well to benefit from this trend. The third priority is to provide meaningful innovation that differentiates our solutions and enhances results for our clients.
We have a number of innovation-based solutions now in market which are building momentum. Acumen, our next generation account processing platform for large credit unions, signed another two clients in the quarter, including Patelco Credit Union, a $3.5 billion institution with 280,000 members.
Importantly, these account processing relationships often include significant other services, including our payments-related solutions. Our newest payment innovation, ZashPay, continues to gain acceptance.
Financial institutions can see how the ease and convenience of this P2P solution could have a material impact on how consumers move money and drive their fee revenue at the same time. 272 financial institutions signed up for ZashPay in the third quarter, more than doubling sequentially.
As of September 30, more than 400 institutions have committed to ZashPay and that number is growing almost daily. With thousands of potential financial institution clients such as Navy Federal Credit Union, which signed on to ZashPay and has 3.5 million members, and tens of millions of consumers using our online banking or bill payment technology, we believe Fiserv is extremely well positioned to be the leader in this emerging market.
Before I turn the call over to Tom, I'm proud to say that for the sixth time in seven years, Fiserv was again ranked number 1 on the FinTech 100, an annual listing of the top global providers of financial technology, published by American Banker, Bank Technology News and IDC Financial Insights. A commitment to clients by our high quality associates has enabled us to be the consistent industry leader.
Now, let me hand the discussion over to Tom to provide more detail on the financial results.
Thomas Hirsch
Thanks, Jeff, and good afternoon, everyone. Revenue growth accelerated in the quarter as adjusted revenue increased 3% to $978 million.
Virtually all of the growth was internal, with only $1 million of acquired revenue in the quarter and year-to-date from a single small acquisition. Adjusted internal revenue growth through September 30 was 1%.
Our Payments segment grew 5% over the prior year, the strongest quarterly internal growth in the last 10 quarters. The Financial segment also generated solid revenue growth, increasing 2% despite a continuing secular decline in our Item Processing business.
License fees were up modestly, increasing $4 million in the year-over-year quarter. The FA remained down $7 million for the first nine months of 2010 compared with 2009.
Contract termination fees were about $4 million in the quarter, down from $12 million in the second quarter and still at historically low levels. Adjusted earnings per share in the quarter increased 13% to $1.04.
Year-to-date results are up 10% to $2.99 per share, compared with $2.72 in 2009. Adjusted operating margin in the quarter was 29.4%, an increase of 50 basis points over the third quarter of 2009.
Year-to-date adjusted operating margin was up 40 basis points to 29.3%, which is 60 basis points higher than the margin for the full year 2009. Free cash flow for the first nine months of the year has increased 5% to $532 million.
As we anticipated, our third quarter free cash flow was negatively impacted by an increase in accounts receivable as a result of stronger revenue growth and significantly higher estimated tax payments. Free cash flow per share increased 7% to $3.49 year to date.
Our strong free cash flow continues to be on track and consistent with our expectations. Now I will turn to the segment results.
Payments segment adjusted revenue was $501 million in the quarter and $1.5 billion year to date, net of postage reimbursements in our Output Solutions business. Adjusted internal revenue growth in the Payments segment was 5% in the quarter and 3% year to date.
Each major business in the Payments segment generated positive revenue growth in the quarter. Internal revenue growth has progressed, from flat in the first quarter to 5% growth in the current quarter.
Flow income continues to be at historically low levels. Bill payment transaction volume increased 8% in both the quarter and year to date.
As we have previously indicated, this data excludes the volume from a large, remittance-only client that was acquired in 2008 and migrated off our platform in the fourth quarter of 2009. During 2010, we have continued to add an average of 125 new bill payment clients each quarter, which have an attractive favorable impact on transactions, revenue growth and operating margin.
Debit transaction volume increased 21% in the third quarter and is up 22% year to date. Our Debit business continues to benefit from a combination of a secular shift towards debit and a steady pace of our new debit clients wins, which have averaged over 50 wins per quarter in 2010.
We believe that provisions in the Durbin Amendment that excludes smaller debit card issuers from limits on interchange fees and that require multiple debit networks on each card, have the potential to further enhance our debit business. We will all know more as the regulations are finalized.
Operating income for the Payments segment was $159 million in the quarter and $458 million year to date. Adjusted operating margin of 31.7% in the quarter was flat compared with the prior year.
We have experienced solid, sequential margin improvement this year as revenue growth has accelerated in this segment. For the year to date, segment adjusted operating margin was 31.1%, a decrease of 40 basis points compared to 2009, due primarily to increased investments in multiple areas such as mobile and ZashPay, along with incremental CheckFree integration costs associated with the call center consolidation that have been expensed in this segment.
The Financial segment generated revenue of $486 million in the quarter and $1.4 billion year to date. Adjusted internal revenue growth in the segment was 2% in the quarter and is now flat year to date.
Revenue growth in the quarter improved five percentage points over the first quarter's level as we continue to build momentum in this segment. Revenue growth was driven by mid-single digit growth in our Account Processing businesses, which was partially offset by the continued weakness in Check Processing volumes and softness in our Lending businesses.
Operating income for the Financial segment was $143 million in the quarter. Operating margin in the quarter was 29.5%, a slight decrease of 10 basis points over the prior-year period.
Operating income through September 30 was $430 million and operating margin was up 20 basis points to 29.8% compared with the prior year, due primarily to business model leverage and cost management. Adjusted operating loss in our Corporate and Other segment was $14 million in the quarter versus $19 million in the prior year and $15 million in the second quarter.
The $5 million decrease in the year-over-year quarter and the $1 million decrease on a sequential basis were primarily due to lower corporate expenses. We completed the $750 million debt refinancing in September that extended our debt maturities at historically low rates.
The average term of the new debt is eight years and the weighted average interest rate is approximately 4%. We used the proceeds to pay down $480 million of near-term maturities at our term loan facility and also to fund a tender for the purchase of $250 million of our outstanding 6% senior notes due in November 2012.
Because the tender did not close until October, the end of the quarter balance sheet includes an offsetting increase of $250 million in cash and current maturities of long-term debt. We also replaced our revolving credit facility which was set to expire in early 2011 with a new four-year, $1 billion credit facility priced at LIBOR plus 145 basis points.
Our next mandatory debt repayment is in November of 2012. Net interest expense was $49 million in the quarter which increased $3 million sequentially.
The combination of duplicate interest costs on the refinance and the write-off of unamortized debt issuance costs related to the term loan prepayment had an approximate $0.01 negative impact on adjusted earnings per share in the quarter. Our adjusted effective tax rate in the quarter was slightly lower than the prior year, due primarily to a favorable tax settlement, which positively impacted adjusted EPS in the quarter by approximately $0.02 per share.
In addition, our year-to-date adjusted EPS has been negatively impacted compared with 2009 by approximately $0.02 per share as a result of the research and development credit not yet being renewed in 2010. Our effective tax rate in the fourth quarter should approximate 38%.
We repurchased 1 million shares of stock in the quarter for $52 million. As of September 30, we had repurchased a total of 5.2 million shares at a cost of $254 million and have about 1.9 million shares remaining on our existing repurchase authorization.
Lastly, subsequent to quarter end, we received a $90 million payment, which is a combination cash dividend and early loan repayment from our 49% equity investment in Stone River, our insurance joint venture. This payment will not be included in our calculation of free cash flow for the full year.
With that, I will now turn the call back over to Jeff.
Jeffery Yabuki
Thanks, Tom. Third quarter sales were a very strong 128% of quota, which increased year-to-date attainment to 104%.
This compares favorably to the 86% attainment achieved through the first nine months of 2009. As you saw in our earnings press release, sales wins were strong in areas where we are strategically focused, areas such as digital, payments and account processing.
Even with strong sales, our pipeline remains healthy as new opportunities continue to be added. Sales cycles do remain elongated due to the combination of a slow economic recovery and a complex regulatory environment.
Integrated sales were $35 million in the quarter and $88 million through September 30. In addition to payments, efficiency-based products, channel and risk solutions were solid in the quarter.
Year to date, integrated sales are 17% ahead of last year and we are on track to meet our $105 million full year target. As of September 30, total program integrated sales were $321 million versus our originally stated goal of $360 million by 2012.
Through the first nine months of 2010 alone, we have signed more than 370 new bill payment clients and over 160 new debit clients, an increase of 17% over last year. Importantly, even with these strong sales results, we still see significant opportunities to continue to expand.
As of September 30, we have also achieved $48 million of annual cost savings, which now exceeds our 2010 full year operational effectiveness target. Since the beginning of 2007, we have delivered over $260 million in annual cost savings, surpassing our $250 million target more than one year early.
Before I address current year guidance, let me update you quickly on the environment, which is generally consistent with our investor conference commentary. Through October 22, there have been 160 regulatory actions, 39 more than the prior year and in line with our estimate of 200 to 250 actions for the full year.
The number of actions peaked at 57 in the third quarter of 2009 and since that point, have averaged about 50 per quarter. We anticipate that the number of regulatory actions in 2011 will be comparable with that of 2010.
Since the beginning of 2008, our net client losses have been less than one half of 1% of our total Account Processing client base, and likely far less than we would've lost in the face of normalized M&A activity. While the market environment continues to be choppy, our financial results and sales successes do reflect gradual improvements in financial institutions spending patterns.
We also continue to believe that the risks and opportunities of the new legislation on our business are generally balanced, recognizing that the true impact of the significant regulatory change is not fully understood. We are working on ways in which we can help our clients adapt their business models, turn information into action, gain efficiency, and very importantly, generate new sources of revenue.
As noted in our earnings release, our 2010 guidance remains unchanged. We continue to expect full year adjusted internal revenue growth to be in the range of 1% to 3%, led by stronger growth in the Payments segment.
Given we currently sit at 1% revenue growth for the first nine months of the year and the very strong revenue performance in last year's fourth quarter, we now believe our full year internal revenue growth rate will likely be at or below the midpoint of the guidance range. We feel very good about our high-quality revenue growth and the acceleration we've experienced throughout the year, which we believe should carry into 2011.
We still expect 2010 adjusted earnings per share growth of 8% to 11% and now anticipate our full year results to be at or above the midpoint of our guidance range of $3.96 to $4.07 per share. We continue to expect full year free cash flow growth to be 5% to 8% to over $700 million and that company adjusted operating margin will expand by at least 50 basis points for the full year.
Although there is still uncertainty in the market, our momentum continues to build. We believe that the strong execution of the strategies we shared at Investor Day will further enhance our revenue growth and produce even better results for our clients, and you, our shareholders, over the next several years.
We have a clear mission, targeted strategies and market-leading solutions. Those, combined with the dedication and commitment of our nearly 20,000 associates around the world, is truly a winning combination.
With that, Carol, let's open the line for questions.
Operator
[Operator Instructions] Our first question today will be from Ashwin Shirvaikar from Citi.
Ashwin Shirvaikar - Citigroup Inc
My first question is you had a number of signings here that you announced both last quarter and this quarter. Could you talk a bit about the ramp of those signings into revenue, the conversion profile, if you will?
How long did it take and when do these things hit the P&L?
Jeffery Yabuki
Sure. The substantial majority of the signings that we've had in the last couple of quarters and, really, for the last year or so have been heavily biased to recurring revenue, those revenues that tend to leverage the networks that we have in place, whether they be Account Processing or Payments-related products.
And those revenues come on -- typically the sales are done before the contract, the existing contract when the prospects expire. So they tend to come on anywhere over a period of six to 12 months.
And then they sometimes ramp up after that. So we don't typically expect to see the full revenue on contracts like that for over a year.
But the things that we were selling in the last half of last year are those clients that are going live, such as American Savings Bank, that we sold well over a year ago that went live in the middle of this year, just picking one up as an example.
Thomas Hirsch
When we sell point solutions like debit or bill payment, it could be sooner than a year, clearly. But most of the deals when they're complex or have a lot of integrated components are typically a little bit longer depending on the conversion cycle.
Jeffery Yabuki
And they're always going to be at least a three- to six-month delay.
Ashwin Shirvaikar - Citigroup Inc
On cash flow, not so much with regards to CapEx, but with regards to working capital, if you will, as you ramp these contracts, what should we expect with regards cash flow outlook headed into next year?
Thomas Hirsch
I think, Ashwin, when you look at our free cash flow, it's up 5% this year. If you look at on Page 10 of our press release, our free cash flow before working capital changes was up about 15%.
We did, in the third quarter, have an increase in AR because of our revenue growth, but that again it's just timing. So clearly, in most transactions, we don't anticipate a significant increase in working capital just given the nature of the transactions.
Because these are domestic transactions, we typically get paid monthly on our Account Processing type revenue and it's very consistent. We did have higher income tax payments to China in the current quarter, which negatively impacted our cash flow in the quarter.
But clearly, that's just timing. So it should not have a significant impact as we kind of move forward into '11.
Jeffery Yabuki
I would say, Ashwin, kind of adding on, as you know, I think you referenced this. When we bring on these clients, they're not very -- they're very low from a capital intensity standpoint.
We tend to have conversion costs and things like that and the substantial majority of what we do ends up being expensed through our P&L on an ongoing basis. So we wouldn't expect that, in and of itself, to have an impact on our free cash flow.
We would expect, as we see the consistent reacceleration of revenue growth that, that would manifest itself in the short run in receivables that are building in size.
Thomas Hirsch
And I think the other point on that, Ashwin, clearly, when you look at our cash flow, in the prior year, our receivables were down about $80 million in 2009. And clearly, that had a major positive impact last year on our cash flow, in 2009.
Ashwin Shirvaikar - Citigroup Inc
So it should normalize by next year?
Thomas Hirsch
That's correct.
Operator
Our next question will be from Bryan Keane. Crédit Suisse.
Bryan Keane - Crédit Suisse AG
Just looking at or just hearing your comments, Jeff, just wanted to just clarify this. The fourth quarter internal growth rate sounds like it should tick down slightly from the third quarter level, is that true?
And is that partly, again, just due to just tougher comps? Because I know it was a pretty big fourth quarter last year.
Jeffery Yabuki
Yes. And obviously, Bryan, you know well we try desperately not to manage the business on a quarter-by-quarter basis.
Brett Huff - Stephens Inc.
Well, we're running out of quarters.
Jeffery Yabuki
I recognize that, which is why we tried to provide a little bit more insight. So we're at 1% today, we had a pretty strong quarter right now.
And so given where we are and what we can see, we would expect revenue to get down below this quarter. But clearly, it will still be consistent with what we've seen and that is positive internal revenue growth.
Bryan Keane - Crédit Suisse AG
And my second question is for Tom, just on the lower corporate expenses that's driving some of the adjusted margin expansion, is there anything in particular you can call out that's driving that? And then when we think about adjusted margin expansion going forward, will it come more from kind of a corporate cost management more than the Payments or the Financial segments?
Thomas Hirsch
No. Regarding the first part of your question there, Bryan, on the corporate side, we had roughly, I think, about $15 million of expenses in the second quarter in the corporate area; we had $14 million in the third.
Last year, we had a number of items associated with our branding; a few other corporate related items like that, that did not recur this year. But going forward, as we look into '11 and all 12, margin expansion is not going to come from that, clearly.
It's more pretty clean from a run rate standpoint in the current year. It's going to come from those segments.
We just made much more investments in there. And I think if you look at our margin progression, clearly, in the first quarter in the segments, our Payments segment was about 30.5%, third quarter it's 31.7%.
That's up sequentially 120 basis points. Financial is 28.8%, third quarter 29.5%, up as a revenue growth in the investment levels kind of level off.
So clearly, through our cost-saving initiatives that we announced on Investor Day. And really the quality of revenue of where we're focused on building that revenue, we're focused on building that quality in Payments where we have scale transaction volume and also on Account Processing.
And we are going to continue to make sure that business mix is where it is and so I anticipate that over time, it's going to come out of those segments.
Bryan Keane - Crédit Suisse AG
Jeff, can you just talk about the acquisition pipeline and maybe Fiserv's appetite?
Jeffery Yabuki
So from an acquisition perspective, the thing -- probably the most important point to reinforce is when we think about acquisitions, we feel like we have the majority of what we need in-house today. We don't see any large, material gaps in our product set, our solutions set.
We always use share repurchase as a benchmark for how we allocate capital. That said, we continue to look at transactions as we have for the last couple of years.
And to the extent that we see something that makes sense and it makes sense relative to the other choices of allocating capital, we'll certainly look at that.
Operator
Our next question will be from Tien-Tsin Huang from JPMorgan.
Tien-Tsin Huang - JP Morgan Chase & Co
The share repurchases stepped down a little bit here in the third quarter. Anything that we didn't see there?
Thomas Hirsch
No, we bought back, as you know, about 5 million shares this year or about 3% of our outstanding. We did have a lot of activity in the third quarter with our public debt offering that was going on also.
But we're going to continue to be active buyers of our stock. So I would not read anything into the Q3 purchases.
Share repurchase is an important part of our capital allocation, will continue to be a benchmark going forward.
Jeffery Yabuki
It was just important to get the public finance behind us.
Tien-Tsin Huang - JP Morgan Chase & Co
Services revenue, you talked about license sales a little bit. Are you seeing more activity there?
I ask, obviously, because FIS is adding capability there. So I'm curious, is that something you would consider?
And if you're seeing that same theme in the marketplace.
Jeffery Yabuki
Tien-Tsin, I mean, clearly, we have a part of our business that is focused on services. And we think more about it from a professional services perspective.
In other words, delivering services that are directly connected to the integrated solutions that we're delivering into the market. We have seen some level of demand.
We have a business called revenue enhancement where we're very focused on helping financial institutions think about how to generate new revenue in this more challenging time. But we also think it's important for us to stick to our knitting from a perspective of what we deliver to the marketplace.
It doesn't mean that we won't at times see services opportunities that would be complementary with what we do today. But for now, we're quite comfortable with the offerings that we have and are really looking to increase our capacity to deliver professional services, especially in light of some of the things that we talked about, such as the heavy installation pipelines we have, as well as what we think is really an important renewal in the online banking and, frankly, the introduction of the mobile channel.
We think those are important areas for professional services. But I would step right down a little bit from maybe the "consulting" category.
Thomas Hirsch
To add to that, in regards to your question on license fees, our license fees are still down on a year-over-year basis, about $7 million. We're very focused on our Payment solutions, which are recurring revenue and our Account Processing from an outsourcing standpoint.
It's running this year about 4% of revenue from a license fee standpoint. Last year, it was roughly 5%.
And we did have an exceptional fourth quarter last year in license fee revenue at about 6% of revenue. So again, very focused on recurring revenue and that quality and that's what we're driving for.
Tien-Tsin Huang - JP Morgan Chase & Co
Last question related to that, do you think -- does Fiserv benefit at all any kind of budget flush? Because we've been hearing that if banks are generally underspent for the year and probably should given the regulatory uncertainty, but to the extent that there is some kind of flush, does that flow through much for Fiserv?
Jeffery Yabuki
Well, I think last year, we were a bit surprised at the strength of the fourth quarter relative to the other three quarters. And specifically, the amount of license revenue that flew through in the quarter.
So to some extent, there may have been a combination of pent-up demand, budget flush, elongated sales cycles that all came together and people said we should probably spend this because we're not confident what it will look like next year. I can tell you that we've not accounted for any of that kind of activity in our numbers because we just don't think you can guess if that's going to happen or not.
Operator
Our next question will be from Dave Koning, Baird.
David Koning - Robert W. Baird & Co. Incorporated
I guess, first of all, one thing that we've noticed of interest in bill pay growth in transactions has been in the range of 6% to 9% each of the last eight quarters, kind of through bad economy and now better economy. And I'm just wondering, are we getting to a point where that might actually start to accelerate into a faster mode or are we in a point now where -- definitely solid growth, in the point for that level of growth should continue for some time?
Jeffery Yabuki
And I'll tell you that we are seeing nice growth and we're pretty pleased with that, especially given the economy and the fact that we know statistically because some of the research that we're doing that people are not paying as many bills. But we really have two factors that are coming together that we're benefiting from.
And not necessarily in order, but number one is we've done a fantastic job of distributing bill payment through our system in general. So I think with over 370 new bill payment clients in this year alone, up 17% that and debit combined over the past year.
So that's a cumulative effect, we've done a really nice job since we acquired CheckFree. And so we're getting a lot of boost from that because similar to what we see on the debit side, that group tends to be far less mature in their utilization of bill pay.
So that's number one. Number two, is we are seeing some nice growth across a wide variety of our clients, but there still are some clients and potentially larger clients not really contributing to the growth in the way that we would like.
So the underlying metrics that we can see in the bill pay business are strong, and we still are seeing very good growth in makers and we think that -- so we have opportunity in terms of makers as we move up to, hopefully, what will be a 40%, 50% level of ultimate adoption in this area, but also we think that e-bill represents a very important opportunity and we're not getting any real benefit from e-bill this year as you can see on our numbers. And you can expect us to put more focus on that moving forward.
So those factors combined, help us to be pretty confident that we're going to continue good, solid bill payment growth and largely because of the sophistication and differentiation of our solution and the size of our client base.
David Koning - Robert W. Baird & Co. Incorporated
Just on the balance sheet, Tom mentioned that cash was much higher than normal close to $750 million, $250 million of which you're just going to pay off soon some debt. But even with $500 million less and the new $90 million coming in from -- I guess I don't remember what's that coming in from -- but net that, that cash is going to be much higher than a more normal $300 million rate.
So should we expect some of that excess cash to be spent through paying down more debt or buying back stock or something? Or are you going to continue to keep a little more cash than normal?
Thomas Hirsch
Well, we will continue to allocate our cash, our excess cash. And the $90 million that came in, just as a clarification, Dave, that was a dividend and a loan repayment for our equity investment.
You kind of see the earnings that run the there, basically that was cash flow that came in on October, in addition to, as you highlighted, some excess cash that we had even after the $250 million tender. So we're going to continue to allocate that capital, share repurchase continues to be our capital allocation benchmark.
Jeffery Yabuki
I would say, Dave, to be as specific as we can, we are not planning to hold any additional cash. We don't see a particularly strong value in doing that.
We have no maturities coming up until -- no required maturities until 2012. So you'll see us continue to allocate share repurchase.
We'll probably pay down some debt and we'll be focused on that. But there's no underlying message that we're going to accumulate cash.
We haven't and we've not adopted any new philosophy there.
Operator
Our next question will be from Glenn Greene, Oppenheimer.
Glenn Greene - Oppenheimer & Co. Inc.
I guess the first question, Jeff, just wanted to talk a little bit about the sales quota attainment was one of the better quarters I can remember. And just sort of a broad, big picture question, do you think it's more just stemming from a macro environment improving perhaps in share gains, maybe just a little bit of color of what's sort of driving it?
Jeffery Yabuki
Yes, it is one of the best quarters we've had in a long time. But for the extraordinary December we had, it's been a stellar quarter and it's been quite a while since we've been above 100% in the third quarter that we haven't had to rely solely on the fourth quarter to take us up above that level.
So we really are benefiting from a few things. First of all, I would say we're benefiting from the consolidation and I don't mean that in terms of luster, but bringing our sales force together and creating a single sales organization.
That's helping us to be focused on where we need to be focused, and good successes across the enterprise client base. And we're also getting some really great success in delivering what I would call our broader, more differentiated solutions through our Account Processing network by bringing together our different solutions.
So bundling together large buckets of value, whether it be Account Processing with Payments, risk, teller, analytics, those kinds of products that we have historically just not brought together as well as we probably should have. And that has shown up, as you know, in the increase in our win rates over the last couple of years.
So it's really a combination of focus and delivering the right products to the market and then lastly, the focus that we've had on bill payment and debit and now ZashPay, those are highly valued and differentiated solutions that clients really want. And if you take something like ZashPay, which is going to be an interesting revenue opportunity for financial institutions at a time when they need it most, we think we're going to have a lot there.
And all of that brings some very good recurring revenue, high quality, nice network business, higher margin revenue that really is a nice repayment for any investments that we've made.
Glenn Greene - Oppenheimer & Co. Inc.
If we go back a few quarters, if I recall, there were a few big deals that you might have been focused on. I don't know what sort of ultimately happened there and was that a contributor during the quarter or are those sort of still sitting out in the plan?
Jeffery Yabuki
Yes, so there were a couple of big transactions that we had highlighted. One of them was Westpac and another of them we never named.
But those both got done. And those were done in the second quarter and I think even one at the end -- maybe they were both in the second quarter, I'm looking at Tom now.
Is that right, both in the second quarter? So those were done.
So basically the third quarter was a lot of transactions that came together, none of them of the size of those transactions that we referenced earlier, but there were some good-sized transactions. You look at something like the U.S.
Bank online piece, the Navy Federal Credit Union, a lot of interesting transactions out there that really is coming together across the broad base. And the good news is we still have some reasonably good-sized transactions in the pipeline of which we remain optimistic that they'll come together sometime in 2011.
Thomas Hirsch
Just to clarify that, Glenn, the actual impact, if that's what you're asking around in Q3, those type of larger deals build slowly so there isn't anything significant from a standpoint of impact on the growth rate, but those are nice transactions that are going to be over a multiple number of years. So those will continue to build gradually and nicely over the end of this year and then into 2011.
Glenn Greene - Oppenheimer & Co. Inc.
One more in here for Tom, on the interest expense, which did pick up a bit, it sounded like there were some ins and outs maybe some one-time amortization and what-not, can you just help us understand how what you think about interest expense going forward and the refinancing?
Thomas Hirsch
Yes, I think the interest expense is about $49 million. I think [indiscernible] (55:48) it was a up about $3 million over the second quarter, Glenn.
As we did the refinancing to the longer-term maturities, we paid off our term loan at the end of September, which did have a lower rate on it. Now as part of that prepayment, we had to write off some amortized upfront cost.
And that was the primary factor in incurring about $2 million of incremental expense to that line item in the quarter, which is more of a onetime in nature. That being said, I think the $49 million kind of going forward is kind of going to be at that level.
We did pay off a little lower rate debt at the end of the third quarter so that's a reasonable approximation of something from a run rate standpoint going forward. I think as we look into '11, we have a couple of hundred million dollars of our fixed rate debt that will be moving from fixed to variable and that will roll off at the end of this year as we go into 2011.
Operator
Our next question will be from Kartik Mehta, Northcoast Research.
Kartik Mehta - Northcoast Research
Any reason, Jeff, that sales momentum you've seen so far doesn't continue in 2011? Obviously, barring anything that happened to the economy or the banking industry?
Jeffery Yabuki
No.
Kartik Mehta - Northcoast Research
The bill payment clients you've talked about so far, are these the guys that never had bill payment or are these competitive wins?
Jeffery Yabuki
Yes, I don't have the exact data in front. But typically, we're winning -- the competitive wins are in excess of 50% of the bill payment clients.
So and sometimes, they're organic but the volume is being driven off of competitive wins. It's not being driven off of organic.
Kartik Mehta - Northcoast Research
Jeff, I know the paper-based processing or item processing is declining. I'm wondering is there an opportunity for you to get more of that business as banks realize that they might have to outsource as their volumes are declining or would you want that business as well?
Jeffery Yabuki
So you just picked up both edges of the sword. On one hand, sure, we'd like to be able to take some of that volume and move it into the system and create efficiencies for everyone.
On the other side of the coin, there is no reasonable scenario you can come up with that says that, that won't continue to decline. And therefore, you have a larger drag on the numbers.
So it is a double-edged sword. To the extent that we can come up with opportunities to work with our clients more deeply, we would potentially consider that.
But we have really been focused on revenue growth in areas that are recurring, growing, high-quality revenue that leverages the infrastructure and the business models that we have in place today. And that's really our focus.
Kartik Mehta - Northcoast Research
Just a question for you, Tom, any thoughts about restructuring any more of your debt or kind of where you are is where you'll stay for a while?
Thomas Hirsch
We will probably stay here. We have some maturities that come due right now in November 2012.
So we'll continue to evaluate that. In the near term, we're pretty well set where we're at.
But as we head into the mid to the end of 2011, we'll take another look at it and address those maturities as we go. But we've done a nice job with what we've done recently; we're pleased with that.
Right now, in the near term, we're pretty well set where we're at. But clearly, that's something as we get to mid to the later half of '11, we may take another look at extending some of those maturities.
Operator
Brett Huff, Stephens.
Brett Huff - Stephens Inc.
On your Analyst Day, I think Tom gave us some sort of contracting growth numbers and I wondered if you had given an update to those on the call or if you could just give us some color on that?
Jeffery Yabuki
Was that Tom Warsop?
Brett Huff - Stephens Inc.
Yes. I didn't know if you guys were measuring yourselves on that contracting data that you provided.
Jeffery Yabuki
I think that's a little bit more on a total contract value perspective. And we really talk -- for purposes of the reporting that we do for you, we really talk in terms of quota attainment.
And I think we've also said that the quota for the company went up this year, I think around 9%. But no, we've not given any specific total contract value or TCV numbers.
Brett Huff - Stephens Inc.
And then when you look forward and think about your organic margin expansion, first of all, can you tell us how you think about it whether it's just continuous cost improvement scale or what the different pieces are? And then what kind of overall we can expect over the medium term, I guess, one to three years or so?
How do you guys think about that?
Jeffery Yabuki
Sure. So I'll start and then Tom can fill in where I've missed.
We have organic margin expansion, really, from three different sources. So number one is the types of revenue that we build tends to be that of recurring nature, and so revenue, where the incremental margins tend to be higher than the average margins.
We sometimes refer to that as network economics. So that's the first element.
The second element is that we also tend to have a little bit of a lower cost structure because we are leveraging single account managers to be able to distribute many different products into a different client. So we think we have a sales and distribution advantage as well as a relationship advantage.
And then third, we really have, as you know, we have put together a pretty good methodology for continuing to make ourselves more efficient. So today, I think we report on an operational effectiveness measure where we're now over $260 million over the last four years.
So the combination of high-quality revenues, business mix, distribution advantage and cost effectiveness are the areas that we think will drive organic margin enhancement over the next several years. Now that, of course, is going to be offset by the amount of investment that we're willing to make into different products, solutions and other areas.
But those are the big drivers of margin. I think from a guidance perspective, we've said we expect to be able to grow margins organically like 50 to 100 basis points over the next several years.
So I would say that's where we see things over the medium term.
Brett Huff - Stephens Inc.
The 50 to 100 basis points includes some of the meaningful investments that you guys still think that you can make that will produce longer-term revenue growth?
Jeffery Yabuki
Yes.
Brett Huff - Stephens Inc.
Have you talked at all update on pricing on ZashPay? I know that you were experimenting or thinking about that.
Any updates on that?
Jeffery Yabuki
No.
Operator
Your next question comes from John Kraft, D.A. Davidson.
John Kraft - D.A. Davidson & Co.
Jeff, you'd actually just started to address it, but I guess I wanted to talk about fees. There's been an increase in chatter out there about how banks are going to offset lower overdraft fees.
Are you finding your customers are able to charge for some of these newer products? And I'm thinking about mobile banking in particular, I know it's early, but ZashPay as well?
Jeffery Yabuki
Yes, I mean, the way ZashPay's is built, it is built to allow financial institutions to charge for that, not unlike what people might be charging for a foreign ATM fee or something like that. And the banks will make determinations on their own as to how they believe that they should best price that.
I will tell you that John will talk, I think, in far more detail next year on the pricing strategies around these products because as we deliver incremental feature function, we think that there's a very intriguing pricing strategy that we'll be able to put on to these products that will allow financial institutions to actually better optimize their revenue there. So we see ZashPay as to clearly being an area where institutions will be able to charge and collect fees.
At least the research that we've done, there's very little consumer resistance to reasonable pricing on these products. As it relates to mobile and other ancillary products, I've not seen an institution charging for that at this point.
So I can't really comment on that. I think it'll be difficult for institutions to do that.
We have seen institutions who are charging for some of the discrete elements of a relationship. I think we all know that Bank of America announced they're charging for statements.
We've seen -- I've seen some clients who have said they're going to charge for monthly fees for DDAs if there isn't a certain level of debit activity. And obviously, we think that's a reasonably good approach from our perspective.
But I think there's a lot of creativity out there. We've got a group called revenue enhancement that works with these financial institutions, but it's early.
But the best news is, John, that the majority of the banks, as I'm sure you know, ended up losing far less than they anticipated on the NSF/OD side and that's really almost put back into flux how will the revenue, how will the pricing look because it's not nearly as egregious as I thought and there's always this fear of disenfranchising the customers of the institution. So -- but I do think we'll see some of that.
I don't think John, mobile is going to be one of them, but I think time will tell.
John Kraft - D.A. Davidson & Co.
Another thing that you mentioned, Jeff, you mentioned this global renewal in the online channel. You mentioned it last quarter as well and obviously, were starting to see some of these nice contracts.
Is this driven by an upgrade cycle specific to your Corillian and CheckFree products? Or is this something industry-wide?
What's driving that?
Jeffery Yabuki
Yes, I think -- I wish I could say it's really related to our technology, although since you gave me a chance to say this, I will. I mean, our technology is obviously the by far the market-leading outsourced Internet banking solution and we've been working on some pretty interesting integrated functionality that resides in Corillian Online that brings together all these payments vehicles in one place.
That said, it is at least a fairly well known fact that the largest institutions in the U.S., a number of them, are focused on kind of reupgrading their online experience. There are a number of institutions around the world who are doing the same thing.
We announced obviously Westpac, we've now announced U.S. Bank.
So there is a lot of activity and largely because, if you think about when the online banking investments were made, they were made in the late 1999s into the early 2000s and it's just about time to remodel that experience given everything that's going on today. And the efficiency gains that will be driven by moving customers there as opposed to some of the more expensive ways of interacting with clients or the customers of the financial institution.
Operator
Chris Shutler from William Blair.
Christopher Shutler - William Blair & Company L.L.C.
Jeff, you mentioned focusing on e-bill a little bit more going forward. Maybe you could just talk about that for a second, just the initiatives that you have in place to drive incremental e-bill growth.
Jeffery Yabuki
Yes, we have several areas -- in our Analyst Day, we tried to point out the importance of bills. I mean, very simplistically, payments follow bill.
We're only at about a 10% level of electronic bills in the U.S. We have a pretty important share in that space and so we're looking to take advantage of that.
I would say it's premature to talk about the specific tactics of what we're going to do there, but we do see that our distribution network, both on the bill payment side and on the biller side, puts us in a very good place to take advantage of that. And as you've seen in our numbers this year, we've not really benefited from that.
So there'll be more on that. I'm not sure how publicly we'll talk about it, Chris.
But if you watch the numbers, I think you'll see that begin to move up in 2011.
Christopher Shutler - William Blair & Company L.L.C.
A clarification from the Investor Day, the 4% to 8% revenue growth target that you laid out over the long term, should we view that as all forward looking? So meaning the first three-year period would be the 2011 to 2013 period?
Jeffery Yabuki
Yes, so that we would expect that over the three-year period that our average results would be within the range of each of those four key metrics.
Christopher Shutler - William Blair & Company L.L.C.
I just wanted to make sure 2010 was not included.
Operator
Richard Cheever, SunTrust.
Richard Cheever - SunTrust Robinson Humphrey
Just wanted to ask a follow-up question on the ZashPay. So you highlighted the institution adoption, but what's been the tick up with customers?
Is there any multiplier that we should be thinking about in terms of the adoption relative to the institutions?
Jeffery Yabuki
What do you mean multiplier?
Richard Cheever - SunTrust Robinson Humphrey
Well, I forget the exact number that you mentioned institutions, but have they seen the early adopters start utilizing the product? Is it at that stage of implementation where consumers are using it yet?
Jeffery Yabuki
Yes, clearly, consumers are using it. We see people making payments on an everyday basis.
One of the big benefits of our technology is its a pay-anyone technology. So there are a number of other technologies where you have to pay within the financial institution.
For us, you're merely limited to paying anyone in the banking system. So we think that is a great advantage for us.
And the nice thing is when you pay someone, they have to then register. If they're outside that institution, they have to register.
And so that's the multiplier effect that I see. I would say that it's very early, and that's the most important thing I can stress at this point.
We've had over 400 institutions sign up. But as we were talking earlier, there's an installation queue and we queue people up.
And every week, we're adding a number of institutions and a number of users and we don't expect to really benefit from that volume itself for a while. But what we do expect it to do is train consumers of the financial institutions to be loyal to this product.
That's a very important part of our strategy because it's yet another way of capturing the universal money movement opportunities that are out there. And so we'll talk about that a fair amount next year when we give guidance.
It's an important part of our strategy.
Richard Cheever - SunTrust Robinson Humphrey
Just to follow up, I think you mentioned the sales cycles are still somewhat long. Are you seeing a noticeable change in the sense of urgency from the institutions?
Jeffery Yabuki
No. I would say that the continuing elongation of the sales pipeline is consistent with the urgency of the financial institutions.
And that is, is that the urgency is more around the focus of the products that they want to bring in, but there's little urgency for people to pull the trigger on anything on any given day.
Operator
Darrin Peller, Barclays Capital.
Darrin Peller - Barclays Capital
The first question around the regulatory front, what do you see as the timing in incremental costs needed to make the changes in your system related to the bank disclosure requirements?
Jeffery Yabuki
Darrin, I would say that what we wouldn't quantify that externally. What I would say is it's taken a lot of time and a lot of effort.
And when the next wave of regs go in, it's going to take a lot of time and a lot of effort that just runs right through the P&L every single day.
Darrin Peller - Barclays Capital
So it's already been showing sort of recently in the numbers already?
Jeffery Yabuki
Oh, yes. I mean, all of the NSF, all of that is in and then new regs come out, we can't really do anything until the regs are published.
Darrin Peller - Barclays Capital
The factors you laid out in your Investor Day around sort of your long-term growth included things like electronic payments and account processing, wallet share, international growth. It seems to me that although there's the initial cost here, it seems to me that regulatory opportunity should be a material boost to your growth rates.
I just wonder what kind of boost that could be over the next couple of years to your revenue growth?
Jeffery Yabuki
Well, to some extent, it depends on what the actual regs end up saying and specifically around Durbin. I think Tom commented a little bit about the opportunities that we see there.
I would say, Darrin, that we're taking a position of being slightly more circumspect until we actually understand what's going to be in those rules. We see a lot of places where it looks like it could be attractive, but we also are cautious because we just don't know what's going to be in those final regs.
Well, thanks, everyone. We appreciate you sticking in there with us this afternoon.
If you have further questions, please don't hesitate to give us a call. Thanks again.
Operator
This concludes today's conference. Thank you for your participation.
You may disconnect at this time.