Jul 26, 2011
Executives
Thomas Hirsch - Chief Financial Officer, Principal Accounting Officer, Executive Vice President, Treasurer and Assistant Secretary Jeffery Yabuki - Chief Executive Officer, President and Director Mark Ernst - Chief Operating Officer and Executive Vice President
Analysts
Julio Quinteros - Goldman Sachs Group Inc. Christopher Shutler - William Blair & Company L.L.C.
David Togut - Evercore Partners Inc. David Koning - Robert W.
Baird & Co. Incorporated Tien-Tsin Huang - JP Morgan Chase & Co Kartik Mehta - Northcoast Research Ashwin Shirvaikar - Citigroup Inc Peter Heckmann - Avondale Partners, LLC Glenn Greene - Oppenheimer & Co.
Inc.
Operator
Welcome to the Fiserv Second Quarter 2011 Earnings Conference Call. [Operator Instructions] Today's call is also being broadcast live over the Internet at www.fiserv.com and is being recorded for future reference.
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, then click on the Access Presentation link on the home page.
The call is expected to last about an hour, and you may disconnect from the call at any time. Now I'll turn the call over to Jeff Yabuki, President and CEO of Fiserv.
Jeffery Yabuki
Great. Thanks, Kim.
Good afternoon, and thanks, everyone, for joining us for our second quarter call. With me today are Tom Hirsch, our Chief Financial Officer, and Mark Ernst, our Chief Operating Officer.
Our remarks 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, acquisitions and our strategic initiatives.
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.
Please mark your calendars to attend our annual Investor Day, which will be held in New York on Tuesday, October 11. Invitations will be sent out in August, and we hope you will be able to attend this important event.
Let me start by saying we are pleased with our results for the quarter and for the strong start to the year. We see continued momentum in adjusted internal revenue growth.
Our Payments segment continued its strong performance, again achieving 5% internal revenue growth in the quarter. Adjusted earnings per share of $1.13 was up a very solid 13% versus the prior year.
Through the first half of the year, adjusted internal revenue growth was 3%, and adjusted earnings per share increased 10%. We also had exceptional sales performance in the quarter, achieving the highest dollar value of regular attainment in the company's history.
Overall, our first half performance was ahead of our internal expectations on most key financial measures, including revenue growth, earnings and sales. We made several strategic moves in the quarter that we believe will further enhance the revenue growth and earnings profile of the company.
We announced an agreement to acquire CashEdge, which adds strong capabilities within digital channels and electronic payments. We also completed a $1 billion debt refinance in the quarter, which significantly lowers our debt costs, extends our maturities and increases our capital flexibility.
We're investing in high-value solutions that should add to our significant base of recurring revenue, some of which is reflected in our sales results. And while adjusted operating margin for the quarter was down slightly versus the prior year, as we build out these newer products, margin increased 100 basis points sequentially to 29.3% in the quarter.
Free cash flow was $335 million for the first 6 months of 2011, a decrease of 5% compared with the prior year, primarily due to timing of capital expenditures and working capital. As we said at the start of the year, we remain focused on 3 key enterprise priorities in 2011: First, to deliver an increased level of high-quality revenue growth and meet earnings commitments; next, to center the Fiserv culture on growth, leading to more clients, deeper relationships and a larger share of our strategic solutions; and third, to deliver innovation that increases differentiation and enhances results for our clients.
For the first 6 months of 2011, adjusted internal revenue growth was 3%, an improvement of 3 percentage points compared with the first half of 2010. Growth was broad based, with a notable exception being the expected decline in our check processing business, which resulted in a 1-percentage-point drag on our overall growth rate in the 6-month period.
Our account processing businesses continue to deliver solid revenue growth while also focusing on the distribution of highly valued solutions, such as debit, Internet banking and bill payment, to our thousands of core clients. And while the near-term operating margin results reflect the combination of investments in new solutions, the incremental costs of bringing on new business and some unusual items in our Corporate segment, we've delivered double-digit earnings per share growth in the first half of 2011.
Our second objective of creating a growth-oriented culture is making a difference. The impact, which should be even more apparent as a result of that focus, bolster our revenue growth in 2012 and beyond.
Our record sales attainment in the second quarter included over 280 wins for our key bill payment, debit and P2P solutions, and that's in a single quarter. Sales of Acumen, our next-generation account processing platform, continued to accelerate as 2 large credit unions, Randolph-Brooks Federal Credit Union and TruStone Financial Credit Union committed not only to Acumen, but to a number of additional integrated solutions that should continue to drive value over time with these clients.
We believe a key element of our success is contained within our third priority: to enhance results for our clients through the delivery of innovative and differentiated solutions. By agreeing to acquire CashEdge, we get an innovative payments company that has developed industrial-strength market-leading solutions.
CashEdge's account-to-account transfer, online account opening and funding and data aggregation solutions are used by more than 500 clients today, including some of the largest banks and wealth managers in the U.S. We see multiple ways to utilize CashEdge technologies to further differentiate our solutions and drive more value for our clients and their customers.
CashEdge also has several newer products that are targeted squarely at the business customer, such as an electronic invoicing and payment solution, which provide unique capabilities for financial institutions to provide value to their most important customers. We believe the combination of Fiserv and CashEdge's solutions will create a unique value proposition for many of our 10,000 financial institution clients.
In addition to CashEdge, our newer innovative solutions, such as Acumen, P2P and Mobile, are driving strong differentiation and contributing to our great sales results. We'll share more with you about CashEdge and other ways we are delivering relevant innovation to the market at our Investor Day.
Let me now hand the discussion over to Tom, who will provide more detail on our financial results.
Thomas Hirsch
Thanks, Jeff, and good afternoon, everyone. As Jeff mentioned, we are pleased with the company's consistent top line performance in the first half of 2011, with adjusted internal revenue growth of 3% in the second quarter and for the first 6 months of the year.
Adjusted internal revenue growth acceleration in the first half's results occurred across the company, led by 5% growth in the Payments segment, compared with 1% growth in the first half of 2010, and 2% growth in our Financial segment, versus a negative 1% in 2010. Adjusted earnings per share increased 13% in the quarter to $1.13 and increased 10% in the first 6 months to $2.15.
Company adjusted operating income of $294 million for the second quarter grew 5% sequentially, and adjusted operating margin increased by 100 basis points over the same period. Compared with the second quarter of 2010, adjusted operating margin for the company declined 30 basis points as strong drop-through in our Payments segment was offset primarily by 2 items: an 80-basis-point negative impact in the Corporate segment and a 40-basis-point decline from a $4 million reduction in higher-margin termination fees.
Adjusted operating margin was 28.8% for the first half of the year, which reflect a decrease of 40 basis points compared to the prior-year period. An 80-basis-point negative impact in our Corporate segment is impacting current margin performance a bit more than expected.
That said, the operating margin characteristics of our businesses remain very healthy. The adjusted loss in the Corporate segment increased by $8 million in the second quarter and $15 million year-to-date, resulting in about an 80-basis-point negative impact on overall company margin for both periods.
The $15 million increase in operating loss for the year is primarily due to incremental legal costs of $6 million, or $0.02 per share, and the impact of last year's $5 million building gain. We do not expect these legal costs to recur in the second half of the year.
The remaining increase in the year-to-date corporate loss was due primarily to internal program costs associated with the attainment of our $250 million operational effectiveness objective. Now on to the segment results.
The Payments segment had another strong quarter, as total adjusted revenue grew by 6% to $517 million. Adjusted internal revenue growth for the quarter and year-to-date was 5%, driven primarily by our electronic banking, card services and investment services businesses.
Although innovative solutions such as Mobile Money and ZashPay have not yet contributed significantly to revenue, we are seeing strong demand. The very good news is that since launch, 450 clients have committed to Mobile Money and nearly 870 clients have committed to ZashPay.
We expect innovative solutions like these will deliver value for clients and enhance our overall recurring revenue growth profile. Bill payment transaction volume, excluding the impact of the ongoing Wachovia deconversion, grew 7% in the quarter and 8% year-to-date, compared with 7% in the first half of 2010.
Notably, e-bill transaction growth accelerated to 4% in the second quarter from 2% in the prior-year quarter. As an aside, we have received some questions about the retention of large bill payment clients.
Since the acquisition of CheckFree, we have not had a single competitive loss of a top-35 financial institution that utilizes the market-leading CheckFree RXP platform. Recently, a large financial institution that was a remittance-only client did decide to leave Fiserv.
This client was generating several million dollars of annual remittance revenue and will deconvert later this year. Card services continues to be one of the fastest-growing businesses in our Payments segment.
Debit transaction volume grew 19% in the quarter and 20% year-to-date. Operating income for the Payments segment increased 9% to $164 million in the quarter, and adjusted operating margin increased 70 basis points to 31.7% compared with the second quarter of 2010.
Drop-through from strong, high-quality revenue growth contributed to the increase in profitability and margin in the quarter. Year-to-date, adjusted operating margin was up 20 basis points in the segment compared with the first half of 2010, primarily due to additional revenue growth, offset by product costs in newer areas such as Mobile and P2P, which have not yet delivered significant revenue, and additional resources to support the delivery of several larger complex client projects in areas such as Internet banking pressure the overall margin performance.
Our Financial segment generate consistent results in the second quarter, with revenue of $497 million, up 2% versus the prior year and 4% sequentially. Adjusted internal revenue growth was 2% both on the quarter and year-to-date.
These results are in spite of a 2-percentage-point revenue growth headwind from a continued secular decline in check processing. Through June 30, we saw solid growth in our community bank and credit union account processing businesses in new wins and existing client sales.
Financial segment operating income grew 10% sequentially to $153 million in the quarter, which resulted in operating margin improvement of 190 basis points sequentially to 30.8%. Operating margin was down 10 basis points compared with the second quarter of 2010 and flat for the first half of the year at 29.9% compared with the prior-year period.
While segment operating margin in the quarter was positively impacted by scale benefits, these were more than offset by a decline in termination fees, negatively impacting the segment margin by approximately 70 basis points. Our 35% tax rate in the quarter was positively impacted by state tax law changes that resulted in a benefit of approximately $0.02 per share.
We expect our effective tax rate for the full year to be approximately 37%. Free cash flow was $335 million for the first 6 months of 2011, which decreased 5% compared with the $353 million in the prior-year period.
As you may recall, free cash flow was particularly strong in the first half of last year, growing 14% over the prior period, which led to a tough compare for the first half of this year. The decrease in cash flow is primarily due to timing differences in working capital and growth in capital expenditures, which should reverse by year end.
Capital expenditures through June 30 increased $18 million to $102 million and included $12 million of capital for our data center transformation initiative, which is the vast majority of what was planned for all of 2011. Speaking of cash flow, today, we received a $54 billion distribution as a result of our investment in StoneRiver, which will be reflected in the third quarter financials.
We are pleased with the performance of this investment. We continue to enhance our long-term capital structure with the completion of a $1 billion debt refinancing in June that extended our debt maturities at historically low rates.
The new debt has an average term and interest rate of 7 years and 3.8%, respectively, and was used to retire the remaining $1 billion of our 6 1/8% senior notes due in 2012. $700 million of these notes were repurchased in June, and the remaining $300 million were redeemed in July.
Given the July redemption, the end-of-the-quarter balance sheet includes an offsetting increase in cash and current maturities of long-term debt of $300 million. We repurchased 2.6 million shares of stock in the second quarter for $163 million and through June 30 have repurchased 6.9 million shares for $424 million.
There are 6.7 million shares remaining on the new repurchase authorization approved in the quarter. Now I will turn the call back over to Jeff.
Jeffery Yabuki
Thanks, Tom. As you likely will recall, we increased sales quota, which is at 100% for our internal target level in 2011.
In spite of that increase, we attained 119% of quota for the quarter, recording the largest sales value quarter in the company's history. Through June 30, we are now at 104% of quota, which in absolute sales value is an increase of 38% over what we obtained in the same period in 2010.
Sales were strong across a number of businesses, including account processing, integrated sales, mobile and payments. Many of the sales wins were larger in size and complexity, and should provide a tailwind to revenue growth in 2012.
Importantly, even with the record sales quarter, our pipeline remains quite active and very healthy. Although sales cycles continue to be longer than they have been historically, we believe the finalization of the Durbin rules will allow financial institutions to make decisions that could positively impact IT spend this year.
Integrated sales were also strong in the quarter, totaling $46 million, or 30% of our annual target. Bill payment, debit and other payment solutions drove more than half of the integrated sales in the quarter.
Total integrated sales through June 30 were $68 million, 44% of the full year goal. We are right on track to achieve our full year target of $155 million.
We also made good progress on our operational effectiveness goals, recording $12 million in the quarter, which includes some cost benefits from the staff action we took back in Q1. We've achieved $16 million year-to-date, and momentum is in place to make our $25 million target for the year.
Before we get to guidance, let me comment briefly on the environment. The pace of regulatory actions continues to be slower in 2011.
There have been 74 regulatory actions through July 22 compared with 114 in the prior-year period. Small institutions are the subject of the majority of the regulatory actions this year, resulting in a nearly 70% reduction in total assets of the impacted institutions.
At the same time, the industry continues to see increased voluntary acquisition activity this year, and we expect that to continue. The big regulatory news in the quarter was the fed's finalization of Durbin.
While Durbin will negatively impact debit interchange revenue for larger institutions, albeit at a level better than originally signaled, the fed did confirm the creation of a 2-tier interchange system that will exempt debt issuers with less than $10 billion in assets from the interchange caps. We view this as positive for our business in the near and the mid-term.
The network exclusivity provisions of Durbin that require 2 unaffiliated networks on a debit card make real the opportunity for our ACCEL/Exchange PIN debit network to engage with larger issuers currently involved in exclusive network relationships. We also believe the majority of these decisions will likely be made in 2011.
Lastly, while interchange limitations on prepaid were different than anticipated, Durbin has substantially increased financial institution interest in general-purpose reloadable prepaid. Market interest has us also optimistic about the broader prepaid opportunity, consistent with our acquisition earlier this year.
We continue to see strong financial institution interest in several important areas: online and mobile channel optimization, the creation of information advantage and also a growing belief in a convergence in payments resulting from rapid innovation and technological change. Our strategic focus has us well positioned to help clients take advantage of each of these exciting opportunities.
Turning to guidance, we continue to anticipate internal revenue growth of 2% to 4% for the year. We continue to expect 2011 adjusted earnings per share of $4.42 to $4.54.
As I mentioned earlier, we've outperformed our internal expectations for revenue growth and adjusted EPS in the first half of the year, some of which will derisk our second half performance. However, given our performance to date, we now believe our full year adjusted EPS performance will bias towards the upper end of the range.
We continue to anticipate 2011 free cash flow of 5% to 8% -- I'm sorry, free cash flow growth of 5% to 8% -- and now believe that full year operating margin will expand in the range of 10 to 50 basis points. As we mentioned, this change is primarily related to unplanned costs in the Corporate segment and implementation and delivery expenses related to bringing new complex clients online.
Lastly, we expect the fourth quarter to be the strongest in earnings, margin and absolute revenue, due primarily to the timing of license revenue and the expected year end buying behaviors which typically boost our fourth quarter results. In summary, we feel great about our progress this year.
We're taking decisive actions to enhance the position and profile of Fiserv while still delivering solid financial results. We're excited about the opportunities we see to deliver more value for clients and for you, our shareholders.
None of this would be possible without the commitment of our thousands of associates around the world, who bring their A game to Fiserv each and every day. With that, Kim, let's open the line for questions.
Operator
[Operator Instructions] Our first question comes from Ashwin Shirvaikar with Citigroup.
Ashwin Shirvaikar - Citigroup Inc
My first question, I guess, is with regards to the extinguishment of debt. Was that contemplated at the beginning of the year when you gave preliminary guidance?
And if not, why isn't -- between that and the benefits that you got from the first quarter, I would imagine that you'd be able to do a lot better than just say that you're biased towards the upper half of your EPS range.
Thomas Hirsch
Well, actually, we have a number of things. I mean, clearly, when we set our plan in the early part of the year, we have a number of different capital deployment opportunities that we have.
And clearly, we look at the debt refinance markings as they come up. So we have a different amount of scenarios that go into our overall EPS guidance for the year.
Some of those can be positive, and some of those can be negative, right? Sometimes we allocate our capital to share repurchase, sometimes we allocate our capital to more strategic acquisitions, as we are this year with the acquisition of CashEdge.
And those are going to have different impacts from an earnings-per-share standpoint. But clearly, from our standpoint, we've had a very strong first half of the year.
As Jeff indicated, we're ahead from our expectations standpoint. We clearly reiterate, we have a bias to the upper half of our range.
And we do not want to get ahead of ourselves from that standpoint. And we've really executed well in the first half.
And our new sales wins are from a standpoint of our success in the second quarter from new sales that are really going to impact us primarily in '12 and '13. We're going to have some additional expenses we're going to be incurring in the current year.
And clearly, we also, Ashwin, had some unusual corporate expenses. Clearly, we had the legal costs, which impacted us by a couple of pennies, along with some additional program management expenses, really to build long-term value and our operational effectiveness.
So there's always things that balance with our overall guidance for the year, but, clearly, we have a bias to the upper half, and that's where we're at today.
Jeffery Yabuki
Yes. I would add, Ashwin, that you may recall when we announced in Q -- or at the end of Q1, the action, the severance-related action, that a large portion of the savings from that would be allocated to the realigning our costs so that we would have the resources available to do the work that's necessary on some of the new products that we've been bringing to market.
So we did say that we thought that a fair amount of that would be subsumed in the new-product investments. Secondly, on that point, we indicated that while we had made the action -- that we announced the action and taken the charge in Q1, that those expenses -- that those impacted people would come out at different times during the year.
So all of that benefit did not occur in the first quarter. It's staggered throughout the year.
So we already have some benefit, and part of that is included in our operational effectiveness, part of it is being reallocated to the product investments that we spoke about. And to the extent that it is helping us to move up in the range, certainly, that's why we said we bias to the top.
I think the other thing we want to make sure that we're clear about is, from our perspective, there are still 6 months left in the year. The environment, we think, is getting marginally better, and certainly, the regulatory environment helps deliver some certainty, and we think that's a good thing.
We don't see any value in getting ahead of ourselves at this juncture. We'll continue to manage the company.
We're giving you as much insight and information as we can, and obviously, in the third quarter, we'll continue to know more.
Ashwin Shirvaikar - Citigroup Inc
No, fair enough. Slow and steady is a good thing.
But one question I did have as a follow-up on a comment you had, Jeff. In -- with regards to what seems to be the increasing complexity of projects and implementation, is that a byproduct of the integrated sales push?
Are you selling more -- I mean, is that something that the clients want to do because of the higher information content? What's leading to that higher complexity and longer implementation?
Jeffery Yabuki
Yes, that's a great question. There are really 2 big drivers -- well, probably 3 big drivers of that.
First of all, some of these products are newer products, and that's, by definition, these new solutions -- we don't have the same rhythm that we have on something that's been around for 10 or 15 years. So we're figuring that out a little bit as we go.
But the second item, though, and to your point, is the account processing transactions that we are entering into are much larger and much more complex. It's not unusual for an account processing client to add anywhere from 10 to 25 different solutions that all get integrated in, and that kind of a replacement does take longer and is more complex than if you're just doing core account processing and item processing and that's about it.
So that clearly takes a little bit longer, and we feel very good muscle in that area, and we're continuing to do that. And then the third item is really around these very significant large Internet banking licensed and services implementations.
And these are very complex implementations that rely not just on us, but often these are connected to large transformational projects going on within the institutions at the same time. And what we are finding in those cases is that the timing is getting pushed not because of us, but because of the institution and what's going on there.
So when you add those all up together, they're making it on balance more complex. From our perspective, however, what I want to clarify is we don't view that as any change to the operating model of the company.
What we view that on is, in some cases, we'll have implementations that take a little bit longer, but that revenue will scale and deliver the kinds of normal margins that we have become used to in the company over the last, certainly, over the last 5 years. We feel quite confident about that.
Operator
Your next question comes from David Togut with Evercore Partners.
David Togut - Evercore Partners Inc.
Jeff, you highlighted the strong bookings you've had in the first half but that you won't get much of a lift from those until 2012 and '13. My question really relates to Financial segment, which is growing significantly slower than Payments.
I guess, what would be the key drivers outside of bookings that might lift the growth rate of the Financial segment in the back half of this year?
Jeffery Yabuki
The big items would be a change in the trajectory of the decline in item processing, which I think is unlikely to happen, and existing -- I'm sorry, sales of products to existing clients. So we call them current client sales.
So the ability to deliver more products to our existing core account processing clients. And we do think that, for example, something like Durbin should have or could have a positive effect on that segment of the business.
And then lastly, just continuing to have ramp-up of the number of sales that we've had over the last few years. You may remember back to last year's Investor Day, I mean, we have done a nice job in the account processing business of adding clients and adding share, and that can just continues to be implemented each and every quarter.
But those are the big items. Tom, can you...
Thomas Hirsch
No. I would just say, David, to your point, right, we're at about 2% growth in that segment, as Jeff highlighted, right?
And what we planned on is in '11, we have more churn in our check because of the secular decline and also some FDIC actions. That's about a 2% negative impact on the growth rate in that segment.
And over time, as we go into 2012, '13, that is going to dissipate just given where we're at with that particular business. And we've also had a decline, as you know, in contract termination fees, which hit us a little bit also by about 1 percentage point in the current quarter.
But I think, as Jeff highlighted, as we get to the second half, as those buying patterns improve and we get more add-on products into our existing core, that's one of the big drivers, along with the new core sales wins that we highlighted in our press release, a number of those both in community banks, larger institutions and also in credit union.
David Togut - Evercore Partners Inc.
Got it. And just a couple of quick financial questions.
Tom, you indicated $16 million operational cost savings in the first half but only $25 million expected for the year. Are you really expecting the rate of cost savings to slow in the back half of this year?
And if so, why?
Thomas Hirsch
Yes, I think we'll continue. That's our target for the full year.
Clearly, again, David, we're ahead of expectations, where I thought we'd be. We're making some good progress on a number of different initiatives there.
So I think we'll probably go a little bit better than that. But our plans continue to roll out.
And as I said, we invested a little bit more from a corporate standpoint in some program management and other opportunities. So we'll continue to progress.
I don't think it's going to decline significantly, but I want to be cautious around the target, because that's what we said at the beginning of the year.
Jeffery Yabuki
Yes. And we -- and just as a matter of course, David, we don't ever adjust those.
Thomas Hirsch
Yes.
Jeffery Yabuki
Even if we think we're going to exceed, we would never move them up.
Thomas Hirsch
Yes.
David Togut - Evercore Partners Inc.
I see. And just 2 quick final ones, Tom.
Quarter-end share count and basic weighted average shares outstanding for the quarter?
Thomas Hirsch
Yes. Our diluted -- I'll get back to you on the basic shares that we have outstanding, but we have about 1.8 million of dilution.
And so the weighted average that you see there for the quarter is 144.2 million. So you can back that off, it's roughly 1.7 million from a dilution standpoint.
And I think it was a little bit lower as we head out of the quarter. But I'll get back to you on that.
Operator
Your next question comes from Glenn Greene with Oppenheimer.
Glenn Greene - Oppenheimer & Co. Inc.
I guess a first question for Jeff. You sort of -- if I heard you right, you made a comment that the finalization of Durbin will positively impact IT spending trends this year, which seemed like a pretty definitive and positive commentary from you.
A little bit more color around that. Is that just that we're sort of gotten the uncertainty past us?
Banks can go back with their -- on to their business and start making decisions again? Or is it something more specific to Durbin as it relates to sort of these exclusivity decisions?
Or was it more of a broader comment related to IT spend?
Jeffery Yabuki
It is more the former than the latter, and I hope that I said it should. If not, I suspect our lawyers will be calling me to make sure I say we should, since it's my opinion.
Glenn Greene - Oppenheimer & Co. Inc.
You did say believe, so...
Jeffery Yabuki
There has been -- with all the uncertainty, clearly, what we've heard from the clients and financial institutions around the country is, to the extent that Durbin gets settled, people can make decisions and move on. And that's clearly -- there is a feeling of relief in certain tiers of the market, and a feeling of "let's get going now that we know the rules" in other tiers of the market.
I think for both of those reasons and the certainty people will make decisions, and I do believe that, that will happen this year. I mean, as it relates to the PIN debit network exclusivity provision, I mean, almost -- there's really not a choice.
I mean, people have to make those decisions in the near term. And so we do think those will be made.
And then the last item is there are a number of exempt institutions, those under $10 billion, who see the 2-tier system as an opportunity to potentially differentiate themselves and their offerings versus the larger institutions, who may do things like eliminate or change their rewards programs, charge for DDAs and other kinds of things. So we are seeing a level of optimism and potential model innovation in certain of the exempt institutions thinking about where they might be able to spend.
And typically, that spend has some technological component, and, therefore, we would think that there will be some value to us.
Glenn Greene - Oppenheimer & Co. Inc.
Okay. Different direction, ZashPay.
And kind of a little bit more on the strategic rationale, I'm thinking there's -- actually on CashEdge, I meant. But the strategic rationale on CashEdge, and I'm thinking there's a nice natural synergy with the ZashPay solution.
Maybe you could just comment on that.
Jeffery Yabuki
Sure. I mean, clearly, CashEdge has a pot money, which we think is a good, high-quality solution in the market today.
We have ZashPay, which we think is a good, high-quality solution on the market today. And CashEdge has some great people as we do, and we think by putting the businesses together, they'll create some real energy.
We think part of the key to making -- having P2P grow up the way we'd like it to grow up is having a single network that consumers can use to transact. And so part of our plan, once that acquisition receives regulatory approval and we close, will be on work on how can we best go to market with our respective strengths to deliver something that financial institutions can provide to their customers.
Obviously, both us and CashEdge believe in financial institutions as the way to go, so we're both financial institution-centric. And so we think there's a lot of opportunity out there.
And not just on the consumer side, Glenn, but also on the small business side. I think the small business payments opportunity is fantastic.
CashEdge has some wonderful capabilities that were literally a couple of years ahead of where we are, and we think those capabilities integrate into our distribution system as a home run.
Glenn Greene - Oppenheimer & Co. Inc.
And then just one more, finally. I know you've talked about the innovative solutions, Mobile Money and predominantly, ZashPay, and you seem pretty optimistic about it coming out in the last quarter.
Any sort of reasonable expectation for the revenue contribution in 2012 from innovative solutions?
Jeffery Yabuki
Yes. I mean, what we will say is where we are -- what we have said is there is no material revenue coming to the company at this stage from virtually any of these solutions that we've talked about, from Acumen all the way through.
And one of the things that we plan to do at Investor Day is to try to provide more clarity on how this revenue will build up in these innovative solutions. We know we've talked a lot about it.
We think it's important for investors to understand with more clarity and conviction on how that revenue will ramp and what the characteristics of those business models are.
Operator
Our next question comes from Tien-Tsin Huang with JP Morgan.
Tien-Tsin Huang - JP Morgan Chase & Co
Everything looks pretty straightforward here. Just a couple of questions.
Just on the fourth quarter comment that you had, Jeff, that being the strongest quarter, I'm just wondering, I guess, the visibility into that statement. And I'm curious if there's any dependency on things like budget flush or implementation on things that could potentially slip?
I'm just trying to qualify that a little bit more.
Jeffery Yabuki
Sure. And Tien-Tsin, what I would say is, and I know you will recall this, I mean, for the last 2 years, we have been positively or pleasantly surprised at how strong the fourth quarter has been, and for a variety of reasons, some of which you've covered in your question.
We have reasonable visibility to what's going on, both in the third and fourth quarter, and we have every reason to believe that the absolute performance in the fourth quarter revenue will be as we talked about. Part of it is we have businesses like Output Solutions that have some seasonality, and part of it is because of the conversations we're having with clients.
And then lastly, just based on the sales that we really had going last year and the implementations that are going now, we can see that revenue, we can -- we have a reasonable indication of when that revenue will come online. Now my caveat would be that in any quarter, 1% revenue growth is $10 million, and it doesn't take very much for that to move around from a quarter to a quarter.
But we feel very comfortable with our revenue guidance, and we feel very comfortable with the direction that we gave on how the revenue will move between the quarters.
Tien-Tsin Huang - JP Morgan Chase & Co
All right. That's good to know.
Hope you appreciate why I ask the question. The -- on the bill pay disclosure about the large customer, thanks for giving that.
Is this a one-off sort of situation, or this something to watch going forward in terms of trend? I'm just curious if your competitors maybe improved their service offering or they're being a little bit aggressive on price, et cetera.
Jeffery Yabuki
That's a great question. So keep in mind that the client that Tom referenced was not an RXP client.
So they were a remittance-only client. So we were not providing, as you know very well, kind of the value pieces of the equation.
We were involved in the discussion with the financial institution. We proved all the value that we bring to the party, which is supported by the fact that we have not lost a top-35 client in the time that we've owned CheckFree.
And -- but we have also said at other times that there are some deals that we just would prefer not to end up winning. So from our perspective, we believe that the -- we have a strong solution, and that's proven in the market each day, and we think we have, actually, pretty good momentum in the market.
And I think you'll see that later on in the year.
Tien-Tsin Huang - JP Morgan Chase & Co
And that's fourth -- the fourth quarter event, any term fee there? Anything unusual to consider?
Thomas Hirsch
Yes. It's really not a -- I mean, it's a couple of million dollars of revenue.
So It's not that significant from that standpoint.
Tien-Tsin Huang - JP Morgan Chase & Co
Okay. Yes, so fine.
No big deal there. Last one for me, I promise, Tom.
Just housekeeping. What was the adjusted tax rate from continuing operations that we should assume?
I think I missed that.
Thomas Hirsch
You mean going forward?
Tien-Tsin Huang - JP Morgan Chase & Co
Well, just in this quarter that you just reported, sorry. [indiscernible]
Thomas Hirsch
Well it's a little bit different, because we have a couple of nuances going in there. And clearly the GAAP rate, as you saw, is around 35%.
The adjusted rate was a little bit higher, because we tax effect -- one of those items had little bit higher rate to be a little bit more conservative. So it was around that 36%.
Operator
Our next question comes from Chris Shutler with William Blair.
Christopher Shutler - William Blair & Company L.L.C.
In terms of the CashEdge deal, P2P is actually a pretty small piece of what they do today. So I want to get a sense beyond the pot money product, what do you see there?
Are there other solutions to the account opening, the account transfer, those types of things being nice drivers for you going forward and just how those might fit into your set -- solution set?
Jeffery Yabuki
Yes. I mean, Chris, you hit that nail right on the head.
I mean, P2P is small for them, and I think for everyone, at this stage. The value that CashEdge brings in the very near term is the phenomenal A2A open -- online account opening, online funding, business products -- some of the business products that I referenced, phenomenal risk, phenomenal risk management capability.
And from our perspective, we see the opportunity to integrate that well into the different solutions that we have, whether they be online banking within our core system or into Voyager. The other really interesting asset that they bring is in their aggregation services, where they are, arguably, the top aggregation provider in wealth management technologies today.
And we see some very nice opportunities to be able to integrate those kinds of technologies into our online banking experience, potentially use it in mobile and a variety of other places. So we're really excited about that as well as in our wealth management solutions.
So a lot of areas outside of P2P where we think there's going to be near-term value as well as the ability to do some interesting things on the P2P front.
Christopher Shutler - William Blair & Company L.L.C.
Okay. Thanks, Jeff, and then on the new sales front, the wins that you mentioned, you didn't give too many real specifics around that.
So I was just wondering if you can talk about the size of some of those deals. Is there anything in there that's close to the size of the Westpac deal or anything that you signed late last year, and then what the areas of strength have been?
Jeffery Yabuki
So we had -- we actually had a very good quarter on the account processing side. In the press release, one of the reasons why we didn't go through a lot of details, there's a lot of detail in the press release.
But Fulton Financial, a $16 billion institution, moved onto the Signature platform with a very large suite of services. So the Acumen deals that we talked about around Randolph-Brooks and TruStone were very large deals.
We didn't have a deal the size of Westpac on the Internet banking front, but there's just a lot of momentum around Internet banking, bill payment, mobile, all of those areas. So not giant standouts, but I would say not -- we had probably a lot more medium to small-large, if that makes sense.
Kind of not jumbo, but kind of in the medium-to-large range that will be keeping us busy for quite a while.
Thomas Hirsch
I think the other point, Chris, just add to what Jeff said, is that the biggest thing that has changed probably, from when you look at that quota value of this year compared to maybe 2 years ago, is just the amount of solutions that are in that suite. And whether it's Mobile, P2P, debit, online banking, there's just a lot of products that are integrated into that core that we're delivering.
And so you can imagine the contract value you'd get on RXP wins over the next 3, 4, 5 years, et cetera. So a lot of good, recurring revenue that's kind of funneled together into that package.
And I would say we're -- we continue to make progress, but we're doing a hell of a lot better with that now than we did a few years ago.
Jeffery Yabuki
And the strength is really coming. There -- it was -- the sales quota overperformance was biased to the payment side.
So that's where the majority of the overperformance sat. And we probably shouldn't forget to mention ACCEL/Exchange, which is doing quite well also.
Christopher Shutler - William Blair & Company L.L.C.
Okay. Just one more, if you don't mind.
On the termination fees in the quarter, Tom, can you just give us that number? I'm assuming is was all in Financial.
Thomas Hirsch
Yes. It was primarily in Financial.
Well, we did have a couple of millions in Payments, but we had $12 million in the second quarter last year, and it was down $4 million, down to $8 million in the quarter this year.
Operator
Our next question comes from Kartik Mehta with Northcoast Research.
Kartik Mehta - Northcoast Research
Jeff, you talked about the Durbin amendment and maybe the benefits you can get from the ACCEL/Exchange. And I'm wondering, how do you differentiate your network so you can win some market share as others will be trying to do the same thing?
Jeffery Yabuki
Yes. Kartik, it's a good question.
We spend a lot of time talking about it. And maybe for obvious reasons, it's something we prefer not to talk about at this stage.
I mean, we have a strong network, a strong capability, and frankly, we've got great relationships across the system with a number of different products and opportunities to think creatively.
Kartik Mehta - Northcoast Research
But then, Jeff, maybe on CashEdge, you talked about the aggregation services and CashEdge having excellent technology. And I'm wondering how you will integrate that product so you can have some real broad success.
Because it seems as though in the past, some of these aggregation services just have not gotten the scale they needed to. And I'm wondering maybe now that, that service is in a larger company with better online banking solutions, how that might work and how that might help you really accelerate growth in that?
Jeffery Yabuki
Yes. It's a good question, Kartik.
I mean, from -- you know well that we have great scale in that area. Somewhere around 60 million online banking users today are using one of our technology solutions.
And so from a distribution perspective, the ability to integrate a very high-quality solution, and not just to integrate, to deeply integrate a very good personal financial management aggregation kind of tool we think will be quite powerful in the market. We have not had that technology historically.
We've integrated into others, but that is not the right experience. So being able to integrate that directly and not have to open a new window, not have to leave and to be able to allow financial institutions to really have different kinds of conversations, advice-based conversations with our clients using some of that technology we think will go a long way.
But it's really the power of the distribution.
Kartik Mehta - Northcoast Research
And then just a question for you, Mark. I think during the last conference call, you indicated you're spending a significant amount of your time on revenue-generating ideas.
And I'm wondering as you've done that over the last several months, what are some of the largest opportunity you see for the company, especially with what you're doing?
Mark Ernst
Well, I guess what I would say at the moment is I find myself in the flow of a lot of the opportunities that we have, and one of the things that it takes to make all those things happen is that somebody at the senior level who can understand all the different trade-offs that we would make across the company needs to be able to be in the room. And in this case, we have multiple people now who could be in the room rather than Jeff or Tom and a few others that needed to be in all those cases.
The other thing, nobody has asked the question, but I think it maybe would be relevant to take that kind of comment on here, we have had a variety of kind of partnership relationships. And recently, there was a comment by FIS about their relationship with Intuit and their bill pay relationship there.
And that is something that we are actively engaged in, I'm personally actively engaged in, to ensure that we are winning that business and keeping that business. We've had a long-term reseller relationship with Intuit that was -- that actually predates Fiserv's acquisition of CheckFree.
That relationship was recently -- or that agreement was recently terminated by Intuit in favor of a relationship with FIS. In the last couple of years, they've really been biasing their volume toward FIS, and, more recently, they've really sort of decided to make a complete turn in that direction.
Now the revenue that we get is really in RXP line of business for us. The revenue they get -- we get out of that is about $20 million, or a little less than 0.5%.
But the terms of this are something where we are -- we have historically been prohibited from selling our online banking capability to those clients or in competition with BI because we have this bill-pay relationship. With this termination, we are working very aggressively to find the right ways to go back into the market with our various online banking capabilities to very aggressively compete for that business.
We think that the clients who have had the experience of having their customers with CheckFree RXP are going to find that they don't want to degrade the quality of the relationships, the quality of the experience that their customers are getting. So we're working hard to grow our business and to sort of resolve that relationship on behalf of those clients in our direction.
So I'd use that as maybe an example of the kind of things that we have the capacity and we are aggressively going after to continue to grow revenues for the company.
Kartik Mehta - Northcoast Research
And just one last question, Jeff. Does your buyback philosophy change at all with the CashEdge acquisition for this year and going forward?
Jeffery Yabuki
Kartik, our capital allocation strategy is fairly well laid out. Clearly, we're going to be consistent with what we've done in the past.
And clearly, we've dedicated a large part of capital to a strategic acquisition, which is very important for the long-term health, and we'll continue to balance that going forward.
Operator
Our next question comes from David Koning with Baird.
David Koning - Robert W. Baird & Co. Incorporated
Just a couple of quick ones. I guess, first of all, interest expense.
Given the debt exchange recently, how should we expect that to trail down? I would imagine somewhat aggressively sequentially, maybe $2 million to $3 million down sequentially.
Thomas Hirsch
Yes. I think that's about reasonable.
I don't think it will be much more than that. So the -- I think that's very reasonable from that standpoint, Dave.
David Koning - Robert W. Baird & Co. Incorporated
Okay. And then just secondly, and you talked quite a bit about this before, but I guess, the one thing -- on the Payments segment, that obviously will continue to be a strong growth segment.
And to get your long-term growth guidance, whether it's mid-single digits or a little better, that would seem like it would have to accelerate. And given debit volumes are already very strong, around 20%, bill pay is reasonably strong, is it really those new products plus do you expect bill pay to get better over time as more and more -- can that growth really continue to get better?
Are those really the drivers that get that from 5% today to, say, high single-digits a couple of years from now?
Jeffery Yabuki
I mean, simplistically, I would say yes. We think there's still a fair amount of growth in bill pay, especially when you consider how early e-bill is in its penetration.
We think there's a lot of value to be created there. In the debit business, clearly, at some point, you could run into the law of large numbers challenge.
But what I'll tell you is, and I think you know this quite well, we have been winning businesses -- I'm sorry, we have been winning, call it, 50 debit clients a quarter probably for the last 10 or so quarters. And one of the things that's going on underneath that is the clients that we are winning are tending to be larger than they had been historically.
So we're not just bringing on the same number of clients, but the transactions and the revenue associated with those wins are larger. And then, on the bill pay side, we have been adding, call it, 100 to 125 a quarter, and again, that business has, as you know, gone from nearly nothing to -- over the last 3 years, we've added 1,500, 1,800, 2,000 institutions.
That's going to continue to grow, and that compounds very nicely. So we think there's still a good amount of growth there.
And then lastly, we believe we won't have to do things like grow over Wachovia. I mean, those kinds of things are fairly big deals that we are dealing with and moving through.
And we believe that, through our technologies like Mobile, the ability to put -- the interesting thing on something like Mobile. So we sold Mobile, I believe 450x today, and that will generate revenue in and of itself.
But the real beauty in Mobile is that it will allow people to pay their bills using a mobile device. And so the ease and convenience of doing that through a deeply integrated Fiserv-oriented solution will allow not just us to create Mobile revenue, but we believe that there is a reasonable probability that, that could be one of the drivers to get people to that next level on the s curve and to see a new escalation in bill pay transaction growth.
Mark Ernst
And Dave, I'll probably just add a little something to that, because I think one of the key things to your point is that we've executed very well this year in this environment. But we're at 5% growth on our Payments segment.
For the future, we'll go into this a little bit more, as Jeff highlighted earlier, on Investor Day, but the Mobile, the P2P opportunity, our biller business, which is a very important business in this segment that we think has some great opportunities, as you know, that became a big piece of our strategy that we laid out. We clearly have not had a flow income in this business.
That's basically been at 0 for the last couple of years. Now the buying behaviors.
As Jeff highlighted, it's been a tough time in the industry over the last several years. And then really the transaction activity, which has been, I would say, more normalized for this type of environment from a consumer standpoint.
So we'll be going into a number of those things. But again, given the run rate where we're at and being able to get a few percentage points more over the next several years, that's $50 million, $60 million of revenue in that segment, and, clearly, we believe we can do that.
We'll be laying out more of that as we kind of get to Investor Day.
Jeffery Yabuki
And, Dave, you didn't ask this specifically, but I want to make sure that it wasn't inadvertently implied by your question. I mean, we believe that there are attractive growth opportunities in both segments.
And so we would expect to see the Payments segment continue to enhance its growth rate as well as the Financial segment. I mean, something like Acumen alone, we believe, will move the growth rate in the Financial segment.
So we would expect both segments to move up in lockstep over the "3-year period" that we think about for guidance. We don't think the natural growth rate in the Financial segment is 2.
So those together are how we will end up moving within our guidance range. And I just want to make sure that we're clear about that.
Operator
And the next question comes from Julio Quinteros with Goldman Sachs.
Julio Quinteros - Goldman Sachs Group Inc.
So one thing just at the end here, I guess, for me, that I haven't heard you guys talk about too much about, and given all the noise on the international front about acquisitions and activity, where does the international part of the story play out for you guys, whether it's organic or through M&A? Help us kind of think through some of that stuff.
And by the way, I think, Holbrook has done a really good job of articulating the electronic payment strategy, and I think that's something I'm looking forward to hearing more about. But I guess on the other side, where does international fit in?
And that's some -- that I'd love to hear some more color on.
Jeffery Yabuki
Sure. So we have been very consistent over the last 5 years, 5.5 years, I guess, at least my tenure, that doing large international transactions is not something that we are highly motivated to do.
We think those are -- those carry more risks than we would like to take. And so, therefore, we've shied away from those kinds of transactions.
That's been our historical pattern. And at this juncture, I think we made it clear that payments and channels is where we see the big opportunity outside the United States.
The Mobile market is just as frothy outside the U.S. as it is here.
We bought M-Com, part of why we bought M-Com is it is regarded as a top global mobile banking solution. We actually won recently our first client in EMEA, and so we're excited about that.
So we will continue to look to differentiate our outside-U.S. approach on channels, so mobile and Internet banking.
We see a lot of good opportunities for us on the retail banking side. So our Tesco client, we think, is a great example of what we can do, bringing this multichannel approach.
So a face-to-face Internet banking, mobile, and bringing some of our expertise to bear. So we see that as an opportunity.
And we see some emerging payments opportunities in other parts the world where we believe that, actually, our P2P technologies can actually be exported to some spots around the world. So we're excited about those opportunities.
But it's really channels -- it's largely a channels and payments strategy at this juncture.
Julio Quinteros - Goldman Sachs Group Inc.
Got it, great. And just a quick follow-up on prepaid.
Where would prepaid fit into sort of the order of priorities for you guys?
Jeffery Yabuki
Well, we made a small prepaid acquisition this year to bring those capabilities in. And we really did that because of the demand we were receiving from the, call it, the $25-billion-and-less -- yes, it's probably the right answer, $25-billion-and-less size.
Financial institution is really looking at prepaid as a -- in response to Durbin. Obviously, the Durbin rules came out the way they did, but people are still pretty interested in that.
So we see some interesting opportunities in working with financial institutions, but we also see a couple of network opportunities. Linking P2P to prepaid we think is quite intriguing.
There are some opportunities around linking prepaid to money transfer and those kinds of things that, given our internal network and the fact that we are routing, call it, $1 trillion a year, we see some ways to leverage those capabilities. So we see it as an interesting opportunity.
I don't think anyone in Fiserv right now -- well, there's probably a couple of people who will disagree with this -- but for the most part, we see it as a more nascent opportunity, but ways that we can fill out the capabilities that we need to deliver to some of our traditional and nontraditional providers who may be offering prepaid up today. And that's both on a processing and a program management standpoint.
Operator
And our last question comes from Peter Heckmann with Avondale Partners.
Peter Heckmann - Avondale Partners, LLC
Most of my questions have been answered, but just a couple of follow-ups. As regards Acumen, the new credit union product, can you talk about -- there's been some nice wins, nice $1 billion credit unions.
Can you talk about is there a percentage of those that are coming from actually competing vendors, competitive takeaways? Or are they primarily upgrades from existing or older Fiserv platforms?
Jeffery Yabuki
Yes. It's really been a combination of -- it really started out with people, with existing Fiserv clients making a determination that they wanted to switch.
And that's not surprising, given it was "built up from the ground" technology. And what's interesting is we are having great success in having virtually anyone -- if you're over $500 million and you're interested in doing a -- you're interested in looking at a new account processing core in the credit union space, you're going to look at Acumen.
It's got great momentum. And -- but it's new technology.
And that's really the key. It's new technology, technology that's going to -- that will be old in 30 years, not old today.
So that is requiring people to look. And when people start to look under the covers, they get pretty excited about what they see in terms of the architecture of the technology itself.
The other thing that's probably most exciting is we're actually having people look and buy who are moving from homegrown to this technology. So people who had been in-house previously are saying this technology is so advanced that -- I -- that's probably an unfair statement.
It -- this technology is so unique that it is good enough to replace a homegrown system, and that does not happen very often. So we're pretty excited about that and think we're going to continue to see momentum in the Acumen space for a while.
Peter Heckmann - Avondale Partners, LLC
Okay, great. And then can you remind me, within the Payments segment, the customer reimbursement.
Why is that line item growing at an accelerated rate?
Jeffery Yabuki
Yes, that's just really, as you know, that's kind of -- that's why we adjust that out, it's kind of a pass-through-type item. So it kind of depends on the client relationship, whether it passed through us or them.
So I won't use it as a economic indicator of business from that standpoint.
Peter Heckmann - Avondale Partners, LLC
Okay. But there's no related margin with that type of revenue?
Jeffery Yabuki
No, no. Well, thanks, everyone for joining us this afternoon.
If you have any further questions, please don't hesitate to contact us, and thanks for the support.
Operator
Thank you. This concludes today's conference.
You may disconnect at this time, and thank you for your participation.