Feb 2, 2012
Executives
Peter Holbrook - Vice President of Investor Relations Jeffery Yabuki - Chief Executive Officer, President and Director Thomas J. Hirsch - Chief Financial Officer, Principal Accounting Officer, Executive Vice President, Treasurer and Assistant Secretary
Analysts
Julio C. Quinteros - Goldman Sachs Group Inc., Research Division Glenn Greene - Oppenheimer & Co.
Inc., Research Division David J. Koning - Robert W.
Baird & Co. Incorporated, Research Division Ashwin Shirvaikar - Citigroup Inc, Research Division Tien-Tsin T.
Huang - JP Morgan Chase & Co, Research Division David Togut - Evercore Partners Inc., Research Division Christopher Shutler - William Blair & Company L.L.C., Research Division Greg Smith - Sterne Agee & Leach Inc., Research Division John Kraft - D.A. Davidson & Co., Research Division Bryan Keane - Deutsche Bank AG, Research Division
Operator
Welcome to the Fiserv Fourth 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 and click on the Access Presentation link on the home page.
The call is expected to last about an hour and you may disconnect from the call at any time. Now I will turn the call over to Peter Holbrook, Vice President of Investor Relations at Fiserv.
Peter Holbrook
Thank you, Carol, and welcome to our fourth quarter earnings call. With me today are President and CEO, Jeff Yabuki; Tom Hirsch, our Chief Financial Officer; and Mark Ernst, our Chief Operating 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 revenue, adjusted internal revenue growth, adjusted earnings per share, adjusted operating margin, free cash flow, free cash flow per share, 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 measures. These non-GAAP measures are indicators that management uses to provide additional meaningful comparisons between current results and prior reported results, and is a basis for planning and forecasting for future periods.
With that, let me turn the call over to Jeff.
Jeffery Yabuki
Thanks, Peter, and good afternoon. Let me say upfront, 2011 was an excellent year.
Revenue growth continued to accelerate on the strength of record sales, differentiated solutions and strong client relationships. We delivered record earnings per share and took important steps to benefit our growth, earnings and capital structure for years to come.
We are very well-positioned entering 2012. Our results in the quarter were strong.
Adjusted revenue grew 6% and adjusted internal revenue growth of 4% was the highest quarterly performance in nearly 4 years. Our full-year adjusted internal revenue growth continued to climb, increasing 3% in 2011 versus 1% last year.
Adjusted earnings per share was up 20% in the quarter to $1.27 and increased 13% to a record $4.58 for the year, $0.04 above the high end of our original EPS range. Adjusted operating margin for the quarter increased 30 basis points over last year's strong Q4 performance and 100 basis points sequentially.
Adjusted operating margin for the full year was down slightly to 29.2%. Free cash flow of $734 million was essentially flat due primarily to increased capital expenditures and timing of working capital which we generally expect to reverse.
Free cash flow per share increased 5% to $5.09 for the full year. Free cash flow and free cash flow per share over the last 4 years have grown at a cumulative annual growth rates of 14% and 19%, respectively, reflecting the strength of our business model and consistent execution of our strategies.
We allocated over $1 billion in capital in 2011, split about evenly between strategic acquisition and share repurchase. We also refinanced a large block of our debt at historically low rates while extending our average duration by nearly 50%.
Our balance sheet is strong, and we remain within our targeted debt-to-EBITDA range. For 2011, we were focused on 3 key priorities: first, to deliver an increased level of high-quality revenue growth and meet our 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.
Adjusted internal revenue growth accelerated in both segments in 2011. The majority of our growth continues to be from high-quality recurring revenue in our existing businesses.
Innovative new solutions such as Mobile, P2P and Acumen are important element of our plan to further accelerate growth and are just beginning to ramp. Adjusted EPS growth of 13% marked our 26th consecutive year of double-digit growth.
Earnings grew while investing in these new solutions that should have the dual benefit of accelerating revenue growth and expanding margin. Fostering a step change in our revenue growth is a rationale for centering the Fiserv culture on growth.
The record success of our single sales organization is a proof point to that focus. We have significantly increased our expectations for sales performance in each of the last 2 years, and that's leading to better results.
In 2011, we attained 116% of quota which translates to an absolute increase in sales of 20% over 2010. For those keeping score, you may recall that our absolute sales in the second quarter were the highest in the company's history.
Just 6 months later, the fourth quarter sales results set a new high watermark topping the Q2 performance. We are also seeing increased productivity from our account managers across the company which adds to our ability to more closely match our solutions to the needs of our client base.
Differentiating solutions through innovation that leads to better client results is our highest priority. Financial institutions are rightfully focused on driving revenue and increasing efficiency to restore earnings lost over the last several years.
The recent Fed announcement that interest rates are expected to stay extremely low through late 2014 exacerbates that emphasis, with technology playing a key role in solving the revenue and efficiency equation. During the year, we acquired solutions that strengthened our leadership in channels and payments.
First, we acquired M-Com, a global leader in mobile banking and payments, to solidify our position in a rapidly growing market. This allows us to control the development of mobile capabilities and complement our leadership positions in Online Banking, Account Processing and Payments.
We also acquired Maverick solutions to provide financial institutions with a suite of prepaid capabilities to capture new streams of revenue. And importantly, we acquired CashEdge, the market leader in account-to-account transfer, online account opening and funding, P2P and data aggregation.
Each of these solutions can drive differentiation and revenue for our clients. As we enter 2012, we remain bullish on the opportunity to digitize approximately 11 billion U.S.
P2P transactions, totaling $865 billion that are originated each year. Nearly 1,400 financial institutions have signed on to the Fiserv P2P network, which we expect to grow dramatically over the next several years.
We are also beginning to see financial institutions support mass marketing for P2P. For example, NFL fans may have noticed that Citibank ran a 15-second TV spot promoting not P2P, but Popmoney, during a playoff game on January 15 and it's run several times since.
We also know that Allied Financial has been advertising Popmoney nationally on the radio. This marketing support has come via our customers and reinforces the belief that P2P enhances their consumer value proposition.
With that, let me hand the discussion to Tom to provide more details on our financial results.
Thomas J. Hirsch
Thanks, Jeff, and good afternoon, everyone. As Jeff said up front, adjusted revenue growth was 6% in the quarter and adjusted internal revenue growth was 4%, the highest since the first quarter of 2008.
Strong license sales in our Financial segment drove top and bottom line performance in the quarter as the year-end volume behavior we saw in the last 2 years repeated again in 2011. Revenue growth accelerated once again in 2011 with full-year adjusted internal revenue growth of 3% compared with 1% last year.
Adjusted internal revenue growth improved in both segments. Payments growth was up 1 percentage point to 4% and the Financial segment was up sharply to 3% compared to flat in 2010.
Adjusted earnings per share increased 20% in the quarter to $1.27 on strong operating performance and grew 13% in the full year to $4.58 which exceeded our original guidance range. Strong revenue growth in the quarter, much of it from higher-margin solutions, drove adjusted operating income up 7% to a record $325 million for the quarter.
Adjusted operating margin was 30% in the quarter, an increase of 30 basis points which includes an approximate 130-basis-point negative impact from a discretionary profit-sharing accrual and higher commissions related to the record sales performance in the quarter, much of which supports future revenue. For the full year, adjusted operating margin was down 20 basis points compared to last year as the operating leverage from revenue growth and the success of our operational effectiveness initiatives were offset by investments in new solutions such as Acumen, P2P and Mobiliti, higher expenses in the Corporate segment and the incremental employee compensation expenses recorded in the fourth quarter.
Now on to the segment results. Adjusted revenue in the Payments segment increased 5% to $558 million in the quarter and increased 6% to $2.1 billion for the full year.
Adjusted internal revenue growth was 2% in the quarter. Both year-over-year and sequential growth comparisons were negatively impacted by the completion of the Wachovia bill payment de-conversion, less bill payment processing days in the quarter and a reduction in non-financial institution revenue resulting from the Durbin Amendment.
Adjusted internal revenue growth in the segment was 4% for the full year, as compared to 3% in the prior year. Full income remained at historically low levels.
Bill payment transaction volume increased 4% in the quarter and 6% in the year excluding the impact of the Wachovia de-conversion. The bulk of this de-conversion will anniversary in the middle of 2012.
Our debit business continued to perform well in the first quarter of the new debit interchange fee structure under Durbin. Debit transaction volume increased 18% in the quarter and 19% in the year, driven by the continued expansion of our client base and the above-market transaction growth experienced by our clients, the great majority of which have assets below the $10 billion threshold of the Durbin legislation.
Operating income in the Payments segment increased 4% in the quarter to $174 million and grew 5% to $656 million for the year. Adjusted operating margin decreased 30 basis points in the quarter to 31.2% and decreased 20 basis points for the full year to 31%.
The continuing investments in Mobiliti, P2P and Internet banking, along with the incremental employee costs in the quarter, pressured margins. In addition, the CashEdge results had a dilutive impact on segment margin in the quarter and for the full year.
Financial segment adjusted revenue was $540 million in the quarter and $2 billion for the full year, reflecting adjusted internal revenue growth of 6% in the quarter and 3% for the year. As we anticipated, we saw a significant increase in higher margin revenue, such as license fees in the quarter.
That result, combined with our steady core Account Processing growth, contributed to the highest quarterly growth rate in our Financial segment in the last 4 years. Operating income in the Financial segment was up a very strong 11% in the quarter to $178 million.
Operating margin expanded by 140 basis points in the quarter to 33.1%, due largely to the expected increase in higher margin revenue. For the full year, operating income grew 4% to $613 million compared with $591 million in 2010 and operating margin increased 30 basis points to 30.6%.
Operating margin for the full year was positively impacted by continued leverage in our core Account Processing businesses, incremental savings from our operational effectiveness initiatives, increased efficiencies in our Item Processing business, partially offset by solution investments such as Acumen, Relationship Advance and our common loan origination platform. Our adjusted effective tax rate of 37% for the quarter was in line with expectations and the 36% full-year rate is a healthy improvement over 2010.
For 2012, we expect our adjusted effective tax rate to be in line with 2011 at approximately 36%. In addition to the continuing implementation of focused strategies that have had the cumulative effect of lowering our tax rate for the last couple of years, our rate estimate assumes also the renewal of the R&D credit in 2012.
Free cash flow increased a strong 12% to $227 million in the quarter. Full-year free cash flow was essentially flat at $734 million and was impacted by a $17 million increase in capital expenditures which includes our data center transformation project and changes in working capital.
We had a $60 million increase in accounts receivable versus the comparable prior-year quarter, resulting from our strong revenue finish to the year. We anticipate the year-end spike in accounts receivable in 2011 will convert to cash in 2012, resulting in higher-than-typical free cash flow guidance which Jeff will cover later.
Free cash flow per share grew 5% to $5.09 for the year as a result of our disciplined capital allocation. We paid off the $120 million in the quarter that have been added to our revolver associated with the acquisition of CashEdge and have a 0 balance on our $1 billion credit facility at year-end.
We will also refinance our $1.1 billion term loan which matures in November during 2012. At this time, we do not anticipate significant interest savings from a refinance given the current rate structure and our bias towards longer term debt maturities as part of our capital structure.
We repurchased 8.8 million shares of stock in 2011 for $533 million which included 1 million shares in the fourth quarter for $58 million. This compares favorably to the 8.1 million shares repurchased in 2010 even as we completed several strategic acquisitions during the year.
As of December 31, there are 4.7 million shares remaining on our existing repurchase authorization. With that, let me turn the call back over to Jeff.
Jeffery Yabuki
Thanks, Tom. Our record sales in the quarter were up 28% over last year's also strong fourth quarter.
Full-year sales landed at 116% of quota, an absolute increase of 20%. Sales strength continued in areas aligned with our strategies including significant wins in channels, payments and Account Processing.
Examples of our many digital channel wins for the year include Navy Federal Credit Union for Corillian online banking, Regions Bank for Corillian business banking and U.S. Bank for Mobiliti.
We ended the year signing nearly 400 new Mobiliti clients and are positioned to exceed that number for sales in 2012. We added 435 new bill payment clients, including the return of Zions Bank.
We also gained nearly 200 debit clients during the year and had increased the number of clients within the ACCEL/Exchange debit network. Overall in 2011, we recorded more than 1,200 wins in bill payment, debit and P2P.
We're pleased to announce that we inked a multiyear extension of our long-standing reseller relationship with Intuit. In addition to traditional Bill payment services, we're working to enhance those client relationships through a set of payment solutions that should provide value over the next several years.
In Account Processing, we continued to win over 50% of all of the competitive deals in the market. Momentum continued to build with 5 Acumen sales deal signed in the quarter and a total of 8 U.S.
wins for the year. As we continue to win larger multiproduct deals, as well as ramp up our newer solutions, we continue to expect that revenue will be recognized over a 12- to 24-month period and that recurring revenue builds over time.
Given our experience with sales over the last several years and the complexity of the opportunities we are pursuing, we expect sales cycles to remain long and that will have the effect of skewing revenue to the latter part of each year. Integrated sales were a very strong $71 million in the quarter.
Once again, channels and payments were the most popular solutions leading the way to $184 million of integrated sales for the full year or 119% of our 2011 target. Our operational effectiveness results were excellent with $18 million of benefit in the quarter and $45 million for the year, exceeding our 2011 target by 80%.
Our view of market conditions remains generally consistent with that of our third quarter call and Investor Day. 2011 ended with 110 regulatory actions, impacting 92 banks and 18 credit unions, a reduction of about 40% from 2010.
As important as the number, institutions impacted by regulatory actions in 2011 were much smaller than in previous years. Over the last 4 years, and contrary to some exaggerated estimates at the peak of the financial crisis, less than 500 financial institutions have been subject to a regulatory action in the United States.
During that period, we lost less than 25 Account Processing clients due to actions which is likely less than if we had been in a more typical M&A environment. In 2012, we expect the number of regulatory actions to continue to decline probably to less than 90 this year.
To date, there have been 9 regulatory actions versus 11 last year. De novo activity continued to be very low with only 3 new charters issued through September 30 and we believe that level of activity will continue in 2012.
We anticipate voluntary M&A to be about consistent with its current level. We expect IT budgets to be prioritized to areas that drive revenue, allow ease of movement within and across channels and deepen customer relationships.
We believe growth in technology spend will approximately -- approximate the 2011 levels, with a bias towards spending in the second half of the year. Overall, we believe the end market is solidifying.
The questions of institutional survival are increasingly rare and the discussions are now centered on moving forward in a new world of competitive banking. Our key priorities for 2012 remain substantially the same with an added emphasis on aligning our focus against the secular momentum we see in the market.
Guidance for 2012 is based on an assumption that technology spending and the overall environment will be substantially similar to 2011. As I mentioned, we believe there has been a secular change in purchasing behaviors which biases non-time-sensitive technology decisions to later in the year.
This change in historic buying patterns should continue to have the effect of pushing more of our sales and revenue growth towards year-end. For 2012, we expect total adjusted revenue to increase 4% to 6% and adjusted internal revenue growth to be in the range of 3% to 4.5%.
Revenue growth for the year includes a negative impact of approximately 50 basis points from a reduction in revenue due to the Durbin Amendment not sourced through financial institutions. Overall, we expect our revenue growth to be stronger in the second half of the year.
We expect 2012 adjusted earnings per share growth of 10% to 14% or a range of $5.04 to $5.20 compared to the $4.58 earned in 2011. Each year, our revenue and EPS guidance incorporates the impact of contract renewals that we expect during the year.
Our 2012 guidance for adjusted revenue and adjusted EPS includes an estimate for the range of likely outcomes related to the possibility of an early renewal of our Bank of America bill pay contract. We anticipate that overall adjusted operating margin will increase 50 basis points or more in 2012.
We also estimate the free cash flow for 2012 will increase 8% to 12% and that free cash flow per share will be in excess of $5.70 for the full year. Our 2012 integrated sales target is $200 million and our operational effectiveness objective is $40 million, which will exclude any nonrecurring costs related to the multiyear cost-saving effort.
As I said up front, we had a very strong year. Revenue growth is stepping up, sales results are reinforcing the value of our solutions and we are benefiting from secular momentum in areas of new investment.
The experience, talent and commitment of our associates gives us confidence that we will deliver value for years to come. With that, Carol, let's open the line for questions.
Operator
[Operator Instructions] Our first question is from Julio Quinteros, Goldman Sachs.
Julio C. Quinteros - Goldman Sachs Group Inc., Research Division
Maybe just in terms of thinking about the guidance for the year. Is there a way to sort of parse through the organic growth rates, the 3% to 4.5%, between Financial and Payments?
Just to get a sense for what you guys expected to drive that or is this a fairly balance kind of view in terms of the growth expectation.
Jeffery Yabuki
Yes, I would expect that over time, our Payments segment will continue to be above our Financial segment growth rate and that's how you should model that.
Julio C. Quinteros - Goldman Sachs Group Inc., Research Division
And then just in terms of context, as we started the year, there's a concern that a lot of the big banks and even some of the smaller banks could see a continued consolidation of branches, closures of branches and now you have kind of this lower -- a longer [ph] situation with the Fed and continued NIM compression. But it sounds like you guys feel like that's more opportunity than it is risk.
Can you just help us understand how that kind of a backdrop actually helps drive opportunity for you guys?
Jeffery Yabuki
Yes, I mean, Julio, I think for us, what we see is a number of different solutions, many of which we profiled at Investor Day, have gotten a lot of attention as institutions are looking for ways to drive revenue. So whether it is with P2P or Relationship Advance, a series of different products like that, we're having some good success.
By the same token, kind of the movement around branches, those kinds of things, you're seeing a lot of energy on the electronic channel side. So Online Banking, we announced a win in the quarter with Navy Federal Credit Union.
They've decided that they're going to transform their Internet banking presence, U.S. Bank last year, Westpac the year before that.
And so those are just some of the larger institutions. But we're really seeing that energy across as institutions are trying to move both transactions and service to lower-cost channels and mobile is also a derivative of that as well.
So lots of energy on that side. And then there's a need for the institutions to start to wire those -- the information and insights that are coming out of those channels together to create a better picture of the experience.
So from our standpoint, given that we put so much focus in those areas, we see that being fairly valuable. And then last, I would say that overall, as we see institutions looking to just kind of step down their cost structure, given some of the spread pressures that now appear to extend out through '14, you see vendor consolidation and just general more bundling which, to some extent, gets to some of the larger sales that we've had, but also gets a little bit to the longer implementation cycles.
Operator
Glenn Greene, Oppenheimer.
Glenn Greene - Oppenheimer & Co. Inc., Research Division
A few questions. I mean, I just want to make sure I heard you right, Jeff.
On your technology spending comment, you're basically suggesting flat which actually seemed a little bit more subdued than at the investor event. One of your peers sort of had their call yesterday and actually seemed pretty bullish for 2012 somewhat surprisingly.
So it kind of sound very cautious to me surprisingly. Maybe a little color there?
Jeffery Yabuki
Yes, Glenn. I may have misspoken if it came across as flat.
What I'm saying is we expect, the general rate of IT spend to be consistent year-to-year which is what we said at Investor Day, what we also said in the quarter. We think that rate is -- we haven't seen the final numbers, nor has anyone.
We think there was some growth during the year but we think that level of growth has turned out to be less at the end of the year than people thought it would be at the beginning of the year. So...
Glenn Greene - Oppenheimer & Co. Inc., Research Division
So you're meaning the rate of growth could end up being 2 or 3, that's what you're thinking you for '12 also?
Jeffery Yabuki
Exactly, yes, the rate of growth. But I also want to make it clear that within that rate of growth, we see far more spend being allocated to channels and payments and efficiency-oriented products.
But areas in which you can change and differentiate your value proposition, Mobile is the one that comes to mind the most, especially in the larger institutions. People are biasing their spend decisions in those areas.
Glenn Greene - Oppenheimer & Co. Inc., Research Division
And then you brought up the potential early BofA contract renewal. I want to make sure what you're messaging.
Because I would think, if you renew it, obviously, later in the year, it's not going to really impact '12, it would impact '13. So I wanted to understand what you're communicating.
And assuming we had an early renewal of BofA, would that imply you might be toward the lower end of your EPS range or just how should we be thinking about that?
Jeffery Yabuki
So our intent was to make sure that we provided guidance that would incorporate the range of possibilities that could happen for an early renewal. It's not unusual that a contract of -- actually any of the larger contracts end up getting renewed early.
And sometimes in renewals there are discounts, sometimes there not. But what we did is we spent a lot of time to make sure that we had incorporated that range of outcomes so that's in our guidance.
So I think mathematically, to the extent that there was a discount given, right? And that certainly is within the range of possibility if there was a discount.
If it happened in January, it would likely be larger just mathematically than it would be in December. So from that, I think the math that you're thinking about is likely the right math.
We should be clear, right, that we also wanted to try to avoid some negativity that was directed a couple of years ago, or 3 years ago now, when we renewed the Bank of America agreement after we had given guidance. So at this stage, given the expiration in '13, we thought we would be best to incorporate it into our guidance for the year.
But let me -- I probably should add one more point. We do not -- we're not sitting here today knowing that there is a number, right?
It's just a range of different possibilities that we have discussed in terms of formulating our guidance.
Operator
The next question is from Dave Koning, Baird.
David J. Koning - Robert W. Baird & Co. Incorporated, Research Division
Yes, in the Payments segment, the last 4 years, the margins have been remarkably stable kind of between 30% and 31.5%. And I know you did a nice job explaining CashEdge, some investments in bonuses in Q4.
But is it fair to say that given the ability to leverage a lot of that, what you talked about at the Investor Day, that there is clear potential for several years of nice expansion in that business after 4 years of a kind of pretty stable margin?
Thomas J. Hirsch
Absolutely, Dave. I mean, and I'll turn it over to Jeff, but the things that we have going on in there right now that are particularly impacted '12 is the number of the investments that we have in here, and I think I highlighted these on Investor Day, Mobile as a great example.
We have invested a lot in scaling up our ASP infrastructure. And clearly, that recurring revenue is not really even started to come on yet.
And so we have a lot of that infrastructure build that's in this segment along with a lot of investment in P2P and then really in the online channel. We mentioned again another transaction with Navy Federal.
We've had really a big ramp-up in our development operation in Online Banking and also in the ASP channel, just a lot of activity there. So we've had a good amount of investment which has kind of kept those margins fairly flat.
But if you look at our debit card business, if you look at the Bill payment business, you look at P2P, which is really not started yet, those businesses have great economic characteristics and those will continue to scale and incrementally add to margins.
Jeffery Yabuki
Yes, the only other thing I would add to that, Dave, is we have been, the Wachovia transition, which really began occurring in early '10, late '09, and so that has been holding down. That is now complete.
And so we'll have some compare issues but from a -- it's out of the numbers, it's out of the numbers. And so we should be able to not -- having to recover that's relatively large client has certainly pressured our margins.
David J. Koning - Robert W. Baird & Co. Incorporated, Research Division
And then just one follow-up question, I think debt to EBITDA, trailing EBITDA, it's not 2.2x. It's well below.
And by the end of the year, if you just paid off debt, you'd be at something like 1.5x. Is there any reason for us not to expect you to keep it around this 2.5x level?
And would buybacks be kind of the most likely and then the next likely would be acquisitions?
Jeffery Yabuki
Yes. I mean, I think our debt to EBITDA actually did.
I think I got around 2.4x somewhere in there but it's well within our range of our target which is 2x to 2.5x. And so we're comfortable with that amount and especially with our EBITDA accelerating growth as we go into 2012.
And so we're fine with that. And clearly, as you know, we're going to continue our disciplined capital deployment and share repurchase is really our benchmark from that standpoint.
Thomas J. Hirsch
Yes, I would say that the strategic acquisition that we did last year has put us in a very good place, a very good place in the market. And we have a significant amount of opportunity that we want to ensure that we capture.
So I don't -- at this stage, it's hard for me to see a need to do acquisitions. It doesn't mean that we won't do smaller tuck-ins here and there.
But from kind of a global view of capital allocation, I mean, we feel like we're in very good shape in our product portfolio and we're going to be focused on execution. I mean, for us, we put a lot of money into our products over the last few years.
We put a nice sum of money into acquisition last year. We're very, very motivated in putting this out into the market.
We think one of the keys to accelerating transactions is integration into mobile. It brings in -- for example, it brings in a whole other consumer, potentially a new consumer and a new consumer who likes to transact.
We're not fighting at point of sale. We're really looking for us to be able to accelerate DDA-based transactions and whether that is through Bill Pay or e-bill -- I'm sorry, whether that is around bill pay or e-bill or P2P, account-to-account transfer, account opening, all kinds of other places that are nicely served by creating that mobile channel.
Again, as an example, we had a lot of opportunity to execute and that's really going to be our focus.
Operator
Ashwin Shirvaikar, Citi.
Ashwin Shirvaikar - Citigroup Inc, Research Division
The question I have is, on a quarterly basis, how should we expect adjusted segment level internal revenue growth to track? Are you sort of calling the bottom on Payment's internal growth rate trend here?
And is the higher financial level internal growth sort of here to stay through the year?
Jeffery Yabuki
Yes, Ashwin. How I would put if you look at 2012, and I think we're pretty, overall in these comments, is that we're clearly going to have -- we're going to bias towards the second half clearly because we have seen a shift, clearly as you saw in our Financial segment in the fourth quarter, where we have this buying behavior by our clients tended to move out more to the third and primarily in the fourth quarter, particularly in that segment.
So we anticipate a stronger second half. The other thing we have going on in the first half is the anniversary, as Jeff talked about.
A little bit highlighted the Wachovia de-conversion, which is out now but was in our base in the first half of 2011. So that's going to have a little bit more difficult compare in the Payments segment.
So again, we anticipate stronger second half growth rates, really, in both segments over the first half.
Ashwin Shirvaikar - Citigroup Inc, Research Division
Okay. And you had good sales.
Any comment on unusual costs associated to it, associated with converting the sales into revenues, ramps and things like that? Anything unusual to watch out for?
Thomas J. Hirsch
No, and I'll turn it over to Jeff. As you mentioned, Ashwin, we had a fantastic sales quarter.
I think we're at 170% of quota and a number of these transactions are -- some of those will impact '12 and a lot of those will impact '13 and '14. There's some fairly large transactions.
We don't have any unusual costs associated with those. We did, in the fourth quarter, clearly have some incremental commissions and some of that, we expect those commissions upfront.
And some of that revenue will not hit until '13 or '14. But we don't have any unusual costs.
Some of the larger deals are more complex and take longer to implement, but we don't have anything unusual from a cost standpoint.
Jeffery Yabuki
Yes, it's interesting. One of the things that we've -- I guess, I'll say one of the phenomena that we've seen over the last couple of years is in connection with some of the challenges that FIs had, when they're looking to make these investments, they're often looking to reduce cost, their own cost structure to fund some of the investments.
So take Internet banking, for example. One of the clients that we announced that we signed this quarter, it’s a very significant transformation of their technology.
But we're also going to be hosting that for them. So there are all kinds of intricacies around revenue recognition where you're building and hosting.
And from our standpoint, we make those decisions not based on rev rec. We make those decisions on what creates the most value.
And so we'd rather have a larger deal even if it creates an issue around us deferring revenue for some period of time. And we do that as -- anytime we have that opportunity, we do that.
So to Tom's point, you'll have those kinds of anomalies. But from a cost perspective, beyond the commissions that Tom referenced, and we've had steadily increasing commissions because we've had steadily increasing strong sales performance.
I would say that's the only issue. And that's -- to the extent there was any surprise in the fourth quarter, that was probably one of them.
Our sales were so strong and that revenue is largely not in the quarter, that created a bit of a mismatch on the commission versus revenue benefit.
Ashwin Shirvaikar - Citigroup Inc, Research Division
Okay, understood. And last thing, if I may.
Not so much for question because I think I know what you're going to say. But it comes up with a high proportion of investors especially given your cash flow and only going to do tuck-in acquisitions, any thoughts on the dividend?
Thomas J. Hirsch
We actually -- as we I think mentioned at Investor Day, we look at this issue every year. We think it's important.
We know that, that cash is not ours. We know it belongs to the shareholders.
And our analysis to date has shown for companies like us that are very, very disciplined in share repurchase, that the return differentials don't favor dividends. That said, the thing -- the other thing that weighs on us right now is, I would say, the tax uncertainty around dividends.
Right now, we know share repurchase is advantageous to shareholders who are not selling because in fact, right, they're getting more value and –- it’s on a tax-deferred basis. But we're paying a lot of attention to that and we continue to do that.
And we will continue to evaluate dividends and share repurchase as we move forward.
Operator
Tien-Tsin Huang, JPMorgan.
Tien-Tsin T. Huang - JP Morgan Chase & Co, Research Division
Just a couple of quick questions. I heard the steady bank IT spend outlook in the back-end-loaded comment.
I get that. But I guess, it's a little bit more optimistic than what some of the bigger banks or the diversified tech suppliers are saying about financial services spend.
So I'm curious if that's more a function of maybe your bank clients being relatively healthier or maybe just a greater interest in outsourcing. Can you contextualize that for us, Jeff?
Jeffery Yabuki
Sure, that's a good question. We think that -- the environment has become more stable just because more of the rules -- the more the rules are known and people are -- institutions, especially larger ones, are taking action to make sure that they can do what they need to do around growing revenue.
But really around growing earnings. So on one hand, we are seeing people spend.
On the other hand, we're also seeing some of the larger financial institutions take people-oriented actions and take steps to reduce their cost structure. The benefit that we have and the reason why we probably have more optimism than some is we're quite confident that the areas in which we have been investing in over the last several years, as well as existing solutions like bill payment, they're just not viewed as discretionary.
Now I haven't met a single “banker,” right, someone who runs a large institution, whether it's a credit union or a bank, who is willing to defer a mobile decision. People just are not willing to do that and they're really looking for ways to drive revenue.
And that, right now, is a good fit for us given where we have chosen to invest over the last several years. Don't get me wrong.
I still think there's a lot of -- there's going to be a lot of profitability pressure in financial institutions. I still think we're going to be subject to price compression as we have been.
And I don't think there's anywhere near -- wallets being opened up very wide. So from that standpoint, that's why we are taking what I would say a more pragmatic view.
We think spend will be about -- I'm sorry, I should clarify, the rate of technology spend growth will be about the same year-over-year. But we'll see -- we think it will bias more to the areas in which we're well-suited right now.
Tien-Tsin T. Huang - JP Morgan Chase & Co, Research Division
Okay, good. That's good color.
And just a couple of clarifications. That delta in the margin from your guidance for '11, was that all tied to the discretionary bonus or were there some other factors that I missed?
Thomas J. Hirsch
It's primarily that and the commissions as we talked about. We finished the sales year really strong and a lot of that is an [ph] impact revenue in '11.
And a lot of that's going to impact us later in '12, and into '13 and '14. And so that was a little bit a higher than we planned.
And then the discretionary profit-sharing, that was about 130, I think, basis points I said in the second quarter. And that was the primary impact.
Tien-Tsin T. Huang - JP Morgan Chase & Co, Research Division
Okay. And the 50 bps you mentioned tied to Durbin, what was that exactly?
And then finally, just Intuit and bill pay, was there a change in the scope there, because I know what your -- I guess FIS made some comments around Intuit as well. I'm just trying to reconcile that.
Jeffery Yabuki
So we had been in discussions with Intuit. We signed a multiyear renewal of our reseller agreement.
I know that there had been some other discussions in the market. We spent a lot of quality time with Intuit and came up with a pretty interesting value proposition for Intuit and for us.
We think it's a win-win, and we believe we will have a relationship, an important relationship, with Intuit for quite a while. So we feel good about that.
We recognize that it's a little bit different than what it had been in the market previously, but we feel good about that. And Tom, why don't you take the...
Thomas J. Hirsch
Yes, and I think the other question was around the Durbin impact. And this relates to the -- this is not related to financial institutions.
This is not related to our debit business. We do have a variety of contractual arrangements with non-financial institution clients, really our billers, which are going to be impacted by the lowering of the debit interchange, as you know, as mandated by Durbin.
And so we came up with an estimate and we've included in our 2012 guidance. Our best estimate of that revenue impact, which is negative by about 50 basis points, and so that's what we incorporated into our guidance.
Operator
David Togut from Evercore Partners.
David Togut - Evercore Partners Inc., Research Division
David Togut. Just to start off with, did you raise your operational effectiveness target for 2012?
I thought you said $40 million. So if that's on top of $45 million you're saying a cumulative of $85 million through 2012?
Thomas J. Hirsch
That's correct.
David Togut - Evercore Partners Inc., Research Division
And that's up from $65 million previously?
Thomas J. Hirsch
That was our initial target. That's correct.
Jeffery Yabuki
We overperformed -- we had such a strong year this year that over performance just gives us a higher cume.
David Togut - Evercore Partners Inc., Research Division
And can you handicap for us the, I guess, relative difficulty of hitting that target and what has to go right and what could go wrong?
Jeffery Yabuki
Instead of handicapping it, what I would say is, we provided the target that we believe we're going to achieve. And if we didn't think we would achieve it, we wouldn't give it.
And that said, right, all of this takes work and energy and we'll execute against -- we'll do our best to execute against it but we have a pretty high degree of confidence that we'll achieve that.
Thomas J. Hirsch
And we have a good year 1, David.
David Togut - Evercore Partners Inc., Research Division
Got it. And then you highlighted 5 Acumen signings in the fourth quarter, 8 through 2011 as a whole.
Can you take us down into those signings a little bit? How many of those were, let's say, de novo banks?
How many of those were existing Fiserv customers? And how many were head-to-head competitive wins?
Jeffery Yabuki
So none of them were de novos. These are all -- they tend to be larger credit unions.
They're all well-established credit unions and every one of them was competitive. Now some of them were our clients on a platform that they decided to move to Acumen.
And anytime a client decides to make a platform decision, they always decide, "Well, if I'm going to make a change, I'm going to look at the universe out there." So from that standpoint, you always have that as a competitive scenario.
There were a couple of them that are completely new to the company. And all of them, all of the Acumen clients, bought not just Acumen, but bought large bundles of Fiserv content.
So everything from bill payment to debit to GL [ph] to all kinds of things, but they tend to be very, very broad-solution bundles. And part of it is, we have said that, from our standpoint, we think this technology is so important and so advanced that we want to be cautious about when we sell it.
And for us to sell it, we want to select clients who want to make a very strong commitment to Fiserv. So that's really been our strategy so far with Acumen.
David Togut - Evercore Partners Inc., Research Division
How many of the Acumen signings were new Fiserv customers entirely?
Jeffery Yabuki
I think it's 2 or 3. But we have -- we'll follow up with you on that.
Thomas J. Hirsch
Because remember, David, many of these clients too our paying us today, they're in-house clients, certain of them, and they're paying us existing maintenance. So when we move into these new bundles, there's a good amount of incremental revenue, as Jeff was commenting especially around the solution bundles.
Jeffery Yabuki
Yes. The total incremental value of these deals is significant, whether they're an existing client or not.
David Togut - Evercore Partners Inc., Research Division
And most of this is 2013 and 2014 revenue?
Jeffery Yabuki
It really -- most of it was not 2011. And so it starts to -- we start to convert clients in '12.
But it'll be -- so you'll start to see some of it come on in '12, more in '13, more in '14, more in '15. So it's going to step up like the majority of our other revenue.
Thomas J. Hirsch
Yes, I think David, we laid that out on Investor Day where we had some revenue charts in there, and that's what we'll be kind of tracking along to.
David Togut - Evercore Partners Inc., Research Division
Just a quick final question. Tom, the 6% organic growth in Financial segment.
You highlighted the strong software signings, the back-ended-weighted nature of this, of sales cycle. Can you give us a little more granularity on the 6%?
I mean, how much of that, you think, is a recurring number that we can expect?
Thomas J. Hirsch
I would say there's always a portion of that growth that is recurring but a large part of this is add-on license sales to existing customers. And clearly, it just fell more on one quarter, David, than typical.
I mean, we had -- our license sales are probably, up $30 million or $35 million from the third quarter. And so we just had a bulk of them, and these are small, typical licenses that are add-on to existing clients.
And so typically, it's more spread out. And again, remember that these are primarily sales to existing customers.
These aren't new clients. So again, these are clients that are buying additional content from Fiserv.
It just more fell into the fourth quarter. So when you bring up the recurring nature of it, it clearly is a license fee.
But again, we anticipate that there's always going to be new products that we're putting through our system. And so that add-on sale will continue as we continue to develop and distribute new products.
Jeffery Yabuki
I think one of the ways you may want to think about, David, is we mentioned in the call that given what we saw this year and what we've seen the last couple of years and some of the pressure that certainly exists on financial institutions, clients are holding onto their budget, right, for a long time. And therefore, we expect, and we can see this very clearly in our numbers, that we're going to see these spikes during the year.
But to Tom's -- during the fourth quarter, and we expect that again to see that again in 2012. If the spike didn't occur, we would expect that revenue to move around quarters.
There's a level of these incremental license sales that's just natural and we've seen over the last few years is it's just moved to later in the year which creates the spike. So when you say, "How much of the 6% can I count on?"
You may not be able to count on it in a quarter. But we are very confident that we've been stepping up our growth rate.
But again, it's hard for us to predict on a quarter-by-quarter basis. But on a full-year basis, that rate is stepping back up and we believe that what you saw in the fourth quarter will translate to '12, but we can't tell you exactly what quarter that will happen in.
Operator
The next question is from Chris Shutler, William Blair.
Christopher Shutler - William Blair & Company L.L.C., Research Division
First question's on the 50-basis-point Durbin impact on the internal revenue growth for '12. Would that impact the margins as well?
Jeffery Yabuki
There is going to be a slight impact to that but it should not be substantial.
Christopher Shutler - William Blair & Company L.L.C., Research Division
And then the 4% to 8% internal revenue growth target you guys laid out for over a 3-year period. So if you're looking at 2011 to 2013, would you still expect to be able to hit that even with the 50-basis point Durbin impact?
Or maybe can just talk about confidence around that at this at this juncture.
Jeffery Yabuki
Sure. Again, our theory is that guidance, and thank you, Chris, for its noting that it's in any 3-year period.
We have no reason to believe that, right now, that our guidance has changed. So we're not -- let me be clear, because Tom is getting quite nervous.
We are not giving guidance for 2013 at this juncture. But we believe our revenue is stepping up.
It began stepping up. We went from minus 1 to 1 to 3.
This year, we gave guidance that is 3 to 4.5 on an organic basis. And we would expect to continue to see that to be a continuing step function in our growth rate.
Christopher Shutler - William Blair & Company L.L.C., Research Division
Okay, that's helpful. And then on ZashPay, Jeff.
Any new details you can provide there in terms of what the revenue model is going to look like for Fiserv? And maybe how most banks are charging for it today?
And then I guess, the other question would just be what are the plans for the ZashPay and Popmoney brands? I guess, are you considering consolidating the 2?
Jeffery Yabuki
So there's a lot of questions in there. So most banks are not charging right now.
There are a few pieces of functionality that the banks that will be in the product in the second quarter that will, I think, change that. There are some areas like funding transactions to or from prepaid, things like that, where there are some revenue opportunities.
We have ZashPay.com where we're charging for transactions and so we're seeing growth there. What I'd like to do -- and we are obviously looking at what is the best way for us to be in the market from both a branding and technology perspective.
Those -- we anticipate those decisions to be made in the quarter, in the first quarter. And we're also going to start communicating transaction growth information in 2012.
So when we release first quarter, we'll actually have a lot more color on this.
Operator
Greg Smith, Sterne Agee.
Greg Smith - Sterne Agee & Leach Inc., Research Division
The first question, the heightened expenses or the incremental expenses due to the profit-sharing, is that in the corporate or is that blended in the segments?
Thomas J. Hirsch
We have it blended across the segments, so we allocate that back. So it impacted margins in each piece of that.
Greg Smith - Sterne Agee & Leach Inc., Research Division
And then Tom, is there anything in the guidance for buybacks?
Thomas J. Hirsch
We -- clearly, we do, right? We clearly have a -- we have a lot of different scenarios that we run from a capital allocation standpoint and we're going to allocate our capital.
This year, if you looked back at 2011, we allocated some to a strategic acquisition and the rest is share repurchase. As Jeff indicated, we're going to continue down that strategy and we're going to be very disciplined with our capital deployment.
But clearly, we have some capital deployment scenarios incorporated into our guidance.
Greg Smith - Sterne Agee & Leach Inc., Research Division
Okay, great. And then just lastly, do you expect sort of over the next few years for free cash flow to sustainably be above adjusted EPS?
It seems like it has been, but there's always a few puts and takes in any given year. But should we expect that to continue over the next few years?
Thomas J. Hirsch
I think you're going to see that. I think it's going to track clearly net income from that standpoint over the long haul.
And I think as you continue to see us, and that’s the cause here and clearly Q4, I mean, we just have a large revenue acceleration. And so as we continue to get back on the accelerated growth track that we're on, we're going to be building working capital a little bit in receivables as we get to that next tier level.
But clearly, over the long term, we expect that to be around net income growth and our CapEx is a little bit higher because of the data center thing that we have in the current year also.
Operator
John Kraft, D.A. Davidson.
John Kraft - D.A. Davidson & Co., Research Division
I just wanted to drill down a bit on the number of ACCEL/Exchange deals signed. I realize that most of your clients are below the $10 billion mark.
But I guess that's I assume that in preparation of the April exclusivity date that maybe you'd see a spike there. Is it just too early?
Jeffery Yabuki
Yes, we -- as you know well, John, right, the institutions are making decisions. And yes, the substantial majority of our debit business is below the $10 billion threshold.
But we did, as we talked about at Investor Day, we did end up signing incremental clients on to ACCEL/Exchange as a second network. And so we do expect to begin to see volume coming from that.
But largely, we think that will come. I mean, some of these are still contracts in process.
We don't think that will show up really in a measurable way until the end of the first quarter or even perhaps into the second quarter. But clearly, we secured some incremental clients from this, from the legislation.
John Kraft - D.A. Davidson & Co., Research Division
Okay, good to know. And then just one housekeeping for Tom.
Any material termination fees in the quarter?
Thomas J. Hirsch
No, we have, for the year, we had about $26 million of termination fees compared to $22 million last year. It was a little bit higher in the quarter which is what we anticipated, roughly $10 million in the fourth quarter compared to $4 million in the quarter, fourth quarter last year.
Operator
And our last question today will be from Bryan Keane, Deutsche Bank.
Bryan Keane - Deutsche Bank AG, Research Division
Most of my questions have been asked and answered. I just wanted to follow up and dig in on a couple.
On the Financial segment, the 6%, I mean, that's an impressive number. So how much -- is that pretty much -- I heard the term fee was about $6 million higher but that's pretty much all license sales?
And I guess, Tom, is there a year-over-year growth rate you can give me on license sales for that fourth quarter to account for that big growth rate of 6%?
Thomas J. Hirsch
Yes, I mean I think overall, Brian, our license sales are up not 10% but approximately in that general direction. And our license fees are up about $15 million.
And that we also have some other onetime fees in there for account upgrades and those sorts of things that happened in the fourth quarter, and also some services that we delivered to clients in that particular quarter also. So overall, it's -- the license fee component was a bigger component of that.
Jeffery Yabuki
Hey, Brian, just for clarity, when Tom talks about one-time fees, he's talking about product licenses from clients. He's not talking about that in addition to the license revenue.
I just want to make sure we clarify that.
Bryan Keane - Deutsche Bank AG, Research Division
Yes. But it sounds like going forward in the first quarter, because a lot of that growth is probably not going to be there, is it'll step down to a more normal growth rate that we see in financial.
Thomas J. Hirsch
Absolutely. I mean we look at growth rates on a year-over-year basis, right?
I mean because you're going to have -- in the fourth quarter, we have a lot of things that fell into that particular quarter.
Jeffery Yabuki
Yes, we wouldn't expect -- Brian, for clarity, I know you aren't exactly asking but I'll answer it anyway. We do not anticipate that we would have the same growth in Q4 that we're going to have in Q1.
Bryan Keane - Deutsche Bank AG, Research Division
No, I wouldn't expect it but I did want to make sure that was -- we're all thinking about that correctly.
Jeffery Yabuki
Right. We do believe though that just like the company has been stepping up its growth rate, right, that the Financial segment is also stepping up its growth rate.
That that's important.
Bryan Keane - Deutsche Bank AG, Research Division
And those license sales, that big increase, what is that in? What area inside of Financial?
Thomas J. Hirsch
It's across the entire client base. One of the things that we have to continue to remember is we have over I think 5,500 core Account Processing relationships.
And so we have a number of products that we developed in each of those different platforms. And so we're selling a number of different products into those existing client relationships, and it’s primarily existing customers.
So when you think about 5,500 Account Processing relationships, there's just a lot of incremental opportunity to continue to deliver add-on value and that's what a lot of that is. It's really across the entire base.
Bryan Keane - Deutsche Bank AG, Research Division
Okay. And then just finally for me, it was asked on Durbin Amendment, the 50-basis point, because I just want to make sure I understand it.
It sounds like it's coming from the biller side that, that pressure will take place. Is that because you get a direct cut in the interchange or is that because you expect pricing pressure from the biller as a result?
Thomas J. Hirsch
Brian, how I would put it is that we've indicated that, you're right, it is in our Biller business and I'm not going to talk much more about that. The market in this business, as you know, is extremely competitive, and I don't want to get into that much more detail.
But clearly, Durbin, given that the lower cost and that's really the impact on our revenue line from that standpoint.
Bryan Keane - Deutsche Bank AG, Research Division
Okay. But do you see any impact from Durbin on a negative face -- in a negative way and from the financial institutions or you don't expect anything there?
Thomas J. Hirsch
No, nothing that all, Bryan. This is all related to non-financial institutions.
Jeffery Yabuki
And we wanted to make sure we clarify that because they're very different elements of the Durbin Amendment.
Thomas J. Hirsch
Yes.
Jeffery Yabuki
Thanks, Brian. And thanks, everyone, for joining us this afternoon.
If you have any further questions, don't hesitate to call our Investor Relations group. Thanks.
Operator
Thank you. This concludes today's conference.
You may disconnect at this time.