Oct 27, 2015
Executives
Stephanie Gregor - Vice President-Investor Relations Jeffery W. Yabuki - President, Chief Executive Officer & Director Thomas J.
Hirsch - Chief Financial Officer, Treasurer & Assistant Secretary
Analysts
Glenn E. Greene - Oppenheimer & Co., Inc.
(Broker) James Schneider - Goldman Sachs David Togut - Evercore ISI David J. Koning - Robert W.
Baird & Co., Inc. (Broker) Andrew Jeffrey - SunTrust Robinson Humphrey, Inc.
Tien-tsin Huang - JPMorgan Securities LLC Ramsey El-Assal - Jefferies LLC
Operator
Welcome to the Fiserv 2015 third quarter earnings conference call. All participants will be in listen-only mode until the question and answer session begins following the presentation.
As a reminder, today's call is being recorded. At this time, I will turn the call over to Stephanie Gregor, Vice President of Investor Relations at Fiserv.
Stephanie Gregor - Vice President-Investor Relations
Thank you and good afternoon. With me today are Jeff Yabuki, our Chief Executive Officer; Tom Hirsch, our Chief Financial Officer; and Mark Ernst, our Chief Operating Officer.
Please note that our earnings release and supplemental presentation for the quarter are available on the Investor Relations section of Fiserv.com. Our remarks today will include forward-looking statements about, among other matters, expected operating and financial results 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 for a discussion of these risk factors.
You should also refer to our materials for today's call for an explanation of the non-GAAP financial measures discussed in this conference call, along with 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 as a basis for planning and forecasting for future periods.
Unless stated otherwise, performance comparisons made throughout this call are year-over-year metrics. With that, I will turn the call over to Jeff.
Jeffery W. Yabuki - President, Chief Executive Officer & Director
Thanks, Stephanie, and good afternoon, everyone. We delivered strong third quarter results, highlighted by the sequential acceleration of our internal revenue growth rate to 5%, excellent adjusted margin expansion, and a 20% increase in adjusted earnings per share.
These results were consistent with the ramp we expected this year and are indicative of the financial performance and continuing internal revenue growth acceleration we previewed at our June Investor Day. Adjusted earnings per share is up 15% for the first nine months of the year, due to strong adjusted operating income growth and disciplined capital allocation.
As a result, we have raised our full-year adjusted earnings per share guidance to $3.84 to $3.87, an increase of 14% to 15% over last year. Consistent with our capital allocation strategy, and in the face of equity market volatility in the quarter, we repurchased 6 million shares.
We remain very committed to that strategy, and through September 30 had already returned over $1 billion to shareholders. Sales in the quarter was up sequentially over Q2 and came in at 86% of quota.
This is a solid result in light of a tough prior-year comparison and heightened expectations for increased performance. We're set up for a very strong finish to the year.
Now let me provide an update on our 2015 enterprise priorities, which are, first, to continue to build high-quality revenue while meeting our earnings commitments. Next, build and extend client relationships with an increased emphasis on payment and channel solutions.
And, third, deliver innovation and integration which enables differentiation and value for our clients. Our first priority centers on building high-quality revenue in areas that support client value, margin expansion, and earnings growth.
Third quarter internal revenue growth accelerated 5%, with strong performance across both segments. Businesses with high recurring revenues such as account processing, payments including card services, lending, and biller solutions all performed well.
For reference, our reported results include a negative currency impact of 70 basis points in the quarter and was 60 basis points year-to-date. Growing revenues in areas where we have operating leverage along with flexing our operational efficiency muscle led to a 190 basis point increase in adjusted operating margin in the quarter, and was up 150 basis points for the year.
We believe our business model will produce continued operating margin expansion into the foreseeable future. We're pleased with our financial performance and are on track to meet our shareholder commitments.
Our second priority is to build and extend client relationships, with an increased emphasis on payment and channel solutions. One of our key strategies is to partner with financial institutions to drive higher levels of digital engagement for our clients.
We continued to gain momentum with our industry-leading mobile solutions in the quarter. With over 2,000 financial institution clients now live on Mobiliti ASP, we have seen a more than 50% increase in subscribers to nearly 4 million users as of September 30.
We expanded our overall mobile footprint in the quarter, adding 100 new clients to the family. We were pleased that First Hawaiian Bank, with $18.7 billion in assets, selected a full suite of digital banking, payments, and personal financial management capabilities from Fiserv, including Corillian Online, Mobiliti ASP, CheckFree RXP, and Popmoney.
These solutions will provide best-of-breed digital engagement to their customers and a lower total cost of ownership. At our Investor Day, we also discussed opportunities to utilize payment speed and efficiency to create solutions that deliver unique value for consumers, financial institutions, and billers.
During the quarter, PNC, the eighth-largest bank in the U.S., selected Popmoney for disbursements to do just that. This solution utilizes our Popmoney capabilities to simplify and expedite the business-to-consumer payment experience.
In a test of payment receipt options, nearly 50% of consumers opted to receive funds via Popmoney. This use case is an important part of our integrated payment strategy and is one of the distinctive growth opportunities embedded in our DDA-based payment approach.
Seven DNA clients went live in the quarter and we remain on track for 30 installs this year. Importantly, we anticipate that six institutions with assets greater than $1 billion will go live in the fourth quarter, including Columbia Bank, with $4.6 billion of assets, and the $14.4 billion asset institution, Washington Federal, all contributing to increased growth in Q4 and well beyond.
We continue to be very pleased with DNA's momentum. Our third priority is to deliver innovation and integration which enables differentiation and value for our clients.
One of our primary areas of innovation are solutions that create revenue for our clients. We recently highlighted our new CardValet product at our fall client Forum.
This solution enables debit cardholders to take control over their spending patterns through the comfort of their mobile device. The early indications are extremely positive, with CardValet users adding an average of five incremental debit transactions per month.
On top of deeper customer engagement, financial institutions should also benefit from additional interchange revenue. Although early, over 200 clients have already signed up for CardValet.
When live, this group of FIs will further empower their more than 4.5 million underlying debit cardholders, which should translate to new revenue over the short and mid-term. We're also excited about our Immediate Funds solution, which provides financial institutions tools to allow consumers real-time access to deposited funds across branch, ATM and mobile channels.
This is another example of a Fiserv solution which creates value for consumers and new revenue for our clients. EMV continued to progress in the quarter, with an additional boost from the October 1 liability shift date.
As you know, Fiserv both manufactures and personalizes EMV cards, giving us a competitive advantage along with multiple sources of revenue. Although demand has picked up, we only recognized about 10%, or $1 million, of the incremental EMV revenue generated in the quarter.
The remaining $9 million will be deferred until the manufactured cards are personalized. We expect to see incremental revenue growth from EMV in the fourth quarter and well into 2016.
Lastly, we were very pleased to sign our first Agiliti client, Think Money Limited, in October. Think Money, which has been in existence for more than 20 years, provides a broad range of innovative financial products for personal financial management, mortgage and insurance services across more than 100,000 personal accounts today.
The Agiliti pipeline remains strong and we expect additional signings before the end of the year. Now let me turn the call over to Tom to provide additional detail on our financial results.
Thomas J. Hirsch - Chief Financial Officer, Treasurer & Assistant Secretary
Thanks, Jeff. And good afternoon, everyone.
We are pleased with our performance in the quarter. Internal revenue growth accelerated sequentially to 5%.
These results included a 140 basis point negative impact due to a combination of unfavorable currency impacts and the EMV revenue deferral that Jeff mentioned earlier. Adjusted earnings per share was up a very strong 20% over the prior year, to $1.03.
Adjusted revenue was $1.2 billion in the quarter and $3.7 billion in the first nine months of the year. Internal revenue growth was 4% year-to-date.
Our continued focus on recurring revenue acceleration was highlighted by a 6% increase in processing and services revenue this quarter offset by a decline in product revenue due primarily to lower card reissuance revenue in Output Solutions. Combined license and termination fee revenue benefited revenue growth by 60 basis points in the quarter and 20 basis points year-to-date.
Adjusted operating income growth was excellent, increasing 11% in the quarter and 9% year-to-date to $411 million and $1.2 billion, respectively. Adjusted operating margin was up 190 basis points in the quarter to 33.1% and year-to-date was up 150 basis points to 32%.
Margin performance across both segments was primarily driven by revenue growth in our scale processing businesses and cost efficiencies, including savings from our operational effectiveness program. Now on to the segment results.
Internal revenue growth in the Payment segment was 6% in the quarter versus our strongest prior-year quarter and up 5% year-to-date. Growth in our card services and Biller businesses led the segment performance.
While EMV production in our Output Solutions business increased, much of that revenue, $9 million, was deferred to future periods due to cards which have been fully manufactured as of quarter-end but not yet personalized. We have added nearly 100 new debit clients through September and have a solid pipeline of future activity.
Our double-digit transaction growth so far this year remains ahead of the market. Our integrated debit value proposition along with continued solution innovation, such as CardValet and CardFree Cash, is resonating well with the market.
Bill payment transaction growth remained in the low-single digits and we saw good traction in value-added services, such as same-day bill payment, which has transaction growth of 36% over last year. Mobile users continue to grow, as we approach 4 million Mobiliti ASP subscribers at the end of the quarter.
We continue to believe digital transformation is still early in the cycle and expect to see even more growth in the future as demand for digital services continues. Payment segment adjusted operating income grew 8% in the quarter to $217 million, and year-to-date is up 9% to $616 million.
Segment adjusted operating margin expanded 80 basis points in the quarter to 33.7%, and through September is up 110 basis points to 32.7%, driven primarily by growth in our scale recurring revenue businesses and cost efficiencies. Internal revenue growth in the Financial segment was 4% in the quarter and 3% year-to-date.
Growth in the quarter was driven primarily by strength in our account processing and lending businesses along with the positive impact of higher combined termination and license revenue partially offset by currency. Adjusted operating income in the Financial segment was up 13% in the quarter to $218 million and up 9% to $631 million in the first nine months of the year.
Adjusted operating margin was 35.5% in the quarter and has increased 180 basis points to 34.8% year to date. Strong margin performance in the quarter was driven by scale business growth in areas such as account processing and lending, higher one-time fees, and benefits from our continued focus on operational efficiency.
Corporate segment adjusted net operating performance for the quarter and year to date are both in line with our expectations and consistent with the comparable prior-year results. Our adjusted effective tax rate was 34.3% in the quarter, and year to date is up 100 basis points to 34.7%, resulting in a $0.04 per share negative impact year over year.
We expect our fourth quarter rate to approximate 36%. Free cash flow was $666 million through September 30.
Results were negatively impacted in the quarter by the timing of working capital, including a $60 million increase in tax payments compared to 2014. Our free cash flow does not include a $32 million cash distribution from our StoneRiver venture in the quarter.
We anticipate stronger fourth quarter results due to working capital favorability, including lower tax payments. Free cash flow per share is up 5% year to date to $2.77.
Total debt at September 30 was $4.2 billion, or 2.3 times our trailing 12-month adjusted EBITDA. We are deeply committed to creating value for our shareholders through disciplined capital allocation.
We repurchased $514 million of our stock in the quarter, nearly equaling the amount in the first half of the year. For the first three quarters of the year, we have allocated over $1 billion to share repurchase, acquiring 12.9 million shares at an average price of $81 per share.
As of quarter's end, there were 229.5 million shares outstanding and 6.9 million shares remaining under our existing share repurchase authorization. With that, I will turn the call back over to Jeff.
Jeffery W. Yabuki - President, Chief Executive Officer & Director
Thanks, Tom. As I mentioned up front, sales in the quarter were 86% of quota.
Actual sales performance was down a bit compared to the prior year's results, primarily from deals pushing to future quarters. Pipelines are solid across the board, including good traction with our newer solutions.
We expect to finish our sales year strong, leading to excellent momentum going into 2016. Integrated sales in the quarter were $57 million, led by solutions such as debit and credit services, mobility, bill payment, source capture, and statement processing.
With integrated sales of $168 million through September, we expect to meet our $250 million target for the year. Operational effectiveness savings were up sequentially in the quarter and now at $44 million year to date.
In addition to solid in-year performance, we are building the foundation to achieve the new $250 million target we shared at Investor Day. We were pleased to complete the construction of our Alpharetta campus in the quarter.
80% of our nearly 2,000 Atlanta-based associates from a number of locations are now housed in our new state-of-the-art facility. In conjunction with this project, we also consolidated two of our largest data centers, which we also expect will generate meaningful savings.
Although the financial institution environment remains generally stable, the conjecture and implications around interest rates were front and center in the quarter. M&A activity is progressing at elevated levels, which we expect will continue.
While regulatory inefficiency remain in focus, we are starting to see early movement by financial institutions towards revenue-focus solutions that deliver end-user value at the intersection of real-time, digital, and evolving consumer expectations. As I mentioned up front, we are well positioned to achieve our 2015 financial objectives, which include our third consecutive year of increased internal revenue growth.
We are tightening our internal revenue growth guidance to 5% for the full year, which would translate to approximately 6% revenue growth in the fourth quarter. That performance would cap off a strong second half of the year and serve as an attractive exit run rate for 2016.
We have raised our full-year adjusted earnings per share target to a range of $3.84 to $3.87, which at 14% to 15% growth is above the top end of our previous guidance of $3.73 to $3.83. We also expect that adjusted operating margin will increase well over 50 basis points for the full year, and that free cash flow per share will be at least $4.12 for the year.
Although we are in sight of delivering our 30th consecutive year of double-digit adjusted earnings per share growth, we are far more excited about the future. We are providing a unique set of solutions that enable our clients to best serve their customers, which should drive high-quality revenue growth for Fiserv into the future.
We know our success is dependent on the more than 21,000 talented associates who partner with our thousands of clients around the world. We are grateful for the difference they make each and every day.
Speaking of talented associates, earlier today we filed an 8-K announcing that after more than 20 years at Fiserv, the last 10 of them as CFO, Tom Hirsch intends to retire on March 31, 2016. Tom is leaving for personal reasons and does not have plans to pursue comparable employment outside of Fiserv.
He will also be available as needed after March for special projects and to ensure a smooth transition. Tom is a stellar executive with deep business acumen and tremendous passion for the company and its clients.
He has been instrumental in the transformation of Fiserv, working with the team to deliver strong results and set an even more attractive course for the future. On a personal note, Tom has been a great partner, confidante and friend.
In typical form, he will be more than fully engaged until he walks out the door. And when he closes the ledger for the last time, he will be missed.
With that said, transition and change breed opportunity. Tom and his family will embark on a new chapter of their life, and so will the company.
We intend to consider a full slate of internal and external candidates for this highly desirable role. We have a strong finance leadership team, which we believe will ensure a smooth transition.
And we expect to make a decision on a new CFO no later than January 31. With that, Cindy, let's open the line for questions.
Operator
Thank you. We will now begin the question and answer session.
And our first question's coming from Mr. Glenn Greene of Oppenheimer Company.
Sir, your line is open.
Glenn E. Greene - Oppenheimer & Co., Inc. (Broker)
Thank you. Good afternoon, all of you.
And, Tom, sorry to see that you're leaving.
Thomas J. Hirsch - Chief Financial Officer, Treasurer & Assistant Secretary
Thanks, Glenn.
Glenn E. Greene - Oppenheimer & Co., Inc. (Broker)
Yeah. I guess the first question would be maybe, Jeff, if you could give us a little bit more in terms of the environment and the sales outlook.
It sounds like the sales was okay in the quarter, not great. Maybe a few deals were pushed out.
Maybe just more about the – just from a bigger-picture perspective, the sales environment, not only into the fourth quarter, but heading into 2016. And then I got a follow-up.
Jeffery W. Yabuki - President, Chief Executive Officer & Director
Sure, Glenn. And I would say that while sales were a little bit lower than obviously 100% in the quarter, we've had two really great years in a row, kind of two record years.
And I think to some extent we are focused on transitioning from a lot of the things that we've sold historically. We had a big burst of energy right as we brought DNA in.
We're in the midst of bringing those live. And we're getting some very strong traction with some of the newer solutions that I talked about today, whether it be Popmoney for disbursements or immediate funds, CardValet, a number of different products.
So while the first few quarters have been a little bit light, we expect quite a strong fourth quarter. We typically have had larger deals in the middle of the year.
This year those deals have been a bit bifurcated. We had a little bit early.
We expect to see several of them late. And we feel very good about our pipeline and the momentum going into next year across – really across the entire company.
Glenn E. Greene - Oppenheimer & Co., Inc. (Broker)
And then could you just remind us where you are in the conversion pipeline, both for DNA and the account processing pipeline? Sounds like you're going to complete 30 of the DNAs this year.
What's the balance going into 2016? And then just an update on the account processing pipeline too, conversion pipeline.
Jeffery W. Yabuki - President, Chief Executive Officer & Director
Sure. Absolutely.
I would say still the majority of our larger deals have not yet been converted in this year. I mentioned that we've got six $1 billion-plus institutions going live on DNA alone in the fourth quarter.
We haven't given any visibility yet into what next year's conversion cycle looks like. We'll give a little bit more visibility into that when we get into February, when we give guidance next year.
But we're making good progress. Our biggest clients – I mentioned Washington Federal, which is our largest DNA conversion.
That'll go live in the fourth quarter. So much of that revenue will start to show up in Q4, and then turn into next year.
And across the rest of our platforms, most of our larger conversions are going into next year, so we will not have benefited from them in 2014 – 2015. I'm sorry.
Glenn E. Greene - Oppenheimer & Co., Inc. (Broker)
Okay. So you still have the comfort and the visibility to think that organic growth will further accelerate in 2016?
Jeffery W. Yabuki - President, Chief Executive Officer & Director
Absolutely. We stand very clearly by our conversation at Investor Day.
We're going to see – we're going to exit the year, as we said, at approximately 6%. And we expect to have that be a good foundation for our growth going into next year.
Glenn E. Greene - Oppenheimer & Co., Inc. (Broker)
All right. Great.
Thank you.
Operator
James Schneider - Goldman Sachs
Good afternoon. Thanks for taking my question.
Jeffery W. Yabuki - President, Chief Executive Officer & Director
Sure.
James Schneider - Goldman Sachs
I was wondering if you could maybe talk a little bit about the margins and the sustainability of them. Obviously some good upside and I guess some one-time items in the quarter.
But can you maybe talk about what really drove that upside? Was that purely the incremental margin contribution from the payment site business, or were there also some ongoing benefits from data center consolidation that were in there in the quarter?
James Schneider - Goldman Sachs
That's helpful. Thanks.
And then maybe one for Jeff, just to follow up on the sales question. Can you maybe talk about the types of deals that pushed out into Q4 or into 2016?
Were those mainly on the core processing or DNA side? Or were there more ancillary things like bill pay and Popmoney?
Jeffery W. Yabuki - President, Chief Executive Officer & Director
Yeah, the deals that you manage from a slippage perspective tend to be the larger, broad solution multiple-solution deals. So they did bias to the account processing, the core processing side.
We had a couple of other deals slip on the lending side, but it's really on the account processing pieces of the business.
James Schneider - Goldman Sachs
Okay. Thank you.
Jeffery W. Yabuki - President, Chief Executive Officer & Director
Yeah.
Operator
David Togut - Evercore ISI
Thank you. Good afternoon.
Jeffery W. Yabuki - President, Chief Executive Officer & Director
David Togut - Evercore ISI
I'm not sure whether or not to congratulate you, Tom. But you'll certainly be missed.
Thomas J. Hirsch - Chief Financial Officer, Treasurer & Assistant Secretary
Okay. Thanks, David.
I appreciate that.
Jeffery W. Yabuki - President, Chief Executive Officer & Director
David, we're going go for congratulations.
David Togut - Evercore ISI
Okay. Well, definitely a bittersweet moment.
Thomas J. Hirsch - Chief Financial Officer, Treasurer & Assistant Secretary
Yes.
David Togut - Evercore ISI
Question on DNA. I know with sort of the previous generation product, Acumen, one of the big challenges you faced was much-longer-than-expected conversion timeline.
What are you finding on these big DNA wins in terms of timeline to convert versus your expectation?
Jeffery W. Yabuki - President, Chief Executive Officer & Director
No, that's a very good question, David. We are actually very, very happy with the implementation work that's happened with DNA, especially given that this was new to the family just in early 2013.
And we have meaningfully ramped up their implementations. I would guess that we'll do more implementations in the fourth quarter than that business did in the prior 12 to 18 months.
So we have ramped it up nicely. And we are finding to the extent that there are any issues, and there have been very few, but if there are any issues, they are not coming from us.
They're coming on the client side. And these have also tended to be larger, multiple-product implementations.
Again, so they've got a level of complexity, and the team has dealt with them beautifully. Most of the clients are referenceable, if not on day one, on day three or four.
So we're feeling very good about the implementations to date. And that's one of the reasons why we have great momentum in the market.
David Togut - Evercore ISI
Great. And then do you have any data on attach rates?
You've highlighted your surround strategy with DNA. Any data on attach rates for products like payments and so forth?
Jeffery W. Yabuki - President, Chief Executive Officer & Director
I would say that we're seeing at or better than what we've seen across the enterprise. If you remember, when we acquired Open Solutions, one of our strategic hypotheses was that because Open didn't have the value of the surround set, that there was something that had been missing from that value proposition.
And as we brought it in, as we shared at Investor Day, we've been very happy with the level of both sales within the new DNA wins since we've acquired it, but even more important have been the ability to penetrate the existing base. So we're not going to give that data right now, but I would say we remain as optimistic and with the same level of conviction as when we talked in June and when we talked prior to that.
David Togut - Evercore ISI
Your cost savings appear to be running ahead of plan. As we see these big implementations of DNA, should we expect the operating leverage of the business to improve even further?
Jeffery W. Yabuki - President, Chief Executive Officer & Director
So I would separate the cost savings from the point of operating leverage. Primarily when we're talking about operating leverage, we'd be talking about the ability to add new revenue to our scaled businesses at a pretty low incremental cost, a very high incremental margin.
And at the same time, at some point we will likely be able to reduce the size of our implementation team within DNA, but frankly that's the last thing we want to do. I'd like nothing better than to be building that implementation team out even further, because we're winning lots of deals there.
The majority of this next phase of $250 million of operational effectiveness saves is going to come from looking to become more efficient in our real-estate footprint, looking to bring together some of our disbursed data centers and also looking for ways to get better leverage out of our disbursed workforce. So those are the big three ways that we see that we're going to knock down that $250 million.
Remember also in our operational effectiveness savings, they're going to be a little lumpy by quarter. And so we had a very good quarter this year.
I think we're just about $5 million, $6 million away from our target for the year. Hopefully we'll stay ahead of that as we can, but we continue to build that muscle and we feel good about our ability for the next few years to use that to create supplemental margin moving forward.
David Togut - Evercore ISI
Got it. Just two quick housekeeping questions.
Can you give the debit volume growth in the third quarter? And then if you could call out the termination fees standalone outside of the software license fees and what the year-over-year compare is?
Thomas J. Hirsch - Chief Financial Officer, Treasurer & Assistant Secretary
Yeah, David, I don't have that in front of me. But the year-to-date is around 10%.
I think in the third quarter, it's somewhere in the high-single digits...
Jeffery W. Yabuki - President, Chief Executive Officer & Director
For debit.
Thomas J. Hirsch - Chief Financial Officer, Treasurer & Assistant Secretary
For debit, exactly. And roughly around 10%, I believe, on a year-to-date basis.
Again, good growth in that particular area. Regarding the termination fees, I know, David, as you well know, it's kind of a normal part of our business and they vary period to period.
The combined license and termination fees were up about $6 million to $7 million in the third quarter and year-to-date compared to the prior year. To your question specifically, termination fees overall were up by approximately $10 million year-to-date and for the quarter.
This was offset, however, by a decrease of about $5 million in license fees year-to-date and for the quarter. And just as a reminder, we had negative currency impact in the quarter of about $8 million and $20 million on a year-to-date basis, which more than offset those increases.
And as Jeff highlighted, we had to defer about $9 million of EMV revenue in the quarter due to the fact that we've completed the manufacturing element but have not personalized the cards, which is a smaller part of that, which will happen. And so with that, that's the numbers on the termination fee side.
David Togut - Evercore ISI
Thank you very much.
Jeffery W. Yabuki - President, Chief Executive Officer & Director
Thank you.
Operator
Thank you. Our next question is coming from Mr.
Dave Koning at Baird. Your line is open.
David J. Koning - Robert W. Baird & Co., Inc. (Broker)
Yeah. Hey, guys.
And congrats, Tom. A ton of good quarters in the last 10 years for sure.
And I guess my first question, the EBIT growth on an organic basis, you could say it was about the strongest it's been in probably the last eight years or so, maybe even longer. And so I know you isolated high-quality revenue and some cost initiatives and stuff.
But it was so strong relative to the last several years that is it more on the just high-quality revenue? And maybe what's changing compared to the last several quarters?
Thomas J. Hirsch - Chief Financial Officer, Treasurer & Assistant Secretary
Yeah, I think, Dave, I don't always look at one quarter. There's always puts and takes in every quarter.
But if you look at a year-to-date basis, our operating income is up 9%, which is very strong. Our expense base is up a couple of percent.
And I think it is a combination of all those factors that we've been really focused on. And there's not one thing, as you well know, that drives us from a results standpoint.
It's a combination of all the things that you talked about. It's the revenue mix of high-quality revenue.
It's the operational effectiveness areas that we're making good improvement on. It's selling the right things that are dropping that through.
And just continue to focus as an organization on continuing to be more efficient across the board. So, again, there's not really one or two things that stand out.
It really is, when you look back at it, the overall business model and just making sure that our teams are executing that business model as well as we possibly can.
Jeffery W. Yabuki - President, Chief Executive Officer & Director
Hey, Dave, I would just add one thing. To your point of this notion we talk a lot about high-quality revenue.
And in the quarter, we had lots of different discrete benefits: high-quality revenue, Mobiliti users, some one-time revenue, were able to offset some smaller license revenue. You have all kinds of things going on.
I guess the only point I would make is because of how we've shaped the model, whether that revenue comes in through a Mobiliti user or it comes in from a one-time or occasional revenue, the drop-throughs are going to get better and better because of how we're managing the cost base overall. And we like that because obviously it gives us some margin and some business model expense leverage, but it also gives us the ability to invest at times where there are opportunities for us to invest.
And, as you know, we're committed to raising margins 50 basis points to 100 basis points a year. And when things are going a little bit better, we'll look for ways to invest to take advantage of those where the perfect storm comes in our favor.
David J. Koning - Robert W. Baird & Co., Inc. (Broker)
Got you. Okay.
Well, that's helpful. And then I also looked back, it looks like your guidance is for EPS to be down just a bit in Q4 sequentially.
And I looked back, the last time that happened was Q4 2007 it looked like. So is Q4 a quarter where you're going to invest some of that away?
I think you paid some bonuses a few years ago or at different times to spend a little extra away. Is that maybe what's happening this year?
Thomas J. Hirsch - Chief Financial Officer, Treasurer & Assistant Secretary
That's a good memory, Dave.
Jeffery W. Yabuki - President, Chief Executive Officer & Director
Yes, it is.
Thomas J. Hirsch - Chief Financial Officer, Treasurer & Assistant Secretary
That's a good memory. I think that was Q4 of – was that Q4 of 2007 or Q4 of 2008?
I think it was an interesting time.
Jeffery W. Yabuki - President, Chief Executive Officer & Director
Yeah, yeah.
Thomas J. Hirsch - Chief Financial Officer, Treasurer & Assistant Secretary
We do have a couple things going on in the fourth quarter that are going to have those expenses a little bit higher than what we had in Q3 here. There's a couple investments there.
We do have a couple – a little bit of business mix. We're also going to experience higher commissions, as Jeff indicated earlier on.
We're going to have some strong sales results in the fourth quarter. We also have our Fall Forum Client Conference in the fourth quarter.
And then last but not least, we are self-directed or self-insured for our health claims, Dave. And we're going to have a pretty significant ramp in the fourth quarter this year compared to the other quarters.
There's normal seasonality there, but it's going to be much bigger. And so those are all kind of four or five different events that are kind of impacting our Q4, a little bit higher expense level than we normally would have.
And so, again, none of these things are really – when you look at it from a year standpoint overall, it's just kind of the way that things are kind of hitting that quarter.
David J. Koning - Robert W. Baird & Co., Inc. (Broker)
Okay. Great.
Well, great job as usual. Thanks.
Jeffery W. Yabuki - President, Chief Executive Officer & Director
Thank you.
Thomas J. Hirsch - Chief Financial Officer, Treasurer & Assistant Secretary
Thanks, Dave.
Operator
Thank you. Next question's coming from Mr.
Andrew Jeffrey of SunTrust Robinson Humphrey. Your line is open.
Andrew Jeffrey - SunTrust Robinson Humphrey, Inc.
Hey, guys. Thanks for taking the question and, Tom, you certainly will be missed.
No question about it.
Thomas J. Hirsch - Chief Financial Officer, Treasurer & Assistant Secretary
Thanks, Andrew.
Andrew Jeffrey - SunTrust Robinson Humphrey, Inc.
Jeff, one of the things you've talked about as one of the sort of overriding themes from a strategic perspective is real-time payments. Could you just step back as you talk about high-quality revenue and the margin improvements you've been enjoying, and certainly disbursement is an interesting new offering and new functionality.
Generally speaking, faster settlement, real-time settlement, is this all part of everything that's going into Fiserv's sort of innovation when I think about Mobiliti suite and so forth? Or is there a separate callout that we're going to be talking about a year from now or 18 months from now around a real-time payment suite of products?
Jeffery W. Yabuki - President, Chief Executive Officer & Director
Well, I mean, we started to talk about that, Andrew, at Investor Day -
Andrew Jeffrey - SunTrust Robinson Humphrey, Inc.
Right.
Jeffery W. Yabuki - President, Chief Executive Officer & Director
And we've used a label of NOW to try to capture this notion of real-time beyond point-of-sale. Right?
There's a big war that's going on at point of sale, whether it's MCX or whatever's going on out there. There's a lot of that.
And we're really focused on the DDA-based payments beyond point-of-sale, and that's both payments and deposits. And so the product that we talked about that was Immediate Funds; that's around deposits.
The disbursement product, that's not necessarily leveraging real-time, although certainly the businesses will have the opportunity to decide if they want to use a real-time rail to make that payment. And I only set that up as context, because the answer is I'm optimistic that over the next several years, we'll have lots of conversations that talk about leveraging all of the construction that's going on in the real-time space and linking that construction into our front-end applications and weaving that construction into the back end of our real-time payment system.
And that will, whether it's Mobiliti or Popmoney or RXP or Immediate Funds or something that we haven't thought of yet, all of the different functionality that exists in the DDA – I think the example we used at Investor Day was being able to make a payment through bill pay and get immediate credit at a bank where a consumer has a credit card account. We see that all as options and ways to help consumers use the real-time networks that are being built right now.
I think one of the confusions, as you well know, is which rails are going to be built. And so while we are to some extent in the business of constructing those rails, we also don't think that there's a single ubiquitous rail that we can build.
We think we can enable people to use some of our technologies, and we will connect to other people's technologies. But we – our ambition is to bring that real-time capability to our applications to enhance the consumer experience, to hopefully drive revenue for the financial institution and value for the different users.
So I know it's a longer – maybe a longer answer. But that's how we're thinking about it right now.
Andrew Jeffrey - SunTrust Robinson Humphrey, Inc.
Okay. So more to come in terms of this theme of really giving your customers or FIs the ability to drive more revenue in their businesses.
Jeffery W. Yabuki - President, Chief Executive Officer & Director
Exactly. And we've been planting a lot of those seeds, whether it was through the 2,100, 2,200 Popmoney institutions that we have today or the 6,000, – 5,000, 6,000 RXP institutions we have today, and now bringing Mobiliti, right, all kinds of those.
So the flags are being planted, right? The rails have to actually get caught up to allow more ubiquity in the back end.
Andrew Jeffrey - SunTrust Robinson Humphrey, Inc.
Okay. And then just as a follow-up, with regard to International, are there assets out there that might make sense for Fiserv in terms of a significant step-up in international exposure?
Is that still something that is central to the long-term growth plans?
Jeffery W. Yabuki - President, Chief Executive Officer & Director
Well, I mean I would say that we have never said that international is essential to our long-term growth plans. What we have said is we see a couple of discrete opportunities – Agiliti is one of them – where we can create a boost to our internal revenue growth rate.
But at the end of the day I think we have 6%, 7% of our revenue is international. It's going to be hard, even if you're adding a percent of internal revenue growth, it's going to be hard to call that essential to the company.
To date we've not seen large international acquisitions – I assume that you're asking a question around large – that that would make sense for our model. Frankly, we have seen so much opportunity in the U.S.
right now that that's where our focus is. We certainly look at some of the assets that become available.
But for right now the majority of the opportunity that we see international beyond the 6% or 7% of revenue that we're focused on today is really trying to make the world smaller, right? So allowing money to move more simply between the U.S.
and Australia or the U.S. and India or the U.S.
and wherever and back, right? And so looking at different technology solutions that may make that easy so that banks and others can facilitate the global movement of money simply, easily, and securely.
Andrew Jeffrey - SunTrust Robinson Humphrey, Inc.
Helpful Thank you.
Jeffery W. Yabuki - President, Chief Executive Officer & Director
Thank you.
Operator
Thank you. Next is coming from Mr.
Tien-tsin Huang. Your line is open.
Tien-tsin Huang - JPMorgan Securities LLC
Hi. Great.
Thanks. I guess I want to ask – build upon Dave's question just on the margin front.
I'm curious, given that you guys have outperformed year to date, and I caught the fourth quarter commentary. Have you considered sort of changing your investment sort of philosophy or the discretionary versus nondiscretionary mix, for example, just as we look forward into 2016 and 2017?
Jeffery W. Yabuki - President, Chief Executive Officer & Director
Well, I think, Tien-tsin, what we said is that when – historically where we have been meaningfully outperforming our margin guidance, that to the extent that it makes sense for us and our shareholders and our clients, that there are ways that we can further invest and still ensure that we meet our financial commitments, we'd take a look at that. I think Tom was also talking about some of the timing of expenses that we believe that will hit us in Q4.
But that said, one of the things that we've talked about over time is the combination of the revenue model that we're building and the benefit of the operational effectiveness program really gives us more capacity to invest and grow the business – or frankly, not invest and let it flow through to the bottom line. So we're looking at that all the time, quarter on quarter, year on year, month on month, depending on what's going on.
Now, you know well that we don't make large – it's hard for us to decide in a heartbeat to make a big capital investment. Most of our investment is through our P&L.
It's linked to labor. So you have to hire people.
So you can't make big decisions to change – I can't make a big decision to change my expense trajectory next week. But you can be sure that we have investments keyed up that we have an idea that where it makes sense that maybe we should deploy money in a different way.
Tien-tsin Huang - JPMorgan Securities LLC
Okay. Understood.
That's what I was thinking about longer term, because re-sketching that I know is tough in the short term. Just on the core system conversion side, I wanted to ask a question there.
I know there's been a lot of DNA wins. You've had some big wins also like First Hawaiian and et cetera, including some Corillian stuff.
I'm just curious. Year's almost done.
Have you seen in hindsight here a bigger appetite for conversions? And how does that feel going into next year on the conversion side?
Jeffery W. Yabuki - President, Chief Executive Officer & Director
So we have seen more activity in the larger end of the base in 2015 than we have probably in the last five or – at a minimum, in the last five or six years. We have – there's more discussion and movement on the real-time core processing side of the house.
We are not seeing a lot more activity below that level. We're seeing a lot of competition in the smaller – kind of in the $1 billion and below – in the below space, and so there are a lot of activity there.
But we are seeing processes, RFP processes, evaluation processes going on. We've been pleased that we've been involved in that.
We've actually been down-selected once or twice in pretty big evaluations, which is something that we would not have been able to do, frankly, had we not acquired DNA. So we are seeing some activity there.
I think that'll manifest over time. One of the beauties to that is the institutions that are doing the evaluation tend to know us because they're – maybe they're a Corillian client, they're very likely a bill pay client.
In that space, we've got a number of really important solutions at PEP+, PEP+ clients, so they're using our technologies, and so we have a relationship with them. Whether that will ultimately get us over the finish line, we'll see.
But we do think it has them give us more consideration than if we were one of the new kids on the block.
Tien-tsin Huang - JPMorgan Securities LLC
Great. Okay, thanks.
That's good color. Appreciate it.
And, Tom, thanks to you and obviously wish you the best.
Thomas J. Hirsch - Chief Financial Officer, Treasurer & Assistant Secretary
Thanks.
Jeffery W. Yabuki - President, Chief Executive Officer & Director
Thank you.
Operator
Thank you. Next question's coming from Mr.
Ramsey El-Assal of Jefferies. Your line is open.
Ramsey El-Assal - Jefferies LLC
Hi, guys.
Thomas J. Hirsch - Chief Financial Officer, Treasurer & Assistant Secretary
Hey, Ramsey.
Ramsey El-Assal - Jefferies LLC
On EMV, I'm trying to understand better whether that $10 million in EMV revenues in the quarter, putting aside for a second the deferral issue that you pointed out, does that represent the material increase versus EMV revenues last quarter? What I'm trying to get a better sense of is, does this result signal any type of ramp that we're finally seeing this delayed EMV ramp, or is it just still business as usual?
Thomas J. Hirsch - Chief Financial Officer, Treasurer & Assistant Secretary
Yeah, I'll take it first and then turn it over to Jeff, Ramsey. I think we are seeing a tick-up, clearly.
We didn't have this activity in the first half of the year. And clearly in the third quarter, it's building as we anticipated.
So we did $10 million of incremental EMV manufacturing in the third quarter, which is much more significant than the second. We had to defer $9 million of that to future periods.
But as we laid out on Investor Day, as Mark laid out, 2015 is going to be the low water point. And it's building nicely as we look out into 2016 and 2017 and so that's the way I would phrase that.
But, Jeff, I don't know if you wanted to add something else to that?
Jeffery W. Yabuki - President, Chief Executive Officer & Director
Yeah, probably just a little bit more context. So the $9 million that we ended up deferring, we ended up deferring it, first of all, we had to defer it because it was the first time we had really meaningful EMV activity.
But if you think about the $10 million of production for the quarter before the deferral, 10 times 4 is 40, that's $40 million in a year. If you go back and look at what we laid out for Investor Day, that would have been the start of a very attractive run for us.
So the answer is, yes, we saw a lot more production. We ended up needing to defer the $9 million of the $10 million.
And we believe that that deferral will stay constant for a while. And so if you look through that, we would expect to be able to recognize a more normal amount of revenue moving forward.
Ramsey El-Assal - Jefferies LLC
Okay. Okay, got it.
Changing topics here, ClearXchange had a recent change in ownership. It seems like the banks are trying to use (51:39) it up with some sort of fraud and risk-related assets that they have and potentially maybe focus a little more on the real-time side of things.
Does this change the competitive landscape at all for you guys in that space?
Jeffery W. Yabuki - President, Chief Executive Officer & Director
Yeah, it does. Actually, I would say it does more than change the competitive landscape.
I think it's quite a positive move for the landscape in general. Early Warning is famous for having very high-quality risk and analytics.
And they do a great job. We announced a partnership with them at our Investor Day.
We're doing some very interesting work on the real-time side. Now, they have not traditionally been in the real-time payment world.
They're in the real-time data exchange world and they're going to build out some capabilities. We're building a nice partnership with them and we expect this to be quite positive for the industry.
Remember, ClearXchange is really the back-end of the process where they're enabling some of the engines for those institutions. Those institutions still need front-end applications.
A number of those institutions that are in ClearXchange as well as more than 2,000 around the system use our front-end. So I'm hopeful and optimistic that this will move the industry closer to more ubiquity in allowing consumers to move money at the speed of their choice.
So we're quite excited about it.
Ramsey El-Assal - Jefferies LLC
A rising tide lifts all boats mentality it sounds like, which makes sense. One quick last one from me.
On Agiliti in the UK, is the rollout there still tracking to your expectations? I think you mentioned potentially rolling a customer out there towards the end of the year and the beginning of next year.
Does that still sound like a reasonable goal?
Jeffery W. Yabuki - President, Chief Executive Officer & Director
Yeah, we would expect to be live – I would say at this stage because it's taken a little bit longer to get this first contract signed, it's a little bit more difficult when you're building a business from scratch, subject to all the regulatory approvals and everything else. But I would expect us to go live in the first half of next year with multiple clients.
So we're really excited about that.
Ramsey El-Assal - Jefferies LLC
All right. Terrific.
And congratulations, Tom. And that's all from me.
Thomas J. Hirsch - Chief Financial Officer, Treasurer & Assistant Secretary
Okay. Thanks, Ramsey.
Jeffery W. Yabuki - President, Chief Executive Officer & Director
Thank you.
Operator
Thank you. Our next question is coming from George Mihalos of Cowen & Company.
Your line is open.
Unknown Speaker
Hi. This is Allison (54:16) in for George.
Tom, let me add my congratulations on your retirement. I just had a quick question within the Financial segment.
I'm curious, and you can disaggregate a bit what growth trends you were seeing across core processing, item processing and the loan servicing businesses, I'm wondering if it's fair to say that the core processing business is growing above total segment revenue growth, while the other businesses are below?
Jeffery W. Yabuki - President, Chief Executive Officer & Director
I would say in the Financial segment, as you're aware, the larger share of our revenue comes from the core processing area. So clearly that's growing faster than our areas like check processing, which is in decline.
So that is correct. I think the other areas that we have in there, lending has been growing nicely.
But we have been impacted – our international business is in there, so our currency has negatively impacted that segment. And we should, over time, continue to see international contribute to that.
But, to your point, item processing's a bit of a drag. The core is the big piece of growth that's in that particular area, along with our lending area.
Thomas J. Hirsch - Chief Financial Officer, Treasurer & Assistant Secretary
Yeah. I would say, I mean just for clarity, that we have both seen some good growth trends coming out of the lending businesses and that we would expect, over the next couple of years, to see lending itself be an important part of how financial institutions are obviously going to drive revenues.
So those trends, we think, will look better moving forward than they have historically, as people have not really been spending in that space.
Unknown Speaker
Great. Thank you.
Thomas J. Hirsch - Chief Financial Officer, Treasurer & Assistant Secretary
Thank you.
Jeffery W. Yabuki - President, Chief Executive Officer & Director
Thanks, everyone, for joining us this afternoon. We appreciate your attention and support.
If you have additional questions, feel free to contact our IR team. Have a great day.
Operator
Thank you. And that concludes today's conference.
Thank you for participating. You may now disconnect.