Fiserv, Inc. (FISV) Q2 2014 Earnings Report, Transcript and Summary

Welcome to the Fiserv Second Quarter 2014 Earnings Conference Call. [Operator Instructions] Today's call is being broadcast live over the Internet at 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 link in the Events section of its home page. The call is expected to last about an hour, and you may disconnect from the call at any time. Now I'll turn the call over to Stephanie Gregor, Vice President of Investor Relations at Fiserv.

Thank you, and welcome to our call. With me today are Jeff Yabuki, our Chief Executive Officer; 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, expected operating and financial results and 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 at fiserv.com for a discussion of these risk factors. You should also refer to our earnings release and the supplemental materials for today's call 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 as a basis for planning and forecasting for future periods. With that, let me turn the call over to Jeff.

Thanks, Stephanie, and good afternoon, everyone. Results for the second quarter were solid, in line with our expectations and on track to achieve our full year financial outlook. And as you saw in our press release, we also moved up the bottom end of our adjusted EPS guidance by $0.03. Adjusted internal revenue growth in the quarter was 3% against our most difficult revenue comparison of the year. Adjusted operating margin was 30.6%, an increase of 10 basis points over last year's quarter and up 100 basis points sequentially. Adjusted earnings per share increased 8% over last year's second quarter. We feel very good about our results for the first half of the year. Adjusted internal revenue growth through June 30 is 4% compared to only 2% in the first half of last year. Adjusted earnings per share for the first 6 months is up 15%, and free cash flow per share is up 16%, both of which reflect our commitment to growth through high-quality revenue. Sales through June 30 are up 5% over the same period last year. Our pipeline is growing at a strong clip, and we are poised for stronger performance in the second half of the year. Now let me update you on our enterprise priorities. As a reminder, our 3 focus areas for the year are: first, to continue building high-quality revenue growth while meeting our earnings commitments; second, extend market momentum to deepen client relationships with a larger share of our strategic solutions; and third, to deliver innovation and integration, which enhances results for our clients. To our first priority, we are building momentum through high-quality internal revenue growth, expanding margin and growing free cash flow per share. We delivered 3% adjusted internal revenue growth in the quarter against our toughest revenue comparison of the year, and are now 4% for the first half. Payments led our internal revenue growth performance with 5% and 7% growth for the quarter and year-to-date, respectively. Adjusted EPS is up 15% year-to-date over last year's strong earnings result. Execution is solid across the business. Through June 30, we achieved a 60-basis-point improvement in adjusted operating margin and a 16% increase in free cash flow per share, all this as we continue to invest in your company. We are well on track to achieve our 29th consecutive year of double-digit adjusted earnings per share growth. Our second priority is to extend market momentum to deepen client relationships with a larger share of our strategic solutions. We had over 4,000 attendees at Fiserv Forum, 1 of our 2 primary client conferences in May. This event, which has become one of the largest in the entire FinTech industry, is proving to be an important opportunity for clients to network with other industry leaders, exchange ideas and gain insights into market and industry trends. As important, the forum is a great opportunity to showcase our market-leading solutions and latest innovations to decision-makers, prospects and industry pundits. At last year's conference, one of the solutions introduced to our clients was our ASP tablet banking solution, which enables financial institutions to provide a differentiated experience to the more than 60 million tablet banking users in the U.S. today. Since then, 16% of our Mobiliti ASP clients have begun to offer this solution. At this year's event, we introduced Mobiliti Business, which goes live this year. This ASP solution allows our financial institution clients to provide their business customers with a compelling suite of mobile capabilities such as remote deposit capture, entitlement, payment initiation and approval. Interest is very strong across the nearly 1,200 institutions using our business online services today. We're excited about helping our clients address the digital needs of this strategically important customer segment. We expect to see meaningful revenue growth from this user-based subscription offering over the next several years. During the quarter, we also signed an additional 72 institutions to Mobiliti for a total of nearly 1,900 mobile clients. Mobiliti ASP subscribers have grown more than 175% year-over-year to over 2.2 million subscribers, which is also up about 15% sequentially. Our third priority is to deliver innovation and integration, which enhances results for our clients. In the quarter, Australia-based Westpac Bank, one of the largest financial institutions in the world, was recognized as having the leading online and digital design for its transformative digital platform built by Fiserv. This prestigious award, known as the Good Design Award, evaluates technology -- technologies across all industries, not just banking, and Westpac's solution was selected as a winning design for 2014. Their new Corillian-based Online Banking service, branded as Westpac Live, is a one-of-a-kind solution utilizing state-of-the-art design principles, coupled with modern technology to provide a consistent, simple, helpful and secure omnichannel customer experience through a single platform. We continue our focus on real-time money movement as a way to drive meaningful differentiation in client value. We are building a new type of payments ecosystem using several of our leading solutions to create a one-of-a-kind network that allows end-users to simply and easily use payment speed to their advantage. At our most recent Investor Day, we presented a number of targeted strategies to accelerate growth outside the U.S. over the next several years. Earlier this month, we launched Agiliti, a cloud-based retail bank technology solution. This modularized account processing-based solution is designed to enable new players as well as existing institutions to better manage their technology costs, rapidly bring products to market, enhance the digital experience, and overall, enable institutions to focus their effort on serving customers. We've teamed up with Anthony Thomson, the cofounder and former Chairman of Metro Bank and the Chairman and cofounder of The Financial Services Forum to combine U.K.-based expertise and credibility to this new powerful solution. In a very short period, we have seen strong demand, leading to commitments from multiple institutions, including Think Money Limited, to use our new solution. Agiliti is scheduled to go live in mid-2015. With that, let me turn the call over to Tom to provide additional detail on our financial results.

Thanks, Jeff, and good afternoon, everyone. Adjusted revenue was $1.2 billion in the quarter. Our adjusted internal revenue growth rate was 3%, solid results given the difficult prior year compare and the strength of our first quarter's performance. For the first half of the year, adjusted revenue was $2.3 billion, and adjusted internal revenue growth was 4%, a meaningful acceleration over the prior year's growth rate of 2%. Adjusted operating income in the quarter increased 4% to $360 million, and for the first 6 months, was up 7% to $702 million. Adjusted operating margin in the quarter was up 10 basis points over the prior year to 30.6%, and increased 100 basis points sequentially. For the first 6 months, adjusted operating margin is up 60 basis points compared to the prior year, driven primarily by growth in our scale businesses and operational efficiencies, including Open synergies. Adjusted earnings per share increased 8% to $0.81 in the quarter, and for the first half of the year, is up 15% to $1.63, both compared to the prior year period. Now onto the segment results. Adjusted revenue in the Payments segment increased 5% to $591 million in the quarter, and for the first 6 months, increased 7% to $1.2 billion, with only $2 million of acquired revenue year-to-date. The strength in our larger recurring revenue businesses such as card services, bill payment and channels, along with good performance from output solutions, drove the majority of the revenue growth. The decrease from the first quarter's growth rate was primarily due to more difficult second quarter compare; the annualization of a large client win at the end of the first quarter; and a negative impact from the Biller headwinds we shared with you earlier in the year, which stemmed primarily from client acquisition. We signed 88 new bill payment clients in the quarter and 170 through June 30. Bill payment transaction volume grew 3% in the quarter and 5% in the first 6 months. Strong new client growth was partially offset by the anniversary of our largest 2013 bill payment implementation in the first quarter and continued soft transaction volumes at our largest client. We expanded the number of member institutions in the Popmoney network in the quarter, and now have over 2,200 institutions contracted to offer these services. Transactions were up 73% in the quarter, and we continue to see important growth opportunities, in particular, as clients enable real-time capability for their customers. We have a strong pipeline for Popmoney Instant, including notable opportunities with several top 50 financial institutions to join the more than 170 financial institutions signed today. Debit transaction growth was 11% in both the second quarter and the first half of the year. We added 26 new debit clients in the quarter, and have signed 56 for the first 6 months of the year. New sales, better-than-market transaction growth and value-added services combined to drive strong, continued revenue growth in our card services business. Payments segment adjusted operating income was up 3% in the quarter to $185 million. And year-to-date, adjusted operating income increased 6% to $365 million compared to the prior year periods. Adjusted operating margin in the segment increased 70 basis points on a sequential basis to 31.3% in the second quarter, but down 70 basis points compared to the prior year, which was our highest overall margin quarter over the last 4 years. Through June 30, segment adjusted operating margin was down 30 basis points to 30.9% over the prior year's high watermark. Margin performance is driven by operating leverage in our scale businesses, offset by continued investments in areas such as Mobiliti and Biller Advantage, the margin mix associated with higher revenue growth in output solutions and Biller headwinds mentioned earlier. Adjusted revenue in the Financial segment increased 1% in the quarter to $596 million, and is up 2% to $1.2 billion for the first 6 months of the year, both compared with the prior year periods. The adjusted internal revenue growth rate in the segment of 1% in the quarter declined sequentially, primarily due to lower growth from fee revenue, including license and termination fees and the expected weakness in our International business. Adjusted internal revenue growth in the quarter and year-to-date was primarily driven by growth in our Account Processing businesses, partially offset by the timing of larger international client implementations in 2013, which create a very difficult year-over-year comparison, which should abate as we go through the second half of the year. Our large core Account Processing implementation, including Open Solutions, are progressing well. We expect increased revenue from these new clients across a variety of our market-leading solutions towards year end and even more as we move into 2015. Adjusted operating income in the Financial segment was up 6% in the quarter to $203 million, and is up 9% to $388 million through June. Adjusted operating margin expansion in the segment was stellar, up 170 basis points in the quarter to 34.1%, and up 200 basis points to 33.1% for the 6-month comparable period. Results were driven by growth in our Account Processing businesses, benefits of operational efficiencies, higher termination fees, partially offset by international headwinds. The adjusted operating loss in the Corporate segment for the second quarter was $28 million. The increase in expenses was primarily due to the implementation of a new HR system, rolling out during the second and third quarters of this year, along with the timing of expenses associated with our spring client conference. Our adjusted tax rate for the quarter was up to 36%, higher than the prior year's adjusted rate, primarily due to the impact of the nonrenewal of the R&D tax credit in 2014. Through June 30, our effective tax rate of 33.1% was lower than the prior year, with the difference driven by the timing of discrete tax benefits recorded in the first quarter of 2014. We expect the adjusted effective tax rate in the second half of the year to be higher than the first half, and that our full year tax rate, excluding the tax impact from StoneRiver Capital transaction, will be under 35%. We received a $45 million cash distribution from our StoneRiver joint venture in the quarter, which is excluded from our free cash flow performance. The year-to-date adjusted earnings contribution from StoneRiver decreased by $6 million, or a $0.02 negative EPS impact, as StoneRiver continues to opportunistically monetize its business portfolio. The performance of this equity investment has been exceptional. In fact, since the formation of the StoneRiver venture in 2008, Fiserv has received total cash payments in excess of $850 million. We continue to see attractive growth in free cash flow as one of the outcomes of our focus on high-quality revenue. Free cash flow for the first 6 months of the year reached nearly $400 million, increasing 10% over the prior year period. This performance, again, which does not include the $45 million from StoneRiver, translated to $1.54 in free cash flow per share, a very strong 16% increase. Total debt at June 30 was $3.8 billion or 2.3x our trailing 12-month adjusted EBITDA. We repurchased 3 million shares of stock in the quarter for $168 million. Through June 30, we have deployed $519 million, repurchasing 9.1 million shares at an average cost of $57 per share. This is double the allocation of capital to share repurchase compared to the first half of 2013. At quarter's end, there were 249.1 million shares outstanding and 9.4 million shares remaining under our existing share repurchase authorization. With that, I will turn the call back over to Jeff.

Thanks, Tom. Sales for the quarter were a bit lighter, following up on a very strong Q1. We attained 80% of our quota in the quarter and are now at 88% year-to-date. As you will recall, we have increased our sales targets in each of the last several years. Importantly, actual sales value through June 30 is still up 5% over last year's level. Our sales results for the quarter were negatively impacted by the timing of several larger transactions that slipped out of Q2 and signed early in the third quarter. As an example, we completed a large sale in July, with total contract value of more than $50 million to a top 10 financial institution to serve as a large share of their substantial consumer loan portfolio. We're excited about this new relationship and expect the solution to go live late in 2015. Our June 30 qualified pipeline is up 19% since the start of the year. The strength is coming primarily from continuing momentum in large Account Processing transactions, early traction in our focused international strategies and progressively larger transactions across our solutions. Also, DNA platform sales were again strong, with 6 new clients signed in the quarter. Since we acquired the business last year, we have added 44 new clients to DNA, and we fully expect that momentum to continue. Integrated sales were $50 million in the quarter, and totaled $102 million through the first half of the year. Card services, bill payment and Mobiliti led the integrated sales performance in the quarter. Through June 30, nearly 20% of our integrated sales, a fourfold increase over the same period last year, have come from the DNA client base. We are on track to achieve our $250 million integrated sales target for the year. We've also realized $37 million of Operational Effectiveness savings in the first 6 months in the year, or 62% of our $60 million annual target. The strong results are driven by Open Solutions cost synergy attainment and operational improvements. Going forward, we expect the growth in the incremental savings associated with Open Solutions to slow as we have substantially completed our cost-focused integration efforts beyond the data center consolidation. We remain well positioned to meet our Operational Effectiveness objective for the year. The environment continued to show stability in the quarter. There were 9 regulatory actions in the period and 15 year-to-date, a decrease of 40% compared to the first half of last year. We are also seeing healthy M&A activity in the market, which we view as a generally positive sign. Technology spend continues to be focused on cost effectiveness, digital experience and regulatory compliance. While we do not expect overall technology spend for the year to increase over our original estimates, institutions remain committed to their spending plans, which is an improvement over the trailing-off we have seen over the last few years. Lastly, we continue to see a strong interest by financial institutions in solutions that can help generate new revenue. As I mentioned upfront, we are well on track to achieve our full year financial outlook. We continue to expect adjusted revenue to increase 5%, and adjusted internal revenue to grow 4% to 4.5% for the year. And for reference, we expect termination fees in the second half of the year to be about flat to last year's level. Based on the strength of our first half results and what we can see for the remainder of the year, we've increased the bottom end of our EPS range by $0.03 per share. We now expect adjusted EPS to grow in a range of 11% to 13% or $3.31 to $3.37 per share. We continue to expect adjusted operating margin to expand at least 50 basis points for the full year. And finally, we expect free cash flow per share to increase by at least 10% or greater than $3.65 for the year. We're at a strong position as we enter the second half of the year. We are executing well on our core businesses, and are extending our momentum in areas of new and existing market demand. We are progressing on our journey to steadily increase our adjusted internal revenue growth rate through the addition of high-quality revenue. We are on plan for the year and believe our growth momentum will continue into 2015. Our achievements are not accidental. We have the benefit of 21,000 associates around the world who care deeply about clients, are meeting commitments and remain focused on delivering innovation and excellence each and every day. With that, let's open the line for questions.

[Operator Instructions] Our first question comes from Paul Condra from BMO.

I just -- I thought I'd ask first about the DNA implementation. I just wondered, is there anything with timing that we should be paying attention to or any change to that rollout?

No, I mean, we are on track on those implementations. We mentioned we've got 44 wins so far. We had right around 30 last year, and those are tracking well, and those will begin to go live really in the second half of this year and more towards the end and then well into 2015. And at this pace, we would expect that to continue beyond 2015, so it's right on track. The great news, Paul, that I would add to that is, it's not just the DNA implementations but the amount of revenue uplift that we're seeing from surround solutions in the DNA base and in the Open base, in particular, continues to be very positive. I think we mentioned in our prepared remarks that fully 19% -- 19%, 20% of our add-on integrated sales in the quarter or for the year-to-date have come from DNA clients, so we're quite pleased with that and just well on track.

Okay, great to hear. Just following up, I wondered if you could talk a little broadly just about margin expansion. The quarter looked strong, but I'm wondering if you can talk about how you balance kind of revenue growth with margin expansion. Is there any -- anything we should be paying attention to as you move internationally as well?

Yes, it's a great question. I mean, I would say that we have been very, very disciplined on focusing our energy on what we described as high-quality revenue. And that we described that revenue as being generally recurring revenue, revenue that fits into our model. It's things that we do for clients on an everyday basis, and it tends to come -- that revenue tends to bring along attractive margins and, frankly, very high free cash flow characteristics. And as we thought -- and that's been our model in the U.S. And frankly, we buy it for that. We would prefer to grow a little bit more measured but grow in that way as opposed to achieving growth for growth's sake. And we've taken that same formula outside the U.S. When we shared at Investor Day last year the areas in which we were focused on growing this Account Processing cloud-based solution that we talked about called Agiliti, right, that's outsourced Account Processing. We know how to do that. We're building a scale model and we're focused on that. And then it's payments and channels, which we define as mobile and online. All things that we do today, things that we think have those "high-quality" revenue growth characteristics, and that's really where our focus is, is, has been and will continue to be.

Darrin Peller from Barclays.

Tom, maybe -- can you give us some more specific color on the onetime moving parts around the quarter, especially with regard to the deceleration of growth versus the fourth quarter -- first quarter levels? If you could just list them for us and then maybe help us understand what impact they actually had on the Payments and Financial growth rates as well as maybe the margins in the quarter?

Yes, are you talking about onetime fees, Darrin?

Yes, I guess -- I know there was a lot of noise around the grow over, right, as you I think alluded to in your prepared remarks, so the comps were harder. Maybe just give us the components to that. And then maybe if there's any other onetime items, how those impacted the growth rate and what those growth rates would be sort of more normalized for any segment?

Okay. I'll start with that and then turn it back over to Jeff. But I think if you look at the first quarter of 2013, we had 0% growth when you look back to last year. And in the second quarter of last year, we actually had 4% growth, which was our strongest quarter last year in Q2. We had 7% growth in the Payments segment and actually 2% in Financial. So this is really -- while we looked at the year and while we rolled off the year, this was our most difficult kind of comparison on a year-over-year basis. So we're very pleased with our second quarter results from a growth rate standpoint given that compare. We also had some annualization of our -- like our largest bill pay client in the first quarter. We have difficult international comparisons in the first half of the year, which will start abating in the second half. And we have some momentum as we head into the second half in some of the larger core implementations. In regards to what you mentioned around onetime fees, we've had, year-to-date for the first 6 months of the year, license and termination fees are up roughly about $15 million, Darrin, and about $11 million or so of that was in the first quarter and about $4 million of that in the second quarter. So again, we had a little bit more benefit in the first quarter from those and less in the second quarter, and that contributed a little bit to the deceleration when you look at it comparing to the first quarter. But as you know, those fees bounce around. Jeff indicated in his prepared remarks in the second half, license termination fees are probably going to be flat to the prior year. And that's just generally where we see that right now. So that would be from a high level. And Jeff, I don't know if you want to add anything to that.

Yes, the only thing I would say, Darrin, is, and we talked about this a lot in April when we shared our results from Q1. I mean, we fully expected Q1, on a relative performance basis, to be by far the strongest of the year because, as Tom mentioned, we had a 0 compare. We expected this to be the hardest. And so it's worked out as we expected. We're right on our internal plans and some of the significance of the performance delta that we had to get over versus last year's Q2 and then the kind of a very strong Q1 makes it a little bit more difficult to see the underlying growth, kind of the puts and takes on that. But we feel like we're going to see the reacceleration in the second half of the year on the segments, just given the compare differential on a regular basis. And then we're going to, of course, add on some of the additional implementations that we've been talking about. So again, to summarize, we think the year is looking exactly the way we thought it would when we gave guidance at the beginning of 2014.

Sure. No, that's helpful. I think the reason I made -- to your point, the reason I was asking is really to get to what the normalized growth rate underlying this really is. And it sounds like, look, in the first half of the year, you're coming at 4% internal growth. As you said, I mean your guidance is 4% to 4.5%, but you're also looking for an acceleration as easier compares come about, not to mention all the roll-on from DNA and other businesses you've won that are actually going to be generating revenue in the second half of the year. So I guess just to that point, your guidance being left unchanged at 4% to 4.5%, when you're already at 4% without the benefit of all of these businesses that have yet -- that are yet to roll on, is that just some conservatism in your outlook or is there any sort of moving parts? Because it seems like that should add a fair amount of revenue versus the first half levels.

Yes, I would say there is one other thing. We had talked, and you'll remember this well, Darrin, we had talked at the beginning of the year that we would have headwinds coming from our Biller businesses. And while we've had some of those in the first half, we actually think that will actually grow a bit in the second half of the year and end up shrouding some the growth that we would otherwise see blowing through to the bottom line. But we would also -- if we talked about it in terms of the elements of '15, we've got the large implementations that we talked about both on the core and on the bill payment side. We've got the benefits coming from Open Solutions, the international performance that Tom talked about in terms of that moderating, going live with Agiliti. Now again, Darrin, I'm talking about going into '15, right, we're going to have those benefits. So we've been quite pleased with how our pipeline has grown, up 19% so far this year, and that's coming on the heels of a number of, as you remember, a number of large deals at the end of last year and a very, very strong first quarter. And then we also think we're going to have some benefits come through in '15 relative to EMV. There's been more discussion going on in EMV. We expect to have those benefits there. And then we'd hoped that all of that or we'd expect that all of that would turn into accelerated growth into '15 and actually, we believe that we'll probably hence see our free cash flow move up to a little bit north of $1 billion next year. So again, focused on growth acceleration in a high-quality way.

Okay. That's helpful. Just one last question, and I'll turn it back to the queue. On the margin side, I mean you had very good expansion on the Financial segment. The Payments side was obviously down, and I'm not sure I quite caught the reason for that. Maybe it was due to some of these onetime issues or maybe not. But just understanding in the second -- maybe if you could answer that. And then in the second half of the year, the margin again. I mean when you roll on new business, such as the DNA businesses that we've talked about, are those -- how accretive is that to your margin when you actually start to execute and implement the business and start to generate revenue off of the work you've done over the past 6 months?

It's high, Darrin, from a standpoint of, again, the scale that we have in those businesses, especially in our card services, bill payment related business. The thing that we had this year, which we talked about briefly, was we are investing more in areas like Mobiliti. Jeff mentioned a number of different -- our tablet offering, our Mobiliti business offering. We also have Biller Advantage, which was something that we acquired in our Biller business that we've invested in. And then we've had a little higher growth associated with our Output Solutions business, which has a little lower margin mix for that. And also, we talked a little bit about our Biller headwinds. Those are kind of hitting us here in the second quarter and in the second half a little bit from a standpoint of some client acquisition that we had, and that's also impacting our margins. So we have very good growth from a scale standpoint in those businesses as that revenue goes on. We have some investments that we're making in a number of different areas, and then we have a little mix differential at Output and then these Biller headwinds that we kind of talked about through client acquisition. So that gives you a little flavor for what's going on.

Dave Togut from Evercore.

I apologize I joined the call a little late from another call, but maybe you could just dig in a little bit on DNA. The uplift you're seeing in booking, to what extent do you think that, let's say, an improvement in market demand versus share gains? And to the extent it is share gains, if could you give us some insight, perhaps on your head-to-head competitive win rates versus Symitar, which has long been your strongest competitor in the large credit union market?

Yes, so I would say that it is share gains in terms of we're winning more than our fair share of new clients. In fact, DNA, DNA has quite strong win-loss ratio when it's out -- when we're out there competing against the market. For the most part, we are not winning -- we are not winning at the level certainly we would like to versus Symitar. We are winning more from other competitor. But you can be sure that we're very focused on what are the right ways for us to make sure that we win against all clients that are out there. Frankly, I would say, David, that we've won a lot of business. We're at roughly 44 wins on the DNA platform to date since the time of acquisition. And frankly, that's a lot of new business. And there are clients that we know that are waiting on the sideline, waiting for us to have these clients go live and waiting for us to -- not waiting for us, but waiting to see that we're able to service this significant demand. So that is a very important element of how the competitive dynamic will play moving forward. We're very focused on operationally making sure that we get these clients live, that they're happy and referenceable on Day 1. But the other thing that I would say that's quite important is DNA is not just a credit union platform. It is a very well-respected platform on the bank side as well as on the credit union side. In fact, you'll remember that in Q1, we won a very large transaction called Washington Federal Bank, which is now a $13 billion bank in the Pacific Northwest, who bought the DNA platform and then bought basically our entire suite of surround. We are having a lot of success on the bank side as well as on the credit union side. So I'm actually quite confident that we will see both of those sides of the charter wars, we'll see big wins coming -- big fair gains coming on both sides of that. And we believe we're the only provider in the industry who can offer a variety of platforms that meet the needs of individual institutions. So DNA is not always the right platform, and XP systems may not always be the right platform, and Premier may not always be the right platform, or Signature. We have platforms that meet the needs of the institution and can help them grow as they decide in terms of what is their strategic plan and how they prefer to do business.

That's very helpful. If I can just segue into your Operational Effectiveness performance, 62% year-to-date. Are you signaling that you're going to significantly outperform on that $60 million cost takeout target for this year?

No, we continue to be on track towards that, David. We continue to execute well. We knew the first half was going to be a little stronger just from the standpoint of the Open synergies. We're well on track to slightly exceed that target on a separate basis, so we're very pleased with that. And the first half is going to be a little stronger because of those Open synergies. So we're well on track for the year, though.

Got it. And just a quick final question on the 88% quota attainment for the year. Where do you expect to end up for 2014 as a whole?

100%. I mean we expect to be right on target. The pipeline is quite strong. We mentioned that we had -- we really just had a couple of deals slip from the end of Q2 into Q3. We indicated that we had a $50 million transaction closed in July. So we're feeling quite good about that.

Adam Dahms from Robert W. Baird & Co.

I think most of my questions have been answered. Maybe if I could just ask about the bill pay transactions. I know you called out the anniversary-ing of a large client kind of contributing some of that deceleration. Is it fair to look at this 3% as kind of a normalized run rate? Or was that, that client acquisition, is that a headwind that might have lowered that a little bit? And then maybe if you could just talk about how revenue growth is kind of trending relative to the transaction growth, that would be great.

Yes, sure, Adam, thanks. So let me start and Tom or Mark, you can add to it. I mean we do not believe that 3% would be the normalized run rate. We have a couple of things going on in the quarter that Tom talked about. We had the annualization of our very large implementation last year, which has a little bit of a growth rate impact. We have some trailing off of transactions again in the second quarter as we saw in the first quarter from our largest client. And so that's going to have an impact. That said, we also have a series of new clients that have been going live. We've got a couple of larger implementations that will go live in the second half of the year biased more towards Q4. And so we're excited about that. For that business, when you look in the underlying numbers, we had a number of clients that went live in the last 1.5 years or so. They're growing very nicely. We've got a variety of different growth drivers around the industry, and we're quite pleased with some of the expedited payment focus areas that we have that we see accelerating growth. We've got the integration between digital and our transactional capabilities, so we're happy with that as well. And as we talked about at Investor Day last year, this mid-market area, where we're really focused on in terms of bringing a combination of channels, capability and payments capability to market, really penetrating this odd segment of the market, where we have not -- we're kind of below our level of market share. So we do know that in order for us to grow, we've got to be able to win transactions. And also, we're working on several things from a platform perspective that we believe will increase transactions. And we hope -- or I'm sorry, we expect that transaction growth will end up increasing. We think it should be. It should follow consumer household transactions. That's an important element of our growth strategy and, frankly, our use and adoption strategy that we've articulated at our last Investor Day.

That's really helpful. And then maybe a little bit on the revenue growth in this area. Is that sort of in line with transaction growth? Or are some of these large clients maybe making that a little bit lower?

No, I would say, overall, we don't comment on client revenues for a specific business, but it can be a close approximator, kind of indicator from that standpoint. But there are many things that we work on to clearly maximize our revenue per transaction in our businesses and continue to focus on that. So I would say overall, over a period of time, it's an indicator clearly and just one of those indicators. But that business continues to grow nicely for us.

Brett Huff from Stephens Inc.

Two questions. One on Popmoney. Can you give us a sense -- I know it's still a small piece of revenue and I know it's growing rapidly, but can you give us a sense of how much -- is it enough yet to be a meaningful part of the growth? Like can we talk about it being 50 basis points of growth? I mean anything like that. Or are we not there yet?

I would say that, to your point, it's growing rapidly. It is scaling up, but I would say that it's still early to talk about it in terms of the direct "Popmoney" impact. We're actually seeing a lot of very intriguing impact on the real-time aspect of Popmoney. So we're seeing pretty intriguing changes in revenue per transaction. And so a little bit to the last piece of the discussion, we've got transaction growth and we also have rev for tran that's looking pretty interesting. But I would say it's still early and it's premature in the scope of all of Fiserv, right, just because of the sheer size and magnitude of the overall company.

And given -- this is sort of the second part of the question, I forget what you said about how many you have installed and how many you have contracted to be installed. When you do that math and assume some average run rate of the kind of transactions and the ARPU you see now in Popmoney and translate that into what is contracted and yet to be installed, after those installations happen, does it reach -- I presume it will happen over the next year or however long they will, at that point, does it reach enough of a threshold to start impacting sort of total company basis points growth that we could talk about?

Yes, I mean, I think I would anticipate that if it's not '15, it will be '16. But I do think at that stage, there'll be enough momentum in the solution that it will then start to be breaking that out. And that's one of the things that we talked about as kind of a little bit of an optionality element to the Fiserv -- to a share of Fiserv stock. Right now, it's not having any meaningful impact on our growth rate, but we do expect going into '15 and certainly into '16, that with the combination of Popmoney, the number of call it 2,200 institutions, as well as the real-time aspect, we do believe that at that point, we will see meaningful impact coming from that solution. And again, Brett, our belief is that it won't be linear, right? That in fact that solution will grow. It will hit a tipping point, and you'll see some significant growth come from it for a few years, not unlike what you saw happen with RXP back in the day.

And then just one last one on this. Any change in behavior on those institutions that have offered this relative to bill pay? Are we still paying some things in bill pay as a consumer and some in Popmoney? Are the use cases overlapping or are they remaining separate?

The use cases are overlapping, but the way that the institutions are for the most part presenting the capability requires a little bit of that siloed impact -- siloed behavior. But the use cases, in the use cases, Popmoney looks more like a bill pay technology than it does a splitting dinner tab technology in terms of how the money is used. I mean we're working on a series of different use cases that we think intermediate those solutions and ways that we can make it easier for consumers to access that. And we'll talk a little bit more about that into next year. But the manner in which it is presented to consumers does not mirror the way consumers use that technology today through their financial institution.

Ramsey El-Assal from Jefferies.

I guess as a follow-up to that last sort of line of questioning, on the real-time payment typically, I mean, when you're selling in Popmoney to a new customer, is there -- is real-time something that is sort of can be baked into the sale or is it a separate sales cycle? And I guess is it also more complicated implementation, real-time versus just sort of vanilla Popmoney?

So that's a good question. Back in the day, you may remember when we first started selling P2P, we were really focused on building the network. So let's get that network as big as we can get it, as many institutions as we can. And that predated real-time. So now we're needing to go back in, and for institutions that have made their Popmoney selection, we're looking at adding real-time. And to date, we have about 170 different in Popmoney Instant, we call it, Popmoney Instant installations. And that ranges from institutions as in the top 5 down to institutions that are the average community-based institution. So that is a "resale." When we are selling a new institution today, and we are still selling many new institutions today, we look at bundling it together. So take Popmoney, add on Popmoney Instant. And by the way, while you're doing that, because you are in fact a CheckFree RXP user, we'd like to make sure we add expedited payments into bill pay. In fact, today, we still only have of our probably close to 3,500, 4,000 institutions, we still only have about 1,600 of those institutions live on expedited bill payment today. All of those kinds of add-ons increase the value that the financial institution is able to deliver to their consumer and also changes the fees in which we're able to get paid. So the bank gets paid and we get a slice of what the bank gets paid. So we're really excited about that because we see this intersection between bank or financial institution value, consumer value, and fees to us. The second part of your question, I believe, was around, is it a harder install? It's not a harder install but it is an additional install. And the institutions have to decide how do they want to take real-time? Do they want to use card rail for it? Or do they want to use PEP+ or ACH technology on a real-time basis? Do they want to do all of that? Do they want differences? And so that's the decision that the institutions are making, and we're seeing institutions choose, pick and choose based on how they are currently looking to basically wire the solutions together. I think by the middle of next year, people -- the institutions won't be making those decisions. We'll be providing them this real-time network, this real-time ecosystem that we talked about in our prepared remarks. We'll be routing those transactions in a way that makes the most sense for that financial institution. So we're very, very bullish about that activity because not only are we bringing the real-time capability to bear, but we've got the actual application: Popmoney, bill payment, TransferNow, all kinds of different products that consumers are able to very simply and easily initiate that payment transaction. And we aspire to have us an experience, where it's really about the consumer making the choice of speed and not needing to do anything else and right through their financial institution.

Okay, got it. One quick follow-up for me. You mentioned the bill pay performance at your largest client was still a bit softer than expected. I mean can you comment a bit on your expectations for maybe kind of turning that around? Are there any potential catalysts or any kind of mitigating factors or techniques that you can apply to kind of get that business moving in the direction you sort of expected?

Yes, there are. We've got a couple of issues going on in that client. You have that client, in some cases, shedding branches and shedding accounts, and so it's difficult to do anything around that. So you've got a little bit of an organic loss that you have to deal with. But that client is very good at deciding it's going to push on bill payment and really extend bill payment into their base. And we believe we'll have some opportunities to do that later on this year, and we would expect that, that will be another one of those tailwinds that will help push our growth rate up as we move through '14 and into '15. Well, that's great. Thank you, everyone. We appreciate you joining us today. If you have any questions or follow-ups, please don't hesitate to contact our Investor Relations team. Have a great day.

Thank you. That does conclude today's conference. Thank you for your participation. You may now disconnect from the audio portion.