Welcome to the Fiserv 2018 Second Quarter Earnings Conference Call. [Operator Instructions] As a reminder, today's call is being recorded. And at this time, I will turn the call over to Paul Seamon, Vice President of Investor Relations at Fiserv.

Thank you, and good afternoon. With me today are Jeff Yabuki, our Chief Executive Officer; and Bob Hau, our Chief Financial 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, strategic initiatives, and the impact from tax reform. 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 the 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 references made throughout this call are assumed to be year-over-year comparisons. All the share and per share amounts in the press release, supplemental materials and our comments are adjusted for the two-for-one stock split completed in March of this year. Also, the 2017 full year, year-to-date and quarterly adjusted earnings per share amounts have been adjusted for the impact of the sale of the majority interest of our Lending Solutions business that closed in March. With that, let me turn the call over to Jeff.

Thanks, Paul, and good afternoon, everyone. Our business performed very well in the quarter, further positioning us to meet our financial commitments for the year and providing momentum as we look into 2019. Internal revenue growth in the quarter was 6% for the second time in the last 3 quarters and is 5% for the first half of the year. Adjusted operating margin was up 40 basis points in the quarter and has expanded in line with expectations at 20 basis points for the first half of the year. Adjusted EPS grew 32% in the second quarter and is up 27% through June 30. Sales was up 6% in the quarter and increased 13% sequentially. We remain steadfast in our commitment to shareholder value through capital allocation, with a focus on consistent share repurchase. During the second quarter, we crossed the $10 billion threshold in total share repurchases since initiating the program in 2005, including nearly $800 million so far this year. And for those keeping score, we have retired 48% of the shares outstanding over that period at an average cost of just about $22 a share. As you will recall, we have 3 key shareholder priorities for 2018, which are: first, continue to build high-quality revenue, while meeting our earnings commitments; second, enhance client relationships with an emphasis on digital and payment solutions; and third, deliver innovation and integration, which enables differentiated value for our clients. We continued our focus on expanding high-quality revenue, recording 6% internal revenue growth in the second quarter. Revenue growth was driven primarily by acceleration in our card, biller and core account processing businesses, which also included strong license revenue in the quarter. Adjusted operating margin expanded 40 basis points in the quarter, and is up 20 basis points for the year-to-date. Part…

Thank you, Jeff, and good afternoon, everyone. Adjusted revenue was up 2% to $1.4 billion in the quarter and grew 3% to $2.7 billion in the first half of the year. Internal revenue growth was excellent at 6% in the quarter and a strong 5% through June 30. As Jeff mentioned, our strong internal revenue growth in the quarter was buoyed in part by license revenue. As we previously indicated, we anticipate that periodic revenue will be down on a full year basis, driven by significant decrease in termination fees in Q4. Overall, the 5% internal revenue growth for the first half of the year is slightly ahead of our internal expectations for accelerated growth this year. As a note, had we restated our results under ASC 606, our year-to-date internal revenue growth rate would have been 70 basis points higher than we reported. Adjusted operating income for the quarter and year-to-date grew 4% to $439 million and $883 million, respectively. Adjusted operating margin increased 40 basis points in the second quarter and is up 20 basis points for the first 6 months. Normalizing for the impact of acquisitions and dispositions on our results, adjusted operating margin would have improved by 170 basis points in the quarter and 150 basis points year-to-date. Consistent with our plans, we also began deploying the incremental investments from tax reform savings in the quarter, with the majority of the spend expected in the second half of the year. Adjusted earnings per share increased 32% to $0.75 for the quarter and was up 27% to $1.51 for the first half of the year. In each case, compared to 2017 results, adjusted for the impact of the Lending Solutions transaction. We are very well positioned to extend our streak to 33 consecutive years of double-digit adjusted…

Thanks, Bob. As I mentioned earlier, sales in the second quarter grew 6% and has increased 9% year-to-date. Quota attainment was 82% in the quarter and is 87% through June 30. Integrated sales in the quarter was up 11% sequentially to $67 million and is up 9% to $128 million for the first half of the year. Our domestic pipeline increased 20% in the quarter as institutions are actively considering investments to better serve customers and grow their top line. We continue to expect to achieve our full year sales targets. We achieved another $14 million of savings from our operational effectiveness initiative in the quarter, and for the first half of the year, have booked $32 million of savings. We are on pace to meet our goal of $50 million of savings for the year. Financial institutions are generally performing well, and we expect that to continue with interest rate increases and continued tax benefits ahead. In addition, a number of institutions have made public attestations of incremental technology investments with a focus on digital experiences and payments transformation, both of which are near and dear to our heart. We continue to see larger M&A front and center as institutions look to leverage acquired technology investments and gather deposits. We feel very good about the direction of the market and the longer-term benefits these trends hold for our focused and leading solution. Overall, let me reiterate that we are in a strong position to achieve our financial goals for the full year. We continue to expect our internal revenue growth rate to increase a minimum of 80 basis points to at least 4.5% for the year. We expect adjusted EPS for the year of $3.02 to $3.15, representing growth of 22% to 27% over the adjusted $2.48 for 2017, and anticipate that our full year result will be above the midpoint of our adjusted EPS range. We anticipate that full year adjusted operating margin will expand between 10 and 30 basis points, and that free cash flow conversion will be in a range of 106% to 111% for the full year. In closing, we are pleased with our results for the quarter and are on track to achieve our commitments for the year. And while we understand the importance of financial results in any period, we are equally focused on delivering strategic and operational progress that further positions Fiserv to deliver long-term value for our clients, associates and you, our shareholders. We know that we are a product of every one of our 24,000 people around the world who contribute daily to our success. It is their unrelenting dedication to our clients that enables us to deliver Fiserv at our best. We are fortunate to have them on our side. With that, let's open the line for questions.

[Operator Instructions] Our first question is from Dave Koning of Baird.

Great growth and congrats on the Fiserv Forum.

Thanks, Dave.

Thanks, Dave.

So I guess, my first question, the growth was great in the Financial segment, 7%. I think, the best in many years. But sequentially, the dollars of revenue was down. Is that the new -- like just the sequential trajectory that's going to be normal now kind of post Lending? Or maybe just talk through what was kind of happening there?

Yes, Dave. That actually is the impact of the Lending divestiture. We had that business through the very -- nearly the very ending of the 29th of March when that transaction closed. So you see the revenue materialize in adjusted revenue, and then, of course, go away for the second quarter. So you won't see that same sequential dynamic going into future quarters.

Got you. My mistake. I got you. It was in most of Q1. That makes sense. And then, I guess, my follow-up, Q3, Q4, is it kind of a mirror image of Q1 and Q2? You mentioned the tough comp in Q4, so should that look a little more like how Q1 was, and then Q3 look a little more like Q2?

Yes. I think the way to think about it, Dave, is we closed out the first half of the year in pretty good shape relative to our full year guidance. And we expect the second half to look very similar, roughly in line with the first half growth. To your point, given the difficult comp on the term fees in the fourth quarter, you'll see that headwind materialize then.

Our next question is from David Togut of Evercore ISI.

Just to follow up on the drivers of the 7% internal growth in the Financial segment, which I think was probably the best in more than a decade. If you could just unpack the drivers of that growth, let's say, breaking it down between recurring revenue growth, software license growth and then year-over-year changes in contract term fees.

So let me start and then Bob will add in, David. As I mean you know the business well, for us to have that kind of growth in the quarter, we definitely had an increase in periodic revenue with a bias to license revenue. We had a very strong license quarter. A little bit of that was movement throughout the year that bunched up in the quarter, so it ended up being slightly better. I think we indicated that in our prepared remarks, it was slightly better than I thought -- than we thought it would be in the quarter, not for the full year but for the quarter. And I would say that we continue to see success in driving recurring revenue in the segment. I mean, you've been tracking our progress with solutions such as DNA, we had 11 go live in the quarter alone and we expect nearly 30 for the full year. So it is more of a bias to periodic revenue moving the needle to the right, but it continues to complement the level of recurring revenue and sales that we've had in the segment for the last couple of years.

You called out 11 DNA conversions that went live in the quarter [Audio Gap] what you expected for the full year. How did the balance break down between DNA conversions expected in Q3 and Q4?

I don't have that in front of me, but I'm going to guess that Q4 will actually be meaningfully larger than Q3.

Got it. And then, given the strength you've called out in bank IT spending trends, what's the appetite specifically for cross-selling and up-selling? And what are the most in-demand solutions for cross-selling and up-selling?

Sure. So we talked about the fact that our integrated sales are up about 9% year-over-year, and that's a good proxy for existing clients buying existing add-on solutions. We're seeing a lot of focus on digital, on payments, on risk, kind of risk, cyber, those kinds of products. A lot of interesting movement on authentication. And then, we're quite enthusiastic about a newer offering that we have around deposit transformation. We have a -- as rates go up, we're seeing more and more institutions focus on how are they going to fund assets and being very focused on driving deposit gathering and deposit optimization, so we're seeing that as well. But a good appetite. And as a reminder, as you know, David, we -- it's a process, right? People get interested and then they look and then they hopefully buy and then we eventually implement. So the bullishness this year is part of why we said even at the beginning of the year that we expected to see a step up in 2019, and we continue to feel good about that visibility.

Quick final question on Zelle. You called out 40% sequential growth. Can you help dimension for us what the revenue contribution from Zelle might be? And then, bigger picture, where is Zelle in its development as a product? I mean, are there more features to be added, for example, social, which is a big component of the main competitive product?

Sure. So we would continue to say that transactions, while growing faster on a smallish base, revenue is starting to become measurable, but the contributions are not meaningful, if you know what I mean. But the bulk of demand to get into the network is quite high. We indicated there were 35 signings in the quarter alone. And so we see a lot of demand, and you can see in the big banks significant growth in transactions, and we know that will move its way through the rest of the ecosystem. As far as product development goes, there are -- there's a focus on enhancing the consumer experience and there's also a focus on using Zelle in new and more innovative use cases. And so we're excited to be participating in all of that.

Our next question is from Jeff Cantwell of Guggenheim Securities.

You just touched on this and you talked a little bit about this in your prepared remarks, but the Payments revenue in this quarter, looked like results were better than expected. I just want to ask the one on Zelle in -- specifically in a slightly different way. Some of the big banks have been saying they're seeing a significant step up in volume this quarter and last quarter as well. So is the uptick that you're seeing noticeable right now? And along those lines, I'm just wondering if perhaps Zelle-based revenue could contribute more meaningfully in the back half of this year? If you have any color as to the size of impact [ first ] there, that would be very helpful.

Sure. So I would reiterate my comment about it being measurable but not meaningful at this stage yet. But it is -- we are seeing that aggregate effect. So more institutions going live, more transactions being created. And the network is expanding. One of the reasons why I believe that the larger banks are able to show these very high levels of growth is it has more to do with the close network utilization that's going on intra-bank, where we are a little bit more dependent in terms of getting the real movement to see much more inter-bank network. And so the more banks in the network, the better that will be. And when I say banks, I really mean banks and credit unions, so financial institutions in general. So I have a very high degree of confidence that based on the path that we can see right now, that the second half of '18 will be more than the first half of '18, which was more than the second half of '17. And the second half of '18 will be less than the first half of '19, and the second half of '19 bigger than that. And so we're going to continue to get this network effect in this growth, much like we've seen happen in other transactional businesses, whether that be the card processing businesses or the bill pay business. I think the bill pay business is quite a good proxy for this solution. And given our footprint, we think this will, in fact, become an important growth driver, and that will be for a fairly long period of time, based on everything that we can see right now.

And then, just a high level one. You touched on this in your remarks earlier in terms of your own state of the union as far as the health of the banks and credit unions. If we look at FI's results this quarter, it looks like profitability is on the rise, and the tenure has been ticking back up towards 3%, which should be positive for bank NIMs overall. The question is, how would you frame what banks and credit unions are open to spending more on? You sort of talked about cyber, et cetera. Just love to get your thoughts there. It would help us think through the back half of this year, and then, what type of trajectory you might have heading into 2019 as well?

Sure. So Jeff, I would say, there are a few different categories. The first category -- and I should say that these apply equally to both retail and commercial/business customers, so everything around digital experience. So the branch in your pocket or your personal payments device, being able to transact more fully and holistically in a safe and secure way on a device, I would say that's number one. Number two is really around deposit gathering. Everything that can be done to create more funding for assets given the ticking up of the tenure and the cost of money. So we're hearing more and more about banks really of all sizes looking at setting up separate deposit gathering vehicles and different ways to expand their reach. And then, third, it's really around putting the money to work. So different ways to think about lending, different ways to think about origination, servicing. We're seeing a fair amount of discussion, especially on the upper end of the asset size base, around RPA, automation, cognitive, whatever you want to say. But basically where data starts to meet robots and how can we use that to create more customized experiences, more efficiency, those kinds of things. And then, you always have the risk wrappers and everything else. But the investments tend to be more the former of that conversation.

Our next question is from Andrew Jeffrey of SunTrust Robinson Humphrey.

Jeff, is it safe to say that as your pipeline grows, that the composition looks pretty similar to the growth drivers we saw in this quarter? Or are you starting to see a skew perhaps more toward Mobiliti and [ softper ]? I'm just wondering if there's a tipping point at which some of these newer solutions start to inform the growth as opposed to, say, a single-point solution like a Zelle or something like that, sort of an aggregate view?

Yes. Andrew, I would say, when you bifurcate it via growth drivers in pipeline, I actually -- we're actually seeing more larger transactions building our pipeline as opposed to smaller -- we've got play in smaller deals. But those kinds of solutions, whether they be Mobiliti or Architect or other, those tend to be transactions -- I'm sorry, those tend to be solutions that are based on transactions. And so we tend to sell those in, but the revenue will mature over time. And so a lot of the growth that we're seeing coming in right now has to do with sales that were well in the past. And I think one of the things we talked about is Mobiliti subscribers being up 24%. If you go back and look at the last 3 years, I think the plus 20% is where it's been, and that compounds quite quickly when you've got 12 or 16 quarters that are running at that kind of pace. Our pipeline on the other hand has larger, more complex kinds of projects that will actually convert to revenue faster than some of these transaction-building solutions that we're seeing benefit from right now. So I feel actually pretty good that as we think about '19 and '20, assuming our pipeline matures the way we expect it to, that, that will drive different layers of recurring revenue that is complementary to what we're seeing driving our results currently.

Okay. And with regard to bill pay, good to hear that as a call-out growth driver. Do you feel like BillPay is having a little bit of a renaissance? I know the consolidator model that, I guess, a lot of folks thought would prevail when you acquired CheckFree has perhaps given way a little bit to Biller Direct over the years. Do you see new use cases that can breathe perhaps new life into that BillPay business of yours longer term?

We do, Andrew. We're quite bullish. We've been spending the last 3 years working on how to create a more powerful linkage between the experiences at biller direct and what we can do in the consolidator model. So that's one thing on the experience side. And we're seeing more interest from the larger institutions on taking this capability because of the importance of the digital experience. So that's -- that we feel quite a good about it, if you think about it from a distribution standpoint. I do think that one of the ancillary benefits of something like Zelle is, the more consumers do within the mobile experience, the more predisposed they'll be to do things like use consolidated bill pay as long as they're in -- they're already doing that in Zelle. The Zelle energy will create more electronically originated payments out of the bank channels. And frankly, we've seen for a long time because, for the most part, with the exception of a little of account-to-account transfer, bill pay has been the only real killer app that's out there. Well, if all of a sudden, Zelle is the killer app, I think they will complement each other and drive growth on both sides.

Our next question is from Darrin Peller of Wolfe Research.

Let me just start off. Starting off, you mentioned, Jeff, the 300 clients by the end of the year using digital offerings. I guess, I just want to get a little more color on whether these are -- how many of these are existing clients that are adding -- that are taking on more of your services versus potentially new clients? And I guess, to me, it seems like that's clearly where the technology environment is trending towards across all IT services, with banks being no exception. Just wonder how big of an opportunity this could be. How big are these clients? How much can they actually spend on these initiatives around digital that you referenced earlier, first.

So the -- for clarity, the 300 or so clients that we would have live in production by the end of the year, we were referring to our Notifi platform, which is a technology that allows events, two-way alerts, actionable alerts, digital interaction between financial institutions and their customers. That is alongside of the probably 3,000 or so clients that we have today that are using some of our digital platforms. The beauty of Notifi is the more solutions that are Fiserv solutions, the higher the quality of the alerts and events that we can communicate out. And so not only are we wrapping a service around the data, the transactional data on a customer-by-customer basis, but that data is exponentially more valuable if you're using a debit platform and a mobile platform and a risk platform and a bill pay platform and everything else. So you've got the different pools of data being reviewed for information that's important to the customer. So that platform, we think, will eventually be across the entire mobile base because it will be the way consumers expect to be dealt with. And so, over time, that will continue to add on. I would also say that virtually every new core account processing deal we sell has Notifi in the package.

All right. That's helpful. I mean, I guess, at the end of the day, when you couple that with the new DNA platforms you're signing on, and I mean, I just -- the bigger question probably ought to be how much of a capture you have from core to all the other ancillary technology offerings that you now offer on the payments side as well? And I guess, how much, I don't know if you've ever disclosed, how much cross-sell you've actually accomplished on your existing clients yet?

Well, it's a number that's in the billions in terms of annual revenue. But what I would say is if you look at the attach rates, they've more than doubled on average over the last 10 or so years when we've been -- that we've been doing this. But if you look at a new client, they tend to be in the 20 to 30 incremental products on top of each account processing technology. And that is -- or sorry, solution. And that is the basis of the integrated biller strategy that we introduced at our last Investor Day, taking that exact same model, and we're starting to see that strategy pay dividends, as we mentioned in the prepared remarks.

Bob, just a really quick follow-up, I may not have heard it, but did you mention -- quantify the license revenue benefit that helped the quarter out?

I actually did not. For the quarter, it was kind of mid-teens, which gets us the year-to-date high single digits, $6 million, $7 million benefit year-over-year. And that is periodic revenue in total.

Our next question will be coming from Matt O'Neill from Autonomous Research.

Most of them have been answered around Zelle and some of the product initiatives. I was just wondering, from a housekeeping perspective, if there's any seasonality to the Lending business? I'm just trying to figure out if there's a -- the base year adjustment was, I guess, $71 million or $64 million -- versus $64 million in Q1. Seems like maybe $10 million shifted to the Lending -- from the Lending business into the corporate line. Maybe you could just help with the confusion there?

Yes. We did see some growth. There's a bit of seasonality. The second half would typically be a little larger, but of course, that's out of our numbers now going forward because that transaction closed right at the end of first quarter.

Next is Bret Huff of Stephens Inc.

One is a housekeeping question. I think you mentioned this. The 606, can you give us the 606 impact again? It would've been a little bit better, I believe?

It would've been about 70 basis -- I'm sorry, for the full year -- for the first 6 month of the year, it would've been about 70 basis points higher.

Right.

Okay. And do we -- did you disclose that for the quarter? I just want to make sure I didn't miss it.

No. We didn't. We did disclose second quarter. Order of magnitude, it's about -- excuse me, we disclosed in the first quarter. Order of magnitude is about the same.

Okay. And then this is a bigger picture question. Given all the money that it sounds like the big banks are starting to spend, or at least saying they're starting to spend and use up some of their tax benefit, the numbers are really large, billions and billions of dollars. Have you seen a reaction in your -- the folks that you focus on in your smaller and medium-sized banks to that, what is effectively a big authentic push on the digital front typically? So what is kind of the reaction? And then, what is the thing that they're asking for, particularly in response to that if that's a reaction?

Sure. So Bret, I would say -- I would answer your question 2 ways. First of all, we are fortunate enough to not only serve the small and medium banks but we also serve a number of the larger banks, as you know, and so we're actually in some of those conversations as well. I would say, as you start to move through the ecosystem, it's the things that we've been talking about, digital, payments, cybersecurity, deposit gathering. There are some conversations around loan origination, some conversations around wealth management. But I think the real -- what they need and want from us is to help them be prepared digitally to compete with the larger institutions that are spending, obviously, very significant dollars and setting a high bar. And so they're looking for us to make sure that we're keeping up with the proverbial Joneses.

That's helpful. And then, last question for me. When you do the integrated payments system that you talked about last Investor Day and you think about incorporating Zelle in the new enhanced bill pay and things like that, what kind of -- are there any of your bank customers that have kind of taken that product on? And do we have enough data to see what the consumer behavior really is around that? Are they choosing Zelle over bill pay for certain transactions? Or any insight there for us.

Sure, Brett. It's a little bit early. I would say, we have a couple of clients that are out there right now. And so we're learning. Demand is quite high. So we're moderating that right now as we learn and develop. But we're going to be very pleasantly pleased with the results once it's out there.

The next question is from Tien-tsin Huang of JPMorgan.

Just on the license product side, I was curious, anything specific that was in high demand in the second quarter? I guess, that commentary is a little counter to what FIS says, I was just trying to reconcile maybe what's in demand and what's not?

Yes. Tien-tsin, I would say, it's across 2 or 3 different parameters. You've got risk products that you see movement in, we see account processing where we're seeing movement in, and in some of the cash and deposit areas, I would say. On top of the normal, we have many, many products that fit into the license category, the smaller licenses that get bundled up. And so -- and for us, we -- I don't think we're dealing with some of the things that you may have heard this morning. And so it's a -- I think it's less the sales environment than it is the implications of some of the changes that went in earlier this year.

Understood. That's helpful. And then, just on the -- maybe on the margin front, I want to ask if your view has changed at all in terms of where you might fall on the margin spectrum of 10 to 30 versus, say, 90 days ago. Any change there?

I think the simple answer is no.

Okay. Thought I'd ask anyway. Then quick last one. Just on the -- Jeff, I wanted to ask you, just the whole -- bundling together this direct challenger digital bank movement, if you will, are you seeing more activity from this group in terms of trying to go after the market? Are they starting to fill up into your -- in your pipeline? And if Fiserv has a strategy specifically to go after that market?

So we -- I would say that there's more conversations going on right now in exploration. We do have a solution that we have created that we think is actually quite strong for the market using DNA and several of our other solutions to create a digitally advantaged product set. But I think it's too early to know how it's going to turn out, except to say that there's a real focus in the end market on deposit gathering.

Next question is from Joseph Foresi of Cantor Fitzgerald.

I was wondering, within digital, does your comp set or your competition change at all when you go after those dollars? And what edge do you feel your company brings?

Sure, Joe. So I would say that the digital space is probably one of the most competitive segments of the market because you are dealing with a number of competitors that can range from a quasi-startup all the way up to some of the biggest providers in the world, technology providers in the world are providing a digital solution. So it is a more competitive space. I think where we are advantaged is we've been a leader in digital banking for -- going on 20 years. And we have a significant understanding of the market. We have new and modern technologies and we have some of the best experts in the field. So from our perspective, we feel quite good about our ability to compete in that space, and I think our advantages show up in our win rates, which are pretty attractive.

Got it. And then, can we get an update on the overall cost takeout program? I just wanted to see where we stood. And maybe thoughts about renewals in the future, et cetera.

So I think, and Bob will correct me when I'm wrong on this, I think we're roughly $32 million or so...

That's correct, through the first half.

For the first half of the year. And I think Bob had mentioned in a previous setting that we would be renewing our program at the end of the 5 years?

Yes. So we're, right now, actually exactly halfway through the 5-year program, 2.5 years now in. We are better than halfway through our 5-year goal of $250 million. And we've indicated a few times, whether it was at Investor Day or other forums, like this type of a call, where we fully expect that we'll complete what is now Phase 3 that we're in the midst of, in another couple of years and then launch Phase 4 and perhaps someday, Phase 5. So we feel good about the results year-to-date and program to date. We feel good about the opportunity into the future to continue.

Got it. And last one for me on the capital allocation side. I imagine you're looking for assets within digital, what's particularly attractive to you in that particular arena?

Sure. When you talk about capital allocation, our minds quickly go to share repurchase because it's our benchmark. I would say, when we think about acquisitions as part of our capital allocation strategy, we do bias to areas, payments, digital, especially in the commercial side, I think that's an area of which we continue to have an interest. But the payments ecosystem on balance is, we think, very important and will become more important over the next several years as the plumbing starts to change, and so we're focused in those areas. And then, I would say the other area that is of interest is just around data, right? The importance of data into the future. I don't think anyone can underestimate how critical that will be when you think about new decision models that financial institutions will embrace over the next 3, 5, 7, 10 years.

Next question is from Jim Schneider of Goldman Sachs.

Jeff, I was wondering if you could maybe renew your thoughts on the prospects for bank M&A in the kind of sweet spot of your customer set in terms of bank size. It seems like on the larger side, at least, there has been a little bit more activity. So can you maybe share with us your thoughts and directionally where those transactions might go, up, down or sideways? And then, more specifically, on ones that have actually been announced, what your conversations have been like so far in terms of their willingness to kind of keep on your platform versus go with something else?

Sure. So I mean, I would say, exactly to your point, there have been some larger transactions that have been announced this year, and I think that is indicative of larger institutions -- really, all institutions feeling a bit emboldened by the combination of rising interest rates and lower taxes, and also understanding that as institutions get larger, they have a need to put more money into technologies and creating cost leverage. So we're seeing the same kinds of things that you're seeing, and we expect that to continue for a bit. In the lower -- in kind of the smaller space, there's much more of a concern about valuation levels. And so we're not seeing as much activity as we anticipated. In fact, we've said, been saying all year, we actually expect our termination fee revenue to be meaningfully down, and that's really a product of what we're seeing on the acquisition front, or on the merger and acquisition front. So from that perspective, we are seeing that. And then, the last piece is, typically the acquiring bank is always going to have a leg up because it's their technology. And every once in a while, you find an opportunity to win one where your client wasn't the acquirer. But that is much more the exception than the norm. And I would say that, for us, for the last 30 years, we've been dealing with about the same 4% to 5% shrinkage in the number of buying units, and I suspect that will continue for the next foreseeable future. So it's just part of what we have to deal with on a regular basis.

Helpful color. And then, maybe to follow up, I know there's a lot of questions asked on Zelle, but I just wanted to ask, in terms of the implementations, I think you've talked about 35 Zelle sales this quarter. I think you talked about 10 prior to this, so I'm not sure if 45 is the correct math or not. But can you maybe talk about over what time frame they -- you plan to bring those online because we've heard some data points which suggest there's been some delays in actually physically getting a lot of the new FIs onto the network.

Yes, that's -- Jim, we -- I think we're on the record of being one of the people who've talked about the fact that there are delays. The only real constraint we have at this point is being able to log them in as members on the network. Now of course, it's much more difficult than that. I think, so far, we've communicated around 70 or so sales of Zelle, and we're at about 10 live, so we're pretty early in our process. I think the sales will continue to increase. And then, we're working quite closely with EWS, who is the kind of the management of Zelle, to increase capacity, and we're optimistic that, that's going to happen over the next several quarters, which we think will be fantastic for the industry.

Our next question is from Ashwin Shirvaikar of Citigroup.

So I wanted to ask about digital transformation. Obviously, a big driver in terms of the nature of demand changing. But as you put in more and more of your digital solutions, the question really is can you also affect your cost of delivery or changes to your sales organization? And can you kind of flatten the cost curve, so to speak, because of digital delivery? And any way to size the impact over multiple years, any help you could give there?

So Ashwin, you were breaking up a little bit in there. But I would say that we've done, I think, a pretty reasonable job at flattening our cost curves in any number of ways over the last dozen or so years. I think we've taken out somewhere in the area of $700 million of costs, or in that area. And we're continuing to look at more ways to do that. As clients take on more and more solutions, there is a need to be able to increase the throughput for them because clients are going to need to move, we think, faster. And so we're looking at automation, whether it be robotics or other ways to automate more so that clients can go live faster and pull in more content into their systems to meet the changing demands of the market. So we are working on those fronts, which we think will create some efficiency for us but frankly, allow the pipes to get larger and larger.

Got it. And then, a question on free cash flow conversion. I mean, normally, it kind of flows through as you go through the year. The year-to-date free cash flow conversion percent seems a bit on the low side and I want to ask about the puts and takes as well as whether by the time the year is done, we'd be kind of closer to 100%?

Yes, Ashwin, we indicated it actually in the prepared remarks upfront that the 78% conversion rate we've seen through the first half is [ lighter ] than we would've expected. There's really 3 things to point to. Number one, the ASC 606 doesn't impact cash dollars but does impact cash ratio or conversion rate. And that would have been about 83%, 84%, had we not had the 606 impact. But more directly, again, as we mentioned in the opening comments, we see some impacts of timing of working capital as well as CapEx that, at this point, we expect to reverse in the second half of the year. And we see a second half conversion much stronger than we have in the first half of the year.

Ashwin, one of the things that we've talked about is you can only be in 105%, 110% cash flow conversion for so many years. And then, sometimes, there's a little bit of a breather and there's -- you never know when that breather is going to be. We believe we'll end up above 100%, but that does happen every once in a while. And it's just about building of working capital and the convergence or the conspiracy with CapEx and all that. But we're quite comfortable that the model remains to be strong and above earnings on a regular basis.

Got it. And if I could squeeze one more in. Regulatory change has always been a end. I want to ask if sort of the easing of complexity, particularly small and midsized banks, whether it's helping? And just looking out a couple of years, whether CECL is likely to be meaningful for you guys. Any specificity around that?

Sure. So I would say that the regulatory relief has been -- and in the smaller parts of the market has been quite welcome as well as on the upper ends of the market. And so that's created some continuing momentum as people think about where to invest and is lowering the investment threshold in those kinds of products, so that's quite positive. And so, overall, that's just another momentum builder. I would say that as it relates to CECL, we do feel quite good about that. Now the smaller banks really have until late '19, early '20 to be using the technology. But I would guess that we'll measure the number of clients in the thousands for that as opposed to in the handfuls, just because of the need and because of the proximity to the core account processing systems. Thank you, and thanks, everyone, for joining us this afternoon. If you have any further questions, please don't hesitate to contact our Investor Relations team. Thanks for the support and have a great evening.

Thank you very much. That concludes today's conference. Thank you all for participating. You may now disconnect.