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Executives

Gary Norcross - Chief Operating Officer and Corporate Executive Vice President

Frank Martire - Chief Executive Officer, President, Director and Member of Executive Committee

Mary Waggoner - Senior Vice President of Investor Relations

Michael Hayford - Chief Financial Officer and Corporate Executive Vice President

Analysts

Brett Huff - Stephens Inc.

Greg Smith - Duncan-Williams, Inc.

Bryan Keane - Crédit Suisse AG

Tien-Tsin Huang - JP Morgan Chase & Co

David Parker - Lazard Capital Markets LLC

David Koning - Robert W. Baird & Co. Incorporated

John Williams

Ashwin Shirvaikar - Citigroup Inc

James Kissane - BofA Merrill Lynch

Glenn Greene - Oppenheimer & Co. Inc.

Fidelity National Information Services (FIS) Q3 2010 Earnings Call October 26, 2010 8:30 AM ET

Operator

Ladies and gentlemen, thank you for standing by. Welcome to the FIS Third Quarter Earnings Call. [Operator Instructions] I'd now like to the conference over to our host, Mary Waggoner. Please go ahead.

Mary Waggoner

Thank you, Brea, and thank you for joining us today this morning. For those who have not already done so, I would like to remind you to register for our annual Investor Day, which is scheduled on Monday, December 6, at the New York Stock Exchange. Now we will proceed with the third quarter earnings report.

Today's release and supplemental slide presentation have been posted to our website at www.fisglobal.com. A webcast replay of the audio portion of this call will also be available on the website shortly after the call. Joining us this morning are Frank Martire, President and Chief Executive Officer; Gary Norcross, Chief Operating Officer; and Mike Hayford, Chief Financial Officer.

Frank will lead today's discussion with the third quarter highlights and an overview of the recently announced Capco acquisition. Gary will follow with the operations review. And Mike will conclude with the detailed financial report.

Please refer to the Safe Harbor language on Page 2 of the presentation. Today's discussion will contain forward-looking statements. These statements are subject to risks and uncertainties as described in the press release and other filings with the SEC. The company undertakes no obligation to update any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law.

As always, our discussion will pertain to results from continuing operations. In addition, today's comments will also include references to non-GAAP results in order to provide more meaningful comparisons between the periods presented. Reconciliations between GAAP and non-GAAP results are provided in the attachments to the press release. Unless otherwise stated, reference on this call to revenue and EBITDA growth rates will be on a pro forma basis to include results from Metavante in all periods.

The presentation will begin with Slide 4. I will now turn the call over to Frank Martire.

Frank Martire

Thanks, Mary. Good morning, everyone, and thank you for joining us on today's call. October 1 marked the one-year anniversary of the merger between FIS and Metavante. By all measures, the combination has exceeded my expectation. The team has done an outstanding job of staying focused on serving our clients while delivering on our commitment to create value for shareholders. We are very proud of the manner which our employees have come together as one company. It has been impressive to say the least and speaks to the high quality of our management and employees.

I'll begin today's business review with a summary of financial results, followed by key developments during the quarter and an overview of the pending Capco acquisition. Third quarter revenue increased 3.3% to $1.3 billion, driven by excellent results in Financial Solutions, which grew 10.5% compared to the third quarter of 2009. The strong performance was driven primarily by high discretionary spending, strong demand for integration services and growth in existing base. This is our fourth consecutive quarter of top line growth, and we are very encouraged by the increase in momentum and renewed confidence in buying decisions.

The EBITDA margin expanded 320 basis points to 33.1% in the quarter, and adjusted earnings came in at $0.52 per share. Free The cash flow was again strong at $220 million. The integration is progressing on schedule, and we are confident that we will achieve the targeted cost savings.

There were a number of key developments in the third quarter. Each of which will drive long-term benefits for our company. In early August, we completed the $2.5 billion leverage recapitalization and share repurchase plan. We also announced the signing of our Memorandum of Understanding with Banco Bradesco to continue the joint venture in Brazil. Most importantly, I am pleased to report that we successfully converted Bradesco's $14 million bank card portfolio to our platform in early October. Our respective teams did an outstanding job bringing the project to completion. And we are now providing card processing and backlog support for Bradesco's credit card portfolios. We are very excited about the growth prospects for the joint venture and the opportunity to further expand our card processing operations.

Separately, as noted in this morning's press release, we are reviewing strategic alternatives for the Proservvi business in Brazil, which FIS acquired in 2006. Gary will talk more about this business later in the call.

And last, we announced the definitive agreement to acquire Capco, a global business and technology consulting company. Capco, which focuses solely on the financial service industry, will significantly strengthen our consulting service capabilities and provide a strategic extension of our core and payment processing solution. Capco has relationships with many of the largest banks in the world and is highly respected as far as thought leadership, deep domain expertise and client-centric approach. The transaction supports our domestic and international growth strategy and position us to further expand our foot print across large U.S. and global financial institutions.

Capco, with its strong brand and industry expertise, is an excellent addition to FIS's portfolio of services, and we are very excited to welcome the entire team of Capco professionals to FIS. Rob Heyvaert, the company's Founder and Chief Executive Officer, has more than 25 years of industry knowledge and experience in building and managing consulting companies.

All in all, it has been a very good year for FIS. We continue to make significant progress towards completing the integration project and are on track to achieve the targeted cost savings. We are very pleased with our solid financial results for the first nine months of the year and the improved sales performance. And as always, we remain focused on our client relationships, growing the business and further expanding our market leadership.

Now I'll turn it over to Gary for the business report. Gary?

Gary Norcross

Thank you, Frank, and thanks to everybody on the call. I'm pleased to be joining me today to provide an overview of the third quarter operating highlights. I'll begin my remarks with an update on the Metavante integration, followed by an overview of the current sales environment and key business initiatives. The response from the market has been overwhelmingly positive since we announced the combination of FIS and Metavante. Our combined strength and product capabilities are beginning to drive tangible benefits for our clients.

And as Frank mentioned, the integration project is going very well, and we are on track to deliver our committed financial targets. Many of the data center and strategic command center moves have been completed. As I'm sure you can appreciate, this is of highly complex, large-scale effort, and our employees are doing a phenomenal job. Our dedicated integration team and client support staff are to be commended for their success in executing the project, while maintaining production quality and high standard of service to our clients.

Sales activity remains solid in the third quarter as new contract value increased sequentially and also relative to third quarter 2009. Even as our clients navigate their way through the myriad of regulatory changes that have occurred in 2010, we see them pursuing more buying decisions, and the emphasis is shifting towards growth and expansion compared to 2009, when many banks are focused primarily on managing expenses and survival.

Demand for core system replacements continued into the second half of the year. Lake City Bank, a longtime client of a competitor, recently selected the FIS core processing platform and will also convert to our eBanking, bill payment and debit cards solutions, as well as the NYCE payments network. We also continue to see pull-through sales from our existing client base. In fact, more than half of our core clients in North America have purchased additional services from us in 2010, as evidenced by accelerated growth in Financial Solutions, which grew more than 10% in third quarter and 5.6% year-to-date.

Many banks are also leveraging the current environment to grow through acquisition, which is driving increased demand from implementation and integration services and driving additional cross-sell opportunities for all our products. We recently announced plans to provide outsource application management services to ING Direct in France, a user of our Profile core processing solution. We are very pleased to expand our decade-long relationship with ING Direct, which is viewed by many in the industry as the best-in-class model for retail banking.

Also in early October, we completed the installation of our Profile core processing system for the Bank of Pakistan [National Bank of Pakistan], which is largest bank in Pakistan and one of the largest banks in Asia.

Sales of our Payment Solutions also increased in the third quarter. Suncoast Schools Federal Credit Union, the seventh largest credit union in the country, will soon convert its debit card portfolio to the FIS platform and will also begin utilizing the NYCE payments network. Suncoast has been a longtime credit card client, and we are very excited to broaden our relationships.

We continue to make progress in leveraging our payment products into our international growth strategy. I am pleased to report that two clients in South America, including the Bank of Venezuela and ReadyCARD, a well-known third-party processor, have selected our ATM switching services. We also recently expanded our outsourced ATM management relationship with the Bank of India, one of the top banks in that country.

As Frank mentioned, we successfully converted Bradesco's remaining card portfolio the weekend of October 2. We are now processing Bradesco's private label, MasterCard and Visa-branded cards, as well as their complete commercial card portfolio. The conversion went extremely well, and feedback from the bank has been very positive. We remain very enthusiastic about the Brazilian market and the strong growth potential in the region.

We are also excited about the expanded capabilities that Capco brings to FIS. Capco is a very strategic investment, which truly sets FIS apart from other providers in the industry. Capco's thought leadership and consulting expertise are strong complements to our existing suite of core and payment products. And their client-centric approach is strongly aligned with our integrated go-to-market strategy. We believe that the transaction will further differentiate FIS in the market and strengthen our value proposition as a provider of transformation solutions to large banks and financial services companies around the world.

Now I'll provide some additional color about our Brazilian Item Processing and Remittance business, formerly known as Proservvi, which we acquired in 2006, and it was generating approximately $15 million per quarter. After a comprehensive evaluation, we have concluded that this predominantly paper-based business, which is not part of our Brazilian joint venture, is not a strategic fit for FIS, and we are actively pursuing a buyer or other alternatives.

In closing, the main points I'd like to leave you with today are as follows. We're executing the integration plan in delivering the synergy targets, while staying focused on maintaining high client satisfaction levels. We continue to closely monitor the regulatory environment, and generally speaking, change provides opportunities for us to engage even more closely with our clients.

We are encouraged by renewed confidence on buying decisions in the market and feel that we are competing very well and winning more than our fair share of deals. And like our clients, we are investing for growth and working hard to aggressively outperform the market.

Now I'll turn it over to Mike for the financial report.

Michael Hayford

Thank you, Gary. As a reminder, my comments related to revenue, EBITDA, and year-to-year of our growth rates will be on a pro forma basis to include Metavante results from the prior year. In addition, as outlined in the press release, the Proservvi and ClearPar businesses are included in discontinued operations.

I'll begin with Slide 5. Adjusted revenue increased 3.3% to $1.29 billion compared to $1.25 billion in the prior year. The growth was driven by higher license sales, professional services revenue, which in aggregate, increased 23% compared to the third quarter of 2009.

Debit and credit transactions also continued to trend favorably. Adjusted EBITDA increased 14.7% to $427 million. The increase was driven by the achievement of targeted cost savings, revenue growth and recovered legal expenses that were incurred in prior quarters. EBITDA margin expanded 320 basis points to 33.1%.

Slide 6 provides segment data on FSG. Financial Solutions revenue increased 10.5% to $486 million in the third quarter of 2010 compared to $439 million in the third quarter of 2009. The growth was driven primarily by strong growth in Professional Services and higher license and outsourcing revenue. Financial Solutions EBITDA increased 16.9% to $219 million, and EBITDA margin increased 250 basis points to 45.1% compared to 42.6% in the prior year quarter.

On Slide 7, Payment Solutions revenue totaled $601 million, a 1.9% decrease compared to prior year as growth in electronic payments was offset by declines in check verification and item processing revenue. Payment Solutions revenue increased 1.8%, excluding our paper-based check businesses. Payment Solutions EBITDA increased 2.3% to $231 million, and the margin improved 100 basis points to 38.4% compared to 36.9% in quarter three of '09, driven primarily by synergy attainment.

Turning to Slide 8. International revenue increased 2.3% compared to the third quarter 2009. The foreign currency benefit added approximately 20 basis points to our reported growth rate. EBITDA was $47 million compared to $49 million in the prior year. International margin was 23.3% compared to 24.9% in '09.

As you are aware, quarterly results can vary due to timing of softer sales. Revenue growth results were negatively impacted in the second and third quarters of 2010 by the delay in the Bradesco conversion. Now that Bradesco has converted, we expect our International business to return to double-digit revenue growth beginning in quarter four.

Please turn to Slide 9 for a reconciliation of adjusted net earnings. Third quarter adjusted net earnings from continuing operations totaled $177 million or $0.52 per share compared to $89 million or $0.46 per share in the third quarter of 2009. The adjustments to GAAP earnings include the following. First, the $83 million Santander termination fee and the restructuring of the joint venture have been excluded from our adjusted operating results, the net income of $17 million or $0.05 per share.

Also included were costs associated with the leverage recapitalization and integration costs totaling $16 million after tax, the deferred revenue adjustment of $2 million, the after-tax amortization of $42 million and again, shares outstanding averaged $339.2 million in the third quarter.

As shown on Slide 10, we generated free cash flow of $220 million in the quarter. Capital expenditures totaled $93 million compared to $91 million in the third quarter of 2009. We began the quarter with approximately $3 billion in debt and incurred an additional $2.5 billion related to the leverage recapitalization. We completed the share repurchase in August, acquiring 86.2 million shares at $29 per share. We subsequently repaid approximately $400 million of our debt resulting in $5.1 billion of debt outstanding as of September 30.

The debt includes $1.1 billion of senior notes which were issued through a private offering. We expect to begin the registration process for these notes in the near future. Additional detail on our debt is provided in the appendix.

The capital transactions, which we announced last week is an all-cash deal with approximately $292 million payable at close. We will use a combination of cash currently held outside the U.S. and draw against revolver for the remainder. The total purchase price will include the an eanout, which will be payable upon achievement of future earnings and EBITDA goals. The acquisition is expected to be accretive to organic revenue growth and slightly accretive earnings in 2011.

Now if you turn to Slide 11, I'll provide a few comments about our full year 2010 outlook. Given the positive momentum heading in to the fourth quarter, we expect constant currency revenue growth to be at the upper end of our 1% to 3% guidance range for the full year 2010. We began 2010 expecting a $60 million benefit from foreign currency and are now estimating net benefit to be about half of that.

We continue to expect even a margin expansion of approximately 300 basis points for the year. We are reiterating our guidance for adjusted earning from continuing operations of $1.91 to $2.01 per share for the full year 2010 and are tightening the range to $1.95 to $1.99 per share as we head into the fourth quarter.

The guidance does assume a 36% tax rate and 353 million shares count for the full year. We are forecasting average shares of 307 million in the fourth quarter. And while we have not completed the planning process for next year, we are anticipating average shares approximately 310 million in 2011. Free cash flow is expected to exceed $700 million in 2010, in line with our previous guidance, which has been adjusted for the increased interest cost.

Before we take questions, I'd like to make a few closing comments to summarize our progress to date and key developments in the third quarter. First, we are very pleased with the solid year-to-date performance, particularly the increased sales performance and are confident that we will achieve our financial objectives for the year. We are excited about Banco Bradesco's long-term commitment to the joint venture, and most importantly, the successful conversion of the bank card portfolio. The integration project is proceeding on schedule, and we are on track to achieve a $260 million synergy target, including $150 million of incremental savings over 2009.

The addition of Capco supports our domestic and international growth strategy and positions us to further expand our footprint across large U.S. and global financial institutions. We are seeing renewed spending in the market and are increasingly optimistic about the momentum as we head into the fourth quarter and into 2011.

And last but not least, we will provide additional detail regarding 2011 outlook, our business strategy and the Capco acquisition at our annual Investor Conference, which is scheduled for December 6 in New York. We look forward to seeing all of you there.

Operator, that concludes my prepared comments. If you could please open the line for questions.

Question-and-Answer Session

Operator

[Operator Instructions] And our first question is going to come from Dave Koning with Baird.

David Koning - Robert W. Baird & Co. Incorporated

I guess, first of all, the guidance for the full year now implies kind of 3% to 4% growth at a minimum in Q4. And it sounds like one of the key benefits here is that International is going to pick up the portfolio. But I'm wondering if the core business, even excluding that and with the tough comp in Q4, will continue at same momentum. I guess maybe just walk through how you think in Q4, you get the benefit, obviously, internationally. But is the core business underlying that also continuing to be stable and continuing to improve?

Michael Hayford

David, I think that's a good point. Obviously, International is going to see some growth simply because of the October 2 Bradesco bank card conversion. And as you talked about in the past, that's about -- we had to date about $10 million a quarter based on that. The core business FSG, as we sum third quarter, a very, very strong third quarter. It's been very strong all year, a little strong than we anticipated. We've talked about the strength could be back in the market. And we don't see that changing in the fourth quarter. And as we said, we're excited about the momentum we're building on sales as we head into next year.

David Koning - Robert W. Baird & Co. Incorporated

One other question I just wanted to ask. You bought back the 86 million shares. Your guidance for next year and kind of even what we can see the rest of this year implies that the share count will be down about 75 million from the peak in Q2. And I guess I'm just wondering why we wouldn't see more of a decline in the share count relative to where we were at kind of at the peak.

Michael Hayford

Well, the share count, as we've said, we repurchased a total of 86.2 million. It looked like that the paired share as part of the weighted as average was due to the stock option. So some of those 86.2 million shares were already accounted in weighted average share count as part of the option exercise. So I think if you net it all out, it's going to end up being 86.2 million. But as you look at stock share count, I think it was about closer to 79 million going down.

David Koning - Robert W. Baird & Co. Incorporated

And then, finally just the one last thing, I guess, you're excluding now that item processing income. I mean, is it fair to say the guidance might have been a lower if you would have continued to include the item processing operations throughout the full year?

Frank Martire

You're referring the Brazilian BPO?

David Koning - Robert W. Baird & Co. Incorporated

Right, that same amount that's now excluded.

Michael Hayford

Yes, I think you got to look at it is what it is relative to when we set our plan last year, and looked at it and where we anticipated that business could be. And I think, we looked on Brazil and we have to spend a lot of time, a lot of management time last year, very focused on the lot joint venture, a lot of time and effort in the Item Processing business. And our conclusion was the time and efforts spent in continuing to invest in the Item Processing business down there, which is very paper-intensive check based, we don't have that kind of skill and leverage that we do in the States in terms of declining check volume and being able to maintain margin and profit. And as we looked at where we're at and what it would take to take that forward, we just concluded we'd be better off finding a different solution with somebody else who can probably better utilize that market. So I don't know that I would say, as you look at where we were and where the numbers worked out, there's an awful lot of puts and takes throughout the calendar year that get it. And we're pretty excited we're still within our range and at the upper range of where we thought we're going to be at the beginning of the year. And some things went positive and some things, we struggled through during the year. I think it's hard to say when you stated the guidance a year ago, what are all the things plus or minus that are going to impact it.

Frank Martire

Yes, we also were counting on the card joint venture Bradesco converting in February in the first quarter as well. So to Mike's point, there's just so many moving pieces here. We're real happy where we are today.

Operator

And our next question comes from the line of Glenn Greene with Oppenheimer.

Glenn Greene - Oppenheimer & Co. Inc.

I just wanted to just get a little bit more color maybe on the sales environment, the activity level. It sounds like your tone's improving a bit. If I heard you right, q-to-q, the contract activity picked up some. Could you just give us a little bit more color where you you're seeing the sales strength, I mean financial revenue look? But I know there's sort of a lag in terms of recognizing revenue related to sales. Payments, I wanted to drill down on that, but it looked a little soft to me. And the broader contracts, what are you sort of thinking about fiscal '11 financial technology spending? And last, getting the context that one of your peers kind of suggested 3% market growth for '11.

Gary Norcross

Glenn, this is Gary. I'll take some of those and then, other can comment. We are pleased where we saw our sales in Q3. We saw a good strong sequential quarter growth. We also saw a strong growth year-over-year. We also continue to see strong growth in FSG in our sales, not only core takeaways but in our Professional Services business. Also, we saw some increased sales in our software license fees. So we're real pleased. While Payments has been a little lighter this year than what we've seen in the past, we saw a very nice growth in our Payments business in Q3, and sales as well. So we highlighted a couple in our prepared remarks with Suncoast Federal. We also had some nice sales internationally on Payments.

Michael Hayford

And Glenn, to stress Gary's point, we are really very pleased. And in touch, a little bit surprised about strong core sales that we've, and that the momentum continues into the fourth quarter.

Gary Norcross

One of the things that's driving our FSG success is this continued demand for Professional Services activity. A lot of our clients are now acquiring other financial institutions. We're benefiting from that because we're helping them work through the integration, the conversion of those financial institutions.

Michael Hayford

Glenn, on the full year question for 2011, we're going to hold off on that until we do our Analyst Day on the 6th. But licensing fee, our original guidance for 2010 was 1% to 3% organic growth rate. And we'd obviously revise until we're going to be in the upper end of that range. So we expect to end '10 fairly close to that 3% level. So as we look into '11, we'll give some more clarity where we expect that to be. But I think we're encouraged by the progress in 2010 and the increased momentum in the buying environment from our customers throughout the year.

Glenn Greene - Oppenheimer & Co. Inc.

Let me just ask one more. On the International side, the margins actually looked pretty favorable in my mind. And I gather from some of your comments here, at some conversion costs in the here, Bradesco's going to add $10 million in the fourth quarter. How should we sort of be thinking about the International margin profile kind of in 4Q, exiting 4Q?

Michael Hayford

Well, again, for the full year, we've talked about it in the mid-20s, in the 20s. And I think last year, we had a pretty decent margin year. Most of conversion costs refer throughout most of 2010 as we were looking on the Bradesco conversion. And again, that delayed from first quarter into the fourth quarter, so that was the cost, a little bit of a drag throughout the year. But International margins are always going to lag a little bit the U.S. margins because we don't have the leverage and scale in any single economy or any single market that we do in the U.S. But we're pleased with the results. Fourth quarter is always generally a good quarter, International, because of a little bit strangled license sales. So we do anticipate that.

Operator

And our next question will come from Ashwin Shirvaikar with Citi.

Ashwin Shirvaikar - Citigroup Inc

I guess, first question, I'm trying to size the Proservvi business that you're divesting. It seems to be, based on run rate, about $80 million, $85 million revenue business with a full year loss of maybe $8 million or $9 million. Is that about ballpark?

Michael Hayford

As Gary referenced, about $15 million a quarter, so $60 million a year. And the run rate, I don't think I'd put it quite that high. We're a little bit more on the third quarter, which obviously is probably discontinued. But I think it's probably lower than that.

Ashwin Shirvaikar - Citigroup Inc

I thought the $15 million included in payment, that was onetime in nature?

Gary Norcross

No, no, it's about $15 million a quarter.

Michael Hayford

Revenue rates.

Ashwin Shirvaikar - Citigroup Inc

And in FSG, is there any way to break out the -- and maybe you said this, but is there any way to break out the software component?

Michael Hayford

Well, again, I think software, we talked about how -- it's come back a little stronger in 2010. I think we talked about that each quarter, that discretionary spending in '09, particularly on software from Professional Services is where we saw the slowdown. So I think we continue to see in '10 a little bit renewed interest in software, a little bit renewed interest in Professional Services.

Ashwin Shirvaikar - Citigroup Inc

Any early comments, when you speak with clients with regards to the impact of new financial regulation? What they're thinking about what they'll do with regards to the exclusivity and so on and so forth?

Frank Martire

We continue to look at that, Ashwin, and we continue to work with our clients. And as I stated in the prepared remarks, typically, these changes are positive things for FIS. Our clients are looking for us to help them through that process. We think, when you start looking at areas of exclusivity, we'll be the benefactor of that. And we see a lot of indications of that. But the reality is, we're seeing a lot of regulatory change go on. And our clients continue to reach out to us for help. Frankly, we did a very small acquisition in compliance coach, and that's been a very nice tuck-in for us to allow training on these regulatory changes and help our institutions. So the net of it is we're having positive conversations in helping our clients work through these changes.

Operator

And our next question will come from Greg Smith, Duncan-Williams.

Greg Smith - Duncan-Williams, Inc.

Mike, you said Capco would be accretive to organic revenue growth. Does that mean it will just be positive or it will be better than FIS as a whole?

Michael Hayford

Well, I think I should boast those things. As we add approximately a little over $200 million of revenue in 2009, is what we expect at the end of the year -- I'm sorry, 2010. The growth into '11, we expect them to be a pretty strong organic growth engine. And we expect their growth to be higher than the corporate FIS overall growth.

Greg Smith - Duncan-Williams, Inc.

And then what kind of margins are they generating, EBITDA or op income?

Michael Hayford

I think that industry is run 10 to 15. I think they run probably at the lower end of that range. And obviously, our expectations, we bring them onboard. The type of business they do, they're phenomenal industry leadership, business thought leadership, so they're in at the executive suite, helping to formulate strategies helping to make those strategies a reality in terms of execution. And so, that connectivity between the C suite and the business strategies down into execution I think is a great complement. So while their margins are going to be lower obviously, than the overall FIS margin, we do think they pull through some business across the board for us.

Greg Smith - Duncan-Williams, Inc.

And is there any significant seasonality in their business on a quarterly basis?

Michael Hayford

I won't say seasonality, but obviously, we're going to have a little bit more variability. As their business goes up and down. And as they probably go through some cycles, which will be more on a year basis than a quarterly basis. But I don't think there's a seasonality other than normally people might be flushing out budgets at the end of the year.

Greg Smith - Duncan-Williams, Inc.

And then just lastly, can you say what the year-over-year growth in your credit and debit volumes in the U.S. were?

Michael Hayford

We'll try to give an update in December on that. But again, I think we continue to see decent growth, north of 10% of the transaction volumes. And our credit has come back fairly decent again. Our credit card portfolio is retail bank, so you use a card as part of our retail strategy for the customers. So we didn't get as bad as some of the other providers because we're not focused on the card issuers solely, it's the retail institution who issues the card as an adjunct. So credit and debit volumes have held solid for us throughout the year.

Operator

And we'll move on to the next question. It will come from Brett Huff with Stephens.

Brett Huff - Stephens Inc.

First, you guys have had strong sales 4Q, 1Q, 2Q. And I think you mentioned sequential 3Q sales were good contractually. You said in the past I think six to 12 months is kind of the lag time until we see some real juice from those. Is 3Q, did we see some of that? And is that one reason why we can feel confident in 4Q as well as heading into the first half of next year? Can you give us just some color on that?

Gary Norcross

I mean, absolutely. The guidance is sales do ramp on over the first six, 12, 18 month depending on the size of the project. As you're bringing on these sales, a portion of those sales do come in quarter because they could be software components, could be Professional Services components that we're booking the revenue as we deliver it. But you are seeing some benefits this quarter of some of the deals we sold at the end of last year and the start of this year coming online. And we're excited about that. And we're excited about what we're seeing going on in the pipeline and the continuing booking across the board, whether it's Payments, core signings or Professional Services continue to be strong.

Frank Martire

And I think, Brett, as Mike talked about earlier and Gary just mentioned when we talked about 1% to 3%, that will be more towards that 3% number. So it is again reflected their in the actual results.

Brett Huff - Stephens Inc.

And then, just as you look into -- as you saw this quarter and you look into 4Q, you sometimes give us color on sort of the cross sales or synergy revenue, whatever want to call it, between Metavante and FIS. Can you give us an update on that? Is it better or worse, the same as in the past quarters?

Frank Martire

I'll tell you, Brett, what we've done so well on the integration, we really looked at ourselves as just one company now. So we're not really tracking. What we do continue to track our cross sales -- our cross sales continue to be very strong as I highlighted earlier in the call. Over half of our clients have purchased additional software. We highlighted Suncoast in this example. We highlighted the very large -- the core takeaways at Lake City. So we're having good cross sales penetration. They're really coming across the board. We're selling a lot of our bill payment capabilities, which is a former Metavante product solution. We're selling a lot of our other Payments of core solutions as well that were FIS-based. So I guess the message would be, we continue to see very strong cross sales across the board.

Brett Huff - Stephens Inc.

You mentioned ReadyCARD switching, and that sounds like an important deal. Can you size that at all and give us timing when we might start to see revenue from that?

Frank Martire

Yes, we'll see ReadyCARD come on in 2011. Once again, it is a very high-profile, nice third-party switching company. We really can't disclose the dollars on that, but it was a very nice win for us in Latin America.

Operator

And our next question comes from the line of Bryan Keane with Credit Suisse.

Bryan Keane - Crédit Suisse AG

I just wanted to ask about the Professional Services and software sales. I think it was up 23% overall for the company. Did you give that number for the Financial segment, how much it was up there?

Michael Hayford

No, I mean, I don't think we'll break out specifically what that is. But you can probably anticipate that we will have a higher growth rate in FSG. A lot of our consulting services do come through the FSG segment because that's where core relationships and that's where higher percent of our Professional Services run. But again, we view that as more of an indication market starting to do discretionary project. If that's the first thing to go, then they tighten their belts. And when they start to spend, it comes back. So good growth year-over-year for us there.

Bryan Keane - Crédit Suisse AG

The number was 10 1/2% was much stronger than we anticipated. Is that something you think carries forward or was there some onetime things in there?

Michael Hayford

Again, there was -- the Professional Services, we are a little more cautious about whether those are onetime or recurring in nature. They do tend to get them quarter-to-quarter but they're not same as the processing. I wouldn't anticipate FSG growth at 10% for the quarter. We're very pleased with the growth. We've been pleased with the growth of FSG throughout the year. Again, Financial Services has come back to itself. A couple of things we talked about in the past. First of all, the impact of consolidation to market has been very minimal on us this year even though there's a lot of institutions that are being closed this year. They're smaller. We tend to actually win some of those. We've had some consulting fees to help and support the immigration of others that even might not have been to our platform. So I think that, coupled with strong license sales, some professional services and then the backlog that Gary's talked about, it's good sales starting with fourth quarter last year starting to come onboard, as all coupled to make it very strong growth and FSG this year.

Frank Martire

The answer is -- and it was a very clean quarter. I mean, there weren't any significant rundowns in there.

Bryan Keane - Crédit Suisse AG

It looked really strong. On the flipped side though, Payments was a little softer. Is that business going to rebound going forward? And what's causing -- I mean, I know the Item Processing and the Check business, but is there something else causing that business not to grow in line to kind of what we've seen historically.

Gary Norcross

Well, I think the big issue there, Bryan, is the paper-based business. and that we continue to see a headwind there. That paper-based business is not about volumes, but the papers converting to electronic very rapidly. We're seeing a huge conversion rate there. And as you would expect, when it converts to electronic, and we're not actually capturing those checks or running them down through the transport, it's going to hit your revenues side. It helps on the EBITDA side. But we continue to see that as a headwind. The base payments business, we're actually seeing some nice growth in most of our electronic payments businesses. And we're really pleased with where that is. But primarily, it's the that check-based business providing that.

Michael Hayford

What I'd suggest though is just like I wouldn't suggest you model FSG as a 10% growth model, I would not model PSG's number of minus 1.8% segment. And again, we'll give some clarity on December 6. But Payments had a challenging third quarter. Payments had some challenges structurally in the paper businesses. We do expect it to do better in the future. And FSG, we'd love have it run at that level. I don't think it's going to run at 10% going forward.

Bryan Keane - Crédit Suisse AG

Just two clarifications. Capco acquisition is supposed to close in the fourth quarter, is that right?

Michael Hayford

Yes, we would anticipate it yet, this year sometime.

Bryan Keane - Crédit Suisse AG

Is there any Capco revenue in the guidance?

Michael Hayford

No.

Bryan Keane - Crédit Suisse AG

And then just last question for me. There was a $10 million legal fee. It's hard to know if that was included in the adjusted $0.52 in earnings or not.

Michael Hayford

Yes, that was included. That was a recapture some higher expenses that we had in legal settlement. And so with those booked in the quarter.

Bryan Keane - Crédit Suisse AG

And that's in an adjusted $0.52 number?

Michael Hayford

That is in the $0.52.

Operator

And our next question comes from Jim Kissane with Bank of America Merrill Lynch.

James Kissane - BofA Merrill Lynch

Frank, can you elaborate on the strategic rationale to acquire Capco? I mean, is this to drive more costing revenue or this a bit of a shift in strategy, focusing more on software?

Frank Martire

Sure, Jim. I don't know about shift in strategy, but support our strategy that we have as a corporation. That's to have deeper penetration, especially internationally with the large financial institutions and even some of the mids we can give it additional services that we have some capabilities but minimal. Capco comes with a tremendous reputation and in the marketplace. Obviously, we do a lot of checkup with clients and talk to them. And they come with tremendous comments about how good they are in the services they do. So we're looking to expand our services, do more for our clients and add more value for our clients. And I think it very much fits in with our growth strategy.

Gary Norcross

I just had a comment there. It's actually direct with our strategy to think over the years. We've always looked for opportunities that expand new solutions or new capabilities in existing markets we serve. And Capco is a perfect fit in that area. They're split between both Europe and the domestic U.S., which is great markets for us. And they break us into a different type of consulting transformation services. And as we disclosed, multiple calls and in last year's Investor Day, we're focused on continuing to grow in expanding large financial institutions. And this is where Capco does most of their work. So they're very strategic acquisition for us, and as Mike mentioned earlier, fits very well to not only help transform these large institutions to work through these large transformational projects, but we believe will actually allow us to sell services and do the -- overtime -- help do some of the intimidation work on these projects.

Michael Hayford

And they have very much of a client-centric approach, which is key to us and a culture that have how many deal and work with their clients and their partners and a though leadership capability that will be a tremendous value added to FIS.

James Kissane - BofA Merrill Lynch

Is most of their business with mega banks? And what's the split international and domestic?

Michael Hayford

I'd say it's primarily -- I know mega banks, but it's the top Banks, the tier 1 banks. And they're 50-50. They're EMEA, primarily Europe and the U.S., split 50-50.

James Kissane - BofA Merrill Lynch

And just one last question, and I'm not asking about F '11 guidance, but there's been a lot of moving parts in the International business. What's a reasonable long-term target for International margins?

Michael Hayford

Well, again, I think we'll probably lay out a little bit more clarity on December 6. But we figured, as we add in some of the Capco, which will run a little bit lower margin than the rest of our business runs. I think we thought historically that in that mid-20s, probably an appropriate range for the International business. Again, it's going to run a little bit behind the domestic business.

James Kissane - BofA Merrill Lynch

And just for modeling purposes, Proservvi showed a $7.3 million loss this quarter in discontinued ops. Where has it been running in terms of EBITDA margins in the past?

Michael Hayford

Proservvi, without getting into all of the specificity around it. We've operated -- that business -- we're obviously not happy with the results of the business that's why we made a decision that we either needed to invest more time, money and management effort in that. And we concluded that we will be better served focus on a joint venture, unless somebody else take and drive that. So you can see operating numbers in the third quarter. Again, quarter-to-quarter, it moves around a little bit. But again, we're just not happy with where that thing is at today and have chosen to take a different path.

Operator

Your next question games comes from David Parker with Lazard.

David Parker - Lazard Capital Markets LLC

You announced a number of impressive wins this quarter. I was wondering if you could drill down maybe into the two of them specifically, just City Bank, that competitive takeaway, just some of the reasons why you were able to win that business? And then also with Bank of India, some of the things that you're doing in that market.

Michael Hayford

I'll clarify and Gary can get into the little detail. When we're talking City, I think actually it's first quarter of this year was the license sale. So we don't have a new City sale. It's a bank called Lake City in the Midwest, and it's a core deal that we won against a competitor. Gary, I don't know if you can add a color to...

Gary Norcross

Yes, I know, I mean, it's just one of many significant core wins we've had this year. We've seen a lot of activity in core processing or competitive takeaways as we've mentioned on earlier calls. And this was a good example where they've been with their current provider for a number of years. And not only went with our core processing solution, but went with a number of our key Payment Solutions as well. So it's a very, very nice win for us. When you look at Bank of India, that's more -- that's also a very nice business. But on the payment side, Bank of India, obviously one of the top banks in that country, we continue to broaden our relationships, providing ATM and driving in settlement services for them on their ATM platform.

David Parker - Lazard Capital Markets LLC

And then, as part of the recap or shortly afterwards, you've already paid down $400 million in debt. Can you just talk about your plans going forward and just general uses of capital?

Michael Hayford

Yes, when we talk about the recap and the tender offer, we do anticipate to pay down some of the debt. We set a target to get from around $3.5 billion back down to -- it's $2.5 billion. And you saw we made some progress already this quarter. We continue to look at deals. We saw that we went out and are using our cash in hand and obviously, we'll use some of our revolver too do the Capco deal. So where we can find a strategic deal that has a fit, that will continue to drive organic growth aligned with our strategy, we will certainly take that opportunity and expand the cash flow to do that. We're going to maintain the dividend we have. We don't anticipate changing that. And then, as always, you saw that we're not reluctant at all jumping in buyback shares when it's an appropriate thing to do. We still have I think a little over 30 million shares authorized as part of the authorization early this year. So we'll continue to monitor all that. But we do, again, as you saw, anticipate to pay down shares, look for deals and use our cash appropriately.

Operator

And our next question comes from Tien-Tsin Huang with JPMorgan.

Tien-Tsin Huang - JP Morgan Chase & Co

I just wanted to ask on the Capco side, I'm curious, did you lock in the people and the key producers there? And structurally, how did that work? And I'm curious if there's any customer concentration how and you plan to swat the impact onto the face of the P&L from a modeling standpoint?

Frank Martire

I think we could all share in some of these answers, but I will tell you, business is all about the people and the quality of the people. We sure did lock them in. And I'll say lock them in with a lot of excitement and enthusiasm. They are very, very pleased to be joining FIS team and what we can do together as partners and coming together. So we have a bright future with them. But clearly, to your question, we did lock in the key people.

Gary Norcross

I'll add in on the customer question. While there was some overlap in the client base, what we found, Tien-Tsin, when we worked through the due diligence and talked to their clients is frankly, while we might be serving a common client, we were interfacing to the organization either a, at different labels or b, just around different types of projects and delivery. And so where there was some overlap and there weren't a lot. But there was some overlap, it was very complimentary in nature and really, just extends us further into those client in a bit more meaningful way.

Michael Hayford

Tien-Tsin, on the segment, we're going to defer that so the December 6 meeting, but obviously, that's something that we know we are looking at how this firs from reporting perspective. And I will echo and emphasize what Frank talked about on the people. So it was a cash payment upfront to existing shareholders. And then, the earnout is targeted predominantly at the partners, and the management, and the employees of Capco again because of it's a service-based company, very strong interactual property tied to the people that are driving it. So that earn-out is tied to keeping those people. As Frank said, it's not keeping them here but keeping them excited about the business to grow. It's tied to growth and it's tied to return in earnings. And they get pretty good return the higher the thing goes. I think we've structured that the whole team intact and to make the team excited about being part of the FIS.

Tien-Tsin Huang - JP Morgan Chase & Co

I guess on December 6, you've mentioned that we'll got a lot more information there. I'm curious, are we going to get fiscal '11 guidance and I guess long-term guidance at that event?

Michael Hayford

Yes, anticipated -- I think it was last year. Last year, we did a number of things, we were talking about out its combination. We certainly made out our plans for the next year, which we do anticipate we will do this year as well. So I'll give some outlook into 2011. And then, as we did last year, we'll talk about our strategic plan, our outlook where we believe we're positioned to compete in any marketplace, and then what kind of long-term growth we would expect that to drive FIS.

Ashwin Shirvaikar - Citigroup Inc

And I guess on the Item Processing side, you mentioned it's not a strategic fit in Brazil, makes sense. I'm curious, does that a signal a similar view on your paper-based check businesses in the U.S.?

Michael Hayford

I think, again, paper check business is purely a scale play, particularly if the volumes down. And in the U.S., we have a very, very strong footprint. We have a lot of scale, a lot leverage. So as the volumes go down, we can the collapse and maintain margins in the business which has recurring revenue. We did feel in Brazil again that for us, given the scale we had down there, which we had a decent position. But to continue to invest time, effort and management, we just didn't think that was the best use of our capital or our management team.

Frank Martire

Well, and also keep in mind in the U.S. markets, this is these relationships are tied into a much broader relationship with these clients as well. So once again, back to our overall strategy of offering the most complete solution set in the industry in our U.S. markets. The Item Processing business is far more strategic for us in this country as a complement of much broader relationship.

Operator

And our next question will come from the line of John T. Williams with Goldman Sachs.

John Williams

Obviously, you guys are very focused on the issue of processing business. And we're just trying to get a sense of how scalable and how movable is that to other markets in your view? And is that something that we can potentially look to being growth area over the next few years for you in markets certainly other than U.S. and Brazil?

Frank Martire

Well, I mean, John, yes, we do have great presence here in the U.S. in that business line. And as I mentioned in the call earlier, that we've signed some nice wins is South America on some of those projects. So our continued strategy in our international expansion is not only to take those products but to take the products that we have in the U.S. that are applicable and to push those into our international markets. And this year, we've seen nice cross sales of those kinds of solutions in both Europe, Asia and in South America. So yes, you'll continue to see us do that.

Michael Hayford

I think to your question, clearly, part of our strategy. We have a strong issuing platform in both debit and credit. We have a great footprint in the U.S. We have a great footprint in Latin America and Brazil. We have a number of great relationships in Europe, although we see potential there. We have great footprint in Australia. So we clearly think that's a product that will travel in other economies.

John Williams

Is it fair to say that when you go in and present that to potential clients while your platform may not offer the most bells and whistles, it's appealing to them because it's the most integrated, potentially with the other products that you're trying to sell them? I mean, do you think that's fair to say?

Gary Norcross

Well, I mean in the domestic U.S., one of the things that we sell all our solutions on are being kind of like best-of-breed but also integrated because of our capabilities across the board. But I would tell you, in the international markets, it is more of a monoline sale. And we would tell you, we are best-of-breed and it does have more bells and whistles as evidenced by we're the largest processor of credit transactions in Brazil now. Mike referenced Australia, which we have huge market shared, doing very well in Europe on these platforms. So they're very, very competitive platforms. When you start getting in the U.S. markets, because of our relationship is so broad with our clients, we also push on the tight integration across our suite as well. And frankly, that will be something that we'll continue to push in the international market because we fundamentally believe that the international markets over time, will start looking to leverage broader relationships with service providers like ourselves as well. So today, we're competing in best-of-breed product. We think in the future, we'll continue to cross-sell and build integration across that international market.

John Williams

We've been talking to a lot of clients about the idea that Durbin in PIN debit exclusivity coming to an end can have a positive impact on you. Certainly, from a revenue and earnings perspective, it's probably not needle-moving just because those transactions typically aren't the highest margin in the world. But what does it take for you to actually have that be a potentially needle-moving impact? Is it that you could potentially go into other clients and sell them the product a little bit more effectively, given that you've got the opportunity that this presents? Or I guess what is it going to take to see that become a bigger impact for you?

Gary Norcross

Well, I think it's just like anything else, John. I mean, at the end of the day, we're looking to sell as much of our capability and solution in the market as we can. And certainly, the Durbin amendment is causing our clients to look and to move to and offer additional networks. And so, we're stacking up against our clients on those issues with our go-to-market strategy, with our account managers in those clients. And we're talking to them about them. So what does it take for it to be needle-moving? Obviously, we're go to continue to focus across the board. Our network, the NYCE network works very well for both large and small institutions. And so, what we're going to do is just execute on as many of those sales as we can. We have highlighted a few this quarter that we had very nice wins. And so, as this continues to evolve, we think we'll get some NYCE penetration with people coming into NYCE and offering it as an alternative.

John Williams

Do you still have parody to Visa and MasterCard close as to it as you possibly can, right, in terms of acceptance?

Gary Norcross

Yes, absolutely.

Michael Hayford

Yes, in debit side, I'd say with one of those names probably better acceptance. But I think to Gary's point, I think there's still some discussion, dialogue around what is the exclusivity cost. I think there's a couple of different avenues where if people interpreted some ways, it's a very strong benefit to FIS in the NYCE network. I think we, again, going out to financial institutions, I mean great focus on our clients and supporting them and maintaining as much interchange, discretion that they can possibly do. I think we've got a great value proposition for our customers.

Operator

And that's all the time we have for questions today. Let me hand the call back over to our speakers for closing comments.

Mary Waggoner

Thank you very much for joining us today, and we look forward to seeing to you on December 6 in New York. Please remain on the lines for further replay instructions.

Operator

Thank you. Ladies and gentlemen, that does conclude our conference today. This conference will be made available after 10:30 today running through Tuesday, November 9, at midnight. You may access the AT&T Executive Playback service at any time by dialing 1 (800) 475-6701 and entering the access code 173869. And international participants may dial 1 (320) 365-3844. That does conclude our conference for today. Thank you for your participation and for using AT&T Executive Teleconference service. You may now disconnect.

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