Image source: The Motley Fool.
Fiserv Inc (FI 1.16%)
Q2Â 2019 Earnings Call
Jul 25, 2019, 5:00 p.m. ET
Contents:
- Prepared Remarks
- Questions and Answers
- Call Participants
Prepared Remarks:
Operator
Welcome to the Fiserv 2019 Second Quarter Earnings Conference Call. All participants will be in a listen-only mode until the question-and-answer session begins, following the presentation. As a reminder, today's call is being recorded. At this time, I will turn the call over to Tiffany Willis, Vice President of Investor Relations at Fiserv.
Tiffany Willis -- Vice President, Investor Relations
Thank you, and good afternoon. With me today for the call 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 anticipated combinations with First Data, including expected benefits, financial projections, synergies, financing and timing of and the ability to complete the transaction. Forward-looking statements may differ materially from actual results and are subject to a number of risk 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 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.
As a reminder, the prior year's year-to-date adjusted earnings and adjusted earnings per share amounts in the press release, supplemental materials and comments are adjusted for the sale of a majority interest of our Lending Solutions business, which closed in March 2018.
And with that, let me turn the call over to Jeff.
Jeffery W. Yabuki -- President, Chief Executive Officer and Director
Thanks, Tiffany, and good afternoon everyone. We're pleased with our financial performance in the second quarter against our most difficult comparison of the year. We delivered better-than-anticipated results in the quarter and the first half, and are well on our way to meet our full year financial targets.
Now, before we talk about the financial results, let me provide a brief update on the First Data transaction. We've received all required regulatory approvals and plan to close the transaction on July 29, well within our original expectations of closing in the second half of the year.
As anticipated, we received all of our approvals without any conditions. We continue to prepare for day one and are focused on moving from integration planning to actual integration. We've announced a number of our senior leadership roles and the entire organization is ready to kick off the new Fiserv. Clients and prospects are excited about the opportunities they see for us to deliver differentiated value and build their businesses in new and unique ways.
We've been working on meaningful incremental growth opportunities such as bank merchant, credit solutions, biller services, network and international. We believe that integrating the solutions of our two leading companies will create incremental opportunities for clients to better serve their customers, generate additional revenue, operate more efficiently and better manage risk.
Our client first focus should translate to more revenue for Fiserv and may ultimately allow us to exceed our $500 million revenue synergy target. We've made strong progress on cost synergy planning with a focus on delivering more efficiently for clients and with higher quality. Our teams are focused on the absolute dollar value of the opportunities as well as increasing the pace and timing of those savings. Upon closing, we will fully deploy our teams with a targeted outcome of exceeding the $900 million target.
One of the unique benefits of this transaction is our commitment to increase organic solution investment by $0.5 billion over the next five years. We are acutely aware of the potential competitive advantages to making the right investments in this time of transformational market change. We're in the early stages of scoping the first round of these investments, which we believe will ultimately further accelerate growth and profitability. We recently raised funds to refinance First Data's debt in a more favorable interest rate environment than we anticipated at the time the acquisition was announced. At today's rates, this translates to additional annual savings of approximately $120 million ahead of our original expectations.
All of this taken together reinforces our belief that the combination will produce more than 20% accretion to adjusted EPS in the first 12 months, and more than 40% accretion at the full synergy run rate. We're thrilled to be on the precipice of closing this transaction and moving forward together. We're even more convinced that this transformative combination will extend leadership and value for clients, create important opportunities for associates and deliver above-market returns for shareholders for many years to come.
Now, back to the financial results. Internal revenue growth was 4% for the quarter and adjusted earnings-per-share growth was 9%, both against a very difficult prior year compare. For the first half of the year, internal revenue growth was 4% and adjusted earnings per share was up 11%. Momentum remains strong as sales increased 17% in the quarter and is up 14% through June 30. We fully expect to achieve our sales objectives for the year.
We held our annual client conference Forum 2019 in May, posting over 6,000 professionals at keynote addresses, solution showcases, thought leadership sessions and numerous client networking events. We also had nearly 400 prospects in attendance and lead generation on site was nearly double the total contract value compared to last year. We believe Forum is becoming the must-attend client event of the year.
With that, let's review performance against our 2019 key shareholder priorities, which are, first, continue to build high quality revenue, while meeting our earnings commitments; next, to enhance client relationships with an emphasis on digital and payment solutions; and third, to deliver innovation and integration, which enables differentiated value for our clients.
As mentioned, we're pleased with our second quarter's performance and strong position exiting the first half of the year. Company internal revenue growth in the quarter was 4%, including 5% growth in the Payments segment and was up 2% in the Financial segment even in the face of a very difficult compare. Adjusted earnings per share was up 9% in the quarter and 11% year to date. Adjusted operating margin for the quarter was flat to the prior year, which was better than our expectations given the license revenue grow over.
Adjusted operating margin in the quarter was up 50 basis points sequentially as we began to see the early signs of the tax reinvestment abating, continued scale benefits of our high-quality recurring revenue and positive impact of our operational effectiveness program. Free cash flow -- free cash flow through June 30 was up a very strong 23% to $602 million and our free cash flow conversion was 91%. Our second priority to enhance client relationships with an emphasis on digital and payment solutions. The demand for Fiserv account processing solutions continue to be strong with 13 wins in the quarter, six on D&A, which included a strong showing with larger credit unions.
For example, world [Phonetic] credit union with $1.6 billion in assets, expanded their Fiserv relationship by selecting D&A and other complementary solutions, including teller capture, item processing and Nautilus to support their growing commercial and mortgage portfolios. In addition, highway credit union with over $1 billion in assets and velocity credit union with over $800 million in assets, both selected D&A in the quarter to utilize our modern and open technology platform to enhance their members experiences. Card solutions continued their strong sales, signing First Mid Bank & Trust with $3.5 billion in assets to our debit processing solution in the quarter.
We also added Alabama Credit Union with nearly $1 billion in assets, who selected a full suite of debit, credit and card production services to facilitate a more integrated and enhanced member experience. JD Bank with more than $800 million in assets enhanced their Fiserv relationship by selecting ATM Managed Services. One of our newest card capabilities coming from the Elan acquisition. This service will allow JD Bank to update their ATM fleet to the forefront of upcoming software and compliance mandates and better serve their customers.
We've signed seven clients for ATM Managed Services and have added more than 250 institutions to the pipeline since the transaction closed last October. Our third priority is to deliver innovation and integration, which enables differentiated value for our clients. Payments modernization continues to be top of mind for progressive financial institutions, which translated to five Dovetail payment hub decisions in the quarter, including Sterling National Bank for nearly $30 billion of assets. We also signed Eastern Bank, which is one of the largest and oldest mutual banks in the country, with over $11 billion in assets and locations, serving communities in Eastern Massachusetts, New Hampshire and Rhode Island. We signed a very large bank in the Middle East, which selected Dovetail to advance their capabilities through a single platform to process payments transactions globally.
Lastly, First National Bank of Pennsylvania, with nearly $34 billion in assets chose our Dovetail payments platform along with our Immediate Funds solution as another way to drive value to their customers by supporting demand for real-time access to funds and improving the overall deposit experience. We remain bullish about the strength and leadership of our full complement of end to end payments capabilities, both now and into the future.
With that, let me turn the call over to Bob, to provide more detail on our financial results.
Robert W. Hau -- Chief Financial Officer and Treasurer
Thank you, Jeff and good afternoon. As Jeff mentioned, we feel good about our performance for the first half of the year and are in a strong position to achieve our full-year goals. Adjusted revenue was up 7% to $1.5 billion in the quarter and 6% to $2.9 billion year-to-date as a result of growth in high quality recurring revenue and new revenue from the Elan acquisition. These quarterly results were particularly encouraging, given the significant prior year license revenue compare.
Internal revenue growth was 4% in both the quarter and year to date, led by strong performance across our card services, electronic payments, output solutions and account processing businesses. Foreign currency negatively impacted internal revenue growth by 20 basis points in both the quarter and year-to-date periods. Adjusted operating income increased 7% to $470 million in the quarter and is up 5% to $927 million through June 30. Our year-to-date results include a headwind from our lending transaction that closed in Q1 of last year.
Adjusted operating margin in the quarter was flat at 32.4%, which is better than our internal expectations. The expected the decline in license revenue, the Elan acquisition and continued investments that we described in Q1 had a collective 90 basis point headwind on adjusted operating margin in the quarter. Sequentially, adjusted operating margin improved 50 basis points on stronger operating performance and lower investments. Year-to-date adjusted operating margin was down 40 basis points to 32.1% compared to last year and was better than our internal expectations for the period.
The first-half results include headwinds of more than 80 basis points, including more than 50 basis points from investments and 30 basis points from the net impact of acquisitions and divestitures. The investments in client implementations and the tax reinvestment carryover expense, which we described during our first quarter earnings call, began to abate this quarter and will further moderate in the second half of the year. The acquisition impact will anniversary in the fourth quarter.
Adjusted earnings per share was up 9% to $0.82 in the quarter and increased 11% to $1.66 year to date, positioning us well to achieve our 34th consecutive year of double-digit adjusted EPS growth. The Payments segment adjusted revenue was up 11% to $855 million in the quarter and 10% to $1.7 billion year to date. Internal revenue growth increased sequentially 120 basis points to 5% in the quarter and is up 4% year to date, led primarily by our card services, electronic payments and Output Solutions businesses.
Adjusted operating income for the Payments segment grew 12% to $303 million in the quarter and 9% to $590 million year to date. Adjusted operating margin was up 140 basis points sequentially to 35.4% in the quarter and increased 40 basis points over the prior year. The year-over-year improvement was due primarily to continued high quality revenue growth and gains in productivity, partially offset by a 60 basis point negative impact from acquisitions.
Adjusted operating margin for the first six months of the year was down 50 basis points to 34.7%, which includes pressure from the Elan transaction and the impact of first half investments which will subside in the second half of the year. Debit transactions grew high-single digits in both the quarter and year to date. Mobiliti ASP subscribers grew 16% in the quarter to nearly 9 million as consumers continued to embrace digital banking services.
We also saw mobility business clients increase 2% as commercial customers also migrate to digital experiences. P2P transactions, which include both Popmoney and Zelle were up 120% in the quarter, and grew 21% sequentially. Zelle transactions again nearly quadrupled in the quarter and the number of live clients more than doubled sequentially. We also signed nearly 60 clients in the quarter and remain enthusiastic about the growth prospects for Zelle and the positive impact it should have on the banking system.
For the financial segment, adjusted revenue was up 2% to $604 million for the quarter and for the year to date was generally consistent with last year at $1.2 billion, which includes the Lending Transaction impact which anniversaried at the end of Q1. Internal revenue growth was 2% in the quarter and 4% year to date, led by our account and item processing businesses. These results include the very difficult license revenue compare in the quarter, which shows the benefits of underlying processing revenue growth.
Adjusted operating income in the Financial segment was up 1% to $203 million in the quarter and for the first six months was consistent with prior year at $402 million. Adjusted operating margin was down 30 basis points to 33.7% in the quarter primarily due to the tough compare from prior year's strong license revenue.
Adjusted operating margin through June 30 was up 10 basis points to 33.5% due to growth in revenue -- growth in recurring revenue and solid operational execution, partially offset by product investments and the difficult compare in the license revenue. The adjusted corporate operating loss was $36 million for the quarter and $65 million year to date, which is in line with our expectations.
The adjusted effective tax rate for the quarter was 21.6% and 18.8% for the first half of the year. We've seen some additional tax benefits in the first half of the year and accordingly now expect our full year tax rate to bias toward the lower end of our adjusted effective tax rate guidance range of 22% to 23%.
Free cash flow was strong in the quarter and was up 23% to $602 million through June 30, an increase of more than $100 million versus the prior year. Fee cash flow conversion was 91% for the first half of the year, which was pressured a bit by tax payments, along with the timing of capital expenditures, which were planned a bit heavier in the first half of the year. We continue to expect our free cash flow conversion to be at least 105% for the year.
As you know, our share repurchase program remains deferred in conjunction with the First Data transaction. There were 393 million shares outstanding and 24 million shares remaining authorized for repurchase at June 30. As Jeff mentioned, we have raised the funds to refinance First Data's debt with $12 billion in senior notes in June and July across multiple currencies. We raised $9 billion of US dollar debt, $1.7 billion in euro-denominated notes and $1.3 billion in sterling-denominated notes. These senior notes have an average tenure of 11.6 years. Including the impact of hedges, the combination of the public debt, along with $5 billion term loan leads to combined interest rate of 3.47%, which is roughly $120 million lower than the expected annual interest cost at the time of the First Data transaction announcement.
Total debt outstanding as of June 30 was $13.8 billion, which includes the proceeds from the US dollar portion of the debt raise. The additional $3 billion raised in Europe was not completed until July 1. Upon closing, we expect 75% of our debt to be fixed. We had a pro forma debt to adjusted EBITDA of 2.4 times after netting the proceeds received in June against our total debt balance.
With that, let me turn the call back to Jeff.
Jeffery W. Yabuki -- President, Chief Executive Officer and Director
Thanks, Bob. Sales performance was up a strong 17% in the quarter and is up 14% year to date. We saw solid performance in several areas, including our account processing businesses, card solutions and Dovetail. Sales performance has been increasing significantly, up 22% over the last nine months, which we believe is especially meaningful in light of the First Data transaction. The domestic pipeline also remains strong and up 3% in the quarter and 11% sequentially. Integrated sales was up 22% in the quarter and is up 4% in the first half of the year, reflecting the compelling Fiserv integrated value proposition.
We continue to demonstrate our operational effectiveness competency, achieving $13 million of benefits in the quarter and $25 million of savings year-to-date driven largely by procurement and labor initiatives. We are on track to meet our $50 million target and close out our five year $250 million program, a full year early. As per guidance, we're on track to achieve our full year financial commitments, buoyed by a stronger than anticipated first half of the year. We continue to expect our full year internal revenue growth rate to be in a range of 4.5% to 5% and that second half growth will be moderately higher than the first.
We continue to expect adjusted earnings per share to increase between 10% and 14% in a range of $3.39 to $3.52 for the year with a bias at or above the midpoint of the range. We also expect adjusted operating margin to expand by at least 50 basis points for the year and that free cash flow conversion will be more than a 105%.
Lastly, as a reminder, our 2019 guidance does not include or anticipate any impact from the First Data transaction, which we expect will close Monday. However, we will provide updated guidance for the combined company, along with a very preliminary look into 2020 when we convene our third quarter call. We also expect to provide historical financial information in mid-September, using our go-forward accounting treatment for the combined company. For modeling it close, we suggest you combine the guidance provided by both Fiserv and First Data in today's earnings releases and incorporate adjustments such as stock-based compensation for First Data, which as you know, we include in our numbers, lower interest expense and also include a modest estimate for synergy benefits for the last five months of the year.
We expect synergies to ramp through the balance of 2019 and deliver a much larger P&L impact next year. For Fiserv historians you may know that on July 31, we will celebrate our 35 anniversary. We're fortunate to have been part of the proud history of Fiserv and are even more excited for what we believe will be an amazing next chapter for the Company. The opportunity to partner with our clients to help them serve their customers is a compelling reason to exist.
And at the same time, we've created meaningful value for shareholders, delivering a more than 33,000% return since going public in 1986 and as good as that sounds, we know our success is a result of the thousands of associates who have contributed to Fiserv over the years, along with the more than 24,000 current associates who come to work each day singularly focused on delivering excellence to clients. We can't wait for the next 35 years to start.
With that, operator, let's open the line for questions.
Questions and Answers:
Operator
Thank you. We will now begin the question-and-answer session. [Operator Instructions] And our first question is coming from Lisa Ellis with MoffettNathanson. Your line is now open.
Lisa Ellis -- MoffettNathanson -- Analyst
Hi, good evening guys. And great to be joining your call for the first time. I wanted to ask a question about the rollout of contact list in the US. It looks, I guess, tentatively like that might actually be coming. Can you just comment on how your bank customers are thinking about the rollout of contactless, meaning do they have specific plans for issuing contactless cards and on what timeline and then how do you expect that to impact your business over the next six to 12 months? Thank you.
Jeffery W. Yabuki -- President, Chief Executive Officer and Director
Sure. Thanks, Lisa and great to have you. We are actually seeing -- starting to see an uptick in demand for contactless or dual interface. We had not planned very much for that in our numbers in 2019, thinking that we would start to see that tick up in 2020 and 2021. And having contactless available in places like the New York subway, we think is helping that and obviously, the brands are focused on that. So we issue about 100 million or so payments cards -- produced 100 million or so payment cards per year. We think that could actually be impactful. We don't see it having a significant impact in 2019, but we're optimistic that we'll see that roll in, certainly in 2020 and 2021 as we see that move throughout the system.
The other thing that we're seeing just as interestingly is we also do a fair amount around the prepaid providers and we're seeing the prepaid providers start to issue EMV and we believe that a number of them will actually jump straight to contactless. So we're feeling good about that. We like that as a tailwind and we'll -- we'll continue to monitor that.
Lisa Ellis -- MoffettNathanson -- Analyst
All right. Terrific. Thank you.
Jeffery W. Yabuki -- President, Chief Executive Officer and Director
Thank you.
Lisa Ellis -- MoffettNathanson -- Analyst
Thanks.
Operator
Our next question is coming from Dave Koning with Baird. Your line is now open.
David Koning -- Baird -- Analyst
Yeah, hey, guys.
Jeffery W. Yabuki -- President, Chief Executive Officer and Director
Hey, Dave.
David Koning -- Baird -- Analyst
Thanks. Nice job.
Jeffery W. Yabuki -- President, Chief Executive Officer and Director
Thank you.
David Koning -- Baird -- Analyst
So, I mean as a historian looking back at the last 10 years, it seems like both you and First Data are putting up some of the best core underlying growth that you have. And I'm wondering a lot of it seems company specific, both of you are doing well in the market, signing well, how much of it's just the backdrop getting better and maybe what is driving that right now.
Jeffery W. Yabuki -- President, Chief Executive Officer and Director
Yeah, thanks, Dave. I mean we're -- obviously we are both continuing to run our companies separately and we'll continue to do that until -- until Monday morning or we expect to continue to do that until Monday morning. I mean, we know that First Data has been making a number of investments both inside the US and outside the US. We're just as pleased as everyone else to see GBS North America post a nice 5% number and the rest of the world is looking quite strong and I think that's just a matter of seeing the cumulative effect of the work that Frank and his team have done. And it's one of the things that we talk about, as you know, Dave, we really thought that there was a mismatch between the work that the team had been doing and the way that investors have been looking at that. So from that perspective, we see that coming together and we believe that as you put us and them into a single integrated company, focused on driving innovation and excellence for clients, that will drive incremental growth to the extent of the -- at least $500 million of synergies, and hopefully more.
And then -- and then you're seeing on our side just the continuing aggregate effect of bringing on high quality revenue and then having some nice successes in the sales area, whether it be D&A, architect card and then the entire digital ecosystem. So Mobiliti continues to do well, and we talked about Zelle. We're seeing real momentum in Zelle and we're excited about that and we believe that will continue for the next -- probably for the next six to eight quarters.
David Koning -- Baird -- Analyst
Okay, great. And just -- and just one, I guess, follow-up. This is kind of just a financial question, but included in the guidance for stand-alone Fiserv, are you including that month of $12 billion or so of extra debt or is that almost like you're not including that in the $3.39 to $3.52 guidance?
Robert W. Hau -- Chief Financial Officer and Treasurer
Yeah, Dave we are not including that. That's a transaction-related cost that you will see that adjusted out of the non-GAAP results.
David Koning -- Baird -- Analyst
Got you. Great. Well, thanks guys. Nice job.
Robert W. Hau -- Chief Financial Officer and Treasurer
Thanks, Dave.
Operator
The next question is from Jim Schneider with Goldman Sachs. Your line is now open.
Jim Schneider -- Goldman Sachs -- Analyst
Good afternoon and congratulations on the strong results and thanks for taking my question. I guess if you, I mean Jeff you articulated several areas on the revenue synergy side. Most of which you talked about before, but in the time you've had to contemplate the transaction over the last six months, which is maybe one or two revenue synergy items that you are most incremental excited about or that you didn't really anticipate before, I think international, you mentioned is one, which I don't recall you're talking about before, any color on that would be helpful.
Jeffery W. Yabuki -- President, Chief Executive Officer and Director
Sure. Thanks, Jim. We have been very pleased with the work that the teams have done in identifying a large categories of synergies, everything from expanding the way technology such as point of sale lending will look, focused on how do we help merchants get their money faster, the use of data in terms of thinking about how to -- how to make better -- better decisions around fraud and the like. And then outside the US, we -- one of the things that because we were pretty small in Fiserv outside the US and First Data is much larger, we've been able to take a number of the solutions that we have and move them through the -- sorry not move them through, but look at how do we move them through the First Data distribution system or the First Data network outside the US. So we think that's going to be interesting and also looking at where we have some larger clients where First Data may not trying to leverage those kinds of relationships. So I don't see us creating a lot of new innovation in terms of putting the international businesses together per se in the base business, but we do see interesting ways that we'll invest there in the future.
Jim Schneider -- Goldman Sachs -- Analyst
That's helpful, thanks. And then maybe sort of a macro comment in terms of your bank clients and what they're telling you right now. Just wondering if the A, the change in the interest rate environment and the reversal there and or B, any change in the M&A environment is impacting their spending plans as you see it heading into the back half of this year and 2020?
Jeffery W. Yabuki -- President, Chief Executive Officer and Director
Yeah. And it's a good question, Jim. I mean we obviously know banks are not excited about the fact that the fed has changed their stance on interest rates. I think it was a little bit of a foregone conclusion or has been at least for the last quarter or so. That said, we are not seeing any change in the demand structure for the institutions that we're serving and that's showing up both in terms of -- of the -- the large event Forum that we hosted back in May, we can see it in our pipeline. And then the manifestation of course in sales and the fact that we're going to -- we believe that we will achieve our full year objectives.
So that's all to say that the need to spend money on technology is not changing. You can see that in how the large banks talked in their -- in their calls and we see it and we continue to see money shifting from supporting legacy technologies to trying to do some of the newer call them digital based or front-end kinds of experiences. So right now for what we can see, we continue to feel like the spending environment remains consistent for now. We're obviously watching it closely and so that, that looks in good shape. And then on the M&A front, we continue to see, generally the same amount of activity as when rates come down a little bit, you see banks looking more for scale and that's certainly happening.
Jim Schneider -- Goldman Sachs -- Analyst
Thank you.
Jeffery W. Yabuki -- President, Chief Executive Officer and Director
Thank you.
Operator
The next question is from Darrin Peller with Wolfe Research. Your line is now open.
Darrin Peller -- Wolfe Research -- Analyst
Hey, thanks guys.
Jeffery W. Yabuki -- President, Chief Executive Officer and Director
Hey, Darren.
Darrin Peller -- Wolfe Research -- Analyst
Congrats on the approvals on the deal closing, first of all, but like you just alluded to the strong growth at First Data, especially in the merchant acquiring side and again I touched on this last quarter, but are these trends the type of growth rates you guys anticipated in your deal accretion and pro forma run rate, are they coming in better than you thought? And then just while I'm on the topic of First Data, is there anything you can update around the JV relationship with BAM just given how much noise there has been in the market around it?
Jeffery W. Yabuki -- President, Chief Executive Officer and Director
Sure, sure. So I would say that when we put our original models together and thought about it, I don't know that we were deeply focused on what would be happening in 2019. It was our belief that First Data had been doing things, both organically and through the allocation of capital that would, that would show up. And then we didn't believe that that investors were giving First Data all the due that they should. And I think we're seeing that manifest now, and we're hopeful and strategically focused on making sure that we make the right decisions, so that will continue. So we -- we feel -- I would say that we feel quite good about the performance that we've seen to date, as well as the guidance for the remainder of the year.
As it relates to the JV, I mean obviously we've had lots and lots of questions about the JV, which expires next June. Both Fiserv and First Data have long-term multi-solution relationships with Bank -- with Bank of America and we have every reason to believe that's going to continue. And we know that First Data and Bank of America are continuing to work on a plan that makes sense.
What I can say is, during the diligence process, we put a lot of time into understanding all of the outcomes or the likely outcomes at least that we expected could come through the JV. And since that point, we've continued to make sure that we're working with the bank to understand, what's going on and we're quite comfortable with all of the different scenarios. And what I can't say, and I think this is really important is that, currently we don't anticipate a financial outcome that creates any meaningful negative impact to First Data's earnings and free cash flow for at least the next three to five years. And there are actually some scenarios in which a structural change could be accretive to the numbers once you get past that point in the future.
So from that standpoint, we feel pretty good about that. From a timing perspective, we do expect this issue to be better understood in the third quarter. So we think that the parties are coming together to create a situation that makes sense. I would also say, very importantly, that the Bank of America JV, the different outcomes that we can see the scenarios are fully factored into our transaction accretion estimates, which as you know is 20% to adjusted EPS in year one, and 40% at the full run rate. So, Darren. We think that we've done the work, we think we understand the risks, the pluses and the minuses and we just don't see it having a meaningful negative impact, post closing.
Darrin Peller -- Wolfe Research -- Analyst
That's really helpful, Jeff. Thanks. Just one quick follow-up is just one of the exciting parts of these synergies we are hoping for is that Clover would be cross-sold through the banks pretty quickly, given I think sort of the cloud-based approach where you guys manage the -- banks help manage the bank's websites. And just curious if you still think that can happen soon in terms of maybe even second half '19 where Clover starts to be distributed in the near term?
Jeffery W. Yabuki -- President, Chief Executive Officer and Director
Yeah. And, Darren. We are -- we said at the time and our planning teams have been working well together on the idea of bank merchant. I would say we are actually a bit more bullish today even and we were pretty bullish then, but we're even more bullish today. And it's really on two vectors. The first one is the traditional in branch enablement of Clover and then we're also doing some really interesting things on the digital enablement front and we fully expect that after we close on July 29 that we will be in the market and see proof points come in the second half of the year, about the power of the combination. In terms of providing value to the merchant customers of the banks.
Darrin Peller -- Wolfe Research -- Analyst
Okay, that's great. Thanks guys.
Jeffery W. Yabuki -- President, Chief Executive Officer and Director
Thanks, Darren.
Robert W. Hau -- Chief Financial Officer and Treasurer
Thanks, Darren.
Operator
The next question comes from Brett Huff with Stephens, Inc. Your line is now open.
Brett Huff -- Stephens, Inc. -- Analyst
Good afternoon, guys and congrats on getting closer on the deal.
Jeffery W. Yabuki -- President, Chief Executive Officer and Director
Thanks, Brett.
Robert W. Hau -- Chief Financial Officer and Treasurer
Thanks, Brett.
Brett Huff -- Stephens, Inc. -- Analyst
Question on the mix of front and back office tech spending, we kind of heard over the last 18 months, I think you guys have seen this too. Folks, certainly not ignoring the back office and trying to untangle the spaghetti there, but definitely shifting more toward switching this on-boarding on the front, you mentioned a little bit about that, could you illuminate [Phonetic] any acceleration on that side? Or any changes in how people are perceiving this? Specifically, are there more and more banks that are now in the category of, they need to do better digital on boarding and kind of how fast is that evolving?
Jeffery W. Yabuki -- President, Chief Executive Officer and Director
Yeah, Brett. There is no question that the majority of the emphasis at -- in really all sized institutions have been focused kind of at the -- the edge of the bank, right. So at the point of intersection between the customers and the financial institution and creating whether it be digital on boarding or any kind of digitization of the variety of financial experiences that customers engage in with their institution. So that's been a big piece of the focus.
What we are seeing is, and we announced one of the proof points of it today was around our Dovetail or our market leading payment hub technology. We had, I think five signings in the core -- in the quarter. And that's really about enabling pieces of the back office. So think about it as payments modernization to keep up with -- what the real time right now world that's happening at the edge.
And so we are seeing a lot of exploration into that call it the end-to-end that's necessary to ultimately deliver those experiences to the retail and the commercial customers and the small business customers of the bank. So, we are seeing that happening. If you said, is it more about the using your words to spaghetti or more about the experience, it's more about the experience, but I will say that the need to bring the solutions together is making its way back into some of the infrastructure and turning -- turning kind of some of the legacy into more modern systems. And that's going to take a long time to get done, but that's where we see people into RFPs and taking a look at what do we need to do at Fiserv, you see more -- more end to end on that front.
Brett Huff -- Stephens, Inc. -- Analyst
That's helpful. And the follow-up, another kind of product question is, I and I think others are excited about having a couple of the big mega deal companies kind of own if you will the relationship, both on the funding account, on the consumer side, the DDA, and then the merchant point of sale and things and maybe some interesting near term easy wins to make transactions more frictionless or maybe also little more science fiction down the road, can you -- now that you've studied this combination for a while, can you talk any more about how you're seeing those opportunities evolve?
Jeffery W. Yabuki -- President, Chief Executive Officer and Director
So and Brett obviously, you've noticed for a long time, you know that's one of the areas that we've been focused on really since back to 2012 when we bought CashEdge to really accelerate our focus on P2P through Popmoney and obviously now Zelle. I mean we're very, very excited about the opportunity to use the -- you call that the funding account, the transactional account as a way for consumers to interact -- interact with -- with any of their providers in a -- in a more frictionless way. And I think that's going to manifest in a variety of different forms over the next several years.
And for us, we just want to make sure that we're in this, we think the scale of First Data with kind of roughly 40% of the merchant footprint and the scale of Fiserv with over 100 million transaction accounts, we like that, we like the optionality and we're excited to work with our partners, with financial institutions and ultimately with some corporates to see what's out there that can deliver better service.
I think for now, we're really studying that. We'll be able to study it a lot closer once we close, but we're very excited about that and we're going to continue to plant flags around areas like Zelle because we think that is one of the differentiators to make some of that, what I think you call that science fiction some of that actually happen.
Brett Huff -- Stephens, Inc. -- Analyst
Great. That's all I need. Thanks for the time.
Jeffery W. Yabuki -- President, Chief Executive Officer and Director
Thank you.
Robert W. Hau -- Chief Financial Officer and Treasurer
Thanks, Brett.
Operator
And the next question is from Ramsey El-Assal with Barclays. Your line is now open.
Ramsey El-Assal -- Barclays -- Analyst
Hi, guys. Thanks for taking my question. I wanted to ask about revenue synergies, more in the context of timing. Now that you've had a little time to dig in and look under the hood, what is your kind of most updated thinking on which specific opportunities are most kind of realizable or in the near term sort of quickly realizable understanding that your -- the bulk of the benefit we'll see probably in '20 rather than '19, which opportunities feel the most sort of readily achievable?
Jeffery W. Yabuki -- President, Chief Executive Officer and Director
Yeah, I mean it is when we -- when we had talked about this originally, we talked about kind of the payments and network innovation opportunities playing an important role in the near term call it over the next 12 to 18 months. We are going to be very, very focused on the -- on selling. I mean we're excited to have a chance to get out of the blocks a little bit faster than we thought. We think bank merchant is a very good opportunity in the near term and the reality is, is that we have businesses like our biller solutions business where we do a little part of the -- the overall acquiring with the -- with these providers and being able to bring First Data in and having them be able to bring us and we see a lot of, we call it integrated sales, but a lot of real high value cross sell that can move pretty quickly.
Again, we won't know until we hit. The problem that we have to the extent that there is a timing problem is, as you know, Ramsey, we have to shell it and then we have to implement it and then it has to go live. We like bank merchant. We think some of those things going to happen quickly. Some of the network and payments opportunities we think can happen quickly. And so we see those to be a little bit faster than the others, but we're going to be focused on that and you'll hear us talk about how we're doing on that each and every quarter.
Ramsey El-Assal -- Barclays -- Analyst
Great. I want to just -- one follow-up I wanted to ask about the industry more broadly. It just seems like the universe is scaling up your M&A, what's your view on how this broader processing industry looks into five years? Do you think the space just continues to really dramatically pull up. So even players with the scale that you guys are sort of amassing will get larger and larger and larger or do you think there is some measure of stability that we've achieved with these kind of specific deals kind of having been consummated recently?
Jeffery W. Yabuki -- President, Chief Executive Officer and Director
Yeah. It's a really great question and I fear that we won't have time to go fully back and forth. I would say that if you would have asked many of the industry participants that you're referring to five years ago, if they would have thought that five years later that the industry would have taken the steps it had taken, I suspect that people would say no and certainly if you have asked how quickly, if at all changed, I think you would get an absolute, you've got to be kidding me.
From our perspective, we see opportunities to deploy capital every single day. But it's important for us to stay really focused on one of the key drivers to the more than 33,000% return we've had over the last 33 years as a public company, and that's making sure we're allocating capital to drive value for shareholders. So we're going to remain focused on the -- with the capital allocation strategy that we've used and if occasionally, there is something meaningful to do, we'll certainly consider it, but we see lots of ways to drive value without having to do major scale transactions. I think we'll have to see how they come together over the next few years. We're just really, really focused on how do we drive as much cash flow for shareholders that we can and make sure we deploy that capital to build the most value possible.
Ramsey El-Assal -- Barclays -- Analyst
Very helpful, thanks.
Jeffery W. Yabuki -- President, Chief Executive Officer and Director
Thank you.
Operator
The next question is from Daniel Perlin with RBC Capital Markets. Your line is now open.
Daniel Perlin -- RBC Capital Markets -- Analyst
Thanks, good afternoon.
Jeffery W. Yabuki -- President, Chief Executive Officer and Director
Hi, Dan.
Daniel Perlin -- RBC Capital Markets -- Analyst
How you doing?
Jeffery W. Yabuki -- President, Chief Executive Officer and Director
Good.
Daniel Perlin -- RBC Capital Markets -- Analyst
I had a question about the kind of fintechs and payments and really other areas increasingly becoming these kind of quasi deposit gatherers. And here, I'm thinking like Square's debit and Venmo's debit card, were there clearly trapping cash now where they used to let it kind of be more of a straight-through process with these -- with these entities. And so I'm just wondering Jeff, when you look at your portfolio, what are the -- what are the products or services that you've created to help kind of come back as competitive threats for your bank today?
Jeffery W. Yabuki -- President, Chief Executive Officer and Director
Yeah, it's really, it's an interesting time and whether -- whether you're talking about the Chimes or the N26s and lots of other things are going on, whether they be traditional banks are non-traditional banks, PayPal of course and -- and I put Venmo as the hero example of what has to happen to make sure that the Payments -- I'm sorry that the deposit balances are being trapped in the banks. So I think that's one of them.
I think to the extent that we can make sure that we are enabling more commerce to happen at point of sale and whether that be through better decisioning models or point of sale lending right credit are being available at the point of thought, those kinds of things so that consumers don't go to other places. I think the whole intersection of digital experience better decisions based on data. I think we'll see that become very important.
Venmo is a little bit of a -- of a capsule. And what can you put in it and around it to make sure not Venmo, I'm sorry, Zelle what do you put around that to make sure that it's driving value for the financial institution clients and then the other thing is, I think you'll see us as part of the $0.5 billion that we're going to invest. I think you'll see a fair amount of that go to the points of intersection between financial experience, commerce and making sure that banks are winning with their -- with their deposit gathering.
Daniel Perlin -- RBC Capital Markets -- Analyst
That's great. The follow-up question I had is the $120 million of interest savings that you just talked about on the financings. Just philosophically, how should we be thinking about that. Are you planning on letting that flow through into the pro forma model early or are you viewing that opportunity as a way in which to invest more quickly in this transaction's integration? Thank you.
Robert W. Hau -- Chief Financial Officer and Treasurer
Yeah, Dan, it's Bob. I would look at it as an opportunity to grow our earnings per share from a standpoint of invest back in the Company. We're certainly planning to appropriately invest as needed to get at the synergies as well at both on the cost and the revenue standpoint and that's fully baked into the model. As Jeff pointed out in the prepared remarks, we're very comfortable that we will achieve the -- at least 20% earnings accretion in year one, and 40% at full run rate synergies. That $120 million of lower interest certainly helps with that. It also generates some cash flow, allows us to pay debt down faster and get back into share repurchase.
Daniel Perlin -- RBC Capital Markets -- Analyst
Fantastic. Thank you.
Jeffery W. Yabuki -- President, Chief Executive Officer and Director
Thank you.
Operator
The next question is from Matthew O'Neill with Autonomous Research Company. Your line is now open.
Matthew O'Neill -- Autonomous Research Company -- Analyst
Yeah, hi guys. Thanks for taking my question. My only question at this point is really just a follow-up, I think to Darren's question earlier around the BAM's JV and how that process is going. I know it's still a little premature for you guys to talk about it. One thing Jeff that you said that I was hoping I could just glean some more color from with that there'll be no impact for three to five years. Is there any kind of read through to that, there is this view that the ownership percentage might come down and maybe some discussion on the exclusivity ending and so certain merchants might be rolling off as their contracts kind of expire over that sort of three to five year phase? Or is that just, this is how far we can sort of confidently see into the future for now and we'll update you more as we hear how the deal progresses?
Jeffery W. Yabuki -- President, Chief Executive Officer and Director
Yeah, Matt, I mean, and thanks for asking the follow-up. The -- what I was trying to say is, for at least the next three to five years, and it really is a matter of, it's hard to look that far into the future in a scenario that is not fully baked, but there's no cliff at the end of that. It's just a matter of saying, we think that should give investors confidence that there is nothing to really worry about at this stage and that as the ultimate facts come to light, we'll work very cooperatively with and no matter what the scenario is, to make sure that both sides are being optimized in what they're doing. And I do think one of the unique things here is, this is not -- this arrangement no matter how it ends up playing out, It's not a win lose scenario, It's going to be a win-win scenario and everyone feels like that's been the case. Obviously, we haven't been in the direct conversations, but that's really the outcomes that are being driven here.
Matthew O'Neill -- Autonomous Research Company -- Analyst
Got it. Thank you very much. And then just as a final follow-up on that, if I can. Has there been any sort of cross discussion on Bank of America regarding the CheckFree relationship, which I think is next up and maybe 2023 I suspect not, but just figured out too.
Jeffery W. Yabuki -- President, Chief Executive Officer and Director
Yeah, and we just to be even more blunt, we have not had any direct conversations with the bank. We are operating as separate companies on the joint venture discussion and there hasn't on for Fiserv, there hasn't been any specific conversation pointing out that. We have a very good relationship with the bank on that front and we're always looking to make sure that we're helping Bank of America to continue to be the number one digital bank in the US and that's an important part of it strategy.
Matthew O'Neill -- Autonomous Research Company -- Analyst
Thanks a lot. I'll leave it there. Appreciate it.
Operator
And the next question is from Andrew Jeffrey with SunTrust Robinson Humphrey. Your line is now open.
Andrew Jeffrey -- SunTrust Robinson Humphrey -- Analyst
Hi. Good afternoon. Good to talk to you. Jeff, you mentioned and highlighted Dovetail as part of Fiserv's real-time payments, infrastructure offerings and efforts. BillPay is a product that or service that is back in the news these days. And I wonder if you can just elaborate on how you think that market's evolving, whether or not the consolidator model maybe can clawbacks some share from biller direct and to what extent, if any, the merger maybe adds value, and helps you accelerate that shift or drive more bill pay volume across your platform?
Jeffery W. Yabuki -- President, Chief Executive Officer and Director
Yeah. Thanks for the question. That's actually one of my favorite topics. It is an interesting thing because your point of it's a little bit, kind of a little bit in the rear view in terms of people talking about it. It's so interesting because you see all kinds of people trying to get into the business and you wonder, well, why are they trying to do that? And I think they're trying to do that because we all understand that the ability to facilitate payments for a consumer or for a small business, especially through this consolidated model, is way more convenient than website hopping to make that happen.
The key is, is how do you bring in the biller and merchant information to make that experience top notch. The other piece of it is ultimately having real time, money movement, real time payments that you can consistently and constantly use across all kinds of billers, is I think the next big twist and the next big point that's going to change that value proposition. And so again, we're working with a number of our partners. It's one of the things that we're very excited about the work with First Data. We think they've got a lot of interesting connectivity to make that happen. And I do think that it may take longer than people understand, but you're going to see bill payment be at the front of real time consumer payments.
And so whether you're using your illustrative hypothetical wallet to make a bill payment in real time, or to engage in commerce in real time, or to make a P2P payment in real time, I think you're going to see that come together. And it's one of the reasons why technologies such as Dovetail are so important. As you see new clearings coming online especially here in the US.
Andrew Jeffrey -- SunTrust Robinson Humphrey -- Analyst
And as a follow-up to that, I always appreciate your insight on the subject. As a follow-up, do you see debit cards generally, or even in specific verticals playing more of a role in bill payment? Or do you think sort of direct ACH BillPay is going to be the -- is still going to be sort of ubiquitous?
Robert W. Hau -- Chief Financial Officer and Treasurer
Again, this is a little bit of the world according to Jeff and I want to make sure that I'm clear about that. If you think about the card space as a pan-based space, right, the 16-digit number, and then you think about the transactional account as an account number model. I see them both having pluses and minuses. The connectivity to the debit card implies speed, real time, safety and securely [Phonetic] and I think that matters. And so figuring out how to bring them together, I think is an interesting way to look at it.
Andrew Jeffrey -- SunTrust Robinson Humphrey -- Analyst
Thanks a lot.
Jeffery W. Yabuki -- President, Chief Executive Officer and Director
Thank you.
Operator
The next question is from Kartik Mehta with Northcoast Research. Your line is now open.
Kartik Mehta -- Northcoast Research -- Analyst
Hey Jeff. Hope you're well. Jeff, I wanted to ask you a little bit about share repurchase. When you look at after the companies combined, are there benchmarks that you're looking as in, is it strictly a leverage ratio issue? Is it that you've achieved a certain amount of cost savings? Is it that you've invested so much money? Is it what the economy is doing? What's the decision point for you to go back in the market and kind of do what Fiserv has always done, which is return a ton of capital back to shareholders?
Jeffery W. Yabuki -- President, Chief Executive Officer and Director
Yeah. Thanks for asking that question, Kartik primarily because this was the first quarter, I think in my entire tenure where we were unable to buyback a share of stock. And I don't -- for people who know Fiserv and know me, that's not what we aspire to do. So our objective is to look at our leverage ratios, to pay down debt to grow EBITDA and to deploy the capital that we're going to create, the $4 billion or so of free cash flow that we're going to have a few years out, so that we can make sure that we're building shareholder value in a way that we have -- consistent with how we have over the last, at least the last 14 or 15 years.
And it'll also obviously depend on our valuation and everything else and we'll continue to use the same methodology that we have historically. And so the real answer is, we'll do it as quickly as we can. As you know, we did not suspend our program. We deferred it, and so I would expect us to get into the market as soon as we have the right level of comfort that we've met our commitments to the rating agencies and that we can build shareholder value effectively and efficiently and consistently.
Kartik Mehta -- Northcoast Research -- Analyst
And there's just one last one, Jeff. As you look at your community and regional bank customers, as you know, they're dealing with the net interest margin squeeze possibly, but they're also dealing with investing in all these digital solutions, but unable to get rid of some of the other legacy solutions cost continued to increase for them. How do you see them managing that and do you anticipate that the investment that they're continuing to make will -- that they will be able to do so in the future?
Jeffery W. Yabuki -- President, Chief Executive Officer and Director
Yeah. I mean it's a -- there is a bit of a squeeze in the community bank space whether they be banks or credit unions in the community financial institutions space for the reasons that you're mentioning. And I think one of the opportunities for us is to build products and solutions that will allow these institutions to take advantage of digital, which is a more cost effective way to interact, but also to build revenue.
It's one of the reasons why we're even more excited today about the bank merchant opportunity because we think we can see a lot of white space out there, where community-based financial institutions are not optimizing the amount of merchant revenue that they can create. And we're looking at how do we help systemically using our technology to better optimize revenue.
So it's a combination of how do we create more revenue, there are certainly going to be -- there's going to be always pressure on costs as there have been for the entire 35 years of our existence. And then lastly, it really is about how do you use this digital ecosystem to be more efficient? I think that's the trifecta that we're at least focused on.
Kartik Mehta -- Northcoast Research -- Analyst
Thank you. Appreciate it.
Jeffery W. Yabuki -- President, Chief Executive Officer and Director
Thanks, Kartik.
Operator
The next question is from Glenn Greene with Oppenheimer & Company. Your line is now open.
Glenn Greene -- Oppenheimer & Co., Inc. -- Analyst
Thanks. My questions have actually been answered, asked and answered, so thanks and congrats on the close.
Jeffery W. Yabuki -- President, Chief Executive Officer and Director
Thanks, Glenn.
Robert W. Hau -- Chief Financial Officer and Treasurer
Thanks, Glenn.
Operator
The next question is from Timothy Willi with Wells Fargo. Your line is now open.
Timothy Willi -- Wells Fargo -- Analyst
Thanks and good afternoon. Just a housekeeping question around the balance sheet and sort of a discussion around debt and interest. So I think you said you did $12 billion of notes across variety of currencies. First Data had roughly $17 billion, could you just sort of any insights around that $5 billion gap in terms of that that's where the priority to pay down first or if there's possibly some other activity that will happen regarding that we should think about?
Jeffery W. Yabuki -- President, Chief Executive Officer and Director
Yeah, Tim. Thanks for the question. We have arranged a $5 billion bank term loan that will round out the $17 billion we need to refinance. So the combination of that $5 billion term loan and the $12 billion of notes that we raised in late June, early July will cover the full $17 billion needed.
Timothy Willi -- Wells Fargo -- Analyst
Okay, awesome. Thanks so much for clarifying that.
Jeffery W. Yabuki -- President, Chief Executive Officer and Director
Thanks, Tim.
Operator
Our last question will be from Vasu Govil with Keefe, Bruyette & Woods. Your line is now open.
Vasu Govil -- Keefe, Bruyette & Woods -- Analyst
Hi, thanks. I appreciate you guys squeezing me in last minute. I wanted to extend my congratulations for getting all the approvals.
Jeffery W. Yabuki -- President, Chief Executive Officer and Director
Thank you.
Vasu Govil -- Keefe, Bruyette & Woods -- Analyst
Jeff, I just wanted to follow-up on the discussion regarding international synergies before. Can you elaborate a little bit on what type of products you are focused on there? Are we thinking about potentially selling core banking products into First Data's distribution outside or more on the payment side? And then if you could also talk about what kind of capital investments might be acquired to enable that?
Jeffery W. Yabuki -- President, Chief Executive Officer and Director
Sure. So I would say -- right now we have one core banking platform called Signature that we sell outside the US. We also have a -- we also sell that inside the US. And so we'll continue to focus on that. But really we're most excited about leveraging the existing First Data footprint to try to go-to-market with some of our digital products, which we have a good footprint around the world.
Dovetail, we're very excited about Dovetail, payment hubs. The modernization of the payments ecosystem is happening actually more rapidly outside the US and inside the US and Dovetail was a UK company, when we acquired it with most of their presence outside the US and so for us, gaining more distribution is a great example.
We also have some strong cash-oriented products, risk products, some fraud products, data warehousing, a number of different products that we can just add on or hopefully add onto the relationships that we have and we don't see those being significant investments. The other thing that we have is First Data has a nice footprint of data centers outside the US. We don't have data centers outside the US and the ability to take some of our products and not just deliver them on a licensed basis, but deliver them on a hosted basis, will allow us to build not just revenue, but really the high quality recurring revenue that we strive to deliver.
Vasu Govil -- Keefe, Bruyette & Woods -- Analyst
Thank you. That's very helpful.
Jeffery W. Yabuki -- President, Chief Executive Officer and Director
And thank you everyone for joining us today. We are -- we always appreciate your support and we're really excited to come Monday to close the transaction with First Data, and start the new Fiserv. So thanks everyone. Have a good evening.
Operator
[Operator Closing Remarks]
Duration: 65 minutes
Call participants:
Tiffany Willis -- Vice President, Investor Relations
Jeffery W. Yabuki -- President, Chief Executive Officer and Director
Robert W. Hau -- Chief Financial Officer and Treasurer
Lisa Ellis -- MoffettNathanson -- Analyst
David Koning -- Baird -- Analyst
Jim Schneider -- Goldman Sachs -- Analyst
Darrin Peller -- Wolfe Research -- Analyst
Brett Huff -- Stephens, Inc. -- Analyst
Ramsey El-Assal -- Barclays -- Analyst
Daniel Perlin -- RBC Capital Markets -- Analyst
Matthew O'Neill -- Autonomous Research Company -- Analyst
Andrew Jeffrey -- SunTrust Robinson Humphrey -- Analyst
Kartik Mehta -- Northcoast Research -- Analyst
Glenn Greene -- Oppenheimer & Co., Inc. -- Analyst
Timothy Willi -- Wells Fargo -- Analyst
Vasu Govil -- Keefe, Bruyette & Woods -- Analyst
