Question-and-Answer Session
Operator
(Operator Instructions) The first question is from Charlie Murphy of Morgan Stanley.
Jeff Yabuki
Hey, Charlie.
Charlie Murphy - Morgan Stanley
Hey, how are you. Thanks very much for taking the call. I had a question on the adjusted EBIT margin in the insurance segment, could we get a little more specificity on why that shouldn't stay at around the 14% type adjusted EBIT margin it was at this quarter?
Tom Hirsch
Sure, Charlie, this is Tom. And I'll start and turn it back over to Jeff and a couple of things, as we look out into the future. First of all, our flood business and property and casualty insurance business had a very soft first quarter, and that should improve as we move through 2007, consistent really with the historical trends in these businesses.
It was a softer quarter for our old insurance, not the health business, but the insurance business in the first quarter, which has been pretty historical. In 2006, we had the higher flood claims, which kind of pass that quarter, but we anticipate both our flood processing and P&C insurance business to improve.
Second, we're really focused on our HPA business, on both reducing the expenses through our current consolidation activities and continuing to grow our revenues through the execution of our client segment strategies, as Jeff indicated.
And third, we continue to see solid sequential growth in the revenues and profits in our pharmacy services businesses, and that should continue. And, so those are the three major factors. Jeff, I don't know if you want to add something to that.
Jeff Yabuki
Sure, I think the only thing I would add is that we had a couple of one-time items in the health area that brought our numbers down that we don't expect to recur. And then historically our margins have been higher than this and we believe will get back up to levels that are consistent with at least 2006's performance.
We've included in our forecast for the remainder of the year very little, if any, real flood activity, so we're really focused on what I would call the nuts and bolts of the recurring revenue streams in the businesses.
Charlie Murphy - Morgan Stanley
Okay. Great, Jeff. And then you talked about in the second half market improvement should help drive a pickup in growth. What are those?
Jeff Yabuki
It's, I would say it's more market opportunities than market improvements. And we did say, as I mentioned we're seeing some strength, a bit more strength in the lending businesses, specifically in the prime area. Most of our, not most, but a fair amount of our business is in the home equity world.
We're seeing that firming up a bit. We're seeing a lot of strength in the auto segment of our lending businesses, and we frankly think that our subprime exposure, which is fairly limited, we believe that we're going to see some pickup.
It may not be until the end of the year, but certainly that subprime space is going to have to come back, you've got too many consumers out in that world who are going to have to figure out how to get cash when they need it.
Now additionally, our pipeline has been quite strong. I believe Tom talked about or we talked about the level of products that have been developed within ITI over the last couple years as an example of the level of integrated sales and that integrated sales work needs momentum.
We've been pushing it quite hard for the last couple of years but now we think we've got our infrastructure behind our discussion, things like the commission plans and the compensation plan alignment. So, I think we're going to see those kinds of momentum catalysts kick in for us towards the end of the year.
Charlie Murphy - Morgan Stanley
Okay, great. Thanks very much.
Jeff Yabuki
Thank you.
Operator
Bryan Keane of Prudential, you may ask your question.
Bryan Keane - Prudential
Hi, good afternoon. How you doing? Just trying to reconcile Financial Services organic growth at 7% was better than what we were expecting, but yet you only hit 90% of the quota. So just trying to make sure I make sense of the two?
Jeff Yabuki
Sure. Bryan, the sales quota, the sales quota that we achieved in the first quarter of this year will turn into revenues later in 2007 and into 2008. And so, what you're really seeing in the first quarter of 2007 is a product of the sales quota, the sales quota performance really in the second half of 2006.
But also you're seeing the benefit of the integrated selling that we're doing, which really we don't track in our quota system. And so anytime we have the sale of a product that is developed within our core platform, if that's delivered to a client, that isn't picked up anywhere in our quotas.
So that because we see a lot of that activity going, that's what gives us some comfort that we're going to continue to see good growth in the financial segment for the remainder of the year. But again, to the essence of your question, Bryan, we don't, the quota performance that we talk about in this quarter does not link really in any material way to the revenues that we had in the quarter.
Tom Hirsch
I would also just add to that, Bryan, as Jeff indicated on his remarks that our core depository account business and our payments and industry products business performed very, very well. And the other part of that that kind of lagged behind was our insurance and lending components only.
Those other ones are on track and we did have a lower quarter in insurance and lending and that's kind of what pulled that number down.
Bryan Keane - Prudential
Okay. Jeff, you said that the new quotas are higher than kind of the salespeople are used to. Can you talk about that?
Jeff Yabuki
Really, what we did, Bryan, is we put a little bit more science to how we are looking at quotas based on the market opportunities that are out there. So really we're looking at the higher-growth components of our businesses.
And making sure they have adequate quotas and frankly, just stretching people a little bit more, because we know what's out in the marketplace and we know where we're winning and we know where we haven't won enough and we want to make sure we get our folks focused on where we need to win a little bit more.
Frankly, had we not changed our quotas and stretched them up a bit, I suspect we'd be much closer to 100% than 90%.
Bryan Keane - Prudential
Okay. Great. And just turning to the health segment, the large national client attrition that you're seeing, does that continue to drag for the rest of the year, or do we anniversary that at a certain point this year?
Jeff Yabuki
Yeah, the majority of that attrition has occur, I mean let me say that a different way. All of the attrition that we talked about has occurred in terms of the health business. Now, that doesn't mean we won't lose any additional clients throughout the year, so I don't want to mislead you.
But the reality, Bryan, is that the majority of people switch in January, so the majority of that attrition should be gone. I think it's more likely that we will gain new clients, and in fact, we will lose clients in that business at this stage for the remainder of 2007.
Bryan Keane - Prudential
Okay, and then just finally. Tom I don't know is there an annual revenue run rate, we can think about for NetEconomy?
Tom Hirsch
I think we didn't, it's a fairly small software company, I think we gave guidance around 10 for that on an annual basis, but one of the key things about that. And I don't, as a stand-alone basis, but one of the key things about that is how we're going to integrate that into our cores.
And that process is currently going on through all our core bank processing companies. And so we're going to be delivering that through our service bureau into our clients here in the United States.
Jeff Yabuki
Right, and just Tom to the point of NetEconomy. We indicated that had when we acquired it was about $10 million. That was not guidance.
Tom Hirsch
No. That's correct.
Bryan Keane - Prudential
Right, I just wanted to make sure I got that right, okay. Thank you very much.
Jeff Yabuki
Thanks Bryan.
Operator
Pete Heckmann of A.G. Edwards, you may ask your question.
Pete Heckmann - A.G. Edwards
Good afternoon guys.
Jeff Yabuki
How are you Pete?
Pete Heckmann - A.G. Edwards
Real good thanks, a few questions, you had noted in the press release in the first quarter, the revenue related to acquisitions was that in the FI segment. Was that coming from the Jerome group or was there another acquisition I'm missing?
Tom Hirsch
That's just the Joe Jerome, and we had very insignificant amounts from NetEconomy.
Pete Heckmann - A.G. Edwards
Okay, and at this point. Do you have any comments on the published commentary about the potential divestiture that was showed up last week in the mutual fund news?
Tom Hirsch
No, the policy of the company is not to comment on any rumors, or market speculation as it relates to the sale or purchase of a business.
Pete Heckmann - A.G. Edwards
Okay. All right and then how about the international operations, don't hear as much about that, can you talk about European core spending, as well as, an update on the Australian check processing venture?
Tom Hirsch
Yeah, we as you know Pete. It's a fairly small component of a company; we don't break out those revenues separately, I think it approximates about 5%; there's been a lot of talk about the potential for a big European core transformation.
Frankly, we aren't seeing it; the people that I'm talking to at least this the industry are not seeing it. You have some movement going on in the larger banks. But really in the spaces where we would be operating we aren't seeing the core shifts, we are seeing, and having some success in the delivery of some products in Europe.
And we feel good about that but those would no be large core replacements as I think people were speculating on. In Australia our operations we feel like we are making progress, the Australian operations were planned to have pickups in performance really in the second half of the year. So we're really been moving right now, as we have been over the last couple of quarters.
Reengineering our operations and getting it inline, but we have a fair degree of confidence, that we will see improvement in those results this year. Another reason why we expect to have kind of continued acceleration in results in the second half of the year, but I would also say that those results will continue to be dilutive throughout 2007.
Pete Heckmann - A.G. Edwards
Okay, okay; and last question. Do you anticipate at this time any significant termination fees in the second quarter?
Tom Hirsch
There's nothing that we're aware of in terms of abnormally large termination fees.
Pete Heckmann - A.G. Edwards
Okay, I appreciate it.
Jeff Yabuki
Thank you.
Operator
Paul Bartolai, Credit Suisse, you may ask your question.
Jeff Yabuki
Hey Paul.
Paul Bartolai - Credit Suisse
Hey good afternoon, first question, just. Jeff I think you made some comments about the core systems market, and seeing more on the outsourcing side versus license. Was that more a shift in preference or are you seeing some pickup in general demand trends as well?
Jeff Yabuki
Yeah, we're really seeing a movement of shift, I guess to your vernacular. Really a shifting of existing client demand, we're seeing both for new clients, as well as, some of our own clients deciding that perhaps operating the systems is not the best use of their own internal energies in this spread environment, and we're having clients convert from in-house to outsource.
We also had a fair amount of success this quarter in signing up new clients. And specifically, in the de novo market where we had a number of clients sign up for outsourced services; which is primarily good news. Although in the short-term, you give up a license fee for a much greater stream of recurring revenue, which is actually our preference.
Paul Bartolai - Credit Suisse
Okay. But not a major shift in the core demand.
Jeff Yabuki
When you say core demand...
Paul Bartolai - Credit Suisse
Demand for core systems. Just what you're seeing in the market in general.
Jeff Yabuki
Right. No there's no change in demand for core systems in the aggregate.
Paul Bartolai - Credit Suisse
Okay, and then switching to the margin side. Obviously, you guys are making some good progress there. And I think Tom made some comments not to expect similar margin growth. But sequentially is this kind of a new baseline that you guys are comfortable with. Or was there anything in there that was more one time in the quarter or seasonal?
Tom Hirsch
I would say our margin performance continues to be very strong. I think particularly, in the financial segment, and our guidance has been is that our overall company margins will be higher on a year-over-year basis. Notwithstanding the difficult comparison we had with the flood stuff.
Our financial segment margins they continue to expand as our results in the first quarter demonstrate, we believe we can continue to improve margins as we go through the year as performance in our lending group and our Australia operation improve.
In addition our Fiserv 2.0 initiatives are continuing to take hold, which focus on reducing our expenses, and driving increasing profit or organic growth. That was I think one of the brightest spots in the first quarter was the incremental profit that's delivered through our payments, and bank processing businesses.
So, our business continues to produce good incremental leverage. Especially, in the financial end, on the insurance end I think we've discussed that, we do believe that's going to improve as we go through the year, we had a lot of one-time items in the first quarter. But again our overall guidance is that our overall company margin should be up on a year-over-year basis.
Paul Bartolai - Credit Suisse
Okay great, then just last question. It sounds like you guys expect a little bit of a pickup in growth in the insurance business from the first quarter, just curious if you could comment a little bit on what gives you confidence that we'll see that pickup into the low single digits.
Tom Hirsch
I think when you look at the first quarter at least. We had a couple of things there and again I would say it was in two or three areas, it was both in our insurance segment, which was the non-health business. Which had one of the lowest quarters they had historically that's been a very low quarter in our flood business, and our property and casualty insurance businesses.
So, we anticipate some subsequent improvement there, as Jeff indicated. We had the attrition already in our TPA-type businesses, we have growth in our pharmacy services businesses. Both the workers' comp and our PBM business, which continue to grow nicely.
So I think not going to comment on quarter-over-quarter. But what I am going to say is that, we have some things there that I think is going to help that growth rate as we go through 2007.
Paul Bartolai - Credit Suisse
Great. Thank you.
Operator
Pat Burton from Citigroup. You may ask your question.
Pat Burton - Citigroup
Hi, thanks for taking it, my question. Jeff just relates to any changes in your strategic thinking about the insurance business, or any of the components in insurance. If they really fit with the long-term vision you have for Fiserv, thanks.
Jeff Yabuki
Sure. And thanks for the question Pat, one of the things that, notwithstanding our performance in the quarter. These are businesses that have delivered good solid results, we believe that these businesses are good businesses. We have strong client relationships we have a good, strong array of products, what we need to do is, we need to make sure we're executing our plans better than we did this quarter.
We're very focused on that right now. And I would also say that just like we talked about in September and a lot of last year. We will consistently evaluate this business and all of our businesses to make sure that we're delivering the most value for shareholders.
Whether it'd be operating the business, acquiring a new business or occasionally divesting a business. We're always looking for what's the right formula to deliver shareholder value. So, nothing has changed as of right now for insurance, and we'll continue to evaluate that as we evaluate all of our businesses on an ongoing basis.
Pat Burton - Citigroup
If I could just follow-up on the comment you made about stripped network discounts, and moving the HPA business. It looks like downstream, how are you going to compete in that business. I guess is the question I'm asking against the bigger managed care companies?
Jeff Yabuki
Well. Specifically the point that, I was trying to get across, and I may not have done a very good job of it. As we actually think that we are much better suited to work around the large, and what's the right way to say this.
The large, small market to the mid-market, but for clients who need more customization they're not boilerplate clients, and so they really need the expertise. The administration takes precedence; kind of that customization takes precedence over that of a strict network discount dollar versus dollar kind of decision.
Obviously the costs of the network what the end client is paying for the medical care is always going to matter and we believe we have a generally competitive program. But we don't have for the most part we don't have the bandwidth to compete with all the nationals all the time.
There are some cases where we do it depends on our network arrangements. But in most cases we believe that we are better suited focused on those areas where customization and plan administration is the most important reason for the employer to select the administrator.
And frankly we had not been focused enough on that historically we moved over to that segmentation model in the fourth quarter of the year and it just didn't catch momentum the way we thought it would.
So we're focused on that we're moving some of our sales resources around and we'll continue the give updates on where we are each quarter.
Pat Burton - Citigroup
Thank you.
Jeff Yabuki
Thank you.
Operator
Julio Quinteros of Goldman Sachs. You may ask your question.
Julio Quinteros - Goldman Sachs
Actually I just wanted to go back on my question. Jeff, if you can go back to the comments where you referenced the incremental revenue through 2012 with $360 million, and just make sure I have all the data in terms of what, where we were according to those numbers as of the first quarter and what your expectations were for the year? You rattled off a couple numbers and I wanted to make sure exactly where we were relative to those plans?
Jeff Yabuki
Sure Julio. What I had mentioned is that for 2007 our plan was to deliver, I'm sorry, our plan is to deliver about $26 million of integrated sales. And those integrated sales are beyond the normal integrated sales that we would typically be doing. I think it was Bryan Keane, who asked an earlier question about sales.
And I mentioned the fact that we don't -- we have not historically tracked the sales that are occurring within each of our core processing businesses. So, where a core processor sells a product that they develop in-house that gets excluded from the typical -- typical quota tracking.
So, this $360 million that we talked about last September that was really all incremental and all geared at selling products that don't live within any of the core platforms. So it could be EFT, it could be wire transfer it could be cash management, or any one of, literally hundreds of different products.
What we did is we picked 18 of them, kind of the 18. We think that are going to deliver the most potential, kind of the 18 to get 80%. And in the first year that 18 totaled out to be $26 million of integrated sales, which would largely hit next year.
That 26 is the first ramp not surprisingly, we start that slowly and it ramps up as you get the kind of geometric affect of that year-on-year-on-year of new quotas adding to new revenues. Does that make sense?
Julio Quinteros - Goldman Sachs
Yes, and that's -- and then I think the final point that you made was something along lines of that you were, as of the first quarter you were at 14% of that goal?
Jeff Yabuki
14% of the $26. And frankly it didn't roll out until February.
Julio Quinteros - Goldman Sachs
Got it, okay, perfect. Thank you.
Jeff Yabuki
Thank you.
Operator
Dave Koning of Baird. You may ask your question.
Dave Koning - Robert W. Baird
Yeah, hi guys.
Jeff Yabuki
Hi Dave.
Dave Koning - Robert W. Baird
Looking at Q1 internal growth within the FI division it looks like, if we exclude termination fees it would have been around 6%. In time just wondering as we look into Q2 and if, if we can take 6% as a baseline is there anything either in the year-ago period or in the current period that would have a large impact on that type of thinking?
Jeff Yabuki
Not that. As what we see right now no, I mean there's nothing unusual that we see out there from a termination fee standpoint or large one-times or anything in those areas.
Tom Hirsch
Yeah. I mean the only thing I would reinforce is that some level of termination fees are just normal course of business and you're always going to have some of them.
Dave Koning - Robert W. Baird
Okay, great and then just secondly. You mentioned how financial margins should continue to ramp and I think you meant on a year-over-year basis. And I'm just wondering sequentially, if we should expect the margins to kind of stay somewhere around the current level I think around 25% or so, kind of throughout the course of the year, is that kind of fair to think about it that way?
Jeff Yabuki
Yeah, we're not going to be getting into quarter-over-quarter margin type guidance. But we had a very good quarter from a margin standpoint. Over the long-term we're going to continue to improve upon those margins through a lot of the initiatives we have
I believe in the lending I think Australia those types of area should improve as we go through 2007. And so I think we'll have something there along with the incremental profit that we're getting in our recurring revenue businesses.
But, as a strong quarter, but I think over a time, we're going to continue to try to work to improve those through the initiatives under Fiserv 2.0, our operational effectiveness initiatives and some of the integrated sales stuff so, that's kind where we're at with that.
Dave Koning - Robert W. Baird
Great. Thanks nice job.
Jeff Yabuki
Thanks Dave.
Operator
Greg Smith of Merrill Lynch. You may ask your question.
Greg Smith - Merrill Lynch
Yeah, hi guys. Just sort of a higher-level question I guess Jeff given the Digital Insights acquisition by Intuit and Check Free's acquisition to Character and Carillon. Do you see this as at all choking off any of your opportunities or frankly creating new ones or energizing you to develop more product in-house, just some thoughts on that, please?
Jeff Yabuki
Sure, and my perspective and we've been talking about this for probably a good nine months now is that. We have this really valuable asset within our client base. We have a privileged position with the core clients and it's really our opportunity to make sure that we are delivering as many high quality products as we can deliver to clients, and not allow others to really get into our distribution system.
That was one of the big reasons why we thought NetEconomy made sense, I mean we see a lot of growth coming out of the risk management space. It's a big, big focus point for regulators it's a big, big focus point for bank officers. And what was going on, is there were other providers starting to kind of ease their way into our system, and into our core platforms and when that's going on.
If the product provider needs to make a profit and we'd like to make money as well. You're getting some doubling up, so it was our prospective that going out and acquiring NetEconomy made a lot of sense. And I believe you will see us do more.
Certainly I've talked about acquisitions, in terms of going out and acquiring products that we think we can distribute high-quality products through our client base. And we will continue to do that as well as looking for opportunities to expand the system. So, we think all of that is actually goes a long way in validating that what we're trying to do around distributing additional product.
Greg Smith - Merrill Lynch
Okay. Great, helpful. And then just on BillMatrix that looks like you had pretty good transaction growth there. But are you getting any synergies out of that deal and are you pleased with it overall?
Jeff Yabuki
One of the things that I would say is. We're quite pleased with the growth, they've really come on over the last year we feel really great about the work that they are doing. We have a lot of different opportunities we think to synergize with them and frankly we haven't done anything yet in that area.
And I think it's on the drawing board for us to do in 2007, we think we can bring some unique opportunities with those assets. And so, we're looking to do that later on in the year.
Greg Smith - Merrill Lynch
Okay. And than just one final one, the acquisition environment as far as properties, you're going after with all the private equity money. Is that are prices continuing to rise and is it making it more challenging for you this environment?
Jeff Yabuki
Well, yeah. I mean, I would clearly say that prices are at a minimum stable and kind of going up from there. Prices are high for good assets, or attractive assets they're high and even for assets that aren't necessarily that attractive is seem to be higher than you might think. So, it causes us to take a really hard look at what, what we're willing to do with our capital.
By the same token where there's an opportunity to really create a great match between our client base and products or to enlarge our client base I think we have to look at that. And obviously the legacy of the company is 150 acquisitions over the last 20 years that's something we know how to do well, and we'll continue to look to utilize that competency.
Greg Smith - Merrill Lynch
Yeah, okay. Thanks.
Jeff Yabuki
Thanks Greg.
Operator
(Operator Instructions)
Jeff Yabuki
All right, well. Thanks, everyone for joining us this afternoon. If you have any further questions please don't hesitate to contact our Investor Relations team. Thanks for your support and have a great day.
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