George Mihalos:

Thank you. Good morning, everyone. Thank you for joining us today for the FIS fourth quarter 2023 earnings conference call. This call is being webcasted. Today's news release, corresponding presentation and webcast are all available on our website at fisglobal.com. On the call with me this morning are Stephanie Ferris, our CEO and President; and James Kehoe, our CFO. Stephanie will lead the call with a strategic and operational update, followed by James, who will review our financial results. Turning to Slide 3. Today's remarks 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. Please refer to the safe harbor language. Also, throughout this conference call, we will be presenting non-GAAP information, including adjusted EBITDA, adjusted net earnings, adjusted net earnings per share and free cash flow. These are important financial performance measures for the company but are not financial measures as defined by GAAP. Reconciliation of our non-GAAP information to the GAAP financial information is presented in our earnings release. And with that, I'll turn the call over to Stephanie.

James Kehoe:

Thank you, Stephanie, and good morning. I'll begin on Slide 11 with some comments on our 2023 performance and the key drivers of earnings power for the upcoming year. As Stephanie noted, we are pleased with our results having consistently exceeded the high end of the outlook. The original EBITDA guidance was $5.9 billion to $6.1 billion and the actual results came in well above the high end of the range. The outperformance was driven by strong recurring revenue growth from both Banking and Capital Markets, profitability improvements, fueled by our Future Forward program, and better-than-expected performance from Worldpay, which is now reflected in discontinued operations. On January 31, we completed the majority sale of the Worldpay business. The transaction positions both companies for future success, allowing them to focus on their respective end markets and to pursue appropriate capital allocation strategies. The transaction has also allowed FIS to transform its capital structure, paying down debt to ensure an investment-grade rating while accelerating return of capital to shareholders and allowing for appropriate levels of investment in the business. FIS is now well-positioned to deliver accelerating revenue growth with a return to sustainable margin expansion. Revenue growth will accelerate from 3% in 2023 to 4% to 4.5% in 2024, or 3.8% to 4.3% excluding acquisitions and dis-synergies. Adjusted EBITDA margin is projected to expand by 20 basis points to 40 basis points. Adjusted EPS is projected to grow 38% to 41% year-over-year on a continuing operations basis, including a significant contribution from the deployment of Worldpay proceeds and the first-time inclusion of the Worldpay Equity Method Investment contribution. On a normalized basis, we expect adjusted EPS to grow 5% to 7%, including a high single-digit negative impact from dis-synergies. Strong core business performance and our Future Forward program have more than offset the negative impact from dis-synergies. Turning now to Slide 12 for a few considerations on our financial reporting going forward. Beginning in the first quarter of 2024, FIS' 45% financial interest in Worldpay will now be reported separately on the Equity Method Investment line of the income statement. Our 2024 adjusted EPS outlook of $4.66 to $4.76 includes a $0.69 to $0.71 contribution from Worldpay. Please note that the $0.69 to $0.71 is for 11 months only. Had the transaction closed at the end of last year, our 2024 adjusted EPS for continuing operations would have been $0.06 higher resulting in a pro forma adjusted EPS of $4.72 to $4.82 on a full-year basis. Consistent with our prior messaging, our go-forward adjusted EPS outlook will include the Worldpay EMI contribution. And we will also be providing condensed quarterly financial results for Worldpay on a 100% basis, including revenue and EBITDA on both a GAAP and adjusted basis. Lastly, going forward, FIS will be presenting revenue growth on an adjusted basis. This reflects year-over-year constant-currency revenue growth for our Banking Solutions and Capital Markets operating segments. With that, let's turn to our fourth quarter results on Slide 13. Overall, we are pleased with our performance in the fourth quarter and this is the fourth consecutive quarter of meeting or exceeding the high end of our outlook. Including Worldpay, total company revenue increased 1% to $3.7 billion with an adjusted EBITDA margin of 43.2% and adjusted EPS of $1.67. Total company adjusted EBITDA margin was flat year-over-year, held back by a margin decline in discontinued operations. On a continuing operations basis, revenue was flat at $2.5 billion and this was in line with our expectations. Strong recurring revenue growth across both Banking and Capital Markets was offset by expected declines in non-recurring revenue and professional services. Adjusted EBITDA margin expanded by a strong 70 basis points year-over-year, led by meaningful margin expansion in Banking Solutions. Adjusted EPS for continuing operations was $0.94 in the quarter, a decline of 4% compared to the prior year, reflecting higher interest expense with a negative impact of $0.07. For discontinued operations, revenue increased 2% to $1.2 billion, modestly ahead of our expectations. Adjusted EBITDA margin contracted 160 basis points reflecting a less favorable revenue mix and the timing of certain expenses. Moving now to cash flow and balance sheet metrics, where we continue to drive improvements. We generated strong free cash flow of $1.1 billion in the fourth quarter, resulting in a normalized free cash flow conversion of 100%, with a full year conversion rate of 95%. This compares very favorably to our 2023 full year target of greater than 80% free cash flow conversion. We ended the year with total debt of $19.1 billion with a leverage ratio of 3 times. As previously communicated, we repurchased $510 million of shares during the fourth quarter of '23 resulting in over $800 million of capital returned to shareholders in the quarter and $1.7 billion for the year as a whole. Turning now to our segment results on Slide 14. For the quarter, adjusted revenue growth was flat year-over-year, in line with our expectations. As expected, backlog remained stable at $23.5 billion. Continued strong recurring revenue growth of 7% was offset by anticipated non-recurring headwinds. Banking revenue was flat in the quarter, while adjusted EBITDA margin expanded 270 basis points, primarily driven by Future Forward cost initiatives. Banking recurring revenue grew a healthy 7%, including stronger-than-expected consumer spend in our payments business and the benefit from a prior year grow-over. Note that our calculation of Banking recurring revenue growth reflects two changes. First, in keeping with historical practice, we have transitioned certain non-strategic businesses, which we expect to settle or wind-down from Banking Solutions to the Corporate and Other segment. Second, with the expiration of federal funds related to pandemic relief programs, we have moved this revenue from recurring revenue to non-recurring revenue with no change to total revenue. We have provided a detailed reconciliation table for these adjustments in the appendix. As you will see, these adjustments have a de minimis impact on full year recurring revenue growth. Banking recurring revenue growth of 4% in 2023 is unchanged, while the changes increase our 2022 recurring revenue growth by a mere 40 basis points. The recurring revenue growth of 7% was offset by expected declines in other non-recurring revenue and professional services of 22% and 31%, respectively. The decline in other non-recurring revenue includes an 11% headwind from the decline in pandemic relief revenues while the decline in professional services reflects a difficult comparison. Turning now to Capital Markets. Capital Markets adjusted revenue increased 1%, led by continued strong recurring revenue growth of 7%. As expected, non-recurring revenue declined by 10%, primarily driven by a difficult year-over-year comparison related to license fees, which we have consistently messaged throughout the year. The decline in higher-margin non-recurring license revenue was the primary driver of the 250 basis point margin contraction. Looking forward, we will be facing lower headwinds from both professional services and other non-recurring revenue. And we expect to see closer alignment between adjusted revenue growth and recurring revenue growth. Turning now to our full year results by segment on Slide 15. Adjusted revenue growth increased 3%, led by strong recurring revenue growth of 5%. Banking revenue was up 2% as recurring revenue growth of 4% offset declines in non-recurring revenue and lower professional services. Adjusted EBITDA margin was flat, but margins were strong in the second half of the year as Future Forward savings accelerated. Capital Markets revenue increased 5%, led by very strong recurring revenue growth of 9%. Adjusted EBITDA margin contracted 60 basis points to 50.3%, primarily due to lower margins over the second half of the year, reflecting a lower contribution from higher-margin license fees. Turning now to Slide 16 for an update on Future Forward. I am pleased to report that we have exceeded our 2023 target for Future Forward OpEx savings and we see further upside in 2024. We delivered in-period EBITDA savings of $155 million, well above our original goal of $100 million. And we are raising our 2024 incremental savings target from $215 million to $280 million. We are reiterating our total cash savings target of $1 billion for the Future Forward program. We are reaffirming our capital reduction target, increasing our OpEx savings goal, and adopting a slightly more conservative view regarding the reduction in acquisition, integration and other expenses. Turning now to our capital allocation priorities on Slide 17. Our capital allocation priorities remain unchanged from the prior quarter. We intend to use our strong financial position and balance sheet flexibility to prioritize a balanced set of capital allocation priorities. These priorities include maintaining an investment-grade rating while investing to accelerate growth and consistently returning ample capital to shareholders. For 2024, we are assuming a year-end leverage ratio of approximately 2.8 times, which allows us ample flexibility to invest in the business, while increasing our share repurchase target for the year. We remain committed to paying an above-market dividend. And going forward, we will grow the dividend in line with adjusted net earnings. Reflecting our confidence in the business and our strong free cash flow generation, we are once again raising our share repurchase commitment. We now expect to repurchase at least $3.5 billion of stock in 2024, up from our prior target of at least $3 billion. And through the first two months of this year, we have already repurchased approximately $490 million of the $3.5 billion target. Lastly, we will selectively invest in complementary tuck-in M&A where we can leverage our scale and distribution to drive faster growth across strategic verticals. This balanced capital allocation framework provides a robust value proposition for long-term shareholder value creation. In total, we expect to return greater than $4 billion to shareholders in 2024, up from $1.7 billion in 2023. Now, let's move on to our 2024 outlook on Slide 18. Building on the operational and financial improvements of 2023, our '24 outlook confidently forecast accelerating revenue growth and expanding margins. We are projecting reported revenue of $10.1 billion to $10.15 billion, and this includes an adverse currency impact of around $20 million. Adjusted revenue growth will accelerate from 3% in '23 to 4% to 4.5% in 2024. Our projections include 70 basis points from closed tuck-in acquisitions. But this is mostly offset by a negative impact of 50 basis points from dis-synergies. Net of these impacts, adjusted revenue growth would be approximately 3.8% to 4.3%. We expect the Banking segment to grow between 3% to 3.5% or 3.3% to 3.8% net of acquisitions and dis-synergies, up from 2% in 2023. And we anticipate Capital Markets revenue growth of 6.5% to 7% or 5.1% to 5.6% net of acquisitions, as compared to 5% in 2023. We are forecasting year-over-year margin expansion of 20 basis points to 40 basis points, reflecting continued favorable impact from the Future Forward program and the inherent leverage in our business model. Included in this outlook is a $280 million year-over-year benefit from the Future Forward program. And this will more than offset dis-synergies from the Worldpay transaction of $250 million. We have provided our assumptions regarding the key below-the-line items with some additional details in the appendix. We are projecting D&A of $1.075 billion and we anticipate a tax rate of 17.2% to 17.5%. Interest expense is projected at around $350 million. And we expect shares outstanding of 556 million shares, a reduction of 6% compared to 2023. Including an 11-month EMI contribution of $0.69 to $0.71, we expect to deliver adjusted EPS of between $4.66 and $4.76. This translates to a growth rate of 38% to 41% on a continuing operations basis. On a normalized basis, we expect adjusted EPS to grow 5% to 7%, including a high single-digit negative impact from dis-synergies. Lastly, on a pro-forma basis, including 12 months of Worldpay EMI contribution, we anticipate adjusted EPS of $4.72 to $4.82. We are confident in our balanced outlook for 2024 and believe we are well-positioned to accelerate long-term earnings growth. Let's move now to Slide 19, where we provide a reconciliation for our 2023 results on a normalized basis. Last quarter, we provided an estimated normalized adjusted EPS range of $4.40 to $4.55. I am happy to report that both continuing ops EPS and normalized EPS came in within the guidance ranges we provided. Continuing operations EPS was $3.37, and was at the higher end of the range that we provided on the third quarter call. On a 12-month basis, normalized EPS was $4.50, and again this was toward the higher end of the range. Adjusted for an 11-month EMI contribution, 2023 normalized EPS is $4.44. Moving now to Slide 20 for an overview of our first quarter outlook. We are projecting revenue growth of 2.5% to 3.5% with Banking Solutions at 1% to 2% and Capital Markets at 6% to 7%. We expect Banking revenue growth to accelerate over the course of the year, reflecting easier year-over-year revenue comparisons and the favorable impact from stronger new sales over the second half of 2023. We are anticipating adjusted EBITDA of $955 million to $970 million, which translates to year-over-year margin expansion of 180 basis points to 200 basis points, reflecting Future Forward savings. Including an expected two-month EMI contribution of $0.09 to $0.10, we expect adjusted EPS of $0.94 to $0.97. Continuing operations EPS is projected to increase 31% to 35% and we estimate high single-digit growth on a normalized basis. In summary, we are expecting a good start to the year, with revenue growth accelerating compared to the fourth quarter and improved alignment between adjusted revenue and recurring revenue growth. Margins will expand, and this is consistent with the performance delivered in the second half of last year. Let me now wrap up on Slide 21. In closing, we are encouraged by our 2023 results and believe we are on the right path as we reposition the enterprise for long-term success. The completion of the Worldpay transaction positions both companies for future success and meaningfully improves our capital structure. We are confident FIS will deliver accelerated business growth in 2024 with adjusted revenue growth of at least 4%, and a return to consistent margin expansion. And given our confidence in how the business is performing, our improved financial flexibility and the attractive valuation of our stock, we have once again raised our total share repurchase target to at least $3.5 billion in 2024 and greater than $4 billion in total. With that, operator, could you please open the line for questions?

Tien-Tsin Huang:

Hey. Thanks a lot. Good morning here. Just hoping to maybe have you comment a little further on the Banking side, just a formula for just the revenue acceleration there in the Banking segment. I know there's backlog conversion, new sales, you talked about a little bit, retention. Any call-outs there as we sketch the outlook? Thanks.

Tien-Tsin Huang:

Good. Just my quick follow-up then. Stephanie, anything to consider with respect to M&A in the bank sector? We've been, sector-wise, getting a lot of questions on the Cap One-Discover piece, opportunities, risks? Thanks.

Operator:

Thank you. One moment for our next question. And that will come from the line of Ramsey El-Assal with Barclays. Your line is open.

Stephanie Ferris:

Sure. Maybe I'll start, and if James thinks I missed anything, he'll add on. But I would say broadly in terms of macro assumptions, we would say, as we come in on the payments side of our business, within the Banking business, we kept consumer spend pretty consistent in 2024 over 2023. In terms of overall Banking spend, I think we see two different things happening. I certainly think we see banks who have the opportunity to trend down on discretionary spend. They've been doing that, quite frankly, it's not a new trend. Where we see the demand continuing, and you heard me talk about it in my prepared remarks, is spend around digital to continue to enhance their ability to deliver products and services, and then, really focused around making sure that they can gather deposits. So, utilizing money -- or money movement capabilities and our payment capabilities to help them become the primary depositor for a lot of their lenders. So, I would say there is interest in spending around digital, around money movement capabilities. And then as the regulatory environment continues to heat up, always a focus around our reg tech products. So, I would say overall, IT spend in the banking sector is pretty consistent. We just continue to see it move into those categories and spending less around anything that they would consider discretionary.

James Kehoe:

Yeah, I'll just give you maybe a way to think about it. We're not providing explicit guidance for recurring revenue, but we did say in the prepared comments, in 2024, we would expect recurring revenue to at least be equal to the adjusted revenue and probably slightly better. So, if the total company has grown X, the recurring revenue is slightly positive compared to that, so that implies that still next year, there is a slight headwind coming from the total of professional services and other non-recurring. But it's dramatically reduced compared to 2023. So, the key message for you is there's -- if you take the year as an average -- and that's the only caution I would give you, on the average of the year, recurring will be better than non-recurring. But the quarters could vary. So, all I would ask, sometimes it's a little bit choppy in a particular quarter, but overall, we're very confident in the realignment between recurring and total revenue growth.

David Koning:

Yeah. Hey guys, thanks. Nice job. And I guess my first question, a little bit like Ramsey, on recurring. So, in the first half of '23, I think you grew 3% recurring, second half about 7%, if I get that right. And now you're calling for it to come back down, maybe a little better than the 3%-ish. What was happening in the second half that was so strong in recurring and then why does it decelerate in '24?

David Koning:

Great. Thank you. And just maybe a quick follow-up on -- merger integration costs came down this year, which was nice to see, I think $156 million in Q4. What do you expect that to be in 2024? And how soon are those integration costs just going to be closer to zero?

Stephanie Ferris:

I might also add, we did a lot this year. As you know, it's showing up in the free cash flow conversion. The separation of Worldpay is pretty significant. So, there is pretty significant cost that we expect in '24 and '25 to keep that elevated. Everything else, though, we keep pulling down to deliver a higher free cash flow conversion, but not nothing to get Worldpay separated. And as we've discussed before, we expect that to take up to 24 months. So, we'll spend some pretty significant dollars to get those guys out.

Darrin Peller:

Hey guys. Congrats on the closing of the Worldpay.

Darrin Peller:

I wanted to just start off with, first, just the margin side for a minute. Look, it looks like you raised your Future Forward savings a bit and transaction dis-synergies also were raised, and yet I think your margin, you said, is expecting 20 to 40 bps on a continuing operations basis. Maybe just talk a little bit about the underlying margin assumptions and the underlying trajectory of operating leverage that you see in this business going forward, if you don't mind, for really both segments and the company overall.

James Kehoe:

Yeah. But we did say, Darrin, in the prepared comments that we -- this is a return to consistent margin expansion over time. So, you can imply that some of the businesses will deliver, which together with Future Forward will give consistent improvement. And obviously, we'll spend a fair amount of time at Investor Day, bringing you through the growth algorithm, top-line growth and margin expansion. You have seen as well the Banking is really executing strongly against Future Forward and the margins are very, very strong, and as Stephanie said, probably Capital Markets, but I want to emphasize, both businesses -- if you read through the comments, both businesses are growing margins in 2024.

James Kehoe:

It's actually coming from the total addressable market and I think this is probably the number one topic for Investor Day which is, we will present the breakup -- break the makeup of each of the businesses and what's the relative growth in the TAM. And Capital Markets, for example is -- right now, the TAM is in or about the ex-acquisition number at about 5%. So it's got -- you've got a favorable tailwind coming from, you're in very, very attractive verticals in the market and they are actually at the same time expanding into new verticals. So, we'll bring you on the journey on Capital Markets because we know people have a bunch of questions on it, but it's supported by TAM and -- total addressable market, and expansion into new TAM. And we have very, very good line-of-sight to support the guidance number we've provided for '24.

Jason Kupferberg:

Thanks, guys. I wanted to ask about free cash flow conversion and CapEx assumptions for 2024, and then, if you can just make broader comments around the 2024 guidance. Obviously, after the outperformance in '23, are there any elements of conservatism in that overall '24 outlook, either from a top- or bottom-line standpoint?

Stephanie Ferris:

CapEx and guidance. Yeah, I think on the CapEx side...

Stephanie Ferris:

Yeah. On the CapEx side, I think we feel really good. We brought it down as you know from a high at one point of 10% last year. I think we brought it down to 9%. We're expecting it to come down 1 point, probably sits in the 7% to 8% range as we think about continuing to invest in the business. With respect to guidance, I think what we would say, Jason, is we're thrilled with our ability to hit and become just much more consistent in terms of what we guide and meeting expectations. We thought it was really important and we're thrilled to be able to talk about an acceleration of revenue from 2023 to 2024, and we're guiding consistently with how we have historically and continue to be transparent and credible.

Dan Dolev:

Hey, guys. Great to see the guiding for acceleration in '24, nice job. A quick question -- like a question on backlog, like it was negative, flat, positive, negative, how do we connect it with the organic growth guide? Is there like a good sort of mapping that we can do to make sense out of it? Thank you.

Dan Dolev:

Yeah, that's super helpful. And maybe, Stephanie, quick follow-up for you. On FedNow, you mentioned that we're kind of maybe six months in. Like, have you seen any changes or beginning of changes, any meaningful behavior changes in how FedNow is implemented? That'd be it. Thank you.

Operator:

Thank you. One moment for our next question. And that will come from the line of Vasu Govil with KBW. Your line is open.

Stephanie Ferris:

Yeah. No, happy to. So, I think in the new sales momentum, where, as you know, we shifted, specifically, the team, so that they would sell more of our technology-enabled solutions. So, where I'm seeing momentum is really in the digital space and in the money movement space. So, as you think about what banks are focused on doing in order for them to deliver their products and solutions, the digital capabilities they have, whether it's mobile, online, teller, et cetera, all need to be in sync and refreshed. And there's a lot of demand there. So, seeing a lot of demand for our Digital One Studio, our Digital One business capabilities as banks are really looking to gather deposits. So, the digital capabilities are in high demand. And then, as they -- as banks think about really want to being the primary deposit account for those loans they've gathered over the last 10 years, they want -- they need to make sure that they have the right money movement capabilities to deliver to be that primary bank. And so, we are seeing a lot of demand in digital and payments. I would say in Capital Markets -- and spent a little bit of time talking about this in the prepared remarks, I think we're seeing demand, really, across all three of our subsegments. Thinking about securities and processing, we've talked about our Clear Derivatives solution. It continues to be a market-leading solution, even outside the traditional broker dealers. So that's been in high demand. Our commercial lending technology solutions really are getting adopted even outside the traditional financial institutions. So, if you're a sophisticated financial services corporate, so we talked a lot about auto dealers and other large, sophisticated financial services, they need a lot of capabilities. They are seeing high demand there. And then treasury. Our treasury solution is best of breed, and we see folks adopting that across the corporate landscape. And then, the other place that we're seeing a ton of demand is in overall ESG. We have a fantastic ESG product. Every company that's an SEC registrant company needs to have some sort of ESG reporting capability. So, see a lot of demand there.

James Kehoe:

Well, I think we said it's 5% to 7%, but it's absorbing a significant dis-synergy impact. The reason why -- so I wouldn't necessarily add the two together to project forward, because we've really ramped up Future Forward this year to help offset the dis-synergies. And I think the level of -- obviously, next year, there's no year-on-year dis-synergy impact, but the level of contribution from Future Forward will go down from current levels. Let's just wait till Investor Day. We want to bring you through a detailed walk on the earnings power of each business, the revenue growth, the total addressable markets, the margin potential, and we'll come up with the algorithm together in a short couple of months.

Ashwin Shirvaikar:

Thanks. Hey, Stephanie. Hey, James. Good to hear from you. Stephanie, it was good to see you on stage with Charles Drucker...

Ashwin Shirvaikar:

[indiscernible] sales conference. I guess, speaking of sales conference, right, you've mentioned in your comments, redirection of the sales force towards higher-yielding products and such. Is it primarily redirection or are you adding to the sales force? Could you give us some flavor of what's going on with sales count, sales quotas and so on?

Ashwin Shirvaikar:

Got it. And then, James, just more granularity on cadence by segment, you provided obviously on the Cap Market side, but on both Banking and how we should model out the equity line with regards to just sort of quarter-over-quarter as we think of the four quarters, that would be helpful from a modeling perspective.

Operator:

Thank you. Thank you all for participating. This concludes today's program. You may now disconnect.

George Mihalos:

Thank you Abigail. Good morning everyone and thank you for joining us today for the FIS third quarter 2023 earnings conference call. This call is being webcast. Today’s news release, corresponding presentation and webcast are available on our website at fisglobal.com. With me on the call this morning are Stephanie Ferris, our CEO and President, and James Kehoe, our CFO. Stephanie will lead the call with a strategic and operational update, followed by James reviewing our financial results and providing forward guidance. Today’s remarks 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. Please refer to the Safe Harbor language. Also, throughout this conference call we will be presenting non-GAAP information, including adjusted EBITDA, adjusted net earnings, adjusted net earnings per share, and free cash flow. These are important financial performance measures for the company but are not financial measures as defined by GAAP. Reconciliation of our non-GAAP information the GAAP financial information is presented in our earnings release. With that, I’ll turn the call over to Stephanie.

James Kehoe:

Thank you Stephanie, and good morning. I’m delighted to be here, and I look forward to meeting with all of you in the near future. As noted in our earnings release, as of the third quarter we have transitioned the Worldpay business into discontinued operations. Going forward, our ongoing FIS financials will be presented on a continuing operations basis; however, for this quarter we will also present some of our metrics on a total company basis, and this will allow you to compare to our prior total company outlook. Continuing operations now reflects two principal operating segments

Ramsey El-Assal:

Hi, good morning Stephanie, and welcome James. I wanted to ask about continuing operations adjusted EBITDA margins as we move past the Worldpay sale next year. The F23 outlook on Slide 18 shows lower EBITDA margins than we’ve seen year-to-date in banking and capital markets. I’m just wondering if you could help us think through what the normalized margins in the business will look like once we get past the sale.

Ramsey El-Assal:

Got it, okay. A follow-up from me, you’ve increased your buyback target, it looks like capex as a percentage of revenues is trending in the right direction. Is there an opportunity to return additional capital beyond what you’ve already laid out?

Ramsey El-Assal:

Got it. Thank you very much, appreciate it.

Tien-Tsin Huang:

Thanks so much, good morning. James, I’d love to hear a little bit more on what attracted you to join FIS, what your priorities and focus areas might be as you come in here, and how your prior experience can be leveraged here at FIS, what can we expect, that kind of thing. Thank you.

Tien-Tsin Huang:

Good, glad to hear, and welcome to the call. As my follow-up, I thought I’d ask just a little bit about--I think you both mentioned good visibility, so as we go into the fourth quarter, I know that sometimes [indiscernible] mixed with license sales, so just the danger of us using the fourth quarter outlook to inform our ’24 growth expectations. I know you’re not going to give us ’24 numbers per se, but I just wanted to separate the license from the recurring piece, so anything else to say there? I know the backlog was up 2%, but just want to make sure we’re getting all the puts and takes right.

Tien-Tsin Huang:

Perfect, that’s useful. Thank you for that.

James Faucette:

Thank you very much. Just wanted to follow up on Tien-Tsin’s question there generally, and more specifically at capital markets - it was up 7%. Can you talk about what drove that specifically? Was it some of these non-recurring items? I’m just trying to get a handle on how we should think about growth in that segment on a go-forward basis.

James Faucette:

Got it. Maybe just a more broad question, and Tien-Tsin once again kind of touched on one of the most recent metrics, but given the nature of RemainCo on a go-forward basis, how should we think about measuring performance in new bookings and signings in the banking segment, or maybe more generally? Is backlog growth the right number, and what are some of the nuances that we should keep in mind over the next six to 12 months, especially since some of these larger deals have been taking longer to close?

James Faucette:

Thanks so much for the color there, Stephanie.

Operator:

One moment for our next question. Our next question comes from Dave Koning with Baird. Your line is open. Dave Koning with Baird - Dave, your line is open. One moment for our next question. Our next question comes from Jason Kupferberg with Bank of America. Your line is open.

Stephanie Ferris:

Yes, thanks for the clarification. Banking, I would say is more flattish fourth quarter. I think we talked about recurring continuing strong growth in the 3% range, and so that, as we expected, has been an issue all year, the non-recurring coming in and really being what’s driving the recurring from 3% down to flattish in the fourth quarter. Again, wouldn’t over-pivot on that as we think about 2024, would really encourage you to think about 2024 recurring and a lot of that non-recurring headwind to abate. Capital markets, slight up - yes, as we said. I think we talked about recurring in the fourth quarter of 7%. If you recall last year, Jason, we had a one-time capital markets license, I think it drove about five percentage points of growth last year, so we’re growing over that. The fourth quarter numbers as well overall are softer, they’re driven by non-recurring items that we wanted to be transparent around, and the recurring continues to be strong and we would expect those headwinds to abate as we move into 2024.

Stephanie Ferris:

Yes, it’s a great question. I think we’ve seen broadly over the last seven quarters, and I would expect to see over the next three or four quarters backlog in the range of $22.5 billion to $23.5 billion, pretty steady as we bring new business on and then we work really hard to increase the level of implementations coming out of that backlog number. It is a wonky accounting number, so I think as we come into investor day, we’d hope to give you a better set of metrics. But I think broadly, we think that number sits in that stable range of $22.5 billion to $23.5 billion - it might go up and down per quarter, and we think we’ve proven pretty successfully at this point that that number will sustain a nice recurring revenue growth number for us. If you remember in the sales transformation, we really are trying to focus on less of those really large whale deals and more of consistent sales of a lot of our platforms that we’ve invested heavily in, and driving the margin over the overall sales number up. While we may not from a dollar standpoint drive it up this year, we would expect it to come up next year as we look to see some of those sales come in. Hopefully that helps.

Operator:

One moment for our next question. Our next question comes from Darrin Peller with Wolfe Research. Your line is open.

Stephanie Ferris:

Yes, thanks Darrin. In terms of demand, I would say broadly--let’s separate the demand environment from what really drives the recurring revenue over time. Demand is high if you think about our capital markets business. I continue to talk about increasing demand from our existing customers, so increasing share of wallet from a lot of the modernized solutions we’ve brought into market. We talked about the clear derivatives platform which is having a lot of success, and not only selling into our existing customers but really opening up the door to sell those types of capabilities now that they’re SaaS-enabled into other capital markets participants, who may not be traditionally there. We see increased wallet share, and then we see the sales of the products on the capital markets side being really high demand from other people who are not traditional in that segment. I think on the banking side, given the focus of banks on deposit generation, there is a high focus and demand for digital solutions. That’s been in market, it’s not necessarily new although it’s definitely heightened, and we’re seeing a lot of demand for that and we called out a couple of those wins this quarter. We feel really good about that. I think that’s from a demand standpoint. I would say the other thing is in terms of thinking about what’s driving the recurring, yes, it continues to be delivering those products and solutions into market, but also remember there is an inherent same store sales growth number that we get the benefit of from a number of transactions that go across the platform, as well as new deposit accounts, and so there is an inherent same store sales growth number that we get benefits from in addition to us being strong on the sales side, so we’re feeling good. That’s not to say that in one quarter, it’s going to flip, but we’re feeling the momentum is there and we’re feeling good about it. I think from a culture standpoint, it’s going really well. I couldn’t be more proud of the team, honestly. The amount of passion and energy that they’ve brought to Future Forward, that they’ve brought to refocusing and repositioning the company and the Worldpay separation. James mentioned that was a lot of work in accounting - it’s just a lot of work, period, to separate two companies and people that have worked together for four years, so I really would say the teams have really rallied around that. It’s not easy, but they are definitely taking up the call to duty there, and between Future Forward and the Worldpay separation, I couldn’t be more proud of what the team has been able to do, so I think the culture is good.

James Kehoe:

Yes, I think the key part is the right-hand side of that chart, which--you know, just to explain the disc-ops, there’s a set of rules around it that are somewhat illogical, because accounting is not always fully logical and you can only allocate to a disc-ops P&L something that’s actually directly related, so you can’t allocate anything--you can’t put it in the interest costs unless the legal entity had interest costs, so that’s why on the right-hand side. What we were thinking of is, you know, we’re going to--we’ve actually filed quarterly income statements for disc-ops and RemainCo to help you rebuild your models, but if you rebuild based on what we gave you, you’d arrive at $3.30 to $3.40 for RemainCo, but it’s wrong. You’ve got $630 million, $650 million of interest expense. Once we pay down the debt, that’s going to go down by half - you know, I’m just giving you rough numbers, and then two is you’re taking the repurchases, and all we did in calculating this capital deployment of 65, we basically say you’re paying down $9 billion of debt and you’re paying it down at the average interest rate, which is quite low - it’s 3.2%. The other part is you’re taking the share repurchase, and this is quite conservative because what we’ve done is we took the $3.5 billion and we assumed that we would have repurchased shares during the course of 2023, but if you flip out--you know--no, 2023. Then if you flip out, because this is trying to represent what the base year would look like if the transaction was done at the beginning of the year, but if you look at some of the opportunities here, first of all, you’re going to grow off the $4.40 to $4.55 base, so you’re going to have a normal year of growth, but also you’re going to get the full year impact of the share repurchase program, right? Once we start doing it, you’re going to get the full year. Now, that will hit more in 2025, and then as I look at this, I see there is incredible opportunity on the NCI line, so this $0.60 to $0.65, I think there’s a lot of opportunity. This is a standalone company, it will be more aggressively managed for cash. I think they’ll pay down debt incredibly quickly, and because they’ve loaded it with so much debt, the actual change in EPS contribution will be probably quite a fast clip. We’re just--we were careful here not to give guidance on the future, but what we’re saying is we’re trying to put a stake in the ground and say the base year is this. It will be kind of strange next year because once we start reporting against continuing operations and we’ve separated the two companies, we will be reporting very high EPS growth rates because we’ll be comparing against the $3.30, $3.40, and you will be implementing a buyback of $3.5 billion and you’ll have a huge savings on interest expense, so the headline EPS growth rates will be extraordinary. But what we’re trying to say is some of that is coming from the fact that you’re recovering from the dilutive transaction. That’s why this chart, we hope it helps every participant to understand the way we’re thinking about this, but $4.40, $4.55 is the floor, and against that floor, we’re going to grow next year.

Stephanie Ferris:

Thank you.

Vasundhara Govil:

Hi, thank you for taking my questions. I guess the first one, Stephanie, on just the macro backdrop and any help you can provide us on sensitivities that we might see in the banking and cap markets segments if the economy were to soften a little bit from here.

Vasundhara Govil:

Thank you, that’s helpful. Just a quick follow-up on the debit routing for card not present - I know you mentioned a few wins with retailers and fintechs, which was nice to see. It’s clearly a share gain opportunity for the NYCE network. Do you think it could be a needle mover for the business in 2024?

Vasundhara Govil:

Thank you very much.

Dan Dolev:

Hey, thanks again. Somehow I didn’t hear you before. Great results, guys. Two questions. One, Stephanie, you talked about the sales force transformation. Can you maybe tell us what makes you feel more confident in the sales force? Thanks.

Dan Dolev:

Okay, great. Since the market opened, I’m going to spare you my second question - I see people want to leave, but thank you.

Operator:

Thank you. That concludes the question and answer session. At this time, I would like to turn the call back to Stephanie Ferris for closing remarks.

Operator:

Thank you for your participation in today’s conference. This does conclude the program. You may now disconnect.

George Mihalos:

Thank you, Sherin. Good morning, everyone. Thank you for joining us today for the FIS second quarter 2023 earnings conference call. This call is being webcasted. Today's news release, corresponding presentation, updated investor facts and webcast are all available on our website at fisglobal.com. With me on the call this morning are Stephanie Ferris, our CEO and President; and Erik Hoag, our CFO. Stephanie will lead the call with a strategic and operational update, followed by Eric reviewing our financial results and providing forward guidance. Turning to slide three, today's remarks 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. Please refer to the Safe Harbor language. Also, throughout this conference call, we will be presenting non-GAAP information, including adjusted EBITDA, adjusted net earnings, adjusted net earnings per share and free cash flow. These are important financial performance measures for the company but are not financial measures as defined by GAAP. Reconciliation of our non-GAAP information to the GAAP financial information is presented in our earnings release. With that I'll turn the call over to Stephanie.

Erik Hoag:

Thanks, Stephanie, and thank you all for joining us this morning. I'll begin on slide 12 with an overview of our second quarter financial results. Overall, we delivered effectively against our commitments, exceeding the high end of our outlook for the quarter. On a consolidated basis, revenue increased 2% organically to $3.7 billion with adjusted EBITDA margin of 41.4%, and adjusted earnings per share of $1.55. Revenue outperformance in the quarter was driven by our Capital Markets segment exceeding the high end of our outlook, with Banking and Merchant both in line with the high end. As we anticipated, each of our three operating segments saw sequential improvement in their adjusted EBITDA margins, with merchant returning to expansion in the quarter. Adjusted EPS exceeded the high end of our outlook by $0.05, driven by outperformance in EBITDA and some below the line favorability in the quarter. Moving to cash flow and our balance sheet, we continued to see improvements across multiple vectors. Our capital expenditures decreased 13% year-over-year to $267 million, or 7% of revenue, reflecting continued benefit from our Future Forward initiatives. We generated free cash flow of $953 million in the second quarter, resulting in a year-to-date free cash flow conversion of 94%, well above our full-year commitment of greater than 80% conversion. Lastly, we reduced our total debt by approximately $500 million to $19.5 billion, yielding a leverage ratio of 3.2 times at a weighted average interest rate of 3.4% and we returned over $300 million to shareholders through dividends. The team continues to focus on both our operational strengths, cash flow fundamentals as long-term drivers to sustainable shareholder value creation. Turning to our Banking and Capital Markets results on slide 13. On a combined basis, the segments delivered organic revenue growth of 3% in the quarter, driven by 4% recurring revenue growth. Our large and stable backlog held steady in line with our expectations, exiting the quarter at $23 billion, reflecting flat year-over-year growth and sequential growth of 1% as we recognize revenue while replenishing with new sales. This backlog metric includes contracted yet unrecognized sales with varying contract durations and times to implementation, making it one of many inputs to our underlying growth. Looking back, outsized backlog growth over the past few years was largely driven by a handful of large and unique transactions. Excluding these outsized transactions, backlog growth has been stable. While recurring revenue, excluding these transactions, posted growth within our cycle guidance. And more recently, while our year-over-year backlog growth has ranged between flat to 2%, we've seen healthy recurring revenue growth in the first half of 2023 for Banking and Capital Markets. As we noted previously, our sales teams continue to transition to higher-quality new sales, which will drive sustainable high-margin long-term growth. This change in sales initiatives is incorporated into our outlook for the year and while still early in the transition, we're seeing some early indications of success with improvement in the contribution margin on new sales. At the segment level, Banking increased 2% organically in the quarter, with recurring revenue growth of 3%. Adjusted EBITDA margin contracted 200 basis points to 42.5%, an improvement from the down 250 basis points we saw in the first quarter. Margin contraction was primarily driven by revenue mix, as we saw a 10% reduction in high-margin one-time revenue. We continue to anticipate margin expansion in the back half of the year for the Banking segment as Future Forward continues to ramp. Shifting to the Capital Markets segment, which continues to perform exceptionally well. Capital Markets increased 7% organically in the quarter, with recurring revenue growth of 10%. Revenue growth was driven by the strength of our modernized solution suite, strong sales execution and the multi-year shift from a license to SaaS-based go-to-market strategy. Adjusted EBITDA margins expanded 100 basis points to 50.2%. Margin expansion in the quarter was driven by high contributions on recurring revenue, growth in high-margin license revenue and a reduction in low-margin professional services. Overall, we're pleased with the progress in the first half of the year as we continue to position FIS for sustainable growth in revenue, profit and earnings for years to come. Turning to slide 14. Worldpay revenue increased 1% organically, with similar sub-segment trends as seen in the first quarter. Adjusted EBITDA margins expanded 120 basis points year-over-year or 480 basis points sequentially, as we grew our high-margin revenue streams across the operating segment and delivered on cost management. Global volumes grew 6% in the quarter, driven by both consumer spending and strong execution, while our revenue yield improved by two points compared to our first quarter results. Turning to slide 15 for a financial update on Future Forward. As previously messaged, we remain committed to rightsizing our expense base, while ensuring an appropriate level of investment in the initiatives outlined in Stephanie's comments. Our Future Forward program centers around this goal, with a focus on improving the ways we work and go-to market as a company. On a Holdco basis, we continue to make significant progress in our cash savings achievement. Exiting the quarter, we achieved over $175 million in annual run-rate operational expense reduction, resulting in over a $35 million benefit to the quarter. We also increased our capital expenditure achievement to over $140 million as we continue to trend to our $200 million commitment in 2023. In summary, the Future Forward program continues to provide a tangible benefit to our financial P&L and operational health, while enhancing the ways we work. In a moment, I'll provide some estimates on the operational expense targeted to FIS moving forward. Turning to slide 16 for a recap of our capital allocation priorities for FIS. Throughout 2023 and following the transaction close, FIS will remain focused on reducing debt, paying an appropriate dividend and using excess capital for share repurchase or tuck-in M&A. Our first priority remains a strong balance sheet and investment-grade ratings. Given our free cash flow generation and highly recurring revenue streams, we're comfortable with a long-term gross leverage range of 2.5 times to 3 times adjusted EBITDA. Next, we remain committed to paying our dividend, and we are reiterating a 35% payout ratio based off FIS' adjusted net earnings. We intend to grow this dividend in line with adjusted net earnings going forward consistent with our historical practice. Lastly, our default use of excess capital will be share repurchases, inclusive of at least $2.5 billion tied to transaction proceeds, with potential upside to this number, given the attractive valuation of our stock. Longer term, we intend to consistently return excess capital to our shareholders through share repurchases, while leveraging our advantages of scale and distribution to supplement growth in strategic verticals with complementary tuck-in M&A. This capital allocation strategy provides a robust value proposition for long-term shareholder value creation over a multiyear period. Turning to slide 17 for an overview of our revised outlook. On a Holdco basis, our second quarter results lead us to confidently increase our guidance to $14.5 billion to $14.63 billion in revenue and $6.03 billion to $6.15 billion in adjusted EBITDA. Consistent with our first quarter revision, this increase aligns with the high end of our guidance to our second quarter beat, in addition to a change in FX assumptions while significantly increasing the low end of our ranges. Beginning in the third quarter, the Worldpay business will be transitioned to discontinued operations and we will be restating our first half 2023 financials to reflect this. At that time, we will look to provide an updated outlook for FIS' continuing operations. Our adjusted EPS metric will now be less meaningful given the impending transition of the Worldpay business into discontinued operations. And because of this, we're focusing investors on revenue and adjusted EBITDA until we provide an updated outlook for FIS' continuing operations. On a consolidated basis, we now anticipate organic revenue growth of approximately 1%. This reflects an increase to the low end of both Banking and Capital Markets organic growth outlook to 1% to 2% and 5% to 6%, respectively. Given the impending transition to discontinued operations, we are not updating our Merchant segment outlook from our previously issued full year guidance at this time. That said, we're pleased with the segment's performance over the first half of 2023 and we remain confident in the underlying strength of the Worldpay business. We continue to anticipate margin improvement in Banking and Capital Markets as we ramp the benefits associated with Future Forward. And we are reiterating our outlook for free cash flow conversion of over 80%. As seen in our year-to-date results, we remain confident in delivering on our commitments. I'll conclude on slide number 18 with some considerations for FIS in 2024. Following the close of the transaction, FIS will retain a 45% equity stake in the Worldpay business in partnership with GTCR. This equity stake was valued at over $4 billion, accounting for approximately $7 per share at our current share count. We anticipate an effective tax rate for FIS of approximately 19% to 21%. This increase from our current effective tax rate is primarily due to the reduction of the TRA benefit and accounts for increases in the corporate tax rate in certain regions. As previously stated, we would anticipate $10 billion of total gross debt after the transaction closed. We expect this debt will carry a weighted average interest rate of approximately 3.25% to 3.75%. As noted in the announcement of the transaction, we would anticipate deleveraging to approximately 2.5 times, translating to an adjusted EBITDA of approximately $3.9 billion to $4 billion, inclusive of our estimated RemainCo corporate expense. With regards to our Future Forward program, we expect substantial cost savings of approximately $1 billion for FIS post the Worldpay separation, retaining 80% of the original program. We previously anticipated a year-over-year benefit of approximately $300 million to adjusted EBITDA in 2024. Following the close of the transaction, this $300 million will become approximately $215 million, with an annual run rate of approximately $425 million exiting 2024. We also anticipate adjusted EBITDA dis-synergies for FIS of approximately $200 million, including $100 million of revenue dis-synergies and $100 million of incremental operational expense dis-synergies. We will look to minimize these dis-synergies with our Future Forward program. While we've made significant progress, we're still working diligently to disentangle both allocated infrastructure expense and depreciation and amortization expense between the two entities. When appropriate, we'll provide further commentary on both of these items. I'll conclude by saying that the team and I are excited about the progress that we've made to continue to move FIS forward and the underlying fundamentals of the business for years to come. I'd like to thank everyone for their time this morning. Operator, will you please open the line for questions?

Rayna Kumar:

Good morning, Stephanie and Erik. You both gave some helpful detail on changes you're making to your Banking salesforce. Can you talk a little bit about how some of your recent conversations have been with banking clients as they navigate the uncertain macroenvironment and are you starting to see any improvement in the sales cycle?

Rayna Kumar:

That's very helpful. And then I just wanted to touch on the transaction. What feedback have you received from Worldpay clients since the GTCR announcement? Are you hearing of any concerns regarding the impact on the existing commercial relationships or the sale of the business to private equity?

Operator:

Thank you. One moment for our next question. And that will come from the line of David Togut with Evercore ISI. Your line is open.

Stephanie Ferris:

Yeah, thanks for the question, David. So MBP, as you know, is a best-in-class next-gen componentized architecture for core. I think we were first to market, and it did most recently win a couple of pretty unique awards. So we are up and live with consumer deposits. We have quite a few of our banks have fully rolled out consumer deposits. We went live in second quarter with consumer lending, so that product is up and running. And then I would say as we look at the roadmap over 2024, we obviously -- next step would be commercial deposits. So we're feeling really good about where we are with MBP. We have, as you know, signed over the last 24 months a significant amount of our large financial institutions, they are in the conversion timeline here. We would expect to see several of them become live in the first quarter or second quarter of next year with some of these big key products and are really excited about it, feel good about launching those guys, and then getting the rest of the pipeline live as we move throughout 2024.

Stephanie Ferris:

Yeah, no, so as you know, NYCE is a great asset for FIS. It's one of -- there's only so many networks out there. We continue to see -- Reg II is obviously an opportunity for all of us in the network space and we have a very significant pipeline there. There's a lot of interest as Reg II comes online. It's obviously very competitive, but we're feeling really good about it.

Jason Kupferberg:

Good morning, guys. Just wanted to start on the backlog. When do you think we get back to positive year-over-year backlog growth? It sounds like maybe you're still thinking flattish for Q3, specifically. And then will we get a medium-term organic revenue growth target, specifically for the Banking segment, next quarter when Merchant moves into discontinued Ops?

Jason Kupferberg:

Understood. And just as a follow-up. So the $4 billion of pro-forma adjusted EBITDA for RemainCo next year, is that inclusive of the $200 million of dis-synergies that you mentioned?

Stephanie Ferris:

One bit of clarification there. The reduction of the Future Forward is just aligning how much is related to Worldpay with respect to the Future Forward versus RemainCo FIS. We thought that was an important clarification.

Tien-Tsin Huang:

Hey, thanks. Some encouraging results, especially in Capital Markets. I was just curious, this double-digit recurring growth in Capital Markets that we've seen in the first half, any call-outs for the second half? Just curious here on sustainability. And maybe if it's possible, can you just review the outlook for recurring versus non-recurring for both the Banking and Capital Markets segments? Thanks.

Stephanie Ferris:

Tien-Tsin, the other thing I would add and thank you for pointing it out is how strong the product set there is in the Capital Markets business and the demand being really high and we continue to be really excited about it. As we think about FIS moving into post the Worldpay transaction, you would look to see us expect to continue to grow this business very significantly. The demand is very high, the products are resonating really well, the transition from non-recurring to recurring is going extremely well, margins look good. So you can expect as we look at capital broadly across the board and investments, we'll continue to make significant investments in this space, given the strength of the product set and how well it resonates with clients.

Stephanie Ferris:

Yeah, I saw that too. Interesting. So we have -- it's a robust backlog. So what we hear from our clients is, can you get us live faster? We're actually not hearing anything about slowing what we have in the backlog. In fact, part of the reason we're really focused on Future Forward, one of the big component pieces of it is, how do we drive implementations faster? It's one of the things that I've asked the team to look at AI. Can we use AI? Can we get our product in development machine there along with our implementations team to move faster? And it's one of the upsides, I think, we can have as Kelly Beatty, who drives our Future Forward program, really pushes that flywheel faster. So I'm not hearing anything from clients in terms of wanting to slow. Actually, what they want to do is get their products out faster for them because they have either savings or growth banked on the back of that.

Dave Koning:

Yeah, hey, thanks so much. Great job.

Erik Hoag:

Thank you.

Erik Hoag:

Hey, David, good to hear from you. Cash flow conversion was strong. So first quarter conversion was 84%, second quarter conversion is 104%. Year-to-date 94%, we've guided to 80%. We feel good about the rest of year forecast in free cash flow conversion, number one. And then question number two, yes, we would expect it to further improve post separation. In regarding free cash flow conversion, we've had a couple of notable drivers here and they generally align with some of the success that we've had with Future Forward. We are collecting faster, we're spending slower. We've introduced some spend governor processes. As I mentioned in my prepared remarks, CapEx is down materially year-over-year. Our deferred contract costs are down materially year-over-year. We're sitting in a very nice spot with free cash flow conversion through six months of the year.

Stephanie Ferris:

Hey, Dave, it's Stephanie. So, yeah, I would think so, yes. Our minority interest stake, we would probably expect to non-GAAP that. But we're working through that, obviously, with our Chief Accounting Officer because that one would be a tough one to actually predict, given that it becomes a part of the company. And then with respect to the revenue dis-synergies, the way we thought about that is broadly across the board, as we think about ecosystem agreements in terms of untangling those, as well as we think about potential, we feel good about keeping the majority of them. And we have the commercial partnerships set up to do that. But we do anticipate some of those partnerships having to be renegotiated across the board and anticipate some of that to get -- to come away from what we had booked originally.

Darrin Peller:

Hey, thanks, guys. If we look at the Banking segment recurring revenue growth rate, I think, as I recall, there were other, let's call them one-time or just tough comps. So above and beyond just the non-recurring items you called out here, like license fees, term fees, can you just remind us of maybe when you start to see the anniversary of, for example, T. Rowe, grow-over or other factors? And then more importantly, Stephanie, this is more of a cultural question, just the company was very focused on the larger banks for some time. And so the transition back to the mid-size, can you just talk about how that transition is going, especially culturally, and do you have the right people for that, have you lost or gained anyone that you need in the transition on the Banking segment? Thanks.

Erik Hoag:

Yeah. And also, Darrin, Banking from a recurring revenue perspective, I would think about the back half as steady. Recurring revenue in the first was 4%, second quarter, 3%. I would think about the back half as steady. We've got T. Rowe Price's implementation behind us, so we don't have any customer-specific volatility that we'd expect in the back half.

Stephanie Ferris:

I think that's fair. I think it's steady for recurring. I think the grow-overs were largely through those big transactions. The grow-overs now sit in non-recurring for us in the back half of this year, which is what's keeping the overall revenue growth guide down. We still have some lumpiness to go, but it's not in recurring.

Ashwin Shirvaikar:

Hi, thanks. I just wanted to go back to sort of the improvement in sequential growth in EBITDA margins that you mentioned in your early scripted remarks. Could you maybe break down what goes into that in terms of Future Forward benefit versus is the improved mix already flowing through? If you could just break down what goes into that.

Ashwin Shirvaikar:

Understood. And then just wanted to go back one more time, if I can, to sort of the backlog being flat to down. And I get it, you've been remixing for better future profitability. But does the same principle apply to existing revenue that you're taking a look at contracts that exist and trying to figure out how to remix that, and what's the process for that if that's a consideration? How should we think about future modeling perspective about the impact of that?

Operator:

One moment for our next question. And that will come from the line of James Faucette with Morgan Stanley. Your line is open.

Stephanie Ferris:

Great question. I think, not really, because what you're seeing in backlog -- the challenge with the mix was really around the large strategic transformative deals that we signed. And by the way, it's not that we wouldn't be interested in those deals. We're just not relying on them in terms of how to drive kind of core organic recurring revenue growth. So if and when we have those, we'll let you know. I wouldn't necessarily think that there'd be a material impact to the change in the backlog through the modeling. I just think it will take too long given the tenure of the contracts.

Erik Hoag:

So good to hear from you, James. So taking a step further back. We feel good about the consolidated guide that's gone up broadly. With the results that we have had year-to-date in both Banking and Capital Markets, we feel confident in pulling up the low end of the guide and taking into consideration that we feel the macro is steady.

Lisa Ellis:

Hey, good morning. Thanks for taking my question. I was hoping to dig in and understand a little bit better the ongoing commercial arrangements between RemainCo, FIS and Worldpay after the partial sale to GTCR. You commented on this a couple of times, Stephanie. Can you just maybe walk through in a little bit more detail what -- how we should think about what commercial arrangements are either already negotiated? In the process of being negotiated? Like what will that arrangement look like on an ongoing basis between the two entities?

Lisa Ellis:

Got it. Okay. And then just maybe as a follow-up related to FedNow. So FIS has been really active in account-to-account networks broadly, globally as well as here in the US. Can you just talk a little bit about what you're seeing in terms of opportunities for FIS, either from FedNow or just more broadly across the account-to-account landscape? Thank you.

Operator:

One moment for our next question. And that will come from the line of John Davis with Raymond James. Your line is open.

Erik Hoag:

It does not. So let me just walk it again, John. Thank you for the clarifying question. I referenced $3.9 billion to $4 billion for FIS post transaction, and that is inclusive of the corporate expense estimate for FIS moving forward. From there, we disclosed $200 million of total adjusted EBITDA dis-synergies, split $100 million in revenue, $100 million in incremental operating expense. And then we've also got Future Forward benefit, which is down from $300 million to $215 million as we break Future Forward between FIS and Worldpay.

Erik Hoag:

Well, the sequencing through the year for Banking margins would continue to improve. I think we get to flat full year Banking margins under the current forecast based on some of the mix shift that we've seen of high-margin onetime revenues coming down.

Vasundhara Govil:

Hi. Thank you for taking my question. First one for you, Stephanie, on the Banking side. Understanding that you're not relying on for the larger end of the market anymore to sort of get back to your normalized 3% to 5% revenue growth. But what do you think needs to happen to get that going again? Is it mostly a macro issue at this point? Or is there something else that can be done to get signing those deals again?

Vasundhara Govil:

No, that's absolutely clear. I guess I was just wondering like what do you think it takes for you to start winning some of those deals again? Because we just haven't -- because I think end of last year, you started to allow an elongation in sales cycle for those large types of deals. And I was just wondering if that's more of a macro issue at that point? That you aren't just making those decisions or there's something that could be done to drive that, I guess.

Vasundhara Govil:

That's super helpful. Thank you. And a quick -- if I may ask a quick follow-up to Erik. You've laid out the $200 million of dis-synergies on the FIS side. I just wanted to make sure that we were backing into the right number on the Worldpay side as well as we sort of think about the minority interest that will flow back to Worldpay. And we were backing into something like $250 million on the Worldpay side. Is that sort of in the ballpark? And how would you split that between revenues and costs?

Operator:

Thank you all for participating in today's question-and-answer session. I would now like to turn the call back over to Mr. George Mihalos for any closing remarks.

Operator:

Thank you all for participating. This concludes today's program. You may now disconnect.

George Mihalos:

Good morning, everyone, and thank you for joining us today for the FIS first quarter 2023 earnings conference call. This call is being webcasted. Today's news release, corresponding presentation and webcast are all available on our website at fisglobal.com. With me on the call this morning are Stephanie Ferris, our CEO and President; and our CFO, Erik Hoag. Stephanie will lead the call with a strategic and operational update, followed by Eric reviewing our financial results and provide forward guidance. Turning to Slide 3. Today's remarks will contain forward-looking statements. These statements are subject to risks and uncertainties and 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. Please refer to the safe harbor language. Also, throughout this conference call, we will be presenting non-GAAP information, including adjusted EBITDA, adjusted net earnings, adjusted net earnings per share and adjusted free cash flow. These are important financial performance measures for the company but are not financial measures as defined by GAAP. Reconciliation of our non-GAAP information to the GAAP financial information is presented in our earnings release. With that, I'll turn the call over to Stephanie.

Erik Hoag:

Thanks, Stephanie, and thank you all for joining us this morning. I'll begin on Slide 14 with some additional detail on our financial results before moving into our increased guidance, future forward achievement and capital allocation priorities for Heritage FIS. Our first quarter results exceeded our expectations across all financial metrics. Revenue increased 3% organically to $3.5 billion, with an adjusted EBITDA margin of 38.7% and adjusted EPS of $1.29. Revenue growth came in 2 points above the high end of our outlook. As Stephanie mentioned, this outperformance was driven by a combination of both stronger operating performance, as well as better-than-anticipated macroeconomic impacts, including consumer spending and higher levels of deposit account and transaction growth across the financial services sector. Adjusted EBITDA and adjusted EPS exceeded expectations through both operational strength and the benefit in net interest expense. Moving to cash flow on our balance sheet. Capital expenditures decreased 32% year-over-year to $279 million or 8% of revenue, reflecting the benefits of our Future Forward initiatives. We generated free cash flow of $641 million or 84% conversion, and returned over $300 million to our shareholders through dividends. Lastly, we exited the quarter with $20 billion in total debt, yielding a leverage ratio of 3.2 times at a weighted average interest rate of 3%. Turning to our Heritage FIS results on Slide 15. We're pleased to report organic revenue growth of 4%, driven by 6% recurring revenue growth. Our backlog continues to be strong and durable, exiting the quarter at $22.5 billion. As previously mentioned, our sales teams are transitioning to target higher quality, more profitable new sales which will drive sustainable high-margin growth. Because of this, we would anticipate some softness in backlog over the short term as the team aligns to these initiatives. This change in sales initiatives is fully incorporated into the increased outlook for the year. Ultimately, the result of this will be higher quality new sales, laying the foundation for sustainable growth in revenue, EBITDA and cash flow, while providing best-in-class capabilities for our clients, as well as emphasizing our high-margin, sticky recurring revenue offerings. Overall, this is a very strong start to the year for Heritage FIS segments as we saw stronger-than-anticipated operating performance, driving results above our expectations. At the segment level, Banking increased 2% organically in the quarter, which was 2 points above the high end of our outlook. This outlook was underpinned by recurring revenue growth of 4%, which exceeded our expectations. Strength in recurring revenue was driven by strong execution from our business in conjunction with elevated account and transaction growth during the quarter. As expected, adjusted EBITDA margins contracted 250 basis points to 40.1%, primarily driven by a 23% reduction in termination fees and onetime license revenue. This performance in margin improved compared to our fourth quarter results, and we continue to anticipate sequential margin improvement through 2023, leading to expansion in the back half of the year. For the second quarter, we are anticipating banking organic revenue growth of 0% to 2%, which incorporates a continued reduction in nonrecurring revenue, and we remain confident in meeting or exceeding our organic growth outlook for the year. Turning to our capital markets results and outlook on Slide 17. Capital markets increased 7% organically in the quarter, exceeding the high end of our outlook by 2 points. The overperformance in the quarter was underpinned by 11% recurring revenue growth, with a 4-point tailwind associated with elevated activity in the financial services industry. Adjusted EBITDA margin expanded 30 basis points to 48.2%. Margin expansion in the quarter was driven by high contribution margins on our revenue growth as well as the underlying strength of the one-to-many operating model. We continue to see resilient strength in the operating performance of Capital Markets, and believe our multiyear transition to SaaS-based engagements has laid the foundation for resilient growth. For the second quarter, we anticipate organic revenue growth of 4% to 6%, primarily associated with an assumption of recurring revenue normalizing off the elevated growth seen in the first quarter. For the year, we're reiterating our outlook of 4% to 6%, inclusive of a tough license compare in the fourth quarter. Turning to Slide 18. Our Merchant segment increased 2% organically, exceeding the high end of our outlook by 2 points as we saw better-than-expected consumer spending and accelerated growth in e-commerce. Broadly speaking, we're seeing continued strength in our e-commerce subsegment, accelerating to 15% in the quarter with strong sales and exceptional growth in our Worldplay for Platforms offering. Worldplay for Platforms continues to benefit from our ongoing investments and renewed leadership structure, and we continue to see a significant opportunity in this attractive vertical. Our SMB and enterprise subsegments saw trends similar to our fourth quarter 2022 results. Consistent with our guide, margins contracted 350 basis points to 43.5%, primarily due to unfavorable revenue mix. Global volume increased 9% on a constant currency basis to $551 billion. This acceleration was a result of stronger consumer spend across our enterprise and e-commerce subsegments. In the quarter, volume growth outpaced revenue growth as a result of higher spend in nondiscretionary verticals, for example, grocery and drug store, market share gains within the PayFac vertical. Turning to Slide 19 for a further review of Heritage Worldpay's outlook for the year. As we entered the year, we had anticipated organic revenue decline of 2% to 4%. The guide reflected a 300-basis point headwind associated with attrition in the SMB subsegment, and further macro deterioration impacting growth by an additional 500 basis points. Our first quarter results outperformed our expectations by 2 points compared to the high end of our outlook. While the business continues to be impacted by the headwinds in the SMB subsegment, consumer spending performed better than expected in the U.S. and the U.K. As a result, we're updating our second quarter and full year guidance to reflect relatively consistent trends from the first quarter to the second quarter, and improved consumer spend in the back half of the year. Because of this, we now anticipate second quarter organic revenue growth of negative 1% to plus 1%, and full year organic revenue growth of down 2% to 1%, a material improvement compared to initial expectations. This outlook for the second quarter assumes relatively similar trends across our subsegments compared to the first quarter. On the margin front, we will continue to see improvements through the year consistent with normal seasonality and further aided by our Future Forward initiatives. Turning to Slide 20 for a review of our increased 2023 guidance. Given our strong start to the year, we're confidently increasing our full year 2023 outlook to incorporate the overperformance seen in the first quarter. Specifically, we're increasing our revenue and EBITDA ranges by $85 million and $35 million, respectively, accounting for a $0.06 increase in our adjusted earnings per share outlook for the year. This increase is aligned directly to our first quarter results compared to the high end of our prior guide. Our increased outlook over the remainder of the year has strengthened relative to the outlook we provided in February, based on the current trends in our businesses. With that in mind, for the year, we now anticipate consolidated organic revenue growth of 0% to 1%, adjusted EBITDA margins of 41.5% to 42.2% and adjusted earnings per share of $5.76 to $6.06. As I stated in our last earnings call, our philosophy continues to remain conservative in our forward projections as we continue to build credibility and deliver on our commitments. This increased outlook continues to account for risk associated with macroeconomic impact in our Merchant segment, and we would anticipate further upside if macro trends remain stable. As previously mentioned, we continue to anticipate margin improvement over the course of 2023 as we ramp the benefits associated with Future Forward, and we're reiterating our outlook for free cash flow conversion of over 80%. Lastly, we provided additional assumptions on our forward guidance in the appendix, as well as a revised 2022 organic base to account for some small shifts in our operating segment rollouts. Turning to Slide 21 for a financial update on Future Forward. We remain committed to rightsizing our expense base while ensuring minimal impact to our clients or colleagues. Aligned to this commitment, Future Forward centers around investing in sales and support, automating and improving processes and improving the ways we work. As Stephanie mentioned, we're reiterating our targets for operational expense savings of $300 million exiting 2023 and $600 million exiting 2024. We had a strong start to the year with annual run rate savings of over $100 million exiting the quarter, with an in-quarter benefit of over $15 million. We continue to target a $200 million reduction in capital expenditures during 2023, with an incremental $100 million reduction in 2024. In the quarter, we achieved annualized CapEx savings of over $110 million as we executed rapidly on the Future Forward initiative. We're extremely pleased with our early progress, and we'll continue to provide quarterly updates on achievement throughout the program. I'll conclude with a recap of our capital allocation priorities for Heritage FIS on Slide 22. Following the successful execution of the spin, Heritage FIS will remain focused on reducing debt, increasing our dividend and utilizing excess capital for share repurchase or tuck-in M&A. First, we continue to target a long-term leverage ratio of approximately 2.8 times. To achieve this, we would anticipate reducing total debt, while also benefiting from adjusted EBITDA growth over a multiyear period. Next, we remain committed to a 35% dividend payout ratio for Heritage FIS. Following these two pillars, we will utilize excess cash or debt capacity for share repurchase or optionality around tuck-in M&A opportunities. Our default use of excess capital will prioritize share repurchase at current valuations while we assess M&A opportunities in their risk-adjusted returns. This capital allocation strategy is conservative in nature, while providing a robust value proposition for long-term shareholder value over a multiyear period. I'd like to thank everyone for their time this morning. Operator, would you please open the line for questions?

Tien-Tsin Huang:

Great. Thank you, so much. I appreciate all the disclosure and the good results. I wanted to dive in on the banking side, which is really good to see. And just maybe Stephanie and Eric, just check your confidence in maintaining the 0% to 2% outlook here on banking. Because when I think about the inputs, I think about backlog conversion, attrition, pricing. I mean you commented on the underlying recurring revenue growth through deposits. So, is the formula different now than maybe what we saw with the banking turmoil and SVB, et cetera? Any thoughts there?

Tien-Tsin Huang:

Great. I appreciate all that. Slide 11 is really useful. But just on the Merchant front, with -- Eric, I think you talked about the spread there. Can you just maybe give a little bit more on what's driving that mix versus pricing? I know you mentioned the PayFac piece, but a little bit more would be great. Thank you.

Operator:

One moment for our next questions. And that will come from the line of James Faucette with Morgan Stanley. Your line is open.

Erik Hoag:

Sure. Maybe I'll start with -- so when we provided guidance a quarter ago, we provided 500 basis points of presumed headwind in the guide associated with Merchant macro. The full year guide at the time was minus 2% to minus 4%, we have increased the Merchant guide from -- to minus 1%, minus 2%. The midpoint of the guide has improved by 150 basis points. I would think about the remaining residual Merchant macro headwind and at roughly 350 basis points.

Stephanie Ferris:

Yes. So, James, we are diligently working. Hopefully, everyone can see we're working at pace to try and get all of that down. Don't have a good update for you right now, as you might expect, as we work through it. And Charles is in here working with us very tightly in terms of thinking through all those pieces. I think as we get closer to the spin, we'll have a view of that. I can't really make a commitment in terms of next quarter, but you should know that we're working really tightly towards it. But until we have a really -- a much stronger view, can't really give you much of a guide there yet.

Dave Koning:

Hi, guys, and Great job.

Dave Koning:

Yes. I guess my first question, capital markets, you mentioned something about some elevated -- or elevated activity creating kind of a 4% tailwind in the quarter. What was that? And is that some -- is that somewhat of a less recurring part that falls off a little in Q2?

Dave Koning:

Got you. And maybe just a follow-up question. In Merchant, I think the first half, the way you're guiding is a little better than the back half. But I think to Tien-Tsin's question, you said the yield impact gets a little better through the course of the year. So, does that mean volume decelerates a little bit through the year?

Operator:

One moment for our next question. And that will come from the line of Rayna Kumar with UBS.

Stephanie Ferris:

Yes. Thanks for the question. We're in a very tight partnership with the Fed. We're in the process of enabling our financial institutions to roll out FedNow across our entire client base. So, we'll continue to play a major role in the adoption of the FedNow rails. For us, it's another payment medium coming to the market, which is what we specialize in, in terms of thinking about all the payment methods we enable globally across our distribution channels. We're pretty excited about the enablement of that on behalf of our financial institutions. It's definitely an opportunity for FIS, but it's a little bit too early for us to see the size of the opportunity. But we were enabled and ready. And as financial institutions adopt it, we're ready to help them put it -- make it become live.

Stephanie Ferris:

Yes. So, our Payrix acquisition is hitting on all cylinders. You can see it's a big part of the e-commerce growth story that we're seeing. As, that to we brought that capability in-house, which really helped solidify our Worldpay per platforms offering out to those software platforms that want to either integrate payments, embed payments or become a PayFac. So, we have a full suite of offering now offered out the Worldplay for Platforms offering. It is growing significantly. The volume is growing significantly. We couldn't be more pleased with the success of it.

Lisa Ellis:

Thanks, for taking my question. Terrific. Stephanie, I was hoping maybe you could comment a little bit on initiatives you have underway on the talent side as you're going through the transformation at FIS. Just thinking about things like are you bringing in some external talent, what are you doing around sort of retaining and making sure morale is improved or maintained throughout this period. Thank you.

Lisa Ellis:

Great. Thank you. And then this one maybe it could be free to view I guess. But just a follow-up on Banking Solutions, can you just remind us the mix within Banking Solutions of recurring versus nonrecurring professional services, sort of how you think about that segmentation, and then maybe elaborate a little bit on the comments around pivoting the sales team to focusing on more kind of higher quality recurring revenues, kind of what's that change? Thank you.

Stephanie Ferris:

Yes. So, as I started -- as I mentioned in the fourth quarter, we hired a chief -- new Chief Revenue Officer and we started pivoting the sales team to focus on higher margin, higher profitability products. We have an amazing set of products at FIS, really spans the gamut in terms of everything that a financial services company would need, a payments company would need. And we've done a great job on sales. You can see that from our backlog. But as we come into 2023 and beyond, and we really focused on delivering below the line margin expansion, et cetera, we've repivoted them back to driving sales into the higher-margin products, trying to get our margins back in line with expectations. And so, as we did that, you're going to see our backlog start to flatten. That was our expectation. We would expect to see that happen in the short term here. That was all baked into our original outlook, it's baked into our current outlook and the transition is going well.

Jason Kupferberg:

Good morning, guys. I wanted to actually maybe pick up right there where you left off, Stephanie, just on banking and the backlog. Understanding it will take some time to fully implement this updated go-to-market strategy, what do you think backlog growth starts to resume? And then what are the implications of the newer go-to-market strategy for your medium-term outlook on banking?

Erik Hoag:

Yes. And Jason, maybe just to add on to that for a moment. If you look at our first quarter results for recurring revenue in Banking Solutions, we did have 2% organic, but we did have 4% recurring revenue growth in the quarter. A little bit of a proof point in the -- through the lens of the normalized 3% to 5% growth range that we talked about a quarter ago.

Stephanie Ferris:

Yes. I think generally, consumer spend across all of our segments and then better operating performance. It's really across all three. But we're very, very bullish on our e-commerce business. We continue to drive all of our investments in there. Payrix is in there. It's going very well. But I would say it's really across the board. We did see some moderation in recession in U.K. But I'd say it's generally across the board.

Darrin Peller:

Thanks, guys. When we look at the banking and cap markets, effectively, the remainco post spin, just remind us, if you don't mind the algorithm on that business you'd expect. I know obviously investment grade, looking at the long-term targets, it would seem to be somewhere in the, call it, 3% to 6% if you look across banking and cap markets. Are you -- strategically speaking, in terms of banking first, are you still thinking about more of the singles and doubles? And are you incorporating a large bank in that -- or a large win into that guide yet? But more importantly, long term, can you just remind us on the bridge from where we're growing now to get back to that level?

Darrin Peller:

Okay. And just as a quick follow-up on the potential for the dis-synergies. I think you had mentioned or you alluded to on the prepared comments that you're doing everything you can to minimize that to almost nothing or no dis-synergies. Obviously, I know that's probably not going to be zero, but it does sound like you're building confidence that it's not going to be that much or maybe as much as some out there would have been saying. Can you give us a little more follow-up? I know we're not prepared for a full -- for an exact number yet.

Operator:

One moment for our next question. And that will come from the line of Vasu Govil with KBW. Your line is open.

Stephanie Ferris:

Yes. Let me start by saying we are seeing no elongation of the sales cycle. The majority of what's happening in the banking side is specific to certain banks. You can see that we're seeing net new accounts across the portfolio as consumers are spreading out their accounts across banks, which is generally net positive for most of the banks. I would say for us, what's really important and continues to solidify our partnership and our importance in the ecosystem, is as banks go through whatever volatility they're dealing with, we're very important to making sure that all those deposit accounts get opened, all those money market accounts get opened and that we stand, our systems are very stable and up and running. So, we participate hand in glove with our financial institutions no matter what's going on. And I would say through this quarter, I'm just incredibly proud of the team, because I could see again how important we are to the financial system ecosystem. And we had a lot of our clients just thank us profusely in terms of whatever their activity was going, whether they had more accounts, whether some of their accounts -- or they need more reporting and our systems remained up and stable. I couldn't thank my team more. So that was a lot of our activity this quarter. What they're thinking, I think, is really consistent with what they've been thinking, which is how do they continue to digitize and modernize the banking platforms. And it's impossible for these financial institutions not to continue to focus on the technology spend they need because, as you know, their consumers are still not coming back in branch. So, the need to deliver financial services and products to them digitally omnichannel, et cetera. it's not stopping. In fact, it becomes even more important. So, we're not seeing any slowdown in backlog. We're not seeing any slowdown in conversations around needing, needing those products and services that really help them garner more new business. So, I'd say the environment remains positive and stable.

Stephanie Ferris:

Sure. So, April trends are very consistent with March trends. Our first quarter trends were consistent with what everybody else has told you. January and February were elevated as everybody grew over COVID. March moderated slightly, but still very strong. And March and April are pretty consistent. So, feel really good coming into the second quarter. But they do modestly decelerate as you think about January and February. U.S., U.K., U.S. consumer continues to be very strong. And I think everybody saw in the first quarter was stronger than we expected coming out of the fourth quarter. So not seeing any net detail there quite yet. The U.K. is moderating. I would say it's not starting to improve, but it's a decline is slightly moderating. So, it did slightly better than we expected. It's going to have easier grow-overs as we go throughout the year, and we're anticipating that, that environment gets a little bit more positive. But I wouldn't call that yet in terms of improving.

Dan Perlin:

Good morning, everyone. I wanted to ask a question around the Worldpay spin. I mean we've had a lot of detail in the quarter here. But can you just remind us, Stephanie, when you're thinking about the acquisitions that you really need to target within that space -- I would say a couple of things. One is maybe offer up what you're thinking in terms of size of acquisitions that would be required to help, I guess, pick some of the degradation that you see in SMB. And then what do you see in the current environment? Like right now, do you see possible opportunities? Understanding that this is going to take place late in '23, maybe early '24, but I'm just trying to get a sense of your planning when you start to think about allocating to M&A for that?

Stephanie Ferris:

Yes, happy to. So, we absolutely think there'll be more regulation, just like everybody else does. We deal with very complex regulation on the capital market side. We have really, really good products that we use over there for financial institutions that are global in nature that are heavily regulated. Those products are very, very applicable as we think about bringing them into the banking solutions side of the house. My President of Banking and President of Capital Markets and I are already in process of bringing those over, starting to educate our larger financial institutions about that product sets. We're getting a very high interest rate. And those are things that help people manage liquidity, capital requirements, deposit flows, regulatory requirements, Tier 1 capital ratios. So, we have a nice product set that we think we can leverage and bring over, and we think that's pretty differentiated.

David Togut:

Thank you, and good morning. You called out continued market share gains in the e-com portion of Worldpay, could you talk about what's actually driving the share gains in e-com? Is it within specific verticals? Is it more cross border? Any detail would be appreciated.

David Togut:

Understood. And just as a follow-up, in your prepared remarks, you underscored at least $1.25 billion in cash savings by year-end 2024. What's driving the at least? Do you have just increased conviction based on first quarter performance and cost takeout achievement?

Operator:

And our last question for Jay will come from the line of Ashwin Shirvaikar with Citi. Your line is open.

Stephanie Ferris:

Yes. Maybe I'll talk generally about the initiatives and investments, and then Eric can talk about how that comes in over the quarter. I would say initially -- first of all, it's all dropping to the bottom line, so we're not reinvesting any of those initiatives at this point. But in terms of the initiatives that are driving it, you can clearly see we've reduced our TAI spend year-over-year, which is a notion of us winding down a bunch of programs that we didn't think were delivering returns. We reduced our capital expenditure as well year-over-year. Again, going through the portfolio and really rationalizing projects based on returns and prioritizing projects around delivering products and services out to customers, as well as driving automation into a lot of our processes to improve client experience. I would say those are the big things. I think on the operating expense side, we've been very, very focused on making sure that we drive profitable revenue coming into the company, but also maintaining our expense base and trying to drive people into being much more productive. That's been the lion's share of it as we think about the first two quarters. I think as we go out, though into 2023 and 2024, -- we're really focused on moving the flywheel faster around products and getting them out to market faster, getting implementations done faster, automating and, through AI and other types of activities, making our client experience better and more efficient. So, as I've talked about really focus on efficiency and effectiveness with the client at the center and then making sure that we're -- if we are spending the capital and operating expense, are we helping our clients and the company grow. So, at a high level, those are the initiatives in the near term and long term. And I'll let Eric kind of walk through how you think about it over the quarter.

Ashwin Shirvaikar:

Understood. And maybe I can end with a couple of numbers questions. Last time you explicitly indicated the 500-basis point macro impact. What's that now? And then interest expense, $137 million versus, I think, $20 million savings. So, what specifically happened in 1Q for the lower interest expense?

Stephanie Ferris:

Okay. Thank you, everyone, for joining us this morning. 2023 is off to a strong start and the FIS team is making great strides towards moving the company forward. I couldn't be more confident in our future. We look forward to connecting with many of you over the coming weeks and further updating you on our progress. Have a great day.

George Mihalos:

Thank you, operator. Good morning, everyone. Thank you for joining us today for the FIS fourth quarter 2022 earnings conference call. This call is being webcasted. Today’s news release, corresponding presentation and webcast are all available on our website at fisglobal.com. With me on the call this morning are Stephanie Ferris, our CEO and President; and Erik Hoag, our CFO. Stephanie will lead the call with a strategic and operational update, followed by Erik reviewing our financial results and providing forward guidance. Turning to Slide 3, today’s remarks 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. Please refer to the Safe Harbor language. Also, throughout this conference call, we will be presenting non-GAAP information, including adjusted EBITDA, adjusted net earnings, adjusted net earnings per share and free cash flow. These are important financial performance measures for the company, but are not financial measures as defined by GAAP. Reconciliation of our non-GAAP information to the GAAP financial information is presented in our earnings release. With that, I will turn the call over to Stephanie.

Erik Hoag:

Thanks, Stephanie. I’d like to start today by outlining some of our priorities as a new management team before touching on our financial results. As I stated last call, a priority of ours is to be transparent about our future expectations and we delivered results in line with that revised outlook. Today, I’d like to lay out a few more priorities for 2023 and beyond. First, we will manage FIS as a high-quality compounder with predictable and consistent earnings growth. Our operational structure and long-term capital allocation strategy will prioritize delivering double-digit total shareholder return. This is the core tenet of a compounder investment thesis, which FIS is operationally and financially positioned to achieve. Next, as Stephanie mentioned, we are focused on enhancing the cash flow characteristics of FIS. In 2023, despite an anticipated reduction in EBITDA and earnings, we are taking actionable steps to increase our cash flow on a year-over-year basis. This increase in cash will be primarily driven by decreasing our capital expenditures by approximately $200 million. We are also taking conscious actions to reduce one-time spend associated with transformation and integration programs. I am confident we are taking the correct actions to deliver strong shareholder returns over the longer term. With that as the backdrop, let’s quickly touch on our fourth quarter results. On a consolidated basis, revenue increased 4% organically to $3.7 billion, with an adjusted EBITDA margin of 43.2%, yielding an adjusted EPS of $1.71. At the segment level, banking grew 4% organically in the quarter. Banking margins were pressured due to unfavorable revenue mix and inflationary cost pressures. We had an exceptionally strong quarter in capital markets with 10% organic revenue growth and 220 basis points of margin expansion. Fourth quarter revenue growth included a 4 point benefit associated with the timing of license renewals which drove a 22% increase in non-recurring revenue. As I look to proactively message any one-off tailwinds or headwinds, this license benefit in the quarter should be flagged as a potential headwind in the fourth quarter of 2023. Excluding this tailwind, capital markets increased 6% organically, well ahead of historical trends. Additionally, recurring revenue grew 11%, marking the fifth consecutive quarter of recurring revenue growth greater than 8%. Our strategy to transition to durable SaaS deployments continues to resonate in the market. Merchant grew 2% on a constant currency basis in the fourth quarter, including a point of headwind associated with Russia and Ukraine. E-commerce revenue growth remained strong, increasing 16% on a constant currency basis. Our card present channel and SMB experienced softness as lower sales did not outpace attrition and compression trends. These trends in SMB reflect a lack of new product investment, which we believe the spin will best enable us to remedy. And in enterprise, we saw economic weakness in the UK and anticipate further deterioration this year. Touching quickly on cash flow and balance sheet, we generated roughly $3 billion of free cash flow in 2022, which was lower than originally expected, primarily due to negative working capital more specifically the timing of receivables within the Merchant segment. Total debt as of 12/31 was approximately $20 billion with a weighted average interest rate of 2.6% and leverage was approximately 3.2x. Turning to Slide 16 for our 2023 guidance. Our philosophy remains conservative in our forward projections as we look to build credibility and deliver on our commitments. With that in mind, for the year, we anticipate consolidated organic revenue growth of negative 1% to positive 1% or $14.2 billion to $14.45 billion of revenue, adjusted EBITDA of $5.9 billion to $6.1 billion or margins of 41.5% to 42.2% and adjusted earnings per share of $5.70 to $6. This outlook assumes further macro deterioration, including a global recession impacting our Merchant segment. To be clear, our guidance assumes macroeconomic trends continue to deteriorate throughout the year. We expect total company margins to improve over the course of 2023 as we ramp the benefits associated with Future Forward. At the segment level, we expect banking organic revenue growth of 0% to 2%, which includes lapping difficult compares associated with non-recurring revenue cycles, non-recurring revenues as well as the near-term impact of elongated sales cycles. Banking margins will improve throughout the year, with a return to margin expansion in the second half. In Capital Markets, we expect 4% to 6% organic revenue growth coupled with continued margin expansion. This segment continues to benefit over our multi-year shift of sustainable SaaS deployment over license revenue. In merchant, we’re anticipating organic revenue decline of 2% to 4%. This guide reflects a 300 basis point headwind associated with attrition and compression in the SMB sub-segment, and further macro deterioration impacting growth by an additional 500 basis points. We expect Worldpay to reaccelerate post spin as it leverages its scale with both organic and inorganic investments to once again differentiate itself in the market. Lastly, we’re focused on our cash flow fundamentals and anticipate expanding our free cash flow conversion to over 80% in 2023. Turning to Slide 17. As Stephanie mentioned, we have two temporary headwinds impacting these segments this year and empirically believe the underlying growth rate is 3% to 5%. We’re undertaking various strategic priorities for these segments, which we believe will improve our fundamentals moving forward. First, we’ve hired a new Chief Revenue Officer to focus on higher quality and sustainable sales growth. Specifically, while we still pursue large transactions where FIS is clearly differentiated, we want to ensure that our cross-selling to existing clients remains a priority. The breadth of solutions we have between banking and capital markets will continue to take market share as we expand our lasting relationships with our valued clients. We also see the benefits of Future Forward ramping through 2023 and 2024 to support an already expanding margin profile. Lastly, as Stephanie mentioned, we believe the spin of our Merchant segment will help simplify our operating model and focus our investments on the most pressing needs of our clients. With that, I’ll turn to an overview of the merchant growth profile on Slide #18. Accounting for two known headwinds, we believe Merchant normalized growth is 4% to 6%. The first of these headwinds has been a lack of new product investment, driving compression and attrition in our SMB sub-segment, accounting for approximately 3 points of headwind in our merchant guide. We’re confident this is near-term in nature and will be directly addressed with the successful spin of Worldpay as it transitions to a growth-oriented capital structure and investment philosophy. Second is the macroeconomic impact we anticipate this year. Our guidance assumes further macro deterioration in the UK and a recession in the U.S. This recessionary assumption accounts for approximately 5 points of headwind in our merchant guide. Similar to our strategic priorities in banking and capital markets, we’re taking actions to accelerate off this 4% to 6% normalized growth rate. The merchant segment will benefit from new product investments to enhance its competitive profile and growth profile. Additionally, Future Forward will help support increasing profitability later in 2023 and beyond. I’ll finish by noting that as revenue accelerates in the segment, it carries a very high contribution margin, which will drive underlying margin expansion beyond the Future Forward benefit. All in, we view the segment as accelerating off the 4% to 6% normalized revenue growth in 2023 with margin expansion incorporated in the model. Moving to a breakdown of EBITDA expectations on Slide #20. Both our Banking and Capital Markets businesses are expected to increase adjusted EBITDA and expand margins in 2023. In Banking, we would anticipate margin expansion of over 50 basis points and Capital Markets to expand margins by 50 to 100 basis. This significant margin expansion in Banking and Capital Markets reflects both underlying strength in the contribution margins as well as Future Forward. These segments are positioned for durable and profitable growth over the longer term, leveraging a one-to-many operating model with high concentrations of recurring revenue. Conversely, we anticipate a weaker performance in our Merchant segment, coupled with higher corporate costs. In Merchant, we anticipate a reduction in EBITDA associated with lower revenue and increased expense associated with residual payments. In our Corporate segment, we’re seeing the impact from divested businesses in 2022 and a temporary headwind associated with a tough comparable on incentive compensation. Looking beyond 2023, we’re confident that we’re moving the company to the appropriate path of margin expansion. There are two key tenants underpinning this confidence. First, we expect to benefit from our Future Forward initiatives to continue to ramp with incremental benefit in 2024. Second, we will continue to benefit from our newly implemented sales and commission structure, which emphasizes higher margin revenue growth. Both of these initiatives will support consistent and ongoing margin expansion at FIS moving forward. Turning to Slide 21 for an overview of how Future Forward will continue to rightsize our expense base and further support profitability and cash. We expect to generate approximately $150 million of in-year operating expense reduction. These savings will ramp to approximately $600 million on a run rate basis exiting 2024. In addition to these OpEx savings, Future Forward will support our priority to improve our cash flow through a reduction in capital expenditures and one-time program spend. We’re targeting a $200 million reduction in CapEx during 2023, and we intend to reduce CapEx by another $100 million in 2024. We’re also aggressively ramping down spend associated with transformation and integration projects, such as platform consolidation resulting in a benefit to cash. Taking all of this into account, we’re pleased to increase our expected net cash savings associated with future forward to approximately $1.25 billion exiting 2024. We will continue to provide quarterly updates on achievement of those targets throughout the life of the program. These initiatives are the bedrock for improving the operational performance of FIS and aligned directly with our priorities outlined today. I’ll conclude with our current capital allocation priorities on Slide 22. In 2022 – in 2023, we’re focused on paying down debt, increasing our dividend and decreasing CapEx. First, we utilize excess free cash flow to reduce debt in support of our investment-grade credit ratings, which is a key pillar to FIS’ long-term capital and operating strategy. Next, we recently announced an increase to our core quarterly dividend of more than 10%, and we anticipate to exit the year approximating our 35% target payout ratio. Moving forward, we intend to continue increasing our dividend roughly in line with earnings growth. As mentioned throughout my prepared remarks, Stephanie and I are also prioritizing a reduction in capital expenditures this year. We’re putting a heightened focus on ROIC to ensure an appropriate return on investment and are making targeted investments aligned to client needs. Finally, in conjunction with the spin, we will conduct a comprehensive review of our capital structure to reduce future volatility in our net interest expense. We’re moving with a high sense of urgency to drive these outcomes. While we face challenges, we remain confident that this is the right path forward to improve the company’s performance, free cash flow and earnings. I’d like to thank everyone for their time this morning. Please note additional guidance, assumptions and next steps on the spin in our appendix. Operator, would you please open the line for questions.

Tien-Tsin Huang:

Hi, thanks so much. Stephanie, a lot of thought and hard work went into the spin decision. So I wanted to ask on that. And what changed to move away from project Amplify, which I know we’ve talked about as well and the promise of cross-selling, etcetera, versus fluctuating here the spin and simplifying and management focus, that kind of thing? And then I have a follow-up.

Tien-Tsin Huang:

Right. Okay. And that’s perfect. So I understand the M&A piece. I guess that will happen post spin between now and the actual spin. Are we going to learn a little bit more about the commercial agreement between reminder co-FIS and Worldpay? And is there going to be a cross-selling component built into that? That’s my final question. Thank you.

Operator:

Thank you. [Operator Instructions] Come from the line of Rayna Kumar with UBS. Your line is open.

Erik Hoag:

So the existing guide does include a recession. There is a couple of underlying drivers to that. First, as you said, we’ve got the UK macro. The second piece is in the U.S., we’re seeing a shift from goods to services predominantly in our enterprise sub-segment. We are seeing some elongation in the sales cycle that we’ve spoken about for the last several quarters in our banking business. And as we – as you saw in the deck, roughly, we’ve incorporated roughly 500 basis points of headwind in our merchant guide associated with macro.

Operator:

Thank you. [Operator Instructions] From the line of Lisa Ellis with MoffettNathanson. Your line is open.

Stephanie Ferris:

Yes. Thanks, Lisa. So we – so Charles and I feel very confident, given this will be the third time we will have spun it out, sold it and spun it back out. So we’re really familiar with the cost structures and the benefits that come with putting it in and taking it out. I think the way to think about it is we did realize a lot of cost synergies bringing it in. I think we know what those are, we would enter into as many commercial relationships as we can to not have as many dis-synergies. We think the dis-synergies are fairly manageable. So we think through the combination of commercial partnerships as well as continuing to lean in to Future Forward. Future Forward will continue for both Worldpay and FIS. So, to the extent that we continue to push that lever forward, we think that as well will offset the dis-synergies. But look, we’re not going to stop at that. They are there, and we had the benefit of them coming in, but we will tightly manage them on both sides as we come out.

Stephanie Ferris:

Yes, great question, Lisa. So from an FIS standpoint, as you know, we’re very committed to our investment-grade rating which underpins our ability to drive growth, we haven’t been able to allocate any capital historically or as we move forward into M&A. And that’s really been a big weakness for us in the payments business. I think if you look at our peers, they have been doing M&A over the last couple of years. Unfortunately, for us, we just haven’t been able to do that historically, allocating towards share repurchase which is fine. But the payments business itself, given that it is a scale platform with global distribution and the end market moved so quickly. We do believe having a different capital allocation for that business will enable M&A that we just cannot give it inside the parent.

Dave Koning:

Yes. Hey, guys. Thank you. And I guess my first question on merchant, I think in the first quarter, it’s going to be down slightly, but the full year is down a little more. Could you give a little context on when that might bottom? And then kind of how do you see the longer term and even Payrix, I think it’s been pretty stable through the year. I think it was expected to grow a lot. And just how maybe that’s transpiring as well?

Dave Koning:

Alright. Alright. And then – and I guess my follow-up kind of along Lisa’s question. The corporate expense of merchant, is there any way just for us to think about what percent of revenue maybe we have to add like 3% of revenue or something when we think of kind of our sum of the parts and everything?

Operator:

Thank you. [Operator Instructions] And that will come from the line of Jason Kupferberg with Bank of America. Your line is open.

Erik Hoag:

Yes. Hey, good morning. Thanks for the question. So a couple of things – hey, good morning. In walking the 22 to 23 number, there is two predominant drivers here. One is the lapping of large deals. So we spent some time in the second quarter, third quarter calls talking about some of the very large deals, total contract value in excess of $50 million. Those deals have elongated, which is driving roughly half of the step down from 22 to 23. And the second is a reduction in non-recurring revenues. Non-recurring revenues predominantly license fees and termination fees, which over the longer term will drive higher recurring revenue and improve the overall health of the banking segment.

Erik Hoag:

Yes, sure. So the enterprise sub-segment, which is roughly half the book, down mid single-digits, this is where the UK sits, the SMB sub-segment, down low double-digits. And our e-commerce book continues to perform well, up double-digits.

Darrin Peller:

Hi. Thanks guys. If I want to just – if we could just follow-up for a minute on the Banking segment and for – and frankly, the Cap Markets segment as well, Cap Markets showed strong or Banking. Your guidance is, as you talked about, has some items in it, but help us just touch on the balance between your cost-saving initiatives and the investments you need in that business to really sustain the growth you want it to be in term. I mean I know you have some good assets, whether it’s Modern Banking or PaymentsOne or Digital One or others. But anything you can give us on your conviction level in that business returning to that mid-single digit rate of growth despite where the costs are coming out of will not affect the growth profile?

Darrin Peller:

Okay. Stephanie thanks. Just a quick follow-up on the merchant side of the business. When we think about the growth profile, you are talking about that getting back to, I guess maybe just to revisit the strategy on the SMB side for a moment. And is that an area that you foresee being able to really show an acceleration and/or is it just basically e-com still getting – what’s the strategy of the segment?

Operator:

Thank you. [Operator Instructions] Next will come from the line of John Davis with Raymond James. Your line is open.

Stephanie Ferris:

Yes. Thanks John. So, look, we are focused on kind of going back to the future, returning to our roots around becoming a compounder. I think what you should look for is really us to focus on double-digit TSR through, obviously, margin expansion, but also the focus on free cash flow and pursuing a balanced portfolio of both dividend, share repurchase and then M&A to the extent that makes sense for us going forward.

Erik Hoag:

Yes. Hey John. A couple of things going on in the margin side. Number one, you are right. We are down on – we have got lower-high margin revenue. So, I think UK, I think crypto, I think Russia-Ukraine to the extent that, that annualizes. We – to your point, we are investing in sales and product. And the third thing I would note is, we are also seeing some higher residuals and compression in the SMB book.

David Togut:

Thank you. Good morning. Could you flesh out a little bit your commentary that demand remains strong in Banking Solutions, but you continue to elongated sales cycles. What are your assumptions in other words for closing some of these deals in the pipeline in the year ahead?

David Togut:

Understood. And then as a follow-up, what are your plans to roll out additional modules in Modern Banking platform this year? And what’s incorporated in your guide from that?

Operator:

Thank you. [Operator Instructions] And that will come from the line of Ashwin Shirvaikar with Citi. Your line is open.

Erik Hoag:

Good morning.

Stephanie Ferris:

Yes, happy to. So I think, first of all, we announced our strategic review 60 days ago. I am really pleased with how – with the sense of urgency to what we have been able to decide thus far. I think with respect to what we have took in for the next couple of quarters, we are really focused, Ashwin, on making sure we execute on this merchant spend as quickly as possible, given the need to get those guys out and refocus on M&A. We are also really focused obviously on delivering Future Forward. All that being said, no, we will not include a strategic review after 60 days. So, we will continue to evaluate opportunities. The thing that really pressed forward in terms of the merchant separation though, was our inability to allocate a capital and for it to grow properly. On the Capital Markets side, we don’t have that same issue with respect to it continuing to grow well and the capital allocation. So, the merger business became a much bigger burning platform for us, but we will always continue to evaluate. In terms of the second piece on the Newco, I am going to speak in broad terms. I think the way we would think about it, and again, this is going to go to Charles and his team as he takes over. But clearly, given the amount of M&A that they probably will want to do and Worldpay historically did, I don’t think they would go after an investment-grade credit rating. It would probably impede them in terms of delivering the value that they want. So, I suspect they will look at something slightly below that. Historically, as you know, we were high yield, and it worked out – worked out quite well for us. But given all that, the Capital Markets are in a bit of a different position – but I don’t think they will be investment grade, but I also don’t want to speak for them. I think in terms of M&A, we have some strategic partners that we are coupled up with today. I think there is – and given the market and where things sit in terms of valuations coming down, I think the timing of the spin and their ability to get market will be quite fortuitous. And that was ultimately why I moved with such a high sense of urgency because as you can see from kind of the results of this segment, there is a different capital allocation structure that it certainly needs.

Stephanie Ferris:

I think from a banking and capital market standpoint, we would expect to continue to see margin expansion. I think once the Worldpay returns to growth, you would expect to see margin expansion there. As you know, these businesses are highly margin accretive on the right growth trajectory, highly recurring revenue generative. I can’t speak to exactly how much. You can see from Future Forward in terms of how much cost we are driving into the business. And in the Banking, Capital Markets segment, unlike merchant, there is really nothing structurally wrong there. And so we should continue to be able to expand those segment margins like we have historically.

Ramsey El-Assal:

Hi. Thank you for taking my questions. I wanted to follow-up on Ashwin’s question, his first question and just inquire as to whether you would be open to entertaining possible bids on parts of the merchant business? Would it be conceivable between now and the spin to potentially sell some of the higher growth, more attractive parts of that business or whether we should think about that part of the strategic review and in keeping that business intact over the long run is sort of the final step?

Ramsey El-Assal:

Okay. Terrific. Thank you. And one follow-up for me. More generally, Stephanie, can you talk about your thoughts and your confidence levels around balancing the sort of costs and particularly OpEx reduction, while also investing for growth and potentially accelerating growth as we move forward? How do you gain confidence that you can kind of thread that needle by not – where can you find the sort of excess costs to take out that doesn’t impact your ability to kind of grow on a go-forward basis?

Operator:

Thank you. And we do have time for one final question, that will come from the line of Dan Dolev with Mizuho. Your line is open.

Erik Hoag:

Hey. Good morning Dan, that’s right. We have – I would say, broadly speaking, as Stephanie talked about a couple of minutes ago, the elongation of sales cycles is the predominant element that we have included in our guide for Banking and Capital Markets.

Erik Hoag:

Sure. So, the Banking business, we have margins expanding, roughly 50 basis points. We have got Capital Markets expanding 50 basis points to 100 basis points. And we have got margin headwinds in both corporate – Merchant and the Corporate segment associated with the revenue declines that we are experiencing in those segments.

Stephanie Ferris:

Thank you for joining everyone on such short notice. I very much appreciate it. As I noted earlier, 2023 will be a year of recommitment for FIS. And with that in mind, we are making great strides and taking bold actions to move the company forward with a focus on creating incremental value for shareholders and clients alike. I am proud of our FIS colleagues across the globe and the great progress we are making in just a few short months towards delivering on our commitments to our stakeholders. I look forward to keeping you updated on our journey moving FIS into the future. Thank you.

George Mihalos:

Great. Thank you operator. Good morning, everyone and thank you for joining us today for the FIS third quarter 2022 earnings conference call. This call is being webcast. Today’s news release, corresponding presentation and webcast are all available on our website at fisglobal.com. Gary Norcross, our Chairman and CEO, will provide a business overview. Stephanie Ferris, our President, will provide an operational update. Finally, Erik Hoag, our Deputy CFO, will then review our financial results. Turning to Slide 3, today’s remarks 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. Please refer to the Safe Harbor language. Also, throughout this conference call, we will be presenting non-GAAP information, including adjusted EBITDA, adjusted net earnings adjusted net earnings per share and free cash flow. These are important financial performance measures for the company, but are not financial measures as defined by GAAP. Reconciliation of our non-GAAP information to the GAAP financial information is presented in our earnings release. With that, I will turn the call over to Gary.

Stephanie Ferris:

Thank you, Gary and thanks to all of you for joining us this morning. Let me start by saying what an honor and a privilege it is to be assuming the role of CEO of FIS on January 1. Gary, thank you for your leadership and mentorship and I look forward to working closely with you in your new role as Executive Chairman. I also look forward to working with our 65,000 colleagues and our thousands of clients and partners around the world. And finally, thank you to Woody, our outgoing CFO, for his many years of service and congratulations and welcome to Erik Hoag, our new CFO. Let me echo Gary’s comments that the third quarter was challenging. We are not satisfied with our results. Given the changing macro environment, the persistence of inflationary cost pressures and the resulting impacts to margin and free cash flow, we are taking immediate action to permanently reduce the cost structure of the company via our enterprise transformation program. Turning to Slide 9, this program will focus on consumer business with a goal of maximizing revenue growth, while simplifying our operating model. This will enable us to deliver significant reductions in both operating costs and capital expenditures through very targeted actions while always ensuring that our client remains at the center of everything we do. Our goal is to deliver long-term margin expansion while reallocating capital spend to the highest value-creating activities for our clients, thus driving improved cash flow conversion. This Enterprise Transformation program has two key pillars designed to restructure and reinvigorate our operating model. First, we are focused on permanently reshaping our cost structure through both cost reduction and containment initiatives. These include actions surrounding the optimization and reduction of vendor spend, the outsourcing of non-value-added activities and reviewing and rightsizing the current workforce. Second, we are focused on increasing the revenue of the company by unlocking value through our targeted enterprise cross-sell program called Amplify, which will take advantage of the significant white space opportunity to sell our existing products across our current segments. We will also be focused on reviewing, aligning and simplifying both our pricing and incentive structures as well as various other commercial excellence initiatives. We have begun to take immediate actions towards this transformation program. Detailed planning is underway and our early expectations are to deliver at least $500 million of cash savings with additional upside to be determined as we go through the planning process. Given the economic backdrop, we are pressing to deliver as many of these savings in 2023 as possible. I plan to update you with a more complete sizing and framework for the program on our fourth quarter earnings call. Moving on to the third quarter, our segment results were mixed. Revenue came in largely as expected with the exception of further deterioration in macroeconomic conditions primarily in the UK. Adjusted EBITDA margins were challenged. I will begin on Slide 10 with a brief overview of our banking and capital markets segments, including highlighting several exciting new wins. Demand for FIS’ mission-critical solutions across both segments continues to be strong, with solid positive sales growth and even in this more uncertain macro environment, our sales pipeline remains robust. In our Banking Solutions segment, organic revenue grew 6% or 8% adjusting for the pandemic grow over. Strength was driven by continued demand for our next-generation platform solutions across core, issuer, digital and wealth management. PaymentsOne, our next-generation card management platform had a strong sales showing. Key wins include a leading global card network provider that selected PaymentsOne for its cross-border prepaid consumer and corporate solutions business that serves nearly 20 countries. Migrating from its in-house solution to our API-based platform will enable the company to realize end-to-end efficiency benefits at scale. Additionally, a leading Philippine financial institution selected PaymentsOne for processing of its credit card and unsecured loans portfolio, helping them to drive innovation and market expansion. And finally, one of the world’s largest retailers went live with FIS premium payback across its U.S. locations. We see this as a tremendous proof point of cross-selling across our segments. A challenging economic factors like inflation play into consumer shopping decisions. Premium Payback offers significant discounts to shoppers, benefiting both merchants and card issuing banks who are looking to offer more innovative and frictionless way for cardholders to monetize their rewards currency. Turning to capital markets, we had another strong quarter, even with a slowing sales backdrop. Revenue increased 6% organically or 9% excluding license revenue, Capital Markets has been on a multiyear strategy to shift to SaaS-based solutions from license solutions. We are very pleased to see the success of this strategy. We had several impressive client wins within the Capital Markets segment this quarter including multiple wins for our cross asset and trading platform with several leading FIS across Europe and Asia. Not only will our solutions provide these financial institutions with a single cross-asset platform to support their front, middle and back-office operations, the platform caters to changing regulatory environments, making local regulatory approval easier for the banks. We also deepened our relationship with a leading data analytics company as they expand their use of our receivables and payables solution for the purpose of empowering their corporate customers to drive automation, cost savings and more effective cash flow management. Turning to Slide 11, I will touch on the performance of the Merchant Solutions segment. Given past interest in our merchant strategy and its evolution in recent years, I’d like to take a few minutes to update you on the competitive position of the Worldpay business as well as the strategic pivot that is currently underway. We will provide a much more comprehensive deep dive into our differentiated merchant solutions strategy and its complementary nature to our other segments in early 2023. Merchant Solutions revenue increased 5% on an organic basis, with growth negatively impacted by further deterioration in the UK, while U.S. consumer spend remained consistent throughout the quarter. While our merchant business is not immune from an economic slowdown, we believe the business is well positioned to grow through a recession. Approximately, 55% of the segment revenue is sourced from the e-commerce and enterprise sub-segments, excluding the UK. We would expect these sub-segments of the business to be more resilient in an economic downturn relative to SMB. Furthermore, our North American Enterprise sub-segment increased 7% in the quarter. This channel indexes towards nondiscretionary spend categories, including big box retail, grocery and pharmacy. While some of this growth is a result of strong year-over-year comparisons, coming out of the pandemic, we continue to see and expect strong growth in this key segment of Merchant Solutions. We have several notable wins this quarter, especially in our e-commerce business, highlighting the strength that our global scale and reach offers to our clients. First, while still early days, we are very pleased with the momentum we are seeing for our recently launched Global Solution guaranteed payments, which we introduced to you last quarter. A large global consumer electronics giant chose this end-to-end e-commerce solution to help them maximize order conversion rates and reduced order fulfillment times, all while eliminating the financial liability of fraud on approved orders. We have also expanded our relationship with a large U.S. discount retailer by expanding processing volumes and adding new services like the FIS Premium Payback solution, encryption and tokenization services. I am excited to announce that we officially branded and launched our Worldpay for Platforms offering, leveraging the capabilities provided by the Payrix acquisition. While still early days, I am pleased with the momentum we are seeing. Worldpay for Platforms is our innovative approach to addressing the SMB market by empowering SaaS platforms with the unparalleled tools and capabilities across FIS’ merchant and banking offerings. We believe we are at the forefront of the new era of payments that will drive the next evolution of services to SMBs via software and platforms with payments and financial services leading the way. This quarter, we closed several notable wins in verticals such as media and veterinary. In response to your questions regarding the performance of the business post-pandemic and in an effort to improve transparency, we are providing some additional detail on this call. First, despite fair amount of noise around disruption and market share shifts, Merchant Solutions revenue and volume growth in aggregate, when indexed to 2019 levels has remained stable, showing steady revenue growth and high single-digit volume growth. Further, revenue and volume growth rates and yields have remained consistent by sub-segment, albeit they are very depending on the merchant size and vertical in each category. To be clear, while our SMB sub-segment, which indexes to card present acquiring, has been adversely impacted by changing market dynamics. The strength in our e-commerce business, where we continue to grow above market and in our enterprise business has allowed us to deliver consistent top line results. Going forward with continued market share growth in e-commerce as well as our strategic shift to embedded payments and embedded finance, we expect e-commerce to ultimately account for 50% plus of total segment revenue. I will end where I started. I couldn’t be more excited about the opportunity in front of us at FIS. And with that, I will now turn the call over to Erik for further discussion of our third quarter results and our revised outlook for 2022. Erik?

Operator:

Thank you. [Operator Instructions] And today’s first question will come from the line of Dave Koning with Baird. Please go ahead.

Stephanie Ferris:

Yes, Dave, thank you. This is Stephanie. I’ll take that. So I think – look, I think Merchant, if you look at 2022 over 2019, it’s been a mid-single-digit grower consistently. It’s been pretty consistent quarter-over-quarter. Let’s break down what’s in here in terms of thinking about what’s strategic for us and then what we strategically are deprioritizing. So if you think about the business broadly, as you know, we are one of the largest global e-commerce providers. That is, by far and away, our most strategic piece of the business along with being a large-scale enterprise card-present provider in the U.S., which provides the scale we need to continue to really drive a lot of market share gains. Given the post pandemic, given the structural shifts in the industry, we are seeing significant changes in our SMB portfolio. And we’re strategically deprioritizing it and moving all of those partners that we’ve historically had there over to our embedded payment strategy with Worldpay for Platforms. So the way we see the world as we go forward is, we have been and will continue to be a mid-single-digit grower. You will see us continue to add and drive growth in our e-commerce segment, which, as you know, has a higher growth part of the portfolio. We are pivoting our strategy from card-present SMB to card not present SMB. And over time, that mix shift will take the e-commerce piece of this business upwards of 45% to 50% of the total portfolio and then should pivot the business back to a higher growth rate.

Erik Hoag:

David, it’s Erik. Yes, I think that’s a fair way to think about it. As I think about the third quarter margins, really two predominant drivers here. One is continued investment in emerging channels, which would be geographies and Payrix as well as broad-based macro impacts where we’re seeing revenue come down at very high incremental margins, which would include the UK and Russia, Ukraine.

Operator:

Thank you. [Operator Instructions] And that will come from the line of Jason Kupferberg with Bank of America. Please go ahead.

Erik Hoag:

Jason, that is a fair way to think about it. As I mentioned in my prepared remarks, we’re not going to get deep into the operational performance in for 2023 and beyond. But referencing back to the sell-side lunch. I believe that there were the four things that we – the four key points that we talked about during that session, I think, are still very, very relevant. The macro continues to be a challenge for us, we’re focused on spending across both operating expense, capital expenditures as well as one-time items as well. We wanted to ensure that we’ve got some visibility into 2023 for interest expense. And then lastly, we’ve got ongoing commitment associated with excess free cash flow going to repurchase.

Stephanie Ferris:

Yes. Good morning. I’ll answer that. Don’t know yet. So we are aggressively going after, as we talked about, both operating expenses. As Gary mentioned, we’re at the end of our investment cycle. As you guys know, we’ve made significant investments in modernization in our products across capital markets, banking and merchant. Those investments yielded very, very significant and positive momentum in terms of products sitting market at the right demand. But as a natural cycle, it makes sense now for us to take the capital investment in those down. So we’re going very active around the reduction and reallocation of capital or operating expenses, as Erik mentioned on the call, we are experiencing some significant increase in inflationary and then and then nonrecurring. Overall, we’re really looking at driving as much of the $500 million in cash flow and improving our cash flow margins in 2023. But I just don’t yet have how much that’s going to impact in ‘23 versus coming into 2024, we’re pushing into 2023. And I don’t have a feel for you yet on OpEx, CapEx, etcetera. We will come back to you in the fourth quarter because we’re just detailed planning and actions happening now.

Operator:

Thank you. [Operator Instructions] And that will come from the line of Darrin Peller with Wolfe Research. Please go ahead.

Stephanie Ferris:

Yes, Darrin, thanks for the question. Absolutely. We have strength, I would say, here at FIS in two things

Stephanie Ferris:

That’s a great point.

Stephanie Ferris:

Yes. No, listen, how about I give some color commentary and then Erik can add on a few things I didn’t get enough there. But I would say demand continues to be really strong, both in banking and capital markets. The investments we made to modernize the products also the financial institution market broadly is – continues to be very significantly spending on digitization and omni-channel capabilities that they need and our solutions meet those needs at the perfect time. So the demand continues to be really high. What we’re seeing, and we started seeing it in the second quarter, and we flagged it is just elongating sales cycles. And so that’s why we’re somewhat calling the macro here. We’re seeing financial institutions taking longer to make decisions. We’re not seeing that they don’t like the products. They certainly like the products, but we are seeing decisions slow. And as we saw a decision slow in second quarter and then third quarter, we have great visibility. We have a great pipeline. It’s very strong. But we’re becoming a little bit challenged in terms of the transparency of when those are going to close. And I think that’s just the financial institution market being a little prudent with what they are seeing across the economy. So I would say the demand there continues to be strong. What we’re calling out for you is a bit of the macro in terms of how we’re seeing people behave.

Darrin Peller:

Got it. Thanks Gary. Thanks Stephanie.

Operator:

Thank you. [Operator Instructions] That will come from the line of David Togut with Evercore ISI. Please go ahead.

Stephanie Ferris:

Yes. So, I will take them. The UK is 15% of Worldpay. So, I don’t consider it a Worldpay base. Actually, I would consider the Worldpay business broadly North American-based. If you think about it, there is really – there is a North American portfolio, which is primarily large card present enterprise. And then a lot of our global e-commerce is also in North America, as you would expect, given the size of the market. So, the UK piece of it is 15%. You are right, it is a very challenging economic time there. I mean we gave a guide in second quarter 90 days ago, we thought – we felt pretty good about considering what was going – what was happening in a recession there, and then they changed Prime Ministers at least once, maybe twice. And so the economic conditions in the UK are pretty challenging. And as we look out even over the next 60 days, it’s tough to call it. They are in a recession, their consumers are struggling, and we are tied to consumer spend. So, as that goes up and down, it is a high-margin business, just like payment processing. So, in terms of costs, our $500 million of cost program is broad-based. Of course, we are looking at the UK, but it is really so small. We really couldn’t make the margin expand just on the UK, but we are very conscious of the business there. And what you will never see us do is make cuts such that we will impair the ability for the business to grow or it will impact our customers. So, I would say that enterprise transformation program is just that. It’s enterprise-wide. And we will be focusing on everything across our entire global portfolio.

Stephanie Ferris:

I mean I think the – so that’s our card-present portfolio to think about that being primarily terminal-based ISO book, ISV book. I would say for us, it’s probably largely us on – from a market perspective in terms of we are strategically pivoting that business to our platforms business. So, an omni card not present capability. So, that piece of our business, whether it’s our ISO business or ISV business, we are strategically pivoting away from that. It’s just not a high-growth business for us. And we want to be in SMB via platforms and more focused on e-commerce. So, I would say the number is probably more us than the broad market.

Stephanie Ferris:

Thank you.

Operator:

Thank you. [Operator Instructions] That will come from the line of Tien-tsin Huang with JPMorgan. Please go ahead.

Stephanie Ferris:

Yes.

Stephanie Ferris:

So, Tien-tsin, I would say we are even more bullish about it. So, I think we have evolved this a bit. You are right, we have super users. I mean if you look at our top 200 clients across the enterprise, the majority of them have some sort of product out across all three segments, which is really encouraging. And when we go out and talk to, for example, whether it’s a large technology provider in our global e-commerce book or we are talking to the largest grocery retailer and the CEO, all of them are really looking at us and talking to us about not just about the payments piece, but about financial services. And if you think about what’s happening in the world broadly, we are seeing financial services continue the evolution to the – almost to the point of transaction and embedding in every transaction that we are doing. And so our broad breadth of capabilities resonate across all of our segments and large customers. And so we are formalizing it into what we are calling our Amplify opportunity. We will be back on it more in the fourth quarter, giving a lot more view towards size and absolutely, we are goaling it, and we are seeing some initial success. It’s one of the reasons why I am very excited about the opportunity. We have a very significant opportunity to drive incremental revenue growth by doing more of it. And so I don’t know that it’s evolving other than we continue to be very excited about it.

Tien-tsin Huang:

Perfect. Thanks for clarifying that. And look, I can think of a lot of merchants. I know they want to bank their users and do things and there is some overlap there. So, I am glad you clarified that for me. If you don’t mind, just my quick – I don’t know if this quick. My follow-up, just on the SMB side, I know we are going to learn more, but it sounds like FIS is willing to be the wholesale provider in face-to-face within SMB and then pivoting more to doing – I think you just said it platform and Omni, which makes sense. I think because SMB is moving more towards platform type services. Does this mean you need to invest in new areas to service that platform piece, either organically or inorganically? I know pay-in, pay-out, for example, is really important there. A lot of SMBs are moving on to larger platforms, and you can do that on enterprise, but it feels like it’s a different need there within e-comm platform. Do you have what you need to be successful there? Thank you.

Gary Norcross:

Yes. That was the only add I was going to have, and Stephanie just hit it, Tien-tsin. I mean Erik referenced, I mean some of the margin pressure we are seeing in merchant is related to investment in the platform. So, let’s not – but it’s all organic internally on a well-established base. So, the products done very, very well. We are seeing very, very strong growth. It’s early days, but it’s certainly a key component to the future of the overall merchant business, but it will be organically funded.

Operator:

Thank you. [Operator Instructions] And that will come from the line of Lisa Ellis with MoffettNathanson. Please go ahead.

Stephanie Ferris:

Well, thanks for the question, Lisa. So, thinking about from my standpoint, first, we are going to continue to do what FIS has its strength in, which is deliver best-in-class products and services across our customer base. But in terms of thinking about how to do that differently, possibly over the next 12 months to 24 months, is continuing to pivot to a platform strategy to drive incremental cross-sell and revenue growth either through Amplify, which is taking our existing products and selling them across our existing segments or as I just described, pivoting to in the Worldpay space or in the payment space, not only embedded payments, but also embedded finance. But probably most importantly, over the next 6 months to 12 months, you are going to see us really focus on the operating model and the underlying cost structure of the company, really focused on value creation and how we make sure that the operating model and cash flow conversion continues to be best-in-class, like FIS has been. And once we get the operating expenses and capital expenditures and free cash flow back where we want it to be, I think then you will see us start to think about where do we want to return capital. And to Gary’s point, really go back to looking at M&A, which is a strategic strength of ours. And given our balance sheet, given our strength, given where we think we will be in the marketplace after we have made some really, really significant improvements on the cost structure, I think you would see us then start to look at redeploying cash for M&A. So, that’s how I think about where I am focused and Erik is focused over the next 18 months to 24 months.

Stephanie Ferris:

Yes. So, it is literally just that. So, as Gary mentioned in his prepared remarks, we have made significant investments over the last 5 years in data center consolidation, modern banking platform, P1, new acquiring platform, access Worldpay, clear derivatives products. I mean so we have made investments in all of the segments and their products. They are now in market. Demand is high. We are seeing a big great uptake in them. So, it’s just at the end of a natural cycle for us to start bringing a lot of that investment down to more normalized levels. So, that’s the first thing we are doing. And honestly, as much as I would say, it’s not that hard because it is at the end of a normal investment cycle. So, we are pulling those down. Now, you are exactly right. We are investing and making sure that we are focused on value creation and investing some of it, definitely not all of it. Some of it back into making sure that we have all the capital we need to strategically grow our platforms business, etcetera. But it is not nearly the heavy investment that we have been making. And so you will see us bring down to normal levels and then reallocate into where we see growth in the businesses over the next 12 months to 24 months, but we wouldn’t expect to need 9% of revenue capital expenditures going forward. Not yet ready to call where we think it will end up, but we would see it significantly coming down over time.

Operator:

Thank you. [Operator Instructions] And that will come from the line of Ramsey El-Assal with Barclays. Please go ahead.

Erik Hoag:

Hey Ramsey. I think you are thinking about it right. There is nothing structural in our model that would lead us to believe that it’s anything other than one-time in nature.

Stephanie Ferris:

Sure. Happy to give some color on that. I think what I just spoke about, which is just the natural evolution of the capital expenditure coming down is fairly low-hanging fruit for us in terms of thinking about bringing that down to normalized levels. The second is around vendor spend. So, as we brought the company together, as you can expect, we have great prudent capabilities around vendors. But given the inflationary pressures that we have coming through us, we can continue to be very proactive around our vendors and making sure that we are offsetting our inflated costs there. So, we see a lot of opportunity in vendor spend. And then we are really looking hard at duplication of activities across operating segments, cost containment and then really looking at the work first broadly. And then obviously, we operate – we are a global company. We operate in a lot of countries around the world, so rationalizing if we need and want to be in all those countries. But those are some of the high-level things we are looking at.

Operator:

Thank you. This does conclude today’s question-and-answer portion of today’s call. I would now like to turn the call over to Mr. Gary Norcross for any closing remarks.

Gary Norcross:

Thank you. In closing, I would like to share that it has been a privilege to have served this company for more than 34 years, including serving as CEO since 2015. The company we have built is made to withstand an uncertain economic backdrop, and we will continue to build upon our leading position across the markets we serve. I look forward to staying actively engaged as Executive Chairman as we embark on the next chapter of FIS. Thank you to our 65,000 colleagues for your dedication to our clients. At FIS, we will continue to advance the way [Technical Difficulty]. Thank you for joining the call today.

Nathan Rozof:

Thank you. Good morning, everyone and thanks for joining us today. This call is being webcasted. Today's news release, corresponding presentation and webcast are all available on our website at fisglobal.com. Gary Norcross, our Chairman and CEO will provide a business and strategy update. Stephanie Ferris, our President will discuss our operating performance. Woody Woodall, our Chief Financial Officer will then review our financial results and provide forward guidance. Finally Erik Hoag, our Deputy CFO will then review – will be with us for Q&A. Turning to Slide 3. Today's remarks 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. Please refer to the Safe Harbor language. Also, throughout this conference call, we will be presenting non-GAAP information, including adjusted EBITDA, adjusted net earnings, adjusted net earnings per share, and free cash flow. These are important financial performance measures for the company but are not financial measures as defined by GAAP. Reconciliation of our non-GAAP information the GAAP financial information are presented in our earnings release. Finally I'm excited to share that George Mihalos will be joining our team during the third quarter. He knows both our company and the industry extremely well and will be a valuable addition to FIS. With that Gary I'll turn the call to you.

Stephanie Ferris:

Thanks, Gary, and welcome, everyone. We've reached a pivotal moment in fintech, where we've seen a fundamental shift in the way our clients and their customers want to consume financial services. First, financial institutions are both modernizing their financial technology facts, and looking for ways to expand their own growth, driving increasing demand for Banking-as-a-Service. Second payments and financial capabilities are being embedded in software and across platforms, driving demand for a financial technology partner to help create a seamless consumer experience. And finally, rapidly evolving customer, digital experiences are pushing our clients to focus on their core businesses and products, creating demand for offerings using a cloud-based as-a-service business model. These trends have created large new areas of growth that cannot be served with traditional fintech models and segments. Our clients are looking for us to deliver these financial services to them by creating new models that utilize our best-in-class assets, combined in creative new ways. At FIS, we are uniquely positioned to capture these opportunities. We spent the past five years developing the best-in-class next-generation banking and capital markets technology. We are one of the only truly global e-commerce platforms. We have a marquee set of global corporate clients, large global banks and asset managers. And we built all of this at scale with global distribution. We're really pleased with our results again this quarter and you will see that many of our wins reflect these trends and opportunities. In Banking, we had a very strong quarter of core wins showing continued strength in our traditional banking channel. We're pleased to share that we signed another two modern banking platform deals this quarter, finding our first large bank outside of the US with ANZ Banking Group, the second largest bank in Australia and New Zealand. Being selected by a global bank of this caliber, clearly shows that MBP has global reach and scale. Just as impressive as our recent core banking win with Columbia Bank and Umpqua Bank. Umpqua has been a key client of ours for years, but they were recently acquired by Columbia, who historically worked with one of our competitors. Typically, when a merger like this happens you would expect acquiring banks to consolidate on to their core. Instead, I'm proud to share that Columbia Bank decided to consolidate onto the FIS core because of our expertise in serving large financial institutions. Similarly, a large Northeast regional financial institution Valley National Bank had made the decision to leave FIS for a competitor. However, their conversion kept getting delayed. And during that time, they acquired another bank who was also running on an FIS core. After a review of the capabilities that the combined bank needed and their experience with their previous attempts to convert off FIS, the bank made the decision to consolidate the new combined bank onto our most advanced regional banking solution. These two examples point to our differentiation and strength in this larger regional bank market. As we turn to new market growth, FIS is capitalizing on the rising demand for Banking-as-a-Service solutions, as banks seek to create new revenue streams by widening their traditional distribution to end consumers through fintechs and they're looking to leverage our embedded finance ecosystem. As an example, a leading-edge digital bank chose FIS's Banking-as-a-Service solution to support fintechs and offering account opening, money movement and card issuance to their customers. They're an early adopter expanding their reach through the fintech landscape. We've also seen increased demand for Banking-as-a-Service from fintechs that are demanding other use cases such as embedded lending, accounting, money movement and faster payments. And another exciting win for us Block recently selected our national payments network to power their Cash App Card. They were drawn to the flexibility and service that we can offer them and are excited to leverage the power of our combined merchant and issuer ecosystem. Opportunities like this are creating a growing pipeline across verticals for payments, crypto and digital financing so that banks and fintechs can grow with us as they expand their embedded offerings all demonstrating the power of unlocking our assets. In addition to embedded finance, we also see an emerging opportunity to deliver our offerings using our cloud-based as-a-service model and are experiencing this in the wealth and retirement space. Franklin Templeton and T Rowe Price are two examples of strategic as-a-service wins for FIS. In order to win their business, we live with our differentiated technology and we demonstrated our ability to automate and scale our services across their expansive businesses. These landmark wins required an as-a-service approach resulting in a win-win for both our clients and for FIS. This business model enables both our clients and FIS to participate in the benefits of growing the organic base of revenue and margins of our clients. And to-date these clients have grown organically 10% and all have expanded their scope of services with us. Finally, we're seeing significant momentum behind our Digital Banking Solution Digital One where we recently signed several new large regional financial institutions, including CIT and Signature Bank. Given current signings the Digital One Select solution will be supporting over four million customers by the end of 2023. Turning to slide 10. In Capital Markets our end-to-end solution continue to meet our clients' needs. We successfully signed the fourth largest bank in Japan, Sumitomo Trust Bank who will implement our risk analytics manager to protect their operations from future regulatory changes. Our growing relationship with this bank also underscores the importance of our world-class scale and international reach. Turning to Europe. We're expanding our relationship with UBS by adding additional modules from our cleared derivatives suite which will help to enhance their existing operations. This growing relationship highlights the competitive advantage that we've created by using componentized architecture to deploy our new solutions. Each of these important new wins demonstrate how our end-to-end solutions differentiate us from the competition by better meeting client needs with advanced technology. On slide 11, our Merchant results demonstrate that our long-term strategy is working. Our strategic focus in e-commerce for large as well as SMB and platform businesses is driving strong results. Our diversified e-commerce portfolio in terms of size of clients and verticals that we serve, recent new wins, share of wallet gains from existing customers and the addition of the Payrix capability, which opens up our ability to serve SMBs via SaaS platforms, are all contributing to outstanding performance. We continue to open new geographies as well as add differentiated new solution capabilities like our recently launched Guaranteed Payments solution. With this solution FIS was the first payment processor to guarantee e-commerce merchants increased approval rates and eliminate the financial liability of fraudulent purchases. Built on the back of our investment to improve authorization rates for our clients, this new solution now takes that investment to the next level creating an end-to-end solution from merchants to banks. It not only eliminates rules at the merchant level through sophisticated machine learning decisioning, but allows them to increase transactions through our issuer partnerships allowing us to pass broad scores and information on compromised cards from our merchants to our issuers. This solution ultimately helps the merchant drive significantly more revenue by authorizing and improving more transactions. A large global health and beauty retailer will be an early adopter of Guaranteed Payments which they will use to help maximize their revenue. As an early adopter, we've seen their approval rates increase by 600 basis points increasing their annual revenue by approximately $45 million while also eliminating financial fraud liability. Because of the significant value that this brings to our merchants, we're able to increase our revenue in most cases doubling what we're earning over our processing revenue. We have many examples of clients getting value from our ecosystem and full suite of solutions, including one of the world's largest grocers who continue to expand their relationship with us adding more banking capability to their operations and a very large global retailer who is expanding their loyalty portfolio by tapping into FIS' network of merchants for rewards redemption. These two expansion deals combined drove more than $30 million of new contracts in the quarter. All these recent wins demonstrate that our strategy is working. Our expansion into SMB e-commerce with our new platform is also going exceptionally well. Payrix is exceeding our expectations for growth and we're leveraging its embedded Payment-as-a-Service model to expand into SMB e-commerce in two ways. First, it enables us to serve cloud-based platforms like Maxeo , which is a B2B subscription management and financial operations platform that recently selected us to be their Payments-as-a-Service layer. We did have the ability to serve cloud-based SaaS platforms like this before Payrix. Second, it enables us to offer e-commerce capability to our existing ISV clients. For example, Revel is a long-standing ISV of our serving several verticals. We traditionally serve them for card present only and now they're expanding and embedding Payrix technology to enable payments in their online ordering and delivery services, as well as card-not-present options to their end customer. We're in the process of bringing our capabilities for SaaS platforms and traditional ISVs together into an enhanced platform offering. This platform strategy is critical to our future and we're continuing to invest to bring new capability leveraging our full assets. We expect a full rollout during the third quarter and I'm looking forward to sharing more with you on the next call. I'll wrap up with slide 12, which describes how merchants 14% constant currency growth is built up by sub-segment. Global e-commerce continues to be our fastest growing business consistent with our strategy. Its revenue growth accelerated to 28% in the second quarter from 23% in the first quarter on a constant currency basis. Enterprise and SMB are also both continuing to grow very well, generating 9% and 8% revenue growth this quarter respectively. Despite the noise that circulated about Worldpay during the pandemic, our strategy for our merchant business is clearly advantaged in the fastest-growing and most strategically important segments of the market. I want to end my remarks where I started. We spent the past several years investing to bring forward the next generation of fintech solutions. The market is recognizing our shift. I'm pleased to share that for the second year in a row we've been named a Fast Company's 100 Best Workplaces for Innovators list, jumping 14 spots in just a year's time competing with over 1,500 companies from various industries. Our inclusion in this exclusive list is a result of our demonstrated commitment to encouraging innovation at all levels, attracting top talent and bringing bold new ideas to market. It's a rewarding recognition of the investments we've made. With that, I'll now turn the call over to Woody to discuss our financial results. Woody?

Operator:

Thank you. Our first question will come from Jason Kupferberg with Bank of America. Please, go ahead.

Gary Norcross:

Yes. Thanks, Jason. Erik, why don't you take that one?

Woody Woodall:

The other thing I'd highlight. If you remember Jason, last year December, the UK was shut down from COVID. So, we've got an easier comp in the fourth quarter on the revenue side as we don't anticipate the UK to be shut down like it was last year. So, those are really the two biggies that we've seen. Always have high visibility into the revenue base as we go through there. But obviously, trying to highlight, both in the prepared remarks and through the Q&A that shift, that we're seeing in Q3 to Q4.

Woody Woodall:

Yeah. On the interest cost itself, we've got about 40% of the debt is variable in the stack. We anticipate another two raises from the Fed is at least our assumption right now at about another 100 basis points from where we are today, which is about 2.25 at the Fed level. We also saw some increase in the ECP raising rates over the year. And then, the bond issuance that we just did was about $2.5 billion at just under 5%. So, a combination of those factors is what's driving interest up. We think interest for the full year based on those assumptions is about 285 right now from where it was. So, obviously seeing some headwinds there. On the volume side, we saw sequential volume decreases in line with Fiserv Visa MasterCard and Global very similar. Constant currency volume is about 6%, and we saw yields at a plus 5%.

Operator:

One moment for our next question, that will come from the line of Rayna Kumar with UBS. Please go ahead.

Stephanie Ferris:

Yes, Rayna. This is Stephanie. Happy to answer that. I would say spending continues to be robust in financial institutions. Gary and I spent a bunch of time with all of our financial institutions over the last six months. Coming out of the pandemic they are feeling very strong with respect to their own -- the soundness of their financial institutions themselves. They also benefited a lot from the EVP and P2P, and they also recognize through the pandemic the importance of the digital transformation...

Gary Norcross:

Operator, are we still live? Keep going, Stephanie. I think we're still live.

Operator:

Ladies and gentleman, please standby.

Stephanie Ferris:

We're seeing the customers continue to have high demand for banking technology solutions, because they're wanting to drive their own digital transformation. I talked in my prepared remarks about embedded finance Banking-as-a-Service solutions. We continue to win on modern banking platform. So, we're seeing high demand. We're not seeing any slowness in that at all. Gary would you add anything?

Operator:

Please remain on the line your conference will begin shortly.

Rayna Kumar:

Got it. And that's very helpful and we did hear your complete answer. So, I appreciate that.

Rayna Kumar:

Perfect. Okay. And Stephanie you touched on this in your opening remarks, but I'm just curious to hear more about the progress with the Payrix integration. Any key milestones that we should look out for? And any metrics you can share on it for the quarter would be helpful. Thank you.

Rayna Kumar:

Perfect. Thank you.

Darrin Peller:

Hey thanks guys. Can we just touch on the embedded assumptions in the second half for the year when we think about constant currency guidance? I know there was quite a bit of changes from FX and divestitures which largely were expected for the guy. But really the implied constant currency trends per segment is what I'm trying to figure out. And maybe you could own it on the Merchant volume side also. Stephanie just a quick follow-up. I'll put it all together now is really just when you mentioned wins with Block can you just explain what the kind of win is -- what actually you're doing for them? And then some of the other newer tech wins if you can just expand on some of those as well just as my follow-up. Thanks guys.

Woody Woodall:

Yes. On the FX side Darrin, we've got little over 15% of our revenue in pound, sterling and euro. Obviously, those are very high contribution margin businesses for us. So that profitability has some exposure to translation. You've seen the pound and the euro dropped by about 13% year-to-date, obviously, driving an impact both on revenue and EBITDA. That's where we got the $0.13 on the translation from an EPS perspective. If you're looking back to constant currency or organic growth really, we continue to believe banking at 6% plus, capital markets in mid to high single digits and merchant in the low double-digit area for the full year. So we have had no change in that outlook from a revenue growth profile on a constant currency basis. The other component I would tell you is I did highlight in the prepared remarks, we do see pay rates contributing to e-com growth where we're looking at organic growth north of 20%, which is consistent with our previous remarks, but we're looking at constant currency growth of both the third quarter and the fourth quarter at about a 30% level for e-commerce.

Stephanie Ferris :

Yes. So Block is a super exciting win for us. It continues to show the strength of our issuer and acquiring capabilities coming together. We are powering their Cash App Card, which as you know is a big strategic position for them and we're excited about that. We won that business very competitively. But again, it continues to demonstrate the benefit of our assets across our segments, and also to talk a little bit about what we're seeing in Banking-as-a-Service and embedded finance. I mean, you're seeing a lot of disruptors come out and talk about their ability to really do that. And as we think about our own are we've launched Banking-as-a-Service as well. We have one of our new digital banks, I mentioned who is using our Banking-as-a-Service product really to expand out their market share to fintechs, so they can offer digital account opening, embedded money movement, embedded payment flow. We really see this is where the industry is going as we think about disruption, and we think we have a huge advantage given our assets across our segments to bring those together and drive new meaningful revenue, not just in traditional ways, but also to access new markets like embedded finance, like Banking-as-a-Service. And then as we come into the third quarter, I'm going to be really excited to announce our Worldpay platform, but you're going to see all that start to come together as well there. And so we really think about our traditional business, but opening up new markets, not only for ourselves, but our customers as they want to use our fintech stack in a different way either as a service model or in a way for them to advance their own customers' ambitions.

Darrin Peller:

Understood. Is this the network nice, or is this issuer process just to be clear, I'm sorry.

Darrin Peller:

All right. Really helpful guys. Thanks again.

Lisa Ellis:

Hey, good morning and congratulations from me as well to both Woody and Erik. I wanted to follow-up, Stephanie, I'm guessing this one for you on the new Guaranteed Payments offering in merchant that does sound new in the marketplace. So can you just elaborate a bit on like, which customers specifically is it most relevant for? And just elaborate a bit more on the sort of from two like how it's different from what you're offering them today? Thank you.

Lisa Ellis:

And so you'll be absorbing the chargeback liability? Is that how it will work? So you're charging significantly more as you just highlighted and then you'll be absorbing any chargeback liability that would normally flow through to the merchant?

Lisa Ellis:

Got it. Okay, okay. And then maybe my second question is a broader recession business resilience question. Can you just comment on how you think about if in fact we do see a broader macro slowdown more severe than what we're seeing now? How FIS's business will react to that? I know we can all go back and look at the former FIS back during the financial crisis et cetera, maybe comment a little bit on what's different now and how you think about what pieces of your business are more resilient in the downturn versus less so? Thank you.

Erik Hoag:

Hey Lisa. So I think it depends on the nature and the depth of the recession. So that said, we've demonstrated during prior economic downturns that at a high level we feel really confident about the business and that we can deliver top and bottom-line growth. We feel good about the business both from an earnings and from a cash flow perspective. So Banking and Capital Markets very resilient businesses long contract terms on average in excess of four years. We've got monthly minimums price escalators, liquidated damages. And then on the consumer side, consumer spending would obviously be impacted in an economic downturn. But the consumer does continue to spend. And while it may be more tilted towards essential spending, we feel like we're positioned very well. Like other companies, most companies right now we are experiencing some wage inflation and employee attrition, but we're dealing with that with existing operating levers that Woody mentioned in his prepared remarks. But broadly speaking, I would say that we expect FIS to continue to grow well during recessionary times.

Operator:

Thank you. One moment for our next question. That will come from the line of David Togut with Evercore ISI. Please go ahead.

Gary Norcross:

Good morning.

Gary Norcross:

You want to take it?

Gary Norcross:

Yes. I would say David at the end of the day we're kind of returning now to a more normalized environment. Really it's the strength of our balanced portfolio. Travel and airlines growing faster than we thought going in throughout this year. Yes. We've got some other portfolios that are growing slower than we thought. But the balance of the portfolio is really strong. And that really kind of gets back to Lisa's question around recession. It's really around where consumer spend goes. But we do believe that travel and airline is going to continue to be a strong piece of the book in the back half of the year and modeled that. We think there are some other industries that will continue to be under some stress. But we're confident with the strength of the overall portfolio. We're very pleased where the growth is. I mean constant currency on the quarter and very pleased where we're seeing it shape up for the full year.

Gary Norcross:

Look it's a great question. I mean we continue to monitor all the changes going on in Washington like everybody does. I mean there's a lot of different bills that get put forward that could impact us in very different ways. Regulatory change is always a really big positive for us. I've said that in the past we typically always find ways to grow our revenue through that because our customers need assistance in implementing the regulation. So assuming there's a change there on credit routing then obviously, we'll look at ways to help our customers with that help maximize their revenue and thus therefore us grow our revenue through that process. But we'll continue to watch it as it evolves and then we'll bring forward more information as we know what the outcomes of some of these discussions might be.

Gary Norcross:

Thank you.

Dave Koning:

Yes. Hey, guys. Thanks and congrats to Woody and Erik. I was great working with you guys. And I guess first of all just – when we look at margins I think the first three quarters now the way you're kind of setting this up is margins to be kind of flat to down a little bit. Q4 though looks like the implication is up 200 to 250 bps. And I know you talked through a little bit of the banking term fee. How big is that to margins or dollars or whatever? How big is that? And maybe what's the difference in underlying margin expansion in Q4 relative to the first three quarters as well?

Dave Koning:

Got you. Got you. Thanks. And maybe just as a follow-up question just interest expense it looks like the Q4 implication is $115 million or so. Is that the right way to think about 2023 just to assume $150 million in a quarter, or should we think about it – I think you have a couple of billion coming due that's low rate debt maybe a little higher than that as we look into next year?

Dave Koning:

Yeah. And then think about the accretion from the buybacks on top.

Dave Koning:

Great. Thanks guys.

Ashwin Shirvaikar:

Thank you, Hi Gary, Stephanie, Woody and Erik.

Ashwin Shirvaikar:

Hi Woody and Erik congratulations.

Ashwin Shirvaikar:

I guess my first question is with regards to cross-selling. And it's something that you guys have always done, within a business unit obviously it's way of life, but cross-selling across business units as sort of FIS becomes the company kind of was intended to be after that -- after the mega merger. Could you talk about that? What kind of traction you're seeing is kind of looking at these top three global grocer adding banking capabilities in addition to Merchant? It seemed like it was interesting? Is that anecdotal, or is it more broad-based?

Ashwin Shirvaikar:

Got it. Got it. Thank you for that. And then, the other question was as you sort of look strategically given private company valuations are potentially finally just kind of coming back down to earth a bit. Is there an opportunity to be more aggressive there follow on with what you did with Payrix? And I ask that in the context of increased capital return versus M&A, but I think you can do both if you can kind of comment on that.

Ashwin Shirvaikar:

Got it. Thank you, Gary.

Ramsey El-Assal:

Thank you for squeezing me in here. I had a modeling question on interest expense in 2023. Is the right way for us to look at that to annualize the sort of implied fourth quarter 2022 number? Obviously, not factoring any kind of debt refinancing or anything you need to do next year. But should we just annualize that fourth quarter number to kind of come up with the full year 2023 number, or is there any other sort of puts and takes there that I should consider?

Ramsey El-Assal:

Got it. Thanks. And I apologize if I missed that before. I had a question also about the new modern banking platform wins and you called out one that was non-US. Could you talk about the opportunity in the pipeline outside the US in terms of the modern banking platform? How should we sort of frame that up looking forward?

Ramsey El-Assal:

Got it. Thanks so much. And Woody, best of luck on your next chapter. It's great working with you.

Operator:

Ladies and gentlemen, thank you for participating in today's question-and-answer session. I would now like to turn the call back over to Mr. Gary Norcross for any closing remarks.

Operator:

This concludes today's conference call. Thank you for participating. You may now disconnect.

Nathan Rozof:

Thanks, Siri. Good morning and thank you for joining us for the FIS first quarter 2022 earnings conference call. The call is being webcasted. Today’s news release, corresponding presentation and webcast are all available on our website at fisglobal.com. Gary Norcross, our Chairman and CEO will provide a business and strategy update, Stephanie Ferris, our President will discuss our operating performance, Woody Woodall, our Chief Financial Officer will then review our financial results and provide forward guidance. And finally, Erik Hoag, our Deputy CFO will also be joining the call for the Q&A portion. Turning to Slide 3, today’s remarks 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. Please refer to the Safe Harbor language. Also, throughout this conference call, we will be presenting non-GAAP information, including adjusted EBITDA, adjusted net earnings, adjusted net earnings per share, and free cash flow. These are important financial performance measures for the company but are not financial measures as defined by GAAP. Reconciliation of our non-GAAP information the GAAP financial information are presented in our earnings release. With that, I’ll turn the call over to Gary. Gary?

Stephanie Ferris :

Thanks, Gary. And good morning, everyone. This was an exciting quarter with momentum building for our new solutions as Gary discussed. Starting with banking, on Slide 8, we continue to see elevated organic growth posting our sixth consecutive 5% plus revenue growth quarter, which is well above the historical trend. Clearly our multiyear investment strategy is paying dividends. To bring our vision to life. I'd like to highlight a few strategic new wins, which are a direct result of our technology investments. Payments One is the most advanced scaled issuer processing platform in the market. We've migrated approximately 1,500 of our existing clients to this platform, and we continue to leverage its unique end-to-end capabilities to win new clients. In the quarter a top-20 U.S. financial institution selected payments one for debit processing and card production. We remain differentiated with our issuer processing capabilities and believe we have significant TAM to capture with this innovative platform. In addition, we're making significant investments in our wealth management platform, gaining a second landmark win with Mutual of America following our T Rowe price win last year. And then a third example our premium payback loyalty network is a truly unique solution that combines our strengths and issuing and acquiring to enable consumers to pay with points in store at the point of sale. This quarter, AT&T decided to join our loyalty network, and consumers will be able to use points from participating issuers to pay in AT&T stores. As retailers and issuers continue to join, we expect a powerful network effect. Capital markets grew revenue 6% organically as shown on Slide 9. Our team continues to transition the business to SaaS based revenue models, which drove recurring revenue up 8% in the quarter. Transitioning to SaaS not only increases the predictability and resiliency of growth, but also allows for incremental cross-sell opportunities as clients look to transition to the cloud. We've made significant investments in our transfer agency solution to create an as-a-service offering that drives efficiency and automation. Similar to banking. We had a second landmark win this quarter with a leading financial institution with more than $1 trillion in AUM, continuing the momentum from our Franklin Templeton win last year. This win builds on a longstanding core processing relationship and we were thrilled to enhance our value proposition by bringing them even more breadth of capabilities. We also saw strength with privately held investment firms. Our investment operations suite drove capital markets’ largest ever private markets deal with a premier high net worth multifamily office that will leverage our technology suite to transform their operations. Finally, we expanded our relationship with Robinhood in the quarter to empower their new stock loan income program. This expanded relationship helps cement our long-term vendor of choice partnership with Robinhood, where we continue to expand our value proposition across traditional and digital assets for this client. Overall, our end to end SaaS solutions are differentiated in the market and will continue to drive strong growth for capital markets. On Slide 10, our merchant segment generated 15% organic growth this quarter. And our Payrix acquisition is already paying off by signing several SaaS based platforms in the quarter. Payrix more than doubled their client count is compared to last year and we highlight a few recent wins, with platforms spanning the education, commercial and marketplace verticals on the slide. We also continued our success as a leading acquirer for crypto. Currency.com signed with us this quarter after witnessing our capabilities and client service for another crypto exchange. They were further attracted to our expansive global reach, which will help them expand their own business. Lastly, The Nielsen Report recently published their 2021 U.S. merchant acquirer ranking, which highlighted the strength of our e-commerce and software-led strategy. Our share of total U.S. volume increased by approximately 200 basis points to 20% in 2021 from 18% the year before. I couldn't be prouder of our team, the pandemic put them to the test and they continue to put our clients first and execute at the highest levels. I'll wrap up by sharing the performance of our sub-segments on Slide 11. Global e-commerce continues to be our fastest growing business with 23% growth on a constant currency basis. As anticipated, travel rebounded strongly in the quarter exceeding 2019 levels. Our large enterprise business grew 14% organically and continues to be a differentiated source of scale. Lastly, software led SMB grew 13% organically with restaurant and retail both growing double digits. With that, I'll now turn the call over to Woody to discuss our financial results. Woody?

Q - George Mihalos:

Great, thank you. Good morning, everyone. Thanks for taking my question and congrats on the on the results. I think you're -- just to kick things off. On the merchant side, the yield was strong. It was somewhat stronger than what we expected. Any reason why that should not continue throughout the course of the year or some of these verticals like travel come back. And then Stephanie, you talked about crypto and obviously your strong exposure there? How is that performing? And how are you thinking about that over the remainder of the year?

Stephanie Ferris :

Yep.

Stephanie Ferris :

Yeah. And then in terms of crypto, George, as you know, we've been talking about this for a while. We processed for the top four out of five largest crypto exchanges. They come to us because of the level of authorization and fraud rates that we can provide for them in terms of being benefits, but also because we're a large scale provider for them. And so you're continuing to see us take share in the crypto vertical. We really like the crypto vertical. You saw us sign a partnership this quarter with Circle, which is going to -- we will be the first provider of USDC crypto capabilities. So this is a really exciting vertical for us in our global e-commerce business. It continues to demonstrate the strength and differentiation of our e-commerce business. And we continue to be really excited about it.

Stephanie Ferris :

No. I think we -- this is obviously a very differentiated asset for us across the company. And given the size of the TAM and the growth of the TAM in e-commerce, this has been a strategic imperative for us and will continue to be. We think about this business in terms of continuing to expand geographically as well as adding APM. As you know, we are one of the two largest providers in this space, and it's growing significantly. We continue to take significant share. We really like what's going on in the global e-commerce space. We bought the Payrix asset so we could start to access SMB because we really have been up in the global space only, global launch of multinational. And so this is a place you're going to continue to see us double and triple down in terms of investment and focus. So we continue to be really excited about it.

George Mihalos:

Thank you.

Darrin Peller :

Hey, guys. Thanks and nice job. I want to touch on the banking segment just because, again, I see it as still the largest category of your business. When we look at the sustainability to growth, obviously, it's been strong. It came in a little better than our estimate this quarter. If you could remind us on the confidence level and why the conviction is there for that elevated growth rate, and maybe it's the pipeline you're seeing or the backlog to sustain itself for the next couple of years. Gary, I know we've touched on this, but more color on that now would be great. And then if you could also remind us on breaking down that. It's not just core banking or even bank. There's also issuer processing in there. The other pieces would be helpful to understand also.

Darrin Peller :

All right. Thanks, Gary. It's great to see the transition. Just a very quick follow-up, Woody, on margins. I mean we had thought you guys would be looking at more like a 43% margin for Q2. It looks a little better. Maybe just if we could touch on the components of the confidence on margins from here through the rest of the year. And thanks again, guys.

Darrin Peller :

Got it. Thanks, guys.

Rayna Kumar :

Good morning. Thanks for taking my question. Just starting with the bank technology business. Are you seeing any change in the competitive environment there, having any international players trying to enter the U.S.? And secondly, could you just help us understand the pricing trends for some of your largest FI clients over the next six to 12 months?

Stephanie Ferris :

Yeah. I think I might add, we just had our client conference a couple of weeks ago. And the two points that I think are really relevant here. One is the financial institutions, at least within the United States, are very strong coming out of the pandemic. I also think, to Gary's point, the pandemic has driven home from them the need to be digital and omnichannel because folks are struggling to come back into the banking centers. And so that is really contributing to Gary's point around demand. Demand is very high in terms of needing to be omnichannel, digital and driving the next gen technology. That's absolutely being recognized out there given the post-pandemic situation.

Stephanie Ferris :

Yeah. I mean we always get a slight benefit there. We don't think it's going to be material, but there is a benefit. Whenever there's pricing changes, obviously, we look and make sure we pass those along and then take an opportunity if we can, but we don't believe it to be material.

Operator:

Thank you. Our next question will come from Jason Kupferberg with Bank of America. Please go ahead.

James Woodall:

Yeah, I'll start, and then Stephanie can add on. Our volumes grew 10%, which, at the end of the day, really reflects the underlying mix in our business. We are under-indexed in SMB. We've got a heavy enterprise-based business. If you look at that compared to the fourth quarter, you have holiday spending in those big box. You have holiday spending in grocery, which we saw in the fourth quarter, that coming down a little bit. Obviously, we saw travel as a benefit in the first quarter. So there are puts and takes in there. At the end of the day, we always get the question around, are you losing share? We tried to highlight it very specifically. The Nilson Report showed that we gained two points of market share by volume for full year 2021, which is probably the best objective evidence or piece of evidence we can have that we're not losing share here. This is just seasonal movements, where we see the first quarter always a little lower than the fourth quarter. And at the end of the day, it's resulting in positive yields as well, where we saw double-digit growth in every segment and 5 points of yield during the first quarter.

Stephanie Ferris :

Yeah. I mean I think as the veteran merchant in the space, seasonality from Q4 to Q1, that's what this is.

Stephanie Ferris :

So if you thought about 17% in the fourth quarter, it's really 11% constant currency. We -- there's a natural decel from retail and grocery, which is about 6 percentage points. That's very natural for this portfolio. It has nothing to do with share loss. And then we benefited a point from travel and then there's this and that. So this is a seasonal thing. I know we like to talk about disruption a lot. There's seasonality in our portfolio. If you go back before 2019, you'll clearly see it. And to Woody's point, from a Nielsen’s standpoint, we're not losing share. We picked up share, but we know this is a favorite topic of everybody. So hopefully, that helps knit that number now.

Gary Norcross:

That's right.

James Woodall :

Yeah. I tried to highlight in the prepared remarks, we are seeing some potential headwinds from FX. We highlighted at a previous conference that Russia, Ukraine and the impacts of that on the Merchant business, we think we’re about a point of headwind in the merchant business. That said, the over performance in Q1, we're very pleased with the start to the year. And you adding all those together, we have not changed the full year outlook on any front there.

Operator:

Thank you. Our next question will come from David Koning with Baird. Please go ahead.

James Woodall :

Yeah. I think e-comm will continue to be our highest grower over the course of the year. No doubt about that, Dave. You've got some comparables as we go through the remainder of the year as we tried to highlight, and I think some of the earlier questions highlighted that. We're talking about 9% to 10% growth in the second quarter and still looking at double-digit growth for the merchant business for the full year. So no real change there. There may be some movements, as you see, again, quarter-to-quarter as these comps kind of settle out and we get into a new norm as we go forward here. But e-com will continue to be our highest growth sub-segment.

James Woodall :

Yeah. A couple of things there. We're seeing CapEx come down over the course of the year that we highlighted. We anticipate seeing CapEx rolling into '23 and beyond in kind of the 6% to 7% area. So that, combined with really -- you saw some impairment last year of some assets that obviously will benefit D&A going forward into the '23 zone and going forward. So that's the primary change there, Dave.

David Koning:

Yeah, all right. Thanks, guys. Nice job.

Lisa Ellis :

Hey, good morning. Thanks for taking my question. I was going to ask one or two on the banking solutions segment as well. Following up on Darrin's earlier questions, can you talk kind of stepping back post-pandemic, one, the demand environment, who are you winning against in that market? Are you primarily still winning against in-house displacements of legacy systems? And then my second question related to that is that, that business has historically been a U.S. business, but with the migration to the cloud and maybe some broader regulatory changes around the world, is there an opportunity over time for that business to expand internationally? Thank you.

Lisa Ellis :

Super helpful. Thank you. One quick follow-up just on Payrix. Can you just clarify how that -- how Payrix is integrating into the U.S. SMB business? I guess I was just looking at Slide 11, and it looks like at least on the slide, you've got a group with the global e-com business. But is it operationally integrated into your small business, business and sort of cross-selling into that existing base?

Lisa Ellis :

Got it. Terrific. Thank you.

Jamie Friedman :

Hi, Gary, Stephanie, Woody, complements on the slide deck. I really like this Slide 6 enterprise use cases. But I had a question on the macro. So Gary, I heard in your commentary about bank IT budget from the macro. But is there any high-level assumption? I know you're not -- you don't have a crystal ball, but at a high level on management's macro outlook for say, merchant on the macro side?

Jamie Friedman :

Okay. And then just so we can harmonize the models, Woody, with your prior commentary about the impact from Russia and FX. Because those did seem to deteriorate relative to the prior guidance. I mean just so I hear you right, you, for '22, are maintaining the guidance despite those incremental headwinds?

Jamie Friedman :

Got it. Thank you. I’ll jump back in the queue.

Operator:

Thank you. Our next question will come from Ashwin Shirvaikar with Citibank. Please go ahead.

James Woodall :

Yeah. Thanks, Ashwin. On free cash flow itself, first quarter for us is typically a lower conversion quarter in general as we think about shape of the year, every year. Last year and this year, we had some timing around working capital, so you saw a very good growth year-over-year in the first quarter of about 41%. Again, that translated to about 87% conversion of free cash flow to adjusted net earnings. It gives us a high level of confidence in getting to that 95% of adjusted net earnings for the full year as we'll see conversion increase over the course of the year, like we normally do. You combine that with the commentary around our capital -- CapEx investment that has peaked as a percentage of revenue, and we anticipate it actually to come down a little bit more over the course of the year. We're looking at '23 forward, we're looking at more 6% to 7% CapEx. So those items combined give us a lot of confidence in that 95%, again, with only 87%, just a few points below the 95% even in Q1. So feel very good about that outlook there. Gary, if you want to touch on the sort of M&A versus share buyback that might be great.

Ashwin Shirvaikar :

Yeah. No, that's very useful. Thank you. And if I can maybe ask on capital markets, 6% growth, but the report that you want to grow faster is 8% growth. So that's good. If you could remind us what the SaaS-based recurring revenue percent is? And when you highlight some of the notable wins, that transfer agency and private markets and so on. If you could talk a little bit about the sort of the clarity of your client base to look at your platform modernization. Is that sort of bringing people in? Can you give us an update on the platform modernization process?

James Woodall :

Yeah. When we bought the asset, it really was about 60% in terms of the recurring or SaaS percentage there. Coming out of the first quarter, it was a little over 70%. 72% was the actual number, continuing to see that grow overtime. We anticipate that to grow into the 80s and even look closer to banking over time with a reduced license and PS being the only other component of revenue in that group. So very pleased with the enhancement structurally around that, also the visibility. And as we've talked about before, it's enhancing the growth profile.

Ashwin Shirvaikar :

Thank you, for all the detail. Appreciate it.

Dan Dolev :

Hey, thanks for taking my questions. So this was actually a really good clean quarter, and congrats on this. I do have a question, I think, maybe more for Stephanie on the merchant acquiring side. Can you -- I know it was asked before, but can you help bridge the 200 basis point share gain versus Nilson and kind of what we're seeing versus the network, more from an enterprise/debit mix? Because I mean like the narrative last year was enterprise is really strong, debit was very strong. So maybe you can like parse out a little more in terms of like debit versus credit? And how much does that affect the kind of the discrepancy or the apparent discrepancy maybe?

Gary Norcross:

So Dan, just kind of to build on that, if you think about our enterprise business, to move 200 basis points, you've got to take a lot of transaction volume to do that. And that's where our enterprise play comes in. We've highlighted over throughout the pandemic, strengthen our sales engine in enterprise, right, and in e-com. And so you're just really seeing not only the large enterprise share gainers, right, that Stephanie referenced, but also our success in coming out of the pandemic reinvigorating our sales engine in enterprise as well. So all of those things are playing a contribution to the 200 basis points. The question around debit and credit in our enterprise play specifically really doesn't have a play. Plus it really doesn't for us. It really doesn't matter. For us, we're there to capture transactions. And whether it's presented as a credit or a debit transaction, really, our fee structures are very resilient in that. So you've got great stickiness in the enterprise because of scale. We have very, very low turnover. So clearly, what you've seen is just us taking share through the sales engine. Our large existing enterprise customers taking share through their scale and then the resiliency of the revenue stream credit and debit really, we're virtually immune to . It's really more transaction-based than volume-based.

Gary Norcross:

That's right.

Stephanie Ferris :

Yeah. I think -- look, we're up in the large space. So if you're a global e-commerce or large enterprise, as everybody knows, those are scale players who demand the price that they demand. The good news for us there is there's only a couple of us that can play there because you need scale. I mean historically, I think this industry has looked at SMBs in terms of a place you can increase price. I think we've seen -- we continue to have that ability. There is no pressure there. I think you probably heard that from other people. But I think there's a big pricing lever sitting in our book today. I don't. I think it's the same amount of opportunity. It's always been. I don't see anything significant or new, but it's always there, and we always take advantage of it when we can.

Operator:

Thank you. And today's final question will come from James Faucette with Morgan Stanley. Please go ahead.

James Woodall :

No. We anticipate buying $3 billion in 2022 stand-alone and utilizing all free cash flow in 2023. Excess free cash flow would be buying $6 billion in 2023. The combination of those 2 will be about $9 billion or about 15% of our current market cap.

Gary Norcross:

Well, look, James, I mean, we've been in business for a very long time, right? So as you think about it, a lot of technologies in financial services are based on historical legacy platforms. We took we pivoted the company back in 2015 to really start focusing on the next-generation capabilities that we're going to need to be -- that you're going to need to compete for the next 20-25 years. And so as you start looking at, whether it was in the merchant platform where we invested heavily in the new acquiring platform, and access Worldpay, we've got that fully online now; whether you look in the banking sector and you look at what we've done around modern banking platform, which is the most leading technology for cloud-native core banking system in market. You've seen that with our wins, but look at what we did on Payments One, which is a cloud native issuer platform for both debit, credit, prepaid. You then move into our Digital One, our omnichannel experience that wraps around those capabilities, once again coming fully online in market and then our CodeConnect platform for our micro services layer. You then move into what we did in Capital Markets, where we really leaned in our solutioning about bringing our capabilities and launching that in the cloud to leverage both buy-side and sell-side type capital markets capabilities on SaaS deployment, that all boils down to we're wrapping up those programs. And so we increased our capital starting back in 2015. We were running at about 5%. And we ramped that up to, I think, as high as 11% of total revenues. And as those platforms have now come to conclusion, you would expect those investments to come down. Now what we've all talked about, we'll maintain that around 6% to 7%. We think there's an opportunity to continue to lean in and add functionality and continue to grow and expand our revenue growth and our share. But all programs come to a natural conclusion. And we're just on the back side of the modernization of our solution stack. Now we do have a historical back book that, at some point in time, we'll start migrating. Stephanie highlighted some of the stuff we're already doing in banking. We've migrated more than 1,500 of our clients to Payments One as an example. But more to come on that as we upsell and migrate our existing customers to those capabilities. But we feel very good about our competitive position. You see all of our segments growing and taking share by various metrics. And so at this point in time, we're just -- we're wrapping up a lot of these platform transformations.

Gary Norcross:

Yeah. No, exactly. Exactly. We feel great about it. Well, look, I want to thank you for joining us this morning, and thank you to our dedicated colleagues for another strong quarter. Before we conclude, I wanted to give a special thanks to our team for hosting a very successful Annual Client event. We had over 4,000 participants. This live event was a remarkable showcase of our solution suites to industry leaders. We are grateful to be interacting in person where our client-centric culture truly shines. Feedback from the event has been exceptional, as clients and prospects learn how our innovative capabilities can solve their most pressing business needs. We remain committed to providing world-class technology solutions to our clients so that we can stay ahead of the curve. This commitment will lay the foundation for our growth in 2022 and beyond. If you had any further questions that were not addressed on this call, please reach out to our Investor Relations team. Thank you, and I hope you enjoy the rest of your day. Goodbye.

Nathan Rozof:

Good morning and thank you for joining us for the FIS fourth quarter and full year 2021 earnings conference call. The call is being webcast. Today’s news release, corresponding presentation and webcast are all available on our website at fisglobal.com. Gary Norcross, our Chairman and CEO will discuss our operating performance and 2022 priorities, Stephanie Ferris, our President will describe our strategy to unlock the value of FIS, Woody Woodall, our Chief Financial Officer will then review our financial results and provide forward guidance, finally Erik Hoag, our Deputy CFO will also be joining the call for the Q&A portion. Turning to Slide 3, today’s remarks 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. Please refer to the Safe Harbor language. Also, throughout this conference call we will be presenting non-GAAP information, including adjusted EBITDA, adjusted net earnings, adjusted net earnings per share, and free cash flow. These are important financial performance measures for the company but are not financial measures as defined by GAAP. Reconciliation of our non-GAAP information the GAAP financial information are presented in our earnings release. With that, I’ll turn the call over to Gary. Gary?

Stephanie Ferris:

Thanks Gary, and good morning everyone. I’m excited to be here and to share a little bit more about our vision to unlock the power of FIS. FIS is uniquely positioned with the best and broadest set of assets delivered at scale and with global reach. All the start-ups that are coming to market are trying to create what we already have. They want to offer embedded finance solutions and are trying to build those capabilities one by one. We already have leading deposit, lending, issuing and B2B solutions, and we have a large network of financial institutions, capital markets and merchant participants to drive adoption at a global scale. Our clients compete effectively within their traditional segments, but the market post-pandemic has shifted and the lines between traditional segments are blurring. By bringing all of our capabilities together to deliver embedded finance solutions, we have the unique opportunity to help our clients compete and win in this new reality. I’ll build on this by providing an example of how we are translating our leading crypto capabilities within ecommerce to drive innovation across all of FIS. Beginning with Slide 10, we see merchant’s ecommerce opportunity as centered around three segments

Operator:

Our first question will come from Rayna Kumar with UBS. Please go ahead.

A - Gary Norcros:

Yes Rayna, thanks. It’s a great question. Honestly, we don’t--we’re not seeing a lot of change from a demand standpoint - it’s been very strong and it continues to accelerate that strength into 2022. We’re coming off a record year in banking sales that was off a record year in 2020 as well, and 2019, so we’ve seen consistent acceleration of our signings. What we’re seeing in that industry is a massive transformation in the needs that occur off legacy technologies, and we are well ahead of this trend. As you know, we started our cloud migration over five years ago, we started our cloud-native development applications end market three years ago, and then brought modern banking, was the last one that we brought forward, so seen a really strong pipeline around all of those topics as financial institutions around the world are going to need to transform to go to more componentized, highly nimble architectures, open systems that allow them to drive and innovate against some of the other disruptors that are entering in the space. As you think about interest rates, and obviously there’s been a lot of touting of interest rate expansion, this is good news for our financial institutions, so it will actually embolden them to continue to accelerate that spend and that demand on those fronts, but we think we’re extremely well positioned going into 2022. We’re coming off a great year in banking, and that’s going to continue throughout next year.

Stephanie Ferris:

Yes, I’m happy to talk about that. Payrix is a small but really highly strategic acquisition for us. First of all, it brings our leading global ecommerce capabilities downstream to SMBs through platforms, similar to Stripe Connect. Specifically, it brings capabilities around automated underwriting and on-boarding, which are really critical for us to be able to access that marketplace. Secondly and even more strategically, it enables us to add our unique card present capabilities to create an omnichannel experience, along with our embedded finance capabilities, whether it’s deposit taking, issuing, banking as a service capability, so we think about this acquisition as being very strategic, both in terms of accessing an ecommerce market we haven’t been in before but also really unlocking the value of FIS as we start to be able to deliver embedded financial services out to this marketplace.

Rayna Kumar:

Got it, thank you.

Jason Kupferberg:

Morning guys, thanks for taking the question. I just wanted to go back to the slides where you outlined the volume growth versus the networks. Like you said, the trajectory is quite similar, but just the absolute level of growth, obviously the spread there widened out a bit in the quarter. Do you attribute all of that to omicron? I’m just trying to get a sense of how investors’ expectations should maybe be calibrated during 2022. Do you think there could actually be some convergence in the absolute level of volume growth for FIS merchant versus the networks, and is there any way to perhaps suggest what merchant volume or revenue growth in the quarter would have been if not for omicron? Thank you.

Jason Kupferberg:

Okay, understood. Then just a follow-up on the SMB ecomm strategy - it sounds like there will be more formal announcements over the next quarter or so, but how long do you think this takes to move the needle on overall merchant segment revenue growth once the strategy is implemented and you start to execute out in the market?

Stephanie Ferris:

I think Gary nailed the answer to that. The other thing I would say is as we look at the merchant segment and we think about ecommerce as being--you know, we’re one of the best-in-class, and being able to access a market we haven’t been in before, it’s obviously very strategic. It also enables us to bring the embedded finance capabilities of the banking and capital markets segments into this customer set and really starts to unlock that full value, and we do--we’re very excited about that. Now granted, that’s going to take us a bit of time, to Gary’s point, but the asset is really strategic for us both from accessing the ecommerce segment as well as really starting to deliver those embedded finance capabilities that we already have, so we’re really excited about it.

Operator:

Thank you. Our next question will come from John Davis with Raymond James. Please go ahead.

Woody Woodall:

Yes, the impact on stimulus is about 150 basis points - think primarily Paycheck Protection Program and the lending capabilities that we rolled out last year. The term fees are roughly 50 basis points, and our expectation is just lower term fees this year. We do have CPI within our contracts - they roll over in terms of how the contracts roll in terms of annualization, so that will come on over the course of the year. It’s really how we think about the shape of the year too, where we expect a little higher growth in the back half of the year as those contracts kick in with CPI.

Woody Woodall:

Yes, it’s a great point, John. We’re trying to highlight it as well. We’ve been spending heavier than many in the capex world for the past several years. We actually anticipate capex of about 8% to 9% this year, but I could see it rolling towards the lower end of that outlook. As we see that, you’ll see cash flow outpace earnings per share potentially for the next few years and then it will normalize out, where you’ve seen it go the other direction for the last several years, where we were expanding capex and then the D&A is catching up right now. The D&A right now is one of the headwinds that we’re seeing in terms of higher teens EPS growth, but you’re seeing it convert into free cash flow at that 15% growth level.

Operator:

Thank you. Our next question will come from Darrin Peller with Wolfe Research. Please go ahead.

A - Gary Norcros:

Yes Darrin, it’s a great question. The quick answer is absolutely - we think these are in the near term easily 7% to 9% growers as we get beyond a couple of these headwinds in banking. From an asset pool, I think we’re best in class at this point in time. Woody just highlighted it - our free cash flow is increasing because our large program spend is coming down, because our large programs are completing, right, and so we knew we were going to have to go through this process. But if you look from the banking standpoint and you look at our Digital One capabilities, which is truly and omni-channel digital experience, cloud-native from the ground up build, we’re into hundreds and hundreds of institutions now that have deployed various components of that Digital One platform. When you look at Code Connect, we’ve got a similar scenario. You look at our modern banking platform and some of our key wins. With that being said, we have had some competitors announce that they’re entering into the space, and we think that just endorses our strategy that we started three-plus years ago. Today, we’re leader in cloud deployment, no one can beat us on availability, no one can beat us on total cost of ownership and delivery through our private cloud, as well as our ability to burst to the public cloud. When you look at our application stack, we have the most advanced solid application stack in market today, and even our capabilities of driving further outcomes through back office-type services, etc. When you look at capital markets, it’s a very similar story. We told everybody that we were going to start leaning into software as a service and deploying in the one-to-many model our leading capabilities, after we brought our applications together and modernized those through an end-to-end solution stack. You look at what we saw in 2021, you look at what we’re seeing in 2022, that acceleration is just going to continue. The only headwind we have in that market is really our license fee grow-over business, which over the years we’ve been telling the market very consistently the percentage of revenue tied to license fees continues to decline, but we do still have license fee volatility due to the term nature of those fees. The recurring revenue on capital markets has been growing very, very strong now for a number of years, that continued through 2021, so both of these businesses have continued to perform exceptionally well and our timing has been very strong, given now this inflection point that all of our financial institutions and large investment houses, private equity firms are going to need to be going through a modernization strategy, and they’re all looking to drive that in a highly resilient outsourced fashion. We feel great about these two businesses, a little headwind in the banking business this year due to the grow-overs Woody talked about, but this is a very--these two businesses can easily grow greater than 7% in the coming years, and we feel very good about it.

Woody Woodall:

Yes Darrin, it’s interesting - I talked about we had a couple of things going there. One, we’re going to pay debt down below three turns. In a rising interest rate environment, we think our credit rating is extraordinarily important. The pandemic put us behind probably two years in terms of reducing our debt back to below three turns, so we’re going to focus on that first. At that point in time, call it midyear this year, we’ll look to either buy back shares or do additional M&A. As you’ve heard us consistently talk about, we would rather do M&A, but we look at share buybacks for default purposes. Your other point is also very interesting, where there’s some interesting assets that are in the marketplace, valuations look a lot differently than they did, say six months ago, so it maybe resets a bit of chessboard for other assets that are out there, that we might be able to consolidate or bring into our distribution channel.

Darrin Peller:

Thanks guys.

Ramsey El-Assal:

Hi, thanks so much for taking my question this morning. I was wondering if I could ask you about revenue yield and the trend for the rest of the year, whether we should continue to expect to see expansion in fiscal ’22, I guess due primarily to travel, recovery in travel volumes and other mix-related factors, but any commentary on the revenue yield trend and expectations in ’22 would be appreciated.

Ramsey El-Assal:

Got it, all right. A follow-up from me, I wanted to ask about Slide 7 and the componentized cross-segment solutions that you discussed. What type of internal work needs to be done technologically or organizationally, what type of integration needs to be done in order to really execute on that strategy? Also, if you could comment on whether share repurchase is contemplated in the EPS guide.

Woody Woodall:

To answer the second part of your question around share buyback, we do anticipate and have modeled about $3 billion in share repurchase, and that’s mostly in the back half of the year, Ramsey.

Operator:

Thank you. Our next question will come from Dave Koning with Baird. Please go ahead.

Woody Woodall:

Yes, as we’ve talked about, as recovery occurs particularly in the high yielding verticals, we certainly would anticipate that to invert the other way, as we’ve talked about for the last several quarters, actually. That said, we don’t see travel coming back 100% in 2022. We do continue to expect it to increase over the course of the year, but not to be at 100% of pre-pandemic levels. But you’re right - we do anticipate seeing yields being a net benefit as those higher yielding verticals return back to more normalized levels.

Dave Koning:

Got you, thank you. Then just as a follow-up, I think if I remember right, back when you announced Worldpay, I think you assumed mid-teens EPS growth through the--you know, in the future. I know you’re guiding to 11% to 13% this year despite pretty good revenue growth and recovery-type revenue growth. Maybe what’s the delta there, and can we get back to mid-teens or better in the future?

Dave Koning:

Got you, thanks guys.

Timothy Chiodo:

Great, thank you. Good morning. Thanks for taking this question. It’s on the embedded finance opportunity. You talked a lot about addressing this with new platforms and expansion into SMB and ecommerce. Maybe you could talk a little bit about the opportunity for embedded finance with your existing book of software partners through the traditional integrated payments business, and as a follow-up, maybe you could just give us an update on the number of software companies that you’re already working with through that business - I understand it’s a pretty large absolute number and a good starting point.

Timothy Chiodo:

Great, thank you.

Lisa Ellis:

Hi, thanks for taking my question. I wanted to follow up on the announcement you made around Authmax Preferred. You had highlighted this capability, I recall, at the time of the Worldpay acquisition, the ability to connect the issuer processing side and the acquiring side together to offer the differentiated solution. Can you just maybe dimension a bit how we should think about from what portion of either the TAM or your existing customer base this type of capability is applicable to, and what opportunity that could drive for FIS?

Stephanie Ferris:

Yes, I think it’s very relevant, as Gary said, for our global ecommerce clients. The power of having issuing and acquiring data together is very powerful. I also think--you know, I keep beating this drum on platforms, but I also think that it’s really relevant for platforms that serve SMBs or marketplaces because, as Gary said, they’re really about driving those businesses’ revenue, and so being able to authorize a transaction or more transactions is really relevant to them. It drives revenue to the end business, and so we think it not only is really relevant for our global ecommerce base but also for really any software-as-a-service platform or marketplace out there who’s really trying to help SMBs deliver more revenue to their end customers.

Stephanie Ferris:

Yes, so really it’s all about--we do believe that payments is going to be embedded in software. Software is how payments are going to be consumed, and so whether you’re getting a payment through a platform or through a marketplace, we do ultimately see software being the leading capability for that, which is why we bought the Payrix asset. Lisa, we’re starting with platforms, the software-led piece, and then we’re giving ourselves some optionality around SMB direct, but our strategy is really around enabling those software-as-a-service platforms to enable their SMBs long term. We do see vertical-specific strategies. As you know, we haven’t been a buyer of software. We don’t think that’s the right answer for us. We think the right answer for us to be the embedded finance and payments player for all those software-as-a-service companies, and you can really start to see there’s a lot of niche players that are coming up and providing all kinds of as-a-service capabilities to these platforms - payments as a service, checkout as a service, risk as a service. We see in the midterm, we stand perfectly positioned to deliver those types of services. We’re just starting with what we have in-house, which is payments and banking as a service solution, but we don’t see these platforms long term wanting to have that many vendors and that much complexity in their back office. Hopefully that helps.

Operator:

Thank you, and we do have time for one last question. That will come from Tien-Tsin Huang with JP Morgan. Please go ahead.

Stephanie Ferris:

Yes, great question, Tien-Tsin. I think the world started with integrated. I think as software pushed down market and became much more competitive, the world has moved and evolved to embedded, so those platforms. The integrated solution will always be available, but it’s a bit of an evolution, which is now we need an embedded with payments capability, and then I think you’re even, the next-gen as well is embedded fintech. I don’t envision embedded payments lives by itself very long either. I do think you’re seeing the world converge on embedded fintech. I think the nice think about the Payrix acquisition for us is it enables us to give any model people want. Some people might be really happy with their integrated solution and that model. We now have the embedded payments solution in that model, and as you know, we have a Payfax solution in that model. We do have a pretty significant back book of card present ISVs, and we’re pretty excited about it because we think that we can now offer out embedded capabilities. Remember, along with these embedded capabilities beyond on-boarding and underwriting, there is also all kinds of other a-la-carte services we can offer, like KYC, credit risk monitoring, a lot of capabilities that these platforms have been looking for. We do have to keep a close eye out on the financials around that, but we think we’re pretty good at that, and we’re excited about the opportunity both for front book and back book.

A - Gary Norcros:

Yes, thanks Tien-Tsin, it’s a great question. We always try to balance margin expansion versus investment. We haven’t pulled back on our capital as well. The synergies and the level of synergies that we’ve been able to push through and the operating leverage within the business allows us to continue to invest but to still drive that margin expansion, even in light of higher labor costs this year, so we feel good about having enough money to invest and having enough resource focused towards that investment. When we talked about capex maybe not being quite as high as it has been in the past, we still have a good bit of capex, call it 8% of revenue outlined to build out some of those capabilities Stephanie’s talking about as well, so we think we’re properly resourced and feel good about being able to deliver these capabilities that will help drive revenue growth in ’23 and ’24 and beyond.

Operator:

Ladies and gentlemen, thank you for participating in today’s question and answer session. I would now like to turn the call back over to Mr. Gary Norcross for any closing remarks.

Operator:

Ladies and gentlemen, this concludes today’s conference call. Thank you for your participation. You may now disconnect.