The FIS third quarter 2023 earnings conference call is about to begin and all participants are in listen-only mode. The call will include a presentation and a question and answer session. The call is being recorded and will be led by George Mihalos, Head of Investor Relations, with CEO and President Stephanie Ferris and CFO James Kehoe also present. The call will contain forward-looking statements and non-GAAP financial information, with a reconciliation to GAAP financial information provided in the earnings release.

Stephanie Ferris, the leader of FIS, is pleased to report that the company has had a strong quarter, meeting or exceeding their financial targets. The company has taken actions to transform and reposition itself as a global enterprise software leader, with a strong balance sheet and a focus on recurring revenue growth. This has led to confidence in their current outlook and future prospects, as seen through positive momentum in key leading indicators.

FIS had a strong quarter with steady recurring revenue growth, a robust sales pipeline, and successful implementation of new platforms. They are confident in the business and have resumed share repurchases. They also outperformed their financial outlook, driven by strong organic revenue growth and profitability improvements. FIS is on track to exceed their free cash flow conversion target for the year. They are making significant strides in transforming the company, with the Worldpay separation expected to close in the first quarter of 2024.

FIS and Worldpay have achieved important milestones in their separation, including securing financing and making progress on regulatory approvals. The Future Forward program is on track to deliver $1 billion in savings and improve new sales momentum. FIS is positioned as a leading software solutions provider for complex financial institutions and is expanding its offerings to include multi-national corporates, insurance companies, fintechs, and neo banks. Their next generation core banking solution, Modern Banking Platform, is now live with several Tier 1 institutions and fintechs.

FIS has announced the launch of several new digital savings and deposit account products for various financial institutions in the U.S. and expects to see more Tier 1 banks adopt their offerings in the coming years. They are also focused on leveraging their open architecture and APIs to bring new capabilities to clients. In the capital markets segment, FIS is seeing strong growth due to increased regulatory mandates, climate and environmental risk demands, and growth in lending from non-bank providers. The company has also secured several high-profile wins in both the banking and capital markets segments, including being selected by Provident Bank for core modernization and Origin Bank for their Digital One suite.

In the third quarter, FIS had strong sales in payments and networks, with notable signings from leading retailers, restaurants, and fintechs. They also saw increased interest in their FedNow roll-out and had impressive wins in their capital markets division, including a long-term extension with a top U.S. financial institution and their largest contract ever for private equity fund accounting software. Their risk tools are in high demand across all geographies and verticals, particularly in the insurance industry. FIS also received industry recognition for their advanced technology, customer base, and breadth of functionality in treasury solutions from leading advisory firms and publications. Overall, FIS is seeing strong engagement and interest in their solutions from both clients and industry experts.

The speaker discusses the progress made in improving the company's performance and financials, as well as the recent separation of Worldpay. They also introduce the new CFO, James Kehoe, and mention the transition to presenting financials on a continuing operations basis.

In the third quarter, FIS had a 2% increase in total company revenue, with an adjusted EBITDA margin of 44.2% and adjusted EPS of $1.65. The adjusted EBITDA margin expanded 50 basis points year-over-year, driven by strong incremental margins and benefits from Future Forward. On a continuing operations basis, revenue increased 4% and adjusted EBITDA margin expanded 70 basis points. Adjusted EPS for continuing operations was $0.94, a decline of 7% due to higher interest costs. However, the split between continuing operations and discontinued operations does not fully reflect the company's true earnings power, which includes a 45% equity stake in Worldpay and expected debt reduction and share repurchases. FIS estimates a like-for-like earnings power of $4.40 to $4.55 for 2023.

In the third quarter, the company's discontinued operations, which includes the merchant segment, saw a 1% decrease in revenue, in line with expectations. Adjusted EBITDA margin improved and adjusted EPS was $0.71. The company also reduced capital expenditures and generated strong free cash flow. Total debt was reduced and the leverage ratio improved. In the banking segment, recurring revenue increased 7% and backlog grew 2%. Banking revenue grew 3% organically, with a 7% increase in recurring revenue, partly due to pandemic relief programs. Professional services and non-recurring revenue saw declines due to difficult year-over-year comparisons.

The banking EBITDA margin increased by 120 basis points due to cost-saving initiatives. Capital markets revenue grew by 6% organically, with recurring revenue leading the way. Professional services revenue decreased by 8%, while non-recurring revenue increased by 13%. The outlook for 2023 has been raised, with total company revenue projected at $14.6 billion to $14.65 billion. The outlook for banking and capital markets has been narrowed, with expected organic revenue growth of 1.3% to 1.7% and 5% to 5.5%, respectively. The merchant segment outlook has also improved. In the fourth quarter, there will be a slight deceleration in organic revenue growth for banking and capital markets due to difficult year-over-year comparisons. A five-point headwind is expected in capital markets as they compare to a strong year-ago quarter for license revenue.

The company is expecting a strong quarter in both banking and capital markets, with 3% and 7% growth respectively in recurring revenue. They have increased their adjusted EBITDA range and raised their full year outlook due to continued outperformance and a positive future outlook. The Worldpay transaction is expected to bring in net proceeds of more than $12 billion, which will be used to de-lever the balance sheet and return capital to shareholders. The company plans to reinstitute share repurchases of $500 million by the end of the year, and has increased their targeted share repurchases to at least $3.5 billion by the end of 2024. They also expect growth in D&A and a lower effective tax rate compared to previous estimates.

FIS expects to save $215 million in 2024 from Future Forward and anticipates $200 million in adjusted EBITDA dis-synergies. They will include their 45% stake in Worldpay in their adjusted net earnings and EPS for 2024. Their 2023 outlook for continuing operations, excluding Worldpay, is $3.30 to $3.40. However, this does not accurately reflect FIS's true earnings power due to interest expense being burdened with no allocation to discontinued operations. Adding Worldpay NCI and deployment of transaction proceeds would lead to a normalized 2023 EPS of $4.40 to $4.55. FIS has delivered $55 million in year-to-date savings from Future Forward and expects $200 million in run rate benefits by the end of the year. They will provide quarterly updates on the program's progress.

FIS anticipates $1 billion in total cash savings and will prioritize investments for growth while returning capital to shareholders. They will maintain a strong balance sheet and credit ratings, and plan to use excess capital for share repurchases. The company is confident in their financial commitments and has increased their outlook for the year.

The company has introduced its outlook for 2023 and is confident in its performance. It plans to reinstate share repurchases and raise its total buyback to at least $3.5 billion through 2024. During a Q&A session, a question was asked about the expected EBITDA margins after the Worldpay sale next year, but the company did not provide specific guidance for 2024. However, they mentioned the success of their Future Forward initiative, which has resulted in $55 million in savings year-to-date and is expected to reach $100 million by the end of the year. The company also stated that they will see an increase in EBITDA margins in the fourth quarter.

The speaker, James Kehoe, discusses his reasons for joining FIS, including the passion and drive of the leadership team, the potential for future success, and the strong financial plans in place. He also mentions his three priorities, which he refers to as the "three Ps": passion, people, and potential. He believes his prior experience will be beneficial in helping the company achieve its goals.

The speaker discusses their experience with accounting and the Worldpay transaction, as well as their goals for engaging with investors and creating a balanced capital allocation framework. The interviewer asks about the company's visibility going into the fourth quarter and its potential impact on growth expectations for 2024. The speaker's response focuses on separating license sales from recurring revenue and mentions an increase in backlog.

The speaker believes that recurring revenue will continue to be strong in both banking and capital markets in the fourth quarter and in 2024. They mention that there were non-recurring headwinds in the fourth quarter of last year, but they do not expect them to recur in 2024. They encourage listeners to focus on the strong recurring revenue growth and mention that they will provide more information on 2024 during the fourth quarter call. The speaker also notes that capital markets saw a 7% increase, but it is unclear what specific factors drove this growth.

The company expects strong recurring revenue growth in the capital markets segment to continue due to increased sales to existing clients and expansion into non-traditional verticals. They do not anticipate any changes in growth rates in the fourth quarter or in 2024. The lumpy non-recurring revenue numbers in the past have been attributed to timing related to license renewals. The analyst asks about how to measure performance in new bookings and signings in the banking segment, and the company responds that backlog growth may be a good indicator, but there are nuances to keep in mind, such as longer closing times for larger deals.

The speaker discusses the company's upcoming investor day and plans to provide key performance indicators for sales. They mention strong market demand and sales productivity, as well as a focus on selling higher margin technology solutions. The company has seen a 10% increase in their sales pipeline and a 50 BPs improvement in margin contribution from new sales. They are optimistic for fourth quarter and 2024, but note that it may take some time for recurring sales to show up in the P&L. The speaker also clarifies the Q4 organic growth numbers and takes questions from analysts.

The speaker clarifies that banking is expected to be flat in the fourth quarter, while capital markets will see a slight increase. The decrease in banking is due to non-recurring factors, but the recurring growth is strong. The backlog has been stable since the first quarter, and the speaker encourages thinking about 2024 recurring growth rather than focusing on short-term fluctuations.

The company expects to see a steady backlog of $22.5 billion to $23.5 billion over the next few quarters, which will contribute to recurring revenue growth. They are focusing on smaller sales rather than large deals and expect to see an increase in margin next year. The demand environment is strong and they are confident in sustainable revenue growth despite one-time items. They are expecting 3-4% growth in the banking sector.

The demand for the company's capital markets business has increased due to successful new products and expanding into new markets. The banking side has also seen a rise in demand for digital solutions. The company is also benefiting from recurring revenue through transactions and new deposit accounts. The company is feeling positive about their sales and recurring revenue.

The speaker is optimistic about the company's future and believes that the team has worked hard to reposition the company and separate it from Worldpay. The culture within the company is good and the team has rallied around the changes. The speaker also clarifies that the projected earnings for 2023 do not account for the high interest expense and other moving parts, but are still close to what was previously modeled for RemainCo.

James Kehoe explains the key part of the chart, which shows the allocation of expenses for disc-ops and RemainCo. He notes that the quarterly income statements for both companies are incorrect due to certain rules, but if they were rebuilt, RemainCo's earnings would be $3.30 to $3.40. However, this is incorrect as it does not take into account the expected decrease in interest expenses and the impact of the share repurchase program. Kehoe explains that the $65 billion capital deployment plan includes paying down debt and repurchasing shares, and that the base year earnings would also benefit from the full year impact of the share repurchase program.

The speaker discusses the potential growth and opportunities for the NCI line in 2025, and mentions that the company will be more aggressively managed for cash and will pay down debt quickly. They caution against giving specific guidance for the future, but state that the base year will be $4.40 to $4.55 in EPS and the company will grow from there. They mention a dilutive transaction that will affect EPS growth rates, but assure that the company will still grow from the floor of $4.40 to $4.55. A question is asked about this information, but there is no response.

Stephanie Ferris, a representative from a financial company, is asked about the potential impact of a softening economy on the banking and capital markets segments. She acknowledges that it is difficult to predict the future, but mentions that their company has moved away from being heavily reliant on consumer spending. She also mentions that their solutions are still in high demand and they have been successful in securing new clients for their debit routing for card-not-present transactions. She believes this could be a significant opportunity for their business in 2024.

The speaker, Stephanie Ferris, discusses their sales force transformation and how it has led to improved sales and margins. They have focused on selling technology-enabled software and moving away from non-recurring sales, which has resulted in a strong sales pipeline and productivity. However, it is still early and they are closely monitoring the progress.

The speaker discusses their team's success and accountability in sales, and addresses a question about the market. They thank the audience and conclude by expressing excitement for the future of FIS and their plans for long term growth.

This summary was generated with AI and may contain some inaccuracies.