The paragraph is an introduction to the FIS Third Quarter 2024 Earnings Call. The operator starts by welcoming participants and explaining the call's format, noting that it is being recorded and will include a question-and-answer session. George Mihalos, Head of Investor Relations, then introduces the event, mentioning that the conference call is being webcasted and related materials are available on the company's website. He introduces key speakers Stephanie Ferris, CEO and President, and James Kehoe, CFO, who will provide strategic and financial updates, respectively. Mihalos also notes the inclusion of forward-looking statements subject to risks and indicates the presentation of non-GAAP financial measures, with reconciliations available in the earnings release. Stephanie Ferris is then handed over to continue the call.

FIS reported strong third-quarter results, outperforming financial targets and establishing strategic partnerships to enhance its position in the money lifecycle. Key highlights include a 4% growth in adjusted revenue driven by recurring revenue acceleration, a 41.3% adjusted EBITDA margin, and a 13% year-over-year increase in adjusted EPS. The company returned $700 million to shareholders and acquired Dragonfly Technologies. FIS's sales momentum remained strong, particularly in core banking and digital solutions, with new deals signed across its core platforms. The outlook for 2024 has been raised due to strong operational performance and capital allocation.

The company's digital business is experiencing significant sales growth, with new sales nearly doubling year-over-year. This growth is supported by the recent acquisition of Dragonfly, which enhances their Digital One portfolio by offering solutions to large financial institutions, including regional banks where they already have relationships. Dragonfly also introduces cross-sell opportunities with banks not currently using an FIS core. Their payment offerings, especially their loyalty solutions, have performed well, securing new partnerships with leading companies across various sectors. The company is launching innovative treasury solutions with AI partners, and their digital trading storefront and commercial lending are seeing strong growth. Overall, the company is executing well across its growth vectors, with continued sales momentum and new partnerships.

The paragraph highlights successes and developments in various banking and financial solutions sectors for the company. It mentions a competitive win with South Shore mutual bank and a new agreement with a global commercial bank in the APAC region for their IBS core. Digital solutions saw strong sales, notably expanding a relationship with EverBank, utilizing the Digital One teller solution. The company's premium payback loyalty offering had a successful quarter, notably partnering with Commerce Bank for a loyalty platform and working with Apple on payment options for Apple Pay users. Additionally, FIS renewed and expanded its treasury risk solutions relationship with a major South African financial services provider and saw continued demand for commercial lending solutions.

The paragraph highlights the achievements and progress of FIS, a financial services company. EverBank and Beal Bank have chosen FIS solutions for commercial loan origination and servicing needs, respectively, showcasing FIS's value in serving complex clients in banking and capital markets. FIS has been recognized by Time Magazine as one of the world's best companies and received accolades for its solutions, with IDC naming its Modern Banking Platform as a leader. Chartis Research also acknowledged FIS's AI adoption. The paragraph also mentions new board members and shifts to a financial update by James Kehoe, who reports strong Q3 performance, exceeding expectations in revenue growth and adjusting their full-year 2024 projections. The adjusted EPS grew significantly compared to the previous year.

The paragraph outlines adjustments made to the company's financial statements, which had a minor impact on adjusted EPS for 2022, 2023, and early 2024, without affecting free cash flow. Despite these changes, the company has raised its full-year outlook. It reports total debt of $10.9 billion and a leverage ratio of 2.6 times, having returned $700 million to shareholders, including $500 million in share repurchases. Year-to-date, $3 billion worth of shares have been repurchased, with a target of $4 billion by year-end. The company expects free cash flow conversion of 85% due to increased capital expenditures, which have risen to 9% of revenue. Segment results show an adjusted revenue growth of 4%, with recurring revenue growth at 6%, and banking revenue growth at 3%, while non-recurring revenue decreased by 24% due to comparisons with the previous year's pandemic relief revenue.

The company reports a 10% increase in professional services revenue and a 10 basis point expansion in adjusted EBITDA margin due to cost savings and operational efficiencies. Capital markets adjusted revenue grew by 7%, primarily from recurring revenue, and other non-recurring revenue saw a 20% increase. The adjusted EBITDA margin in capital markets expanded by 90 basis points. The company is raising its full-year revenue and EBITDA forecasts by $20 million and $10 million, respectively, and expects a full-year EBITDA margin of 40.7%. The full-year EPS outlook has been increased by $0.09, indicating growth of 16% to 17%. The company shows confidence in capital markets meeting the higher end of revenue growth targets and anticipates banking to meet the lower to midpoint of the projected range.

The company has increased its EPS outlook due to operational outperformance and reduced interest expenses, attributed to lower debt from slower M&A activity. Despite this, the acquisition pipeline is strong with expected future deals. The EMI outlook has been raised by $35 million to between $480 and $495 million due to delayed operating expenses. The full-year adjusted EPS has been increased to $5.15 to $5.20, a 10% rise from earlier projections. The company has experienced significant recurring revenue growth and anticipates a 50 basis point margin expansion for the year. They've returned $700 million to shareholders and are on track with a $4 billion share repurchase goal for the year, maintaining confidence in delivering strong shareholder returns. During the Q&A session, Ramsey El-Assal from Barclays asked about expectations for capital markets growth in Q4, given easier year-over-year comparisons. James Kehoe responded, indicating that their full-year guidance was previously on the conservative side following a strong Q3 performance.

In the paragraph, James Kehoe discusses the company's expected strong revenue growth for the quarter, projecting it to be at the high-end of a 6.5% to 7% range due to weak prior-year performance. He also mentions confidence in achieving a 7% full-year growth in capital markets. Regarding the recent Dragonfly acquisition, its immediate revenue contribution is expected to be under $10 million, with some initial margin dilution but potential for strong future synergies, particularly in revenue. Stephanie Ferris adds that economic trends remain stable across banking and capital markets, aligning with their confident fourth-quarter guidance.

The paragraph discusses a company's financial outlook, stating that they do not foresee major concerns for the fourth quarter, with stable consumer spending and strong margin growth expected. Despite facing increased prices from some technology suppliers, which has pressured capital spending, the company remains optimistic about managing these issues. They emphasize that this is a temporary situation and remain confident in their cash flow conversion and commitment to returning capital to shareholders in the future.

The paragraph is an excerpt from a financial earnings call where James Kehoe addresses a question about a prior period accounting revision. Kehoe explains that the revision was immaterial, affecting only $0.01 in EPS for the first two quarters and did not impact cash as it was a non-cash adjustment. The issue was related to a small output solutions business involving card production and print and mail, and it has been resolved with no future operational impact. Kehoe emphasizes the company's solid EBITDA performance and increased confidence in future EPS. Following this, Dan Dolev from Mizuho asks about organic growth expectations in banking for the fourth quarter, noting positive feedback about performance in down-market segments. Stephanie Ferris responds, expressing confidence in the banking sector growth, particularly due to an easier comparison from the previous year.

The paragraph discusses a company's progress in the financial industry, focusing on their competitive strategy, particularly in digital and core banking solutions. The company targets large financial institutions and community banks above $2 billion, emphasizing their "sweet spot." They have been successful in selling their strategic core banking platforms, such as the Modern Banking Platform, IBS, and Horizon, while strengthening existing customer relationships and targeting new banks they can win over. The company is confident in their "best-in-class" product suite and distribution scale but acknowledges ongoing work. The conversation shifts to Jason Kupferberg from Bank of America, who inquires about the banking segment's performance and guidance for future growth, seeking clarification on anticipated Q4 outcomes and any changes over the last quarter. James Kehoe and Stephanie are both involved in addressing these points, particularly confirming their overall company guidance.

The paragraph discusses adjustments in financial forecasts due to two main factors: an accounting revision that increased last year's revenue, necessitating a conservative adjustment of 15 to 20 basis points in growth expectations, and a delay in physical conversions of signed contracts, which have shifted to the first half of next year due to client requests. Despite the delay, the contracts are already secured, and resources are ready. The conversation also references growth targets for banking and capital markets discussed at an earlier investor day.

The paragraph features a discussion among company executives about their financial outlook and strategy. Stephanie Ferris mentions that while they haven't updated their commitments made during Investor Day, signs of acceleration in their Banking Solutions and Capital Markets are positive indicators for the future, but they're not ready to provide a 2025 guide yet. James Kehoe adds that there is notable growth in the banking sector, particularly when comparing the first and second halves of the year. He mentions that they will offer more specific guidance in early February, expressing confidence in the growth drivers for banking. Darrin Peller from Wolfe Research inquires about the company's M&A activities and the possibility of share buybacks if M&A targets aren't realized. Stephanie Ferris starts by addressing the company's strategy, although the detailed strategy isn't included in the paragraph.

The paragraph discusses a company's growth strategy focused on small acquisitions in high-growth, high-margin areas like digital payments and commercial lending. The company is excited about a $300 million acquisition of Dragonfly in the digital space, which they believe will eventually be profitable despite initially diluting margins. If unable to complete a $1 billion M&A goal by year's end, the company plans to return funds through share repurchases in 2025. Darrin Peller asks Stephanie Ferris about growth drivers for recurring banking revenue, with Ferris highlighting transactions across debit and issuer capabilities as key factors.

The paragraph discusses the company's expectations for capital expenditures (CapEx) and its strategic investment focus. They anticipate CapEx to be temporarily elevated at 9% due to pressure from technology providers and increased investments, particularly in digital business, cards, and money management. These investments align with the company's strategy, although they expect the CapEx to normalize to around 7% to 8% in the medium term, consistent with industry standards. The elevated spending is expected to last 12 to 18 months as they work through current pressures and pursue growth.

In the paragraph, the discussion focuses on financial outlook and operational strategy. James Kehoe mentions that there is no reason for trends to remain above 8% in the long term and acknowledges recent supplier pressure. He reassures that there are various strategies to improve cash conversion and reaffirms plans to return capital to shareholders through dividends or share repurchase. Kehoe emphasizes comfort with the current balance sheet, noting a leverage target of 2.8 times and current leverage at 2.6 times. When asked about potential impacts from international tax changes (Pillar 2), he assures that they foresee no risks to their tax guidance of 12-13% over the next few years. Lastly, Vasu Govil from KBW asks a question, showing interest in contract signings with banks under $10 billion, but the response is not included.

Stephanie Ferris discusses the company's success with its IBS core for banks with over $20 billion in assets, highlighting its specialization for commercial banking, which positions it as a strategic and winning solution. For larger banks, including regional and super-regional ones, the modern banking platform (MBP) is emphasized as a major operating platform with significant bank account transaction volume. Ferris mentions ongoing implementations with several large institutions and a recent significant MBP contract in the Asia Pacific region, indicating growing demand outside the U.S. She expresses confidence in their core offerings’ potential for growth, noting the lengthy process of core conversions but the strategic advantage once completed.

The paragraph discusses the strong performance of Worldpay under the leadership of Charles Drucker and the GTCR team, highlighting their better-than-expected revenue growth and operational efficiencies. Stephanie Ferris attributes their success partly to slower-than-expected hiring, which has helped manage costs, and successful debt refinancing, resulting in savings. Looking ahead to 2024, Stephanie defers to James Kehoe, who cautions against making early growth predictions but notes that Worldpay had significant outperformance in EBITDA due to revenue and operational expenditure factors, including interest expense benefits, suggesting these advantages may continue into the future.

The paragraph involves a financial discussion concerning margin forecasts and the impact of the Transition Service Agreement (TSA) with Worldpay on future margins. The speaker, James Kehoe, explains that they are confident about meeting their medium-term margin guidance of 40 to 60 basis points, despite anticipated TSA-related headwinds of 95 basis points annually. He notes ongoing cost-saving initiatives projected to save between 165 and 175 basis points, indicating progress and strong visibility in executing these cost programs. However, decisions related to the TSA are ultimately controlled by Worldpay.

The paragraph discusses a strong working relationship between two parties, highlighting regular communication and alignment that ensures a smooth and surprise-free transition. It mentions recent international successes, including an MBP win in the Asia-Pacific region and a South African sale. Stephanie Ferris notes strong demand for their products in capital markets and banking across Europe and Asia, particularly in treasury risk, security, and international payments. The company is optimistic about growth opportunities outside the U.S. and is considering mergers and acquisitions in verticals that could be integrated domestically or internationally.

The paragraph discusses the current state of bank mergers and acquisitions (M&A). Stephanie Ferris notes that while the M&A market is relatively subdued, there is more activity among smaller banks due to regulatory challenges for larger deals. She highlights that her company performs well when a commercial-focused larger bank merges with a smaller one because it can better serve both commercial and retail banking needs. James Kehoe adds that their company benefits from its market position and share in larger banks, often acting as the acquirer and gaining consolidation advantages. The conversation then shifts to a different speaker, David Koning, who briefly commends the company.

In the paragraph, Stephanie Ferris and James Kehoe address questions regarding the unusual rise in banking recurring revenue in Q3, which increased by $50 million. Ferris explains that the increase is due to the seasonality of their transaction processing business, which typically experiences fluctuations throughout the year. This year, the spike happened in the third quarter instead of the fourth, as it did in the previous year. Kehoe also mentions that they had anticipated a strong recurring performance for Q3 and that Q4 will see lower year-on-year growth in banking due to a strong prior year comparison. However, they expect stronger non-recurring and professional services performances in Q4.

The paragraph discusses financial performance and projections. It notes a 100 basis point deceleration in recurring growth between the first and second halves of the year, with an expectation for growth acceleration moving into 2024. David Koning inquires about interest expenses, which James Kehoe indicates will be clarified in a future guidance. Kehoe explains that earlier interest expense savings were due to conservative acquisition assumptions, and an increase is anticipated in the fourth quarter due to planned acquisitions. However, he advises against using the fourth quarter's expenses as a baseline for 2025, with further guidance expected in February. The section closes with Andrew Schmidt from Citigroup preparing to ask a question.

The paragraph discusses the implementation and sales pipelines for the upcoming years. Stephanie Ferris explains that the core banking pipeline is being populated, with conversions expected more in the latter half of next year and into 2025. She mentions the company is focusing on high-growth areas such as payments, digital products, capital markets, treasury, risk, and commercial lending. The sales pipeline is filling up, particularly with demand for products like loyalty and premium payback. However, differing close rates and implementation cycles mean more details will be shared later regarding 2025.

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