Fidelity National Information Services, Inc.

Ladies and gentlemen, thank you for standing by, and welcome to the FIS fourth quarter 2018 earnings call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session. Instructions will be given at that time. If you should require assistance during the call, please press star and then zero. And as a reminder, this conference is being recorded. I'd now like to turn the conference over to our host, Mr. Pete Gunlogson. Please go ahead, sir.

Thank you, Brad. Good morning, everyone, and welcome to FIS's fourth quarter 2018 earnings conference call. Turning to slide two, Gary Norcross, Chairman, President, and Chief Executive Officer, will begin today's call with company highlights for the quarter and the year. Woody Woodall, our Chief Financial Officer, will continue with the financial results for the quarter and full year, concluding with 2019 guidance. This conference call is also being webcasted with today's news release and corresponding presentation available on our website at fisglobal.com. 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. I refer you to the safe harbor language on the slide. Materials presented today will also include references to non-GAAP financial measures in order to provide more meaningful comparisons between the periods presented. Reconciliations between the GAAP and non-GAAP results are provided in the attachments to the press release and in the appendix of the supplemental slide presentation. Turning to slide four, it is now my pleasure to turn the call over to Gary. Gary?

Thank you, Pete. Good morning, and thank you for joining us. Today, I'm very pleased to announce our Q4 and full-year earnings results. 2018 was a very good year for FIS as we consistently and successfully executed on the strategic plan we discussed during our investor day last May. While impacted throughout the year by revenue mix, especially in our institutional and wholesale division, we exceeded profitability and earnings expectations and met revenue expectations for the full year. From a strategy delivery viewpoint, we exceeded our plans on data center consolidation, solution modernization, and sales execution, which gives us strong confidence as we start 2019. This confidence allows us to continue building on our multi-year track record of delivering solid revenue growth, exceptional margin expansion, and significant shareholder returns. For the year, total shareholder returns exceeded the S&P 500 by approximately 17%, driven by consolidated margin expansion of 280 basis points, adjusted earnings per share growth of 22.5%, and a return of over $1.6 billion to shareholders through share repurchases and dividends. These results underscore the resiliency of our business model and showcase our ability to create both short and long-term value for our shareholders while executing on our modernization and transformation strategies. Over the last three years, we have strategically tuned our solution portfolio, resulting in divestitures of over $1 billion in annual revenue. During the same period, the market has rewarded our business performance with a $15 billion increase in our market capitalization, representing almost 80% growth over that period. Our financial services-focused solutions portfolio, combined with our large and loyal client base, have enabled us to grow through dynamic market conditions. We exited 2018 with very strong sales momentum and pipeline. Our full-year sales results were the strongest in our company's history and, as typical, Q4 was our strongest new sales quarter of the year. This sales success resulted in a significant increase in our contract backlog that Woody will discuss later in the call. This not only gives us confidence in 2019, but in our long-term outlook. Across the company, we continue to see more demand for software-as-a-service deployments, which will continue to increase our overall reoccurring revenue, predictability in earnings, and free cash flow. Moving to slide five for a review of the segment highlights. Our Integrated Financial Solutions segment drove top-line organic revenue growth of 2.5% for the quarter and 4% for the year. As previously discussed, our annual revenue growth for this segment is at the high end of its range and continues to accelerate year over year. Margins expanded by 90 basis points in the quarter and 60 basis points for the year. Additionally, our mass enablement strategy is accelerating product penetration within our markets using an innovative and faster deployment model. This transformative approach leverages our investments in data center and solution modernization and is a key growth initiative, generating more than 10 million of new revenue in 2018. We expect this deployment methodology to continue to accelerate growth as we bring innovative solutions to market. Based on the success in 2018 from a revenue and sales perspective and the deployment innovations I just discussed, we're expecting this segment to further accelerate its growth in 2019 by approximately 100 basis points. This organic growth is highly reoccurring in nature with strong industry-leading margins and very high free cash flow conversion. The IFS segment had its largest sales quarter in Q4 with over $800 million in new contract value resulting in a growth rate of more than 25% in new contract sales for the full year. Several of these wins highlight not only the variable size of institutions we serve, but the complexity of solution the market is looking for FIS to deliver. For example, a top 25 U.S. financial institution expanded its longstanding FIS relationship by entering into a new multi-year agreement to outsource the bank's wealth management services. With this move, the bank is reducing its costs by utilizing FIS variable cost operating model and gaining robust new capabilities by migrating to the industry-leading suite of FIS wealth solutions. In another example, a $20 billion U.S. community bank selected FIS as its core banking and digital provider in support of the bank's goal to modernize its environment, transform its branches, and make better use of business intelligence and analytics across its enterprise. This bank had traditionally run a series of discrete products on-premise in a highly customized manner. FIS's ability to leverage our next-generation cloud-based omnichannel digital platform, Digital One, with our extensive capabilities and scaled outsourcing of core processing and back-office services was the key differentiator in winning this business against the competition. As we discussed in May of last year, Our historical investment over the last three years in data center and solution modernization is showing value in these large, complex wins throughout the industry. Our IFS payments division also continues to deliver strong growth, supported by increased transaction volume and competitive sales wins. As an example of just one of the key in-quarter wins for our payments division, the U.S. arm of a top-tier global financial institution of more than $100 billion, signed a multi-year payment outsourcing agreement with FIS in support of its goals to grow revenue and implement a market leading payments as a service solution supporting both business to business and consumer to business transaction. Our industry leading solutions in this space were the key drivers for this win. Our significant investments in modernization and technology are also paying dividends with key new wins in the large U.S. bank market. We have discussed on many calls that we think the large regionals will start to move towards modernization of their platforms, and we believe our successes in 2018 are significant indicators that transformation is starting to take place. These transformations will occur not only with our next-generation capabilities, but will be consumed through our industry-leading cloud deployment on a subscription basis in most, if not all, situations. Turning to our global financial solutions segment, the business recorded top line organic growth of nearly 4% for the quarter and 2% for the full year. Margins across this segment expanded by 400 and 470 basis points compared to the prior year quarter and year. While we are very pleased with this continued transformation, revenue growth is being impacted by the movement to outsourcing and the recent accounting change on license recognition and therefore creating a mixed issue. However, the profit contribution of the revenue is of much higher quality. Because of our growing scale in this market, we are now seeing EBITDA margins approach 40% on an ongoing basis and will continue to expand in the future. This expansion was driven by continual improvements in the segment SAS revenue, data center consolidation, and leverage across all our key business functions. Given our current level of margins, which have improved by over 1,400 basis points since 2015, the profit contribution being delivered from this segment has more than doubled. Turning to our divisions within the GFS segment, results in our institutional and wholesale division fell short of expectations due to the revenue mix and accounting change I highlighted earlier. As we have seen throughout the industry, our trading and brokerage business has been impacted by lower volumes and slower than anticipated sales. We believe our trading business will continue to be a headwind for this division, but will continue to be offset by the higher quality SAS sales that are occurring in our buy side and compliance and regulatory businesses. Our growth in SAS deployment sales was up 25% in this division, which also saw significant growth of more than 20% in new logo competitive wins where our industry-leading I&W capabilities replaced many significant competitors. Our banking division saw nice growth, fueled in part by the industry's need for a clear path towards a modern banking solution. For example, a large multinational bank has selected our cloud-native, next-generation core banking platform to expand its presence in the U.S. In addition to core banking, this client will also take advantage of our Digital One omnichannel platform that I referenced in the IFS segment. Our ability to get leverage from our overall development cycle is paying huge dividends for our ongoing margin as well as growth expansion. This new deal adds a premier client logo to the long list of clients who have relied on FIS to launch a digitally focused bank in support of their growth strategies. Our GFS payments business also had an exceptionally strong quarter and full year. Much of this growth was driven by strong payment transaction volumes in Latin America and competitive new sales wins. As previously announced, we have successfully closed our Brazilian joint venture and entered into a new five-year commercial agreement with our former JV partner. We are very pleased to have closed on this transaction six months earlier than planned, providing us a faster start in getting a wider portfolio of our solutions into this expanding and attractive market. I was recently in India and met with several of the largest Tier 1 institutions in the country, and universally, They are all looking for ways to modernize their core digital and payments infrastructure. Given our market presence and historical success in the country, we are well positioned to capture these transformations in the future. In conclusion, our GFS segment, we remain confident in continued acceleration of revenue growth in 2019 compared to the prior year period and bullish on the ongoing business transformation that is occurring on SAS deployment and continued market share gains. Moving to slide six, focusing next on some of our large-scale corporate initiatives that our leadership team has remained focused on executing our strategy, which we outlined for you last May during our investor conference. In summary, we continue to transform our operating environment through our cloud and data center consolidation strategy. Currently, more than 55% of our North American distributed systems portfolio is running in our cloud environment, well ahead of the 50% target that we announced at the start of 2018. By year end, we expect this percentage to increase to over 65% on a global basis. Due to this success, we exited the year ahead of the $100 million in run rate savings that we shared with you in our last investor conference. We are continuing to fine tune our service management, capacity on demand, and fast provisioning so that our clients benefit from industry lending scale, uptime performance and resiliency in a fully secure FIS environment. We've begun to see early positive reaction to our new modern banking and payments platforms. These new solutions are enabling our clients to run and grow their businesses more effectively by connecting with their customers through more modern and meaningful experiences. In proof points that our investments are delivering differentiating value, our new cloud-based Digital One platform has already grown to serve more than 10 million consumers in the U.S. in 2018. Additionally, we onboarded more than 50 clients to our unified payments platform in 2018 and expect that number to expand dramatically throughout 2019. Finally, we have once again been named a Fortune most admired company, and for the fourth year in a row, we sit atop the Chartist RiskTech 100 rankings. Before I turn the call over to Woody for the financial review, we strongly believe that scale and solution capability is the key to driving continued growth and meeting the demands of a very rapidly changing industry. As you know, inorganic growth opportunities have been and will continue to be a key component of our long-term success. Our approach and strategy towards these opportunities has not changed. If it fits our overall strategy, drives accelerated growth for our company, and is actionable, we will execute accordingly. I'd like to reaffirm that we are pleased with our full year 2018 results and the momentum we have created. We expect this positive momentum to continue into 2019 and beyond as we continue to execute the transformation and modernization strategies discussed last May. Woody will now provide additional detail on the financial results for the quarter and full year. Woody?