Fidelity National Information Services, Inc.

Ladies and gentlemen, thank you for standing by. Welcome to the FIS second quarter 2019 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 require assistance during the call, please press star then zero, and an operator will assist you offline. Also, as a reminder, today's teleconference is being recorded. At this time, we'll turn the call over to your host, Head of Industrial Relations, Mr. Nate Rozoff. Please go ahead, sir.

Thank you, good morning, and thank you for joining us today for the FIS second quarter 2019 earnings conference call. This conference call is being webcasted. Today's webcast, news release, and corresponding presentation are all available at our website at fisglobal.com. Turning to slide two, 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, and adjusted net earnings per share. These are important financial performance measures for the company, but are not financial measures as defined by GAAP. Reconciliations of our non-GAAP information to the GAAP financial information are presented in our earnings release. During today's call, Gary Norcross, our Chairman, President, and CEO, will discuss our second quarter 2019 highlights and the successful closing of the WorldPay acquisition. Woody Woodall, our CFO, will review FISs and WorldPay's second quarter financial results and provide guidance for the remainder of the year. With that, I'll turn the call over to Gary, who will begin his comments on slide three.

Gary? Thank you, Nate. Good morning, and welcome to today's call. I'm very pleased to announce that FIS and WorldPay have officially combined. We now begin the next exciting chapter in our pivot to growth strategy. I'm especially excited to welcome the WorldPay team, as well as their clients and investors, into the FIS family. Charles, Mark, Stephanie, and key leaders from WorldPay are staying with the company and joining our team to continue driving growth in the merchant business and other areas of FIS. I couldn't be more optimistic about the future of this company and what we will accomplish together. Clients and partners from both companies have shared how excited they are about the opportunities that the new FIS will bring to the table with our expanded capabilities. As a leading provider of technology for merchants, financial institutions, and capital markets across the globe, this gives us the unique ability to create seamless end-to-end experiences. Together, we will advance the way the world pays, banks, and invest, positioning us to power the digital economy. This combination redefines our roadmap to accelerating organic growth. Both FIS and WorldPay had a strong second quarter, providing us confidence that our markets remain robust and that our teams remain focused on execution. FIS has successfully generated six consecutive quarters of exceptionally strong sales. In the second quarter, sales are up more than 30%, increasing our backlog by 7% organically, giving us clear line of sight to continued accelerating revenue growth. Wins in the quarter continue to amplify client demand for our solutions, to improve the digital experience for their customers and drive operational efficiencies. For example, in our IFS segment, a large regional bank with more than $35 billion in assets expanded its relationship with us through a significant new multi-year agreement for our Digital One item processing and capture solutions to gain new efficiencies, reduce costs, and improve the digital experience for its customers. This move toward outsourced solutions also propelled a large U.S.-based insurance company to select our hosted enterprise platform to streamline feedback office processes and improve the customer support experience. Additionally, in our GFS segment, a regional arm of a top five UK institution signed a long-term agreement for an FIS core banking solution in support of the bank's goals to better serve its German-speaking markets post-Brexit. Also, a large asset management firm with more than $60 billion in assets under management chose to partner with FIS to gain cost and servicing efficiencies within its transfer agency operations. Similarly, WorldPay has maintained a strong growth trajectory as the business is ideally positioned in secular high-growth payments markets, including global e-commerce and integrated payments. Within global e-commerce, WorldPay continued its exciting sales momentum by adding 14 new cross-sell wins during the quarter, bringing the total to 56. These wins show that WorldPay's global reach and tailored solutions are clearly resonating with merchants. On day one of the FIS WorldPay combination, FIS organic growth rate increases from 4% to 6% on a pro forma annualized basis. The combination also creates significant revenue synergy opportunities of $500 million. We expect to begin realizing revenue synergies in the coming months, accelerating organic revenue growth trends towards 7% next year and then into the 7% to 9% range in the future. In addition, we will continue to invest in new value-creating opportunities to reinforce and enhance our growth by harnessing the power of our combined cash flow. Later in the call, I'll provide further perspective on our transformation into a unique global leader within commerce and financial services and the differentiated value proposition that we'll bring to our clients. But first, Woody will take us through our second quarter financial results. Woody?

Thanks, Gary. I'd also like to express my enthusiasm for closing the transaction and my sincere thanks to our teams for making this a success. We have been hard at work since the transaction announcement to provide the investment community with a complete package of information today in order to paint a clear picture of how we see FIS going forward. This includes presenting both companies' outstanding second quarter results, as well as quarterly historical pro forma combined financials, combined company guidance for the rest of the year, plus initial thoughts for 2020. It's been a heavy lift, but our teams have done a great job. Turning to FIS's consolidated results on slide four, In the second quarter, revenue increased 5% on an organic basis. Our EBITDA margins expanded 170 basis points to 37.6%. And adjusted EPS grew 9% to $1.78 per share. Our top line growth continues the acceleration we saw in the first quarter and reflects the strong sales momentum that Gary mentioned. Our healthy margin expansion was enhanced by our data center consolidation program and the ongoing benefits of prior year divestitures. We are very pleased with the first half of the year and we're excited for the future of FIS. Moving to slide five, our IFS segment continues to accelerate and increase 6% on an organic basis as EBITDA margins expanded by 150 basis points. IFS's strong top-line performance was broad-based and our banking and wealth, payments, and corporate and digital businesses each grew 6% during the quarter. GFS also had a very strong quarter, with organic revenue growth accelerating to 4% and EBITDA margins expanding by 120 basis points. Within the GFS division, our institutional and wholesale business returned to growth, increasing by 3% on an organic basis. We anticipate this business will continue to experience improving trends in the second half of the year. It was another impressive quarter for Whirlplay, as you can see on slide 6. Revenue increased 9% when excluding crypto and foreign currency headwinds. Adjusted EBITDA margins expanded by 330 basis points. And adjusted EPS increased by 19% to $1.24 per share. Fueling WorldPay's strong top line, its technology solution statement continues to deliver exceptional upper-teens growth, increasing by 19% when excluding crypto and foreign currency headwinds. The merchant solutions and issuer solutions segments each grew 2% on a constant currency basis in line with expectations. WorldPay achieved $50 million in cost synergies during the quarter and completed its U.S. platform migration, keeping it on track to successfully complete its $250 million annualized cost synergy program by the end of the year. These results reflect continued strong business momentum, providing a solid base to begin the second half of the year. I'll now turn the call back over to Gary to discuss our go-forward operating model, beginning on slide seven. Thanks, Woody.

As we bring our two great companies together, we will structure our organization into three operating segments. This new structure reflects our distinct but complementary global businesses and the integration of world-paced talent and technologies. Going forward, our segments will be merchant solutions, banking solutions, and capital market solutions. Starting with merchant solutions, FIS will go to market using the WorldPay brand. The segment will be led by Mark Heimbach, WorldPay's former president and chief operating officer, who will continue to build its leading market position in global e-commerce and integrated payments. Our banking solutions segment will be led by Bruce Lothers, who previously led IFS. In his expanded role, Bruce will continue to drive accelerating growth across our global client base. Our third segment will provide best in class solutions across all facets of the capital markets industry. Martin Boyd will lead this segment serving buy side and sell side firms as well as corporations and insurance companies. The common denominator across all three of these segments is digital enablement across global markets. All three serve the largest multinational clients with leading solutions at global scale. They also bring innovative capabilities to help our small and mid-sized clients to be agile, resilient, and to reach their full potential. Finally, all three are uniquely positioned in secular high-growth markets. Turning to slide eight, we will go to market in all three of our segments with a powerful client value proposition. For over 50 years, FIS has driven growth for clients around the world by creating Tomorrow's Technology, solutions and services to modernize today's business and customer experiences. We do more than develop technology. We provide access to innovation by continuously investing to create innovative, secure, enterprise-grade solutions that position our clients and their customers for success today and in the future. With our data and insights, we create new intersections between markets and technology that solve for our clients' future. while delivering experiences that are more simple, seamless, and secure to advance the way the world pays, banks, and invest. Using our world-class scale, we enable our clients with global reach at the local level. With our connections across the global financial ecosystem, we provide our clients access to new enterprise-grade solutions that enable them to run their businesses more efficiently, grow more effectively, and enter into new markets with greater speed and lower cost of entries. Delivering innovation and insight at this global scale puts us at the heart of commerce and the financial world. This is why I'm so confident in our ability to build on the strong foundations already laid at FIS and WorldPay to accelerate our revenue growth even further together. I'll now turn the call back to Woody to round out our financial discussion before he opens the call for questions. Woody?

Thanks, Gary. Moving to slide nine. We have a compelling financial profile which is further strengthened by the WorldPay acquisition. Our high-quality revenue is supported by long-term contracts for mission-critical solutions. This creates recurring revenue that is predictable and resilient. The WorldPay transaction enhances these attributes by providing meaningful exposure to secular, high-growth markets like e-commerce and integrated payments. Our world-class scale creates operating leverage and drives substantial margin expansion. We deliver solutions using a one-to-many SaaS model and aggressively focus on operational excellence. One of the attractive components of this transaction is that the WorldPay team has the same focus, and together we will use this operating mindset to drive significant cost synergies. Finally, FIS is known as a strong cash flow generator, which will be significantly enhanced going forward. As we achieve our integration targets, free cash flow will almost double over the next three years, dramatically expanding our capacity to invest for future growth. These attractive qualities combine with our constant focus on creating shareholder value create substantial earnings growth. Turning to slide 10, consistent with past practices, we have taken advantage of the past four months to do detailed integration planning. Through this planning, we've identified opportunities to accelerate our timeline to achieving synergies. We now have line of sight to exit 2020 at $150 million of annual run rate revenue synergies and $50 million more than our original expectations, making us even more confident in our ability to generate a total of $500 million in annual run rate synergies by the end of 2022. As we achieve these synergies, we expect our organic growth rate to accelerate from approximately 6% on a pro forma annualized basis in 2019 towards 7% in 2020 and higher in the future, as Gary mentioned. We will initially generate revenue synergies by driving additional volumes across our payment networks, optimizing our loyalty and fraud solutions, and enhancing world-based issuer business. All of these opportunities are supported by solutions that are in market today with a demonstrated value proposition for our clients. As we move further out, longer-term opportunities include increasing authorization rates for our e-commerce platform, leveraging our global presence to expand market share in emerging geographies, and utilizing our global bank channel for merchant referrals. Turning to slide 11. Through integration planning, we validated the timeline that we expect to deliver cost synergies, including increasing our total expected expense savings to more than $500 million on an annual run rate basis by the end of 2022. This includes more than $100 million in net interest expense savings annually due to our successful refinancing of WorldPay's debt. We will quickly begin executing our operational synergies by achieving operational efficiencies technology optimization, and corporate alignment now that the transaction is closed and expect to exit 2020 at a $200 million annual run rate. This annual run rate will step up to $300 million and $400 million by the end of 2021 and 2022, respectively. Consistent with past transactions, we look forward to updating you on our progress for both revenue and cost synergies in the upcoming quarters. Turning to slide 12, our capital allocation strategy remains consistent. This quarter, we generated over $400 million of free cash flow, representing a 20% conversion to revenue and 18% growth year over year. Our current leverage is approximately 3.5 times, and we are committed to rapidly delever to approximately 2.7 times in 12 to 18 months. Even as we delever, the strength of our balance sheet gives us the flexibility to consider tuck-in acquisitions to further enhance growth. We will also continue to maintain and grow our current dividend program, which returned over $100 million to shareholders this quarter. Finally, we'll continue to use our strong free cash flow to invest in industry-leading technology initiatives to drive sustained organic growth. With the strength of our balance sheet and the power of our free cash flow, we can do each of these things while still hitting our leverage targets. Turning to slide 13, we are presenting third and fourth quarter 2019 guidance for the combined company, which includes WorldPay's contribution to our results beginning on August 1st. Our revenue guidance supports 6% organic growth for the full year on an adjusted combined basis and supports our conviction in approaching 7% organic revenue growth in 2020. Our EBITDA guidance reflects ongoing margin expansion at both companies, primarily driven by our data center consolidation program and WorldPay's $250 million cost synergy program. Going forward, we will continue to expense stock compensation, which WorldPay has previously added back. This creates approximately $70 million in stock compensation within our guidance that would not have been incorporated into the prior expectations for well-paying. We expect to incur approximately $30 million in stock compensation expense for well-paying employees during the third quarter and approximately $40 million during the fourth quarter, which is factored into this guidance. I am pleased to report that following constructive dialogue with the Securities and Exchange Commission, we will resume our prior method of reporting adjusted EPS, which excludes amortization of purchase accounting intangibles only. For the third quarter, we anticipate adjusted EPS of $1.33 to $1.37 per share and $1.47 to $1.53 per share in the fourth quarter. We provided a reconciliation of our EPS guidance between both methods in our earnings release and the appendix of this presentation to ensure transparency. Along with the additional assumptions provided on the slide, I would also like to message that we believe our full year weighted average shares outstanding will be approximately 453 to 455 million. While we provide formal 2020 guidance on our Q4 call, I wanted to give a quick recap on some of our 2020 commentary. Given the strong trends within our business, our confidence to exit 2020 at $150 million of annual run rate revenue synergies, we expect our organic revenue growth rate to accelerate from 6% towards 7% in 2020. Further, we expect to exit 2020 at $200 million of annual run rate cost synergies in addition to generating over $100 million in net interest expense savings. Given our success to date with this integration, we now expect the WorldPay acquisition to be accretive in 2020. With that, I'll turn the call over for Q&A. Operator, you may open the line.

Thank you very much. And ladies and gentlemen, to queue up for questions, you may press star followed by one. Again, for questions, you may queue up by pressing star one at this time. And we'll take our first question from Dave Koenig with Baird. Please go ahead.

Yeah. Hey, guys, congrats on all the progress. Thanks, Dave. Thanks, Dave. Yeah, and I guess, first of all, you know, it's interesting to see the new segment results along merchant banking and capital markets. And I'm wondering, you gave the 10%, 5%, and 3% growth for the three segments. I know you're expecting acceleration over the next couple years. Maybe you could talk a little bit about how each of those segments contributes to the acceleration, which ones may be more than others, and how you see those segments growing.

Yeah, I think you're right. We're looking at the merchant to be in kind of a high single, low double-digit growth rate over the next few years. We're looking at banking in the mid-single digits and capital markets to be in the lower single digits. I think we'll see revenue synergies in both banking and in the merchant business, driving higher growth over the next few years. But we're very pleased with the acceleration we've seen in both businesses and the momentum both businesses have going into 2020.

Okay. Great. Thanks. And then I guess on originally, I think maybe 18 months ago or 12 months ago, you talked about, I think it was 2021 being 7 to 750. And now since then, you've said that this deal will be accretive to the midpoint of that range, I think, or accretive to at least that range. But now also you've had better results than expected across both companies. You've had interest expense going down. I mean, are we kind of thinking higher end of that range now?

I think what we really clarified today was that instead of a dilutive deal in 2020, we're looking at an accretive deal in 2020. Hadn't really updated as far as where we're at on 2021, but certainly pleased with progress to date and are certainly pleased with being able to accelerate the revenue synergies earlier.

Okay, great. Lastly, just free cash flow nearly double exiting 2022. What does that mean exactly? Double from what level or just how do we think of that maybe in dollars?

Yeah, if we go back to the announcement day, Dak, I think you looked at we described a 2022 or a post-synergy number of $4 to $4.5 billion and are still looking at that number in the out-year day.

Okay, great. Well, thanks, guys. Appreciate it.

Thank you. Thank you. Our next question in queue comes from David Tugetz with Evercore. Please go ahead.

Good morning and congratulations. Thanks, Dave. Looks like the second consecutive quarter of 5% organic growth for core FIS, and that's probably the first time in at least three years. So what would be your assumption for organic growth for FIS standalone for the back half of this year? Because it seems like you're trending above the four to four and a half percent organic revenue guide for the full year.

Yeah, it's a good question. We're certainly seeing the investments that we've been making paying off into sales, sales turning into revenue now. We've talked about that for the last few quarters. If we were on a standalone basis, we would be raising our standalone guy to more like a 5% number right now for the consolidated FIS standalone, Dave.

Yeah, absolutely, Dave. I mean, you look, we're now at six quarters of consecutive strong sales, obviously very strong sales. This past quarter, pipeline looks really good. So we're real pleased with all the investments we've made on modernization, all of the work that we've done around data center consolidation. We've talked about new availability limits that we're bringing into market, our mass enablement programs. All of those are really pushing the former FIS into mid-single digits, and we feel very confident that's going to continue across that base.

Good to see. And then on the synergy targets, the $50 million revenue raised by year end 2020 on revenue synergy and $100 million raised on cost synergy for year three exit rate, what specifically changed in the last few months to give you the conviction to raise the targets so early on?

You know, I think, Dave, when we started pulling the teams together and we started working on the various tracks, whether the business lines got together and started working on the revenue opportunities and what we saw is the potential new product deployments across the various client bases. And even when we saw it across the – on the operating side as well, you know, we just started building a lot of confidence in our ground-up planning. When we come into announcement, we've done top-down due diligence based on experience and based on what we saw during due diligence. We come into a synergy number, and that always gives us high confidence. We're always very good at exceeding those expectations. But then as you build ground up, you really start gaining confidence on how you're thinking about what products, where the market opportunities are, what the cross-sell is, what's the total addressable market to address against that. And all that's driven us a lot of confidence going into next year and delivering the revenue earlier than what we thought. We've also had great feedback from our clients, you know, both on the WorldPay and on the FIS side. Our clients have been reaching out to us. They're excited about what this combination could mean for them. So all of those things come into play with why we're confident in the revenue synergies going forward.

Understood. Congrats again, Steve. Thanks, Dave.

Thank you. The next question in queue will come from Jim Schneider with Goldman Sachs. Please go ahead.

Good morning. Thanks for taking my question. Maybe just following up on David's previous question, can you maybe just give us a bit of a sense about some of the earliest revenue synergies you expect to materialize and some examples of kind of what those could be, whether that's more on the e-commerce side or whether that's global distribution throughout your bank network of world-based products, et cetera?

I think the short term, what we're going to see, Jim, is, as Woody discussed in his prepared remarks, it's really our existing capabilities or WorldPay's existing capabilities and our ability to deliver that across our new combined client base. Early on, obviously, we'll be focusing on debit routing initiatives. We talked a lot about that on the launch. We think there's some real opportunity to be gained there. When you start thinking about the data and analytics that WorldPay can do around merchants and merchants' portfolios to provide that access and that information to merchants, we were really nascent in that space over our merchant portfolio, so a real opportunity going that way. You know, you see other areas where, you know, as you think about cross-selling other capabilities on both sides, that will also step up. Longer term, we'll start seeing more pickup of merchant referral programs. We're going to start seeing more pickup of using our loyalty as a currency that we've talked about in the past and being able to pull it across that base. So we've got a really good line of sight into the revenue opportunities. The sales teams now – post-close are coming together and really building out all their go-to-market plans. Marketing's done a great job letting them hit the ground running with launch materials on what we're going to be selling in those bases. So all that's triggering a good, strong insight into our revenue side.

That's helpful. Thanks. And then maybe as a follow-up, can you maybe just give us, Gary, a little bit of an update on the strategic and macro level from your core kind of banking solutions clients, what they're saying about the current interest rate environment, if it's having any kind of impact on their spending or outsourcing decisions, and kind of how do you feel about the remainder of the year in that specific segment and beginning of 2020?

You know, Jim, it's a good question. I mean, everybody watches as interest rates go up and go down. What does this mean for financial institutions? And clearly, as you're looking at You know, interest rates being lowered, especially on a number of our customers that will directly hit their net interest margin and therefore hit their income. But what we're seeing, honestly, is what's going on in the industry. I think a lot of financial institutions, and we've talked about this on prior calls, they've really held on too long to their historical legacy technologies. And I think they're really in a mode now where they have to invest. And so we've seen six consecutive quarters of very strong sales. We have a very full pipeline going in the back half of the year across all of our businesses, both banking and capital markets and merchant solutions. So all of those things make us bullish and confident on the future. I don't think that banks are going to be able to pull back their spend in the short term because at this point in time, They have to move to the next generation platforms. They have to move to the cloud. They have to move to digital enablement in order to survive. And FIS is very well positioned to capture those revenue opportunities as people are making next generation decisions and really pushing in that direction.

Congratulations with the updated guidance, and thank you.

Thanks, Jim. Thank you. Our next question in queue, that will come from Ashwin Srivikar with Citi. Please go ahead.

Thank you. Let me add my congratulations, Gary and Rudy, on both closing the deal as well as this initial presentation deck here is very useful.

Thank you, Ashwin. We appreciate it.

Sure, sure. Yeah. Let me actually start with, you know, from a disclosure type of question. FIS used to provide, obviously, you know, both for IFS and GFS, sort of the underlying multiple lines subsegment information. WorldPay used to also provide three segments underneath. What should investors expect going forward? as you think about, you know, that next level underlying information, as well as if you can provide sort of the timing of when some of the historical information so we can do, you know, proper analysis when any color on that would be good.

Yeah, Ashwin, thanks. I think the team did a great job in pulling the pro forma combined historical information. If you look at the data in the earnings release today, you can see it all the way back by quarter, back to Q1 2018. which I think can help you with there. We're going to continue to have new segments around merchant banking and capital markets. That'll be the external disclosure, if you will. We'll continue to provide some color in the commentary around... technology solutions, the merchant solutions, and what's going on, you know, both globally and domestically within banking, but probably won't externally disclose at that level of granular detail. We'll continue to provide transparent information to the market on our results and what's driving those results.

Got it. Got it. Thank you for that. And then with regards to, you know, obviously there is a market expectation that's based on your track records. that you will exceed sort of the synergy number. You started off well here with increased confidence on one side and also increasing synergies on the other. I wanted to kind of, you know, get a little bit deeper into that, sort of what's changed between the last time you were speaking publicly and now with regards to bringing up the the near-term synergy expectation, and why would that not explicitly bring up the longer term as well?

Well, why don't I start, Ashwin, and we'll let Woody chime in. I mean, honestly, when you look at the operating synergies, the team just did an outstanding job refinancing WorldPay's debt, I mean, really generating over $100 million of savings there, so that That's why, obviously, we needed to increase our $400 million target on that number going forward. Obviously, we've got very high confidence in the operating synergies. As you know, we've historically exceeded our synergy expectations by more than 30%. As you look at our revenue side, we're increasing the rate at which our revenue is onboarding. We've not extended beyond $500 million. I think we've just, to my points earlier, really are getting clear line of sight of how those revenues are going to come on board. So, you know, Woody talked about it, but I can't trivialize how hard the teams have worked between signing and close. If you look at all of the prepared information to do a combined call like this, it's nothing short of amazing. But also, all of the business owners have really been doing deep dives week in and week out. building those plans around where we're going to tackle the expense side and the revenue side. So that's really what's been the big change since our last public conversation about those topics. So high confidence on the $500 million. We see that revenue coming in earlier than what we originally expected, which is great. That will actually smooth that curve out some over the next three years. When you look at the at the operating expense. Frankly, we want to make sure that everybody saw the interest savings that we did here and stay committed to the original guide on our OpEx, so that's why we raised that overall expense savings number. But we're very pleased at where we are at this point in time. The cultures of the companies have come together very well. I commented You know, the landing of the leadership team from WorldPay in key positions in FIS was very important to me personally. So all of that just gives us a lot of confidence as we go into the back half of the year and into 2020.

Got it. And one quick thing, if I can squeeze it in, is just to be clear, the $100 million incremental on the interest side, is that all going to the bottom line, or are you going to reinvest a piece of it to get, you know, better growth, or how should we think of that?

That interest savings will go dollar for dollar to the bottom line. It will start August 1st. Got it.

Thank you, guys. This is great. Thanks, Ashwin.

Thank you. The next question in queue comes from Dan Perlin with RBC Capital Markets. Please go ahead.

Thanks, guys, and congratulations again on everything you guys have accomplished thus far.

Thanks, Dan. Appreciate it.

You bet. I just wanted to get a sense, kind of, you know, the macro backdrop has been evolving pretty quickly here, and, you know, there's a fair amount of exposure in terms of cross-border e-commerce opportunities that you guys have, but it also can be somewhat of a risk in these kinds of environments, and so I was just curious, What you're hearing from your clients, what, if anything, are you seeing kind of in near term? Obviously, your guidance suggests that things are going to be okay, but I'd love to get any kind of incremental color on that.

Thanks. Yeah, you know, Dan, it's early. As you would expect, I've already met with several of the largest WorldPay clients since close, so we've been real busy in engagement in those areas, frankly. Not seeing any concerns at this point in time. You know, frankly, when we look at the trends, they're very consistent across the board. We've modeled continued slowing in the U.K. due to Brexit. Obviously, we're not expecting any turnaround there. But our e-commerce volumes seem like they're performing well. Our same-store sales are growing well. And so all of those things would indicate we're pretty pleased with what we're seeing and that we feel very confident in the forecast.

Great. Can you just help us a little bit on the third and fourth quarters kind of organic growth assumptions? I think you said you thought for the year you'd land at 6%, if I heard you correctly. I'm just trying to think about how that trends, because we've got a little bit of a kind of a stub in terms of the third quarter and then rolling into the fourth quarter.

Thank you. That's right. I'll start with the fourth quarter first. You know, it's about a 6% organic grower in the fourth quarter as you get all three months of world pay and get a more consistent point of view on the numbers flowing through. Third quarter is a little lower than that. Really, you're getting two months instead of three months of WorldPay's higher growth as a contribution there. We've got a difficult comp from last year. That was our high watermark last year in terms of growth. with the third quarter. And we've got a little bit of accounting conformity in both the third and the fourth quarter, but impacting Q3 a little heavier. So that's what you're looking at there. You pull those out, you're looking at more like a 5% grower in Q3, really driven by some of those points I just mentioned. Okay.

And if I could sneak one more in, WorldPay's EBITDA margins were kind of off the charts strong. I just wanted to make sure, is that just the synergy attainment in terms of closing the U.S. platform, or was there something one time in nature? Thank you.

Not one time. Very strong synergy attainment. They looked at $50 million in quarters, still on track for the $250 million for the full year, and drove it just like we thought we would.

Yeah, Dan, also they're completely done with the U.S. consolidation movement, which is really positive. So just as we thought and we talked about in the announcement day, we felt very confident that – that not only the NAP program over in the U.K. was going very well, we also felt very confident in the U.S., and that U.S. platform has been consolidated now, so that's behind us.

Excellent. Thank you.

Thank you. The next question in queue comes from Lisa Ellis with Moffett Nathanson. Please go ahead.

Terrific. Thanks, and thanks, guys. Good morning. Gary, can you comment on, from your perspective, what aspect of the merger is going to be the most challenging and sort of where are you spending your personal time focused?

Well, you know, right now I'm not seeing – I mean, it's a great question, Lisa. Right now I'm not seeing any red flags. But with that being said, where I always spend most of my time in these very early days post-close is with employees and clients. You know, I've already been out on day of close. I met with two of the largest clients in WorldPay's portfolio. Right after this call, I'm on my way to London. We've already been in front of, on a global town hall, our employees. Because you want to make sure that everybody stays focused on our commitments. And that's something that I hit very strong. Focus on our clients. Make sure that we meet the expectations in the market. And then, frankly, focus on sales. We just don't want anybody to get distracted. So early on, I'm focused there. I also spend a lot of time making sure that the cultures blend together. I talked about that in a minute earlier on the earlier call. These cultures are very aligned, which is great, but we will find subtle differences, and it's important to get those identified and get those perceived barriers or cultural barriers eliminated so everybody can come together as a team. Landing the leadership team, as I talked about, was very important. I feel great that we were able to do that between signing and close. We brought a lot of talent into FIS because of that. Right now, in the early days, that's where I'm focused. Obviously, that'll shift very quickly. We are pivoting to growth here. We're going to have to shift very quickly in the next few weeks and really start focusing on go-to-market prospects. I'll make sure that I'm getting engaged there as well. Mark's Mark's doing an excellent job. He's been with WorldPay for years, really understands the business, and obviously he's hitting the ground running. But that's really where I'm going.

Terrific. And then my follow-up, the global expansion revenue synergy is one of the critical ones over the longer term and in the out years. Can you just describe what sort of actions you're taking over the next 18 months to make sure you're on track to begin generating that synergy revenue out in 2021? Like sort of how will we know it's progressing and and is on track.

Thank you. Well, you're going to see it through the revenue growth line. Obviously, you're going to see our organic growth rate accelerate, as we talked about, to approximately 7% next year. You're going to see it move beyond that to 8% and 9% in the years out. What we're doing, and we've already been doing it, we've got our teams together You know, our banking teams and our capital markets teams, sales teams, and go-to-market teams together with our WorldPay teams. We've got to, you know, in certain markets where we have huge presence, whether it's India, whether it's Brazil, whether it's Australia, we're getting those teams together. You know, one of the things that's different about us is we're really a global company, but we have a local presence, which is very important. And us being able to leverage that local presence To make those introductions and accelerate Shane's business through e-com, penetration in those markets is going to be very important. So we're well down the path with those conversations today. Obviously, we're also doing stuff to augment the product. We want to increase those authorization rates. We want to decrease those fraud rates. Really, we're already separate and apart with regards to e-commerce when you think about where the authorization rates are today. But how do we raise that, you know, 200, 300 basis points and really further distances? So those two things will really help us accelerate into those new markets, and we're pretty excited about it. I think we'll have some really good traction. While we said that's going to be later in the process, I think we'll have some – we have potentially some good early wins here in the next 12 to 18 months.

Okay, and then maybe one last one that's not related to the merger. I know you've highlighted for Core FIS that faster payments and fast ACH is an important growth area for you. Can you just quickly comment on how announcements like the Fed announcement of FedNow and then this morning's announcement from MasterCard of buying Nets account-to-account business, how those types of – changes in the market impact you?

I think it's a great question. I saw the Nets announcement today. It looks like a good acquisition by MasterCard. A lot of people are focused on on where faster payments is going, how money movement is going to occur. We've talked about it a lot. It's been a huge area of focus for us. We actually got into real-time payments now a little over four years ago with our clear-to-pay acquisition. That's gone very well. We're now in more than more than 20 countries running their real-time payment platforms today for them on FIS software. When you look at what the Fed announced, it didn't surprise me. It's logical that the Fed would also look to accelerate what they're doing in real-time payments. What I would tell you is all those things create opportunities for FIS. So as money moves across the various channels, what's important to us is to make sure that we have the full breadth of capability to capture those payments as they move across various verticals. So as real-time payments accelerate, we're very well positioned to capture that volume. As e-commerce accelerates, we're very well-positioned to capture those volumes. So we talked a lot about the breadth on a global basis across merchant, across banking, across capital markets. The other thing we have to realize is there is a breadth across our asset portfolio that really allows us to not be disintermediated as these new technologies roll on. So all of these announcements can long-term be positive things for FIS as more and more money moves to various channels so we can absolutely capture that and drive our revenue stream.

Terrific. Thank you, and congrats again, and I look forward to working with you guys.

Thanks.

Thank you. Thanks. Thank you. Our next question comes from Jason Kupferberg, Bank of America. Merrill Lynch, please go ahead.

Great. Good morning, guys. How are you? Doing great, Jason. Terrific. So I just wanted to see if we can go a little deeper on the commentary around the deal now becoming accretive in 2020. Can you just clarify, do you mean that on a full-year basis it will be accretive or that exiting 2020 it will be accretive?

No, we think it's accretive on a full-year basis in 2020. And really, to kind of get your base, we use some assumptions and projections that are disclosed in our joint merger proxy that show what our expectations were on a standalone FIS basis. That's a $6.16 number for 2020. So that's kind of the mark that we're talking about.

Okay. That's very helpful. And I was just curious on the OPEX side of things. I know at this juncture, obviously, the deal just closed, so you're still sticking with the $400 million target, excluding the interest expense savings. But hypothetically, if you do ultimately deliver upside potential on that 400, would you expect that to be more on the operational side, technology, the corporate alignment piece?

You know, it's too early, Jason, to really talk about that at this point. I think Woody gave some insight into how we see the 400 spreading. You know, as we dig into these situations, we're very confident on the $400 million. We think, you know, at FIS, we look across the full enterprise to make sure that we're taking advantage and getting the maximum leverage we have out of these combinations without damaging the business. Obviously, we've said this a number of times. This is about pivoting to growth, accelerating our growth. end up for single digits and hopefully higher in the long term. But we feel very good that a lot of those synergies will come out of the technology and business side, but also the corporate side of FIS. But as we build into more of that, it's early. One of the things that we've always taken great pride in is being very transparent on where we are on synergies, throughout the process. So as we get several quarters into this, we'll start giving more insight into where the majority of the synergies we see are coming from or where we might see upside in any of those three areas.

Okay, that's helpful. Just last one for me. I know on the WorldPay side, Tech Solutions was really quite strong again at 19% on an adjusted basis. I was just curious what kind of trajectory you're assuming for the second half of the year on that metric.

Yeah, we've been thinking about technology solutions in line with that mid-to-high teens growth rate that's been outlined for a number of quarters. It's executing very well, and our expectations are to continue to execute in line with what's been described in the marketplace.

And if you look, Shane and his team had another great quarter across sales. We talked about it in the prepared remarks. I mean, that really gives us strong confidence that he's going to continue. He and his team are going to continue to execute. And based on what we're seeing in volumes and everything, there's no indication that it should come off that guy.

Okay. I appreciate the comments. Nice job. Thank you.

Thank you. The next question in queue comes from Brett Huff with Stevens. Please go ahead.

Hey, Deering. Woody, congrats again on getting this deal done.

Hey, Brett.

Thank you. Two questions. One, unrelated to the merger, I've been focused on the modularization, the rewriting of your guys' cores that you've been doing, where you kind of rewrite a back office thing and then kind of spread it out. Where are we in that process? Are we still early innings? And then also kind of related to that, what's the uptake on that particular program right now?

I appreciate the question, Brad. As you know, when we announced that, that was a very long-term program build, it is going very well, I would say. We're in mid-innings to late-innings, so we continue to, the response has been terrific in market. We've actually made some announcements of key wins with some really early-stage innovators. We have now one in production. On that platform, the product continues to be being built out on a modular basis. Obviously, we're doing it in a very agile, nimble way, launching from the ground up in the cloud. We're going to have some Some really nice announcements on that platform in the coming quarters, and we feel very good about that program.

Great. And then second one, related to the deal, one of the great sort of things you guys have done over the years with the deals you've done is you've taken on the data center consolidation kind of behemoth several times. And I know that this one started, I think, three years ago. How – you know, tell us how this gives you insight into getting the cost synergies with WorldPay. I'm assuming it's getting rolled in. And then what potential pitfalls do we have kind of joining the WorldPay data center project, which I assume is going to start soon, with the one that's ongoing? Is there any kind of – how do we manage that risk?

Thanks for that. Well, you know, it's a great question, Brad. I tell you – Ido Gillity, our global CIO, and his team have just done a phenomenal job with data center consolidation. We have over 80% of our digital applications now in the private cloud. We've launched We've announced publicly to our clients availability guaranteed of less than 15 minutes now, which the industry is at 24, in some instances 48 hours. So it's really, really gone well. And so naturally, as we put these two technology groups together, that comes under common ownership within FIS. And naturally, those data centers will become part of the overall consolidation plan in the future. So we feel very confident. We've got a great team geared up. We're three years into this program. You're seeing the benefits drop to our bottom line. And we'll just keep the team now. keep the team now churning as we bring these groups together. So we have very high confidence on execution. We have very high confidence in taking advantage of the next generation technologies, and they'll be a key contributor to our synergy saves. Thanks, guys.

Thank you. Thank you. The next question will come from George Mahalos with Cowan. Please go ahead.

Hey, good morning, guys, and let me add my congrats on getting the deal done. Thanks, George. Wanted to go back to the tech solution segment within WorldPay, which again, as Jason said, was very, very strong. Can you talk a little bit about the trends? It sounds like there's a lot of momentum continuing on the e-com side, but maybe what you're also seeing on the integrated payment side, and then as it relates to e-com, some of the changes that are happening, SCA in Europe coming in at some point, at least over the next couple of months. Is that really more of an opportunity for FIS, or are you concerned there could be some disruption there?

Well, let me first start with the integrated side. Honestly, it still continues to be strong. We continue to win new business opportunities. We actually think there's increased opportunity with the combination, just given our size and sales scale and reach. So we're very excited about integrated and how that business performs. We've talked a number of times on the call. Shane's really been very strong on the overall e-commerce side. So we don't see any issues, frankly. As you talk about changes, you know, typically change is a benefactor to us. I mean, it's the same way with WorldPay. As we talk, what's interesting about the businesses is when we see any kind of regulatory change or any kind of change whatsoever, we typically see that convert into a tailwind for FIS. And so... You know, we're very confident that our growth rates are going to continue to be strong.

We saw really good growth in both components there. E-commerce probably a little higher than the 19% that we saw, and IP a little lower, blending to the 19%. But that was in line with expectations and where things have gone in the past. If you look at some of the regulatory changes that are coming on board, we think some of our low fraud rates can actually drive the exemptions and drive some wallet share opportunity in some of those areas to reduce friction with that dual authentication that's coming down the line.

That's great, Collar. Thanks for that. And just a quick follow-up, shifting gears a little bit to capital markets, that return to growth as you expected. I think, Woody, you laid out kind of long-term low single-digit growth. Should we expect, though, over the back half of 2019 that growth to accelerate a little bit from 3% given the somewhat easier comparisons over the second half?

Thank you. That's exactly right. We're seeing some accelerated growth. Some of that's just good execution by Martin and the team, but we also are facing a little easier comps in the back half of 2019 within capital markets. You're exactly right.

Sales continues to be strong in that area, George. I mean, when you look at the historical backlogs and you look where backlogs are today and you look at the execution, we'll continue to go through a little bit of volatility noise just on that movement from license on premise to outsourcing. And we'll continue to see that. But, you know, honestly, from an execution standpoint, our ability to take share, the teams are delivering very nicely against those sales. So we feel good about that business going forward. Congrats again. Thank you.

Thank you. The next question in queue comes from Darren Teller with Wolf Research. Please go ahead.

Hey, thanks, guys. Thanks, Darren. Thanks. You know, listen, when we look at the FIS trends standalone and we look at where they're trending now, 5% this quarter, even last quarter, 4% adjusting for one-time items, and we compare that to the prior year or two, I know you guys said it's, you know, you would expect it to be 5% this year, but just what exactly is different? Can you specifically point to what products are growing more quickly? Is it the end market that's better? I'd be curious to hear what changed so substantially and why that's sustainable. It's great to see. It just carries more color on that.

Well, I think two things, Darren. What's really changed is, honestly, if you look, we're well positioned in the larger financial institutions around the world, right? So whether you... whether you look at the mid-tier or large financial institutions, FIS is well-positioned. If you look at that client base specifically, they really have held on to their technology investment way too long. Look at SunTrust and BB&T coming together, all about scale to drive innovation. So you're just seeing in that secular market an increased spend rate around technologies. And they're focusing on a number of different things. They're focusing on digital enablement of their capabilities, where they're really going, trying to go to next generation omnichannel capabilities. Obviously, we're a leader in that space with our Digital One application. If you look at some of the things that Brett talked about, asked about on Stevens, where you're even looking at componentizations and how do I move my legacy technology from From some of these applications that have been in place for 30 or 40 years, how do I really move them to a next-generation cloud-based platform? All of these things are just driving an increased spend rate. And when you look at six quarters in of really strong sales, it just gives us high confidence that's going to continue. We've got a number of significant opportunities in flight. pipelines very full, teams really engaged. And so I think timing is just really working in favor of FIS, giving where we're positioned in market, giving the type of clients we have, also giving where we've made investments. We started these investments on cloud-based technologies four plus years ago. We started these investments on next generation applications four years ago, and all of that's really accelerating to our benefit as our customers look to modernize and transform themselves.

Okay. All right. That's helpful. And then, guys, I mean, with regard to the e-com side, again, there was, you know, 19% growth in overall tax relief. Did you already have the benefit of any of the revenue from the cross-sells between VAT and WorldPay? You know, when you list off the incremental 14 or so this quarter, there were some that were already started last year. I think the second half is where we're hoping for the revenue for some of those to really start to come on. Is that still on target, and should that help with the growth rate of e-com and overall tech solutions in the second half?

Yeah, I think what we actually described was more of that revenue benefit in 2020 from a growth perspective. Year over year, we're certainly seeing the cross-sell right now and are excited about it. But more of that revenue growth is in 2020 as those convert.

Yeah, keep in mind, Darren, I mean, you know, as you think about new sales across e-commerce, very similar to the FIS business in banking. you know, can be a long sales cycle, but it also can be a fairly lengthy implementation cycle, right? You've got to integrate the software into the e-commerce environment. They're going to actually slowly start moving volume over. So the ramp really is you start seeing in 2020. But as Woody shared earlier, we still feel very confident about the back half of the year and what we're seeing in those current growth rates. So really, sales, as we talk about it in these quarters, are really indicative of what it's going to look like, you know, three and four quarters out.

All right. Just last quick one. Those low-hanging fruit revenue synergies around the DICE network and card production, those still should be coming out on plant?

Yeah, no, we talked about it. We really think that we're going to start seeing some revenue benefit here very early in the process. And so, you know, that gives us high confidence as we got it in 2020 to really start pushing towards 7%. And we've got really good line of sight into some of those topics we discussed on prior calls and today. Very good. Thanks, guys. Thank you. Thank you.

Thank you. We do have time for one more question that will come from Ramzi Ellisall with Barclays. Please go ahead.

Hi. Thanks for taking my question, squeezing me in here. I actually wanted to follow up on Darren's last question about the near-term synergies. What you mentioned earlier In addition to some of the network optimization, you mentioned optimizing loyalty fraud and enhancing world-paced issuer business. I'm trying to just get a little more granularity about that. I thought maybe optimizing loyalty might have to do with your Pay With Points program, but it seemed like that might have been a little later on in the planning in terms of revenue synergy realization. So if you could just give us a little more color on what exactly is optimizing loyalty fraud and enhancing world-paced issuer business, I'd be grateful.

Yeah, on the loyalty side, I think you're going to see that in the short term and in the longer term as well as we take that capability and push it through the existing distribution channel.

That's right.

It was already growing for FIS on a standalone basis, so that will continue. We can accelerate that with WorldPay's distribution in the longer term. We can build it into the e-commerce platform and drive incremental differentiation there. So that's the biggest component there. On the fraud side, it's really more incrementally having more data sets to work through, more data sets to drive through our processes. Those are the two biggest components from an additional caller standpoint. We will see some level of revenue synergy more in the fourth quarter starting to come online, but it's pretty minimal in terms of its end-year contribution for 2019. More of that's coming in 2020. Okay.

Okay. And then lastly for me, can you give us some indication? You spoke a bit about the evolution in the marketplace of kind of faster payments and how you're well positioned on a lot of different axes to benefit from that. Can you speak to any capabilities that the merger will unlock in terms of potential on us, you know, alternative routing paths to go from merchant to bank? Or is that something that's in your roadmap or any color that would be helpful to you?

Yeah, no, Ramsey, we think there could be a real opportunity there. Obviously, when you start talking about long-term combination of a company and some opportunities that might exist, that's one of them that we're looking at. But we're not really prepared to talk about that today. Fair enough. Thanks a lot. Thank you.

Thank you. At this time, we'll turn the conference back over to our presenters for any closing comments.

Thanks for joining us today. We are thrilled with this combination. WorldPay is a respected global brand with a best-in-class executive team and over 8,000 talented employees. They have a loyal and expansive client base and partner network who represent some of the most successful businesses in the industry. This combined with our profitable and very predictable financial institution business, banking and capital markets, all aimed at the heart of commerce and the financial transactions that power the world's digital economy. makes this a powerful combination. We are grateful to all our loyal clients who depend on us to keep their businesses running and growing every day. Finally, I am personally thankful for our now 55,000 leaders and employees for their hard work and dedication in serving our clients. FIS is dedicated to advancing the way the world pays, banks, and invests. Thank you for joining us today.

Thank you. And ladies and gentlemen, that does conclude your conference call for today. We do thank you for your participation. And for the AT&T Executive Teleconference, you may now disconnect.