Fidelity National Information Services, Inc.

Ladies and gentlemen, thank you for standing by. Welcome to the FIS Third Quarter 2019 earnings call. At this time, all participants are in a listen-only mode. Later, we will conduct a question and answer session. If you have a question, press star then one on your touchtone phone. You may remove yourself from queue at any time by pressing the pound key. If you should require assistance during the meeting, please press star zero. As a reminder, this conference is being recorded. I would now like to turn the conference over to our host, Head of Corporate Finance and Investor Relations, Nate Rolzoff. Please go ahead.

Good morning, and thank you for joining us today for the FIS Third Quarter 2019 earnings conference call. The call is being webcasted. Today's news release, corresponding presentation, and webcast are all available on our website at fisglobal.com. Beginning on slide two, Gary Norcross, our chairman, president, and CEO, will discuss our Third Quarter 2019 business highlights and FIS's growth strategy. Woody Woodall, our Chief Financial Officer, will then review FIS's Third Quarter financial results, synergy performance, and provide updated guidance for the Fourth Quarter in full year. Turning to slide three, today's remarks will contain forward-looking statements. These statements are subject to risks and uncertainties as described in the press release and other filings with the SEC. The company undertakes no obligation to update any forward-looking statements, whether as a result of new information, future events, or otherwise, except as required by law. Please refer to the Safe Harbor language. Also, throughout this conference call, we will be presenting non-GAAP information, including adjusted EBITDA, adjusted net earnings, and adjusted net earnings per share. These are important financial performance measures for the company, but are not financial measures as defined by GAAP. Reconciliation of our non-GAAP information to the GAAP financial information are presented in our earnings release. With

that, I'll turn the call over to Gary. Thank you, Nate. Good morning and welcome to today's call. Beginning on slide five, I'm very pleased to be able to share our outstanding third quarter performance with you. Our financial results were excellent, with revenue, adjusted EBITDA, and adjusted EPS all significantly exceeding our expectations. We also got off to a very fast start with both revenue and cost synergies, especially considering we operated for only two months as a combined company. As a result, we are raising our fourth quarter and full year guidance for revenue, EBITDA, and EPS, as well as our 2020 cost synergy target. The strength of our third quarter performance and raised outlook clearly demonstrates the power of this combination and our overall growth strategy. Including two months of world pay contribution, we generated more than $2.8 billion in revenue and approximately $1.2 billion in adjusted EBITDA. This represents 35% revenue growth on a GAAP basis, over 5% organic growth, and 350 basis points of margin expansion. We generated $1.43 of adjusted EPS, which was well above our expectations. In the third quarter, sales were up more than 25%, increasing our backlog 9% organically, accelerating from 7% growth last quarter. This gives us clear line of sight to continued revenue growth throughout 2020. FIS has successfully generated seven consecutive quarters of exceptionally strong sales. Merchant Solutions also saw continued strong sales momentum within our e-commerce portfolio, including 23 cross-sell wins in the quarter, accelerating from 14 wins in the second quarter. We think these cross-sell wins are another strong indicator of the success and scale that our newly combined company can deliver. Turning to our early synergies from the world pay integration, they clearly show that the combination of our two companies is paying significant dividends. Our combination is strategically differentiated on three main fronts. First, we have a unique strategy to accelerate organic growth by aggressively investing in innovative technologies and automating complexity. Second, we are combining the premier assets in the industry to create leading solutions focused on secular high-growth markets. Third, we are bringing value to our clients with our world-class scale. We exited the quarter generating more than $30 million in annualized run rate revenue synergies with significant future opportunity. I'm excited to announce that we have already signed agreements with two of our bank clients to expand our relationships into merchant services. This includes a merchant referral agreement with an $11 billion bank in the United States, as well as an agreement with a large banking client in Brazil. With this agreement, we are now enabling merchant processing in Brazil at the point of sale for over 500,000 merchants. This step forward demonstrates the power of our new company's global reach, as neither company would have won these transactions on their own. These early wins illustrate the power of our -to-end value proposition, and we have a solid plan and execution timeline that will drive our results to achieve our $500 million revenue synergy goal. With regard to cost synergies, our team began executing immediately, and upon close, we generated well over $200 million in savings on an annualized run rate basis exiting the third quarter. Woody will go into more detail regarding cost synergies, but given the outstanding results today and our current plans, we are very confident in delivering more than $500 million in total cost synergies. The integration of these large transformational M&A transactions continues to be a core competency, and we will utilize it as part of our strategy and further accelerate our organic growth and shareholder value. Turning to slide six is discuss our growth strategy. We continue to aggressively invest in new technologies across all three of our segments. Investing in future innovation to benefit our clients started more than three years ago. It's part of everything we do at FIS, and will continue to drive our client value proposition. These significant innovations are now coming to market and not only driving our sales results, but leading to our accelerated growth. Our clients depend on us to stay ahead of the market and make investments that enable them to run their operations more efficiently, connect with their customers, and grow their businesses. With the addition of merchant solutions, our growth rate will expand to 6% in the fourth quarter. We see numerous secular growth opportunities in all three segments, and our clients and partners are excited about the potential value we can bring to them by solving their current and future needs. Turning to our segment performance, our merchant segment continues to benefit from its exposure to secular high-growth markets and ability to win market share through superior client service. For example, a leading global coffee chain selected FIS for in-store payment technology across more than 600 locations in the UK and Europe. Our global reach, innovative capabilities, and differentiated approach resonated with the iconic coffee giant as it expands into new markets. In addition to this marquee new client win, merchant renewed its important strategic relationship with Kroger to continue providing our innovative suite of omni-channel payment solutions. While we typically do not highlight renewals, this is one of the largest clients of the former WorldPay business, and we were thrilled with the early commitment Kroger showed in extending our long-standing partnership. In our banking segment, our clients are reinventing their business models to create seamless digital experiences for their customers using our advanced technologies. For example, we expanded our relationship with a global bank to implement a real-time payment solution for their corporate clients in nine countries. The bank chose to partner with us due to our proven capabilities and expertise as well as our ability to move quickly to meet Europe's regulatory requirements. In addition, a large regional bank in the US decided to switch to our outsourced suite of core banking solutions after acquiring one of our clients. The combined company now has assets approaching $50 billion and represents a consistent theme of large financial institutions looking to FIS to solve their complex core banking business challenges. The decision was driven by our scalability and our consistent investment in new products as well as our tremendous scale in the large regional banking market. Similarly, in our capital market segment, our investments automate complex processes using advanced -to-end technologies or resonating with clients. For example, a large institutional broker signed an agreement to implement our consolidated audit trail solution to effectively meet new regulatory requirements for monitoring security straitings. Regulatory compliance is critical for our capital markets clients and our ability to automate these processes is a true differentiator. This is our 12th consolidated audit trail win this year and shows our ability to work at scale to simplify the complex. We also expanded our strategic relationship with a large global financial services corporation. In this instance, we are bundling several FIS cloud-based solutions to help this organization's global travel services enhance treasury controls, optimize cash visibility, and reduce fraud. These impressive client wins across our segments demonstrate the strength of our business model and powerful client value proposition. I'm very proud of the team's sales and operational execution, especially given the backdrop of the significant integration activities occurring throughout the company. With such strong results and revenue synergies already starting to ramp, I am increasingly confident in our expectation for organic growth to approach 7% next year and to further expand to 8% to 9% in the future. I'll now turn the call to Woody to round out the financial discussion before he opens the call to questions. Woody? Woody?

Thank

you,

Gary. I'll begin with our results on slide 8. We had an outstanding quarter. Revenue increased .4% on an organic basis to $2.8 billion with strong top-line performances from all three of our segments. Adjusted EBITDA increased to $1.2 billion during the quarter, and our margins expanded 350 basis points to 42%. We expanded margins by generating operating leverage, driving data center consolidation, and achieving call synergies. We also benefited from the inclusion of high-margin merchant revenue for the last two months. As a result, adjusted EPS was $1.43 per share, reflecting our strong revenue and EBITDA performance. Turning to slide 9, we accelerated the timing of both revenue and call synergies. In only two months, we have already achieved revenue synergies of more than $30 million on an annualized run rate basis, primarily through the benefits from debit card routing. We expect revenue synergies to ramp up from here, giving us clear line of sight to our $150 million target by the end of 2020. This fast start gives us confidence to increase the fourth quarter revenue guidance and gives us an early lead on achieving our revenue synergy goals. In addition to the debit card routing benefits, we also expect to achieve revenue synergies through cross-selling our combined portfolio, improving authorization rates, reducing fraud, and expanding our geographic presence. For example, our first joint loyalty as a currency client is on track to go live during the first half of next year. Completing the integration of this solution into the WorldPay platform will mark a significant milestone. It will streamline the onboarding process for future clients, allowing us to significantly ramp up sales and distribution in order to accelerate revenue synergies. At this early point in the integration, we are ahead of our planned revenue goals, which puts us clearly on track to achieve our $500 million revenue synergy goal by the end of 2022. Turning to cost synergies, we achieved more than $200 million in annualized run rate cost synergies exiting the third quarter. As a result of our rapid progress, I'm very pleased to increase our 2020 cost synergy target by $50 million to more than $350 million in annual run rate savings. The team has been working hard to drive costs out of the business and started executing day one. We drove cost synergies in the third quarter by reducing duplicative corporate costs as well as by achieving interest expense savings that we announced last quarter. Moving forward, we will achieve our cost synergy targets primarily by consolidating our merchant and issuer processing businesses, as well as by streamlining operating and technology costs while maintaining a focus on accelerating revenue growth. We feel very confident about our ability to achieve or exceed our synergy expectations and look forward to continuing to update you on our progress each quarter. Moving to slide 10, I'd like to add some color on our segment results. Merchant solutions grew 8% organically, including two months of world pay during the quarter. We expect merchant solutions to accelerate to 10% growth in the fourth quarter as we realize additional revenue synergies and we expect similar growth levels in 2020. Turning to adjusted EBITDA, the merchant segment generated $371 million in the quarter, representing a very healthy 52% margin. Our banking solution segment increased 5% organically. This strong performance was primarily driven by continued new sales over the past several quarters as Gary described earlier. As a reminder, it takes several quarters to convert new sales to revenue, giving us great line of sight to our organic growth targets through 2020. Our strategy to accelerate growth by investing in technology and innovation is clearly paying off. Banking generated $641 million in adjusted EBITDA, driving a 43% margin. Capital markets also generated very strong organic growth of 5%. This top line growth was primarily driven by a significant increase in recurring revenue while licensed revenue remained relatively flat. We continue to shift the revenue mix of this segment from licensed fees to a recurring or SaaS-based subscription revenue model. Our growing recurring revenue base is building a strong foundation for future revenue growth as well as providing more visibility into our go-forward revenue expectations. The capital market segment generated $280 million in adjusted EBITDA, representing a 46% margin. Turning to our capital allocation strategy on slide 11. This quarter, we saw 23% conversion of revenue into free cash flow, up from 20% last quarter. As a result, we generated $640 million in free cash flow with only two months of world pay, which is nearly double the amount that we achieved in the prior year period. We used the strength of our third quarter cash flow to aggressively repay debt. We've already paid down more than $700 million of outstanding debt since closing, even as we continue to fund integration. We also doubled our quarterly dividend payment to approximately $215 million following the increased share issuance related to the world pay transaction. We are committed to our investment grade credit ratings and we will quickly delever to achieve our 2.7 times leverage target by the end of 2020. Even as we delever, the strength of our balance sheet gives us flexibility to continue to invest in innovation for the benefit of our clients as well as to execute tuck-in acquisitions to further enhance growth. Moving to our fourth quarter and full year guidance on slide 12. We are raising our revenue, adjusted EBITDA and EPS guidance ranges for both the fourth quarter and full year. At the midpoint, we are increasing our revenue guidance by $7.5 million for the fourth quarter and by approximately $40 million for the full year. We are raising our adjusted EBITDA guidance by $10 million for the fourth quarter and approximately $50 million for the full year. Finally, we are increasing our adjusted EPS guidance at the midpoint by three cents for the fourth quarter and by 12 cents for the full year. The increase to our fourth quarter guidance primarily reflects current business trends and ongoing synergy achievement. While our higher full year ranges reflect both the outperformance that we generated in the third quarter as well as our increased fourth quarter expectations. Our results and outlook demonstrate the strength of our business model and the power of our growth strategy. This concludes our prepared remarks. Operator, you may now open the line for questions.

Thank you, ladies and gentlemen. If you wish to ask a question, please press star then one on your touchtone phone. Our first question comes from the line of Dan Perlin with RBC Capital Markets. Please go ahead.

Thanks, good morning guys and nice results. I wanted to ask a little bit about kind of the modernization of your banks. In the past, you talked about where they had to kind of go down this pathway in order to really implement a lot of the new technologies and I'm just wondering, what you saw, now you've got this combined entity and those kind of conversations and just where we are in that process.

Yeah, no Dan, thanks, it's a great question. I think we're in the early innings of the transformations going on. At FIS, we're in the later innings of that. Obviously, we started well over three years ago modernizing all of our technology stack and pushing our compute into our own private cloud. We then also started modernizing all of our application layer and bringing on next generation digital experiences and frankly, next generation capabilities across all of our segments and that's resonating well with our clients and you're seeing that in our quarterly results with seven strong quarters of revenue sales. But we think we're very early in the process, frankly, as we've discussed on prior calls. I think the industry held on too long to legacy-based technologies and really we're seeing our clients now have to make that transformation. So we're excited about the investment that we started years ago. We are excited about our timing for where the market is and really puts us in a really good spot as we look to the future.

And just as a quick follow-up, can I just ask about the geographic mix as you're thinking about the demand environment and specifically, we've just heard concerns around Europe kind of in trick order and so anything on that would be great, thank you.

Yeah, no, it's, you know, when we look across Europe and frankly, the UK, you know, what we're seeing in the UK with Brexit specifically, we've already seen that volume kind of go down to recessionary periods. So anything that would show any kind of improvement would actually be a tailwind for us. You know, I would agree Europe has been a little slow for us across the broader banking capital markets as well but we have had some nice winds here recently. Other areas like Brazil, we've seen some nice growth out of, we continue to see Asia strong. So our geographic footprint continues to be a very good differentiator for us from a global perspective but, you know, when we look at Europe and what he talks about, our guidance and what we're seeing coming in, we're really keeping Europe and broader UK at current levels. Great, thank you.

Thank you, our next question comes from Lisa Ellis with Moffat-Napanson. Please go ahead.

Hi, good morning guys, nice overall results here. Just one clarification on the merchant solutions side. Can you, I realize WorldPays only in that number for two months out of the quarter, can you give us a sense for one, what the, whether or not that legacy business is still running at that sort of 10% organic growth number it's been running at and then also just within that, can you give a sense for how EECOM and integrated are tracking EECOM in particular, just I realize that's a small piece of the business but just so critical to the overall growth, thank you.

Yeah, it's a great question. As we tried to highlight last quarter, we expected a little noise related to the transaction in the third quarter and we only had two months in there. That probably impacted it by roughly a point negatively in the quarter. We also saw technology solutions in the old WorldPay nomenclature mid to high teams with continued momentum and expectation at that mid to high teams type level, both EECOM and integrated had very strong quarters as we expected and we continue to see that through both the fourth quarter with a call out of expecting 10% growth for the merchant solutions group in the fourth quarter and continuing that momentum into 2020.

Yeah, at least in the build on that, we kind of highlighted in the prepared remarks on our E-commerce sales success. We saw really nice sales win and those sales wins accelerating from a cross-sales standpoint with 23 wins this quarter compared to last quarter. So everything I would tell you, we're seeing good strong results and actually, to your point, E-commerce is very, very important to the overall growth strategy and continued leadership in that space.

Thank you. Your next question comes from the line of George Mahalo with Collins, please go ahead.

Hey, good morning guys and let me add my congrats on a strong quarter. Thanks, George. If we could just dig in a little bit on that last question specific to the tech solutions, I think Woody, you said it was growing kind of in the mid to high teams. That would seem to suggest that EECOM, I would think EECOM is kind of still growing in that 20-ish percent range. So one, is that the right way to think about it? And then you had a lot of momentum with cross-sales and the like, just curious, is servicing marketplaces a big opportunity for that EECOM business or is it more kind of blocking and tackling and getting sort of a full suite for merchants that you might be servicing offline and trying to get the online business?

Yeah, I'll get the first question and maybe let Gary catch the second half of it. We talked about integrated or the old technology solutions growing roughly mid to high teams. Within, if you break that down even further, we would anticipate EECOM in the fourth quarter and into 2020 to stay at close to that 20% level and feel very good about the momentum in that business right now. Within the third quarter specifically, it was in the mid to high teams when you normalize some wins from last year, but very pleased with the overall growth of that business and anticipate it to continue to stay at those nearly 20% levels in EECOM. Yeah,

and George, to build on that, I think it's important when we talk about EECOM, we're talking about really pure play level online acquiring. So when you think about brick and mortar moving to online, that really falls up under our omni-channel deployment. So no, our EECOM business, which is pure play, really is growing very, very high, as Woody just said, greater than 20%. I think the cross-sell wins are important indicators. You're talking about first quarter, we did 16 of those. Second quarter came in at 14 wins, and then two, three at 23 wins. So Mark, Shane, and the group are really doing a nice job continuing to grow that business.

That's great, really appreciate that. And just one more, if I can kind of sneak in. When you look at the synergies on the revenue side, is there any way to think about that opportunity in near term, kind of domestic US versus international, maybe where you might be seeing some more momentum?

Yeah, I would anticipate, we expected to come out of the gate strong, we highlighted debit routing is some of it.

I'll

tell you more of that's in the US right now. But I would tell you, we're actually slightly ahead of plan on our revenue synergies coming out of the first couple of months, and feel very good about executing that. But more of that in the run rate right now would have been in the US.

Yeah, I mean, I think George is building on that. If you look at our revenue stream, more than 70% of our revenue streams in the US. So naturally our cross sells, naturally our revenue synergies is just gonna be heavily weighted towards the US. But I think you're gonna see our revenue synergies really pretty much in alignment with the way the revenue falls as the company. So we'll see nice opportunities outside the US as well. We highlighted the Brazil opportunity that we just signed, and there'll be more that come online. But just given where the book falls in general, and all of these revenues are gonna be cross sell, up sell, pull through, data utilization, et cetera, the revenue synergies will predominantly fall in the same manner as our current revenue.

Thanks

guys.

Thank you, our next question comes from Jason Kupferberg with Bank of America, Merrill Lynch. Please go ahead.

Hey, good morning guys, how are you? Great Jason. Good. So just wanted to ask, following up from last quarter when I think you had indicated that the deal should be modestly accretive to adjusted EPS in 2020, and that was relative to the standalone FIS number of I believe $6.16, I just wanted to see if you wanted to put a finer point on the magnitude of accretion we should be thinking about in 2020, especially since you've now raised the expense energy target for next year.

Yeah, I'm not gonna give 2020 guidance today on the call, but I would tell you that gives us incremental confidence on both remarks I made last quarter, which were approaching 7% organic revenue growth, I have incremental confidence on that coming out of the gate with strong revenue synergies, and then, you know, accretive to that $6.16 number you mentioned there, I have incremental confidence on that, and we look at the overall increase in the cost synergies next year. But not giving a finer point on it at this point, we'll give more color in February when we actually outline the 2020 guide specifically.

Okay, fair enough. Just as a follow-up, wanted to get your latest observations in terms of some of the smaller competitors in the market that tend to be termed more the cloud-based competitors in core banking, there was a bit of chatter on that topic at Money2020 last week, so just wanted to get your perspective, especially as more of the neo banks keep popping up.

Yeah, no, I think we keep highlighting every throughout our calls. So, you know, obviously we would say we feel we're the leader in cloud-based computing today at this point in time in financial services, given all of our data center consolidation and us consolidating, you know, the vast, vast majority of all that work to the cloud today. Some of the things we're doing with technology really hasn't been seen in the industry before. When you look at our application stack of bringing online, you know, our next generation cloud-based applications, you're seeing success, and we've announced several wins on the call, and we have several more coming on specifically core banking. So whether you're looking at our omni-channel digital experiences, Digital One, full cloud-based type technology, you're also, we've announced several wins on our next generation core banking platform and actually have one of those online as well. So we think, we respect that there's always going to be competitors in the industry, but given our position, given our scale, given our historical investment and timing, we think we're well positioned to take advantage of the next generation of technology and computing in the industry.

Okay, well, thanks for the comments, and congrats on the quarter. Thank you, Jason.

Thank you. Our next question comes from David Toget with Evercore ISI. Please go ahead.

Thank you. Good morning. Good to see the strong sales growth and bookings growth, Gary and Woody.

Thanks, David.

Given the strength you've seen in bookings, and this looks to be the third consecutive quarter of Core FIS in the mid-single digits, should we expect this mid-single digit growth rate in banking solutions to be sustainable into 2020, given the seven consecutive quarters of strong bookings you put up?

Yeah, I think that's right, David. The way the business flows, we anticipate sales growth driving revenue growth, so as we're seeing that sales growth for several quarters, gives us good visibility, and we would expect that mid-single digit growth that we highlighted last quarter in the banking segment to continue through 2020 and have a high level of confidence and visibility into that as we continue to click off months of sales.

Understood. And then the big win you called out, Gary, in Brazil in merchant, how does the pipeline look for cross-selling merchant business in Brazil going into 2020?

I would say holistically, the pipeline for cross-sell for merchant across all of our customers looks very good, right? I mean, we were excited about the Brazil win, but when I look more holistically on a global basis and some of the things that we have going on in the sales channel with regards to merchant, I'm very excited about that overall business and our ability to cross-sell under our customer base. The response has been very strong since the closure.

Understood. Just a quick housekeeping question. For the third quarter, what would total revenue and EBITDA have been if WorldPay were included for the full quarter? I

don't have the dollar amounts of revenue, David. I would tell you they would be slightly under the 6% number as we had some of the noise from the transaction in there. We do still anticipate full year pro forma revenue as if WorldPay would have been in since January right at 6%.

Understood. Thank you very much. Thank you, David.

Thank you. Our next question comes from Darren Peller with Wolf Research. Please go ahead.

Thanks, guys. Maybe just touch a little more on the driver supporting the strong growth on the legacy FIS side for a minute just because I know bookings have been good, but just more particularly what's driving that 5% on cap markets. I know that you expected it to accelerate. Again, it was definitely a rate we haven't seen much in a while on that segment, so that's great to see, but that segment as well as even the banking side, I know you just said it would be sustainable. Maybe a little bit more detail around what's driving that sustainability now and then I just want to hone in on one follow-up. Go ahead. Go ahead, Darren, get your follow-up questions. Yeah, I mean, really just trying to understand when you combine that, if that's stable, if you combine that with the traction we're seeing on the cross-sells you went through on the merchant side, whether it's the cross-sells, VANF and WorldPay and some of those synergies, just talk about timing on when we would expect those to come on. When do you expect the revenue from legacy cross-sells, VANF, WorldPay deals you did to actually start showing up in revenue, some of the clients you won last year, and then where are we on the rewards and the car production build-up?

Okay, so look, a lot in there. Let's back up to the base banking business, capital markets business and acceleration capital markets specifically. We talked about last quarter that we were seeing acceleration capital markets. One of the things that we're real pleased with is actually license-being capital markets were flat. We actually saw an acceleration. We've been telling the market for some time that we're seeing this movement from licensing on-premise to deploying our technologies in our SaaS model. That's back to our investment and innovation and back to investment in technology and leveraging cloud-based computing technology. So all of that is playing huge dividends for us when you look at our scale. So we expect to see capital markets continue to accelerate in Q4 based on that investment. Banking as well, we're at an interesting inflection point in the industry. We really have a lot of legacy technologies in market. And frankly, we started those investments, as I said, more than three years ago, where FIS started investing heavily in new innovation, where we really pivoted our spin from legacy technologies to the future. You saw that impact or growth rates in the short term because frankly, we were spending our capital dollars in areas where we didn't have product to deploy against. But now you're seeing the timing work out very well for FIS, where our customers are looking to take advantage of some of these, lower their total cost of ownership, improve their overall digital experience across their end customers. And that's all resonating not only in our sales pipeline, but you're seeing our closings. I mean, those are very strong results on sales now for seven consecutive quarters. So whether you're looking at merchant, where we're leading in e-commerce, high-valued e-commerce, high-valued technology integration, banking or capital markets, that key theme plays out very well and is really playing into our accelerated growth rates significantly.

If you're looking at the specifics on timing of revenue synergies, they'll ramp over the course of the year next year. We're starting to see some of those cross-sales from the WorldPay Vantage flow into the actual results now, and they were built into our expectations as we outlined those last quarter. And we'll see the new revenue synergies sort of flowing through over the course of the year next year. Okay.

All right. Just one last quick follow-up. I mean, the RFPs that we're hearing about on Econ sounds like they've accelerated maybe even two to three times what they were last year for gateway consolidation. Are you seeing the same thing? And it seems like there's maybe only four or five key players winning a lot of that bulk of those RFPs. What kind of win rates are you seeing? Obviously, the 23 you announced is a good sign of that.

Yeah. No, look, I mean, we're seeing obviously increased demand for our solution set. I mean, e-commerce is doing very well. We think there's really three significant players in the space today. And clearly, we're the lead global player in that mix. And you're seeing that in our cross-sell wins. And the team's just doing a really nice job of selling into this key high-growth secular market. And you'll continue to see us ramping that up and also the revenue associated with that driving into the results, as Woody talked about. All right. Thank you. That's great.

Thank you. Our next question comes from Ashwin Srivakar with Citi. Please go ahead.

Thanks. Hi, Woody. Hey, Ashwin. How are you? Hey. Good. Good. Thank you. These are good results. Appreciate the raise. Very solid. Let me... Can I start with... I know you're not providing 2020 guidance, but investors are clearly focused on the future. So perhaps maybe I can start by asking, are there things investors should watch out for from a modeling perspective as they put down more granular numbers, any quarterly trends, the cadence of synergies coming in, you know, any comps, things to watch out for?

Yeah, it's a good question. We can see the ad color. I would tell you, first quarter comps next year have some challenge in them. If you remember, this year, banking had a very strong first quarter of 2019 that had some tailwinds in it. So there's some comps in there. We anticipate revenue synergies to increment over the course of the year as they take form from achieve to realizing them in the P&L. So we'll see that. You know, we tried to give some color around merchant being at, you know, roughly 10 percent going into 2020 with good line of sight, banking to be mid single digits and the capital markets group to be low single digits with some optimism on capital markets as we continue to see the quality of that revenue and the recurring nature of that revenue continue to increase. But, you know, we have incrementally more confidence in a seven percent or approaching seven percent organic growth in 2020 and certainly have incremental more confidence on the comment regarding it being accretive to the six dollars, 16 cents I mentioned last quarter. So those would be some incremental color points, Ash, as we go into 2020.

Got it. No, thank you for that. And then the you know, I know as a company, both with you guys and and legacy wall pay always been sort of focused on reinvesting. So when you talk of increased synergy, is that a gross number? Is that a net number? And if the reinvestments, what are the focus areas for you now? And then a sort of clarification, obviously, you guys have announced new headquarters, you just provide the capital allocation on on that.

Yeah, the synergy number is a number net of dis synergies, if you will. So things that we would have to invest related to the transaction specifically would be would be netted into that number. To the extent we decided to invest further in other areas, we would obviously call that out in a different way. But that that synergy number is net of dis synergies within within the within the overall guide for 2020. We are or just announced we will be building a new headquarters here in Jacksonville. It's effectively consolidating existing three existing spaces that we have today in Jacksonville and will expand and grow some incremental jobs. We continue to grow the overall company. It is in our overall guidance, it is our overall capital allocation and would not change anything that we've outlined already. Guys, thank you guys.

Thank you. Your next question comes from the line of Brett Huff with Stephen. Please go ahead.

Good morning, Gary. What do you need? Hey, Brett. Good morning, Brett. Two questions, one to follow up on Brazil. We're pretty excited about that opportunity, given the limited US presence there. Gary, you talked about a big bank referral win, which is great. Can you tell us a little bit about your strategy going forward? Are we going to lead with Ecom? Are we going to lead with sort of integrated? Are we going to lead by trying to leverage the issuing relationships we have down there? Can you kind of give us a sense of that? And then number two question is the 25 percent sales increase or bookings increase. Was that organic, including WorldPay kind of just I want to make sure that I understand what that number is. Thank you.

Yeah, the first. Well, let's get the second question first. The 25 percent is an organic growth number. Right. So it's been very consistent on the on the quarters that we just closed that back to Brazil. Obviously, what we'll we'll continue to focus on, we've been driving heavily into e-commerce and we want to continue to make sure that we leverage e-commerce where we can appropriately in Brazil. Certainly a great opportunity for us on that. But with that being said, we also want to make sure that we take advantage of we've got a really good, strong client base in Brazil. We want to make sure that we're partnering with those clients in a way and adding value to them through cross sells and upsells as well. So it'll be a combination of both. But I would tell you in general, given what we're seeing in that high growth secular market, we prefer to lead with e-commerce at any point we can on the merchant side.

OK, that's great. That's what I need to thank you.

Thank you. Our next question comes from the line of Dave Coney with Baird. Please go ahead.

Yeah. Thanks, guys. Good job. Thanks, Dave. Yeah. And I guess just first of all, on the merchant segment, is it is it easiest just to think about the legacy tech solutions high teams and the legacy merchant part low single digits and that just blends to about 10 over time? And then as part of that, is merchant growing low single digits? And can that actually get better? Like the merchant, the old legacy merchant segment?

That's a rough way to think about it, Dave. And some pieces that were moved around, as you know, we certainly saw very good growth in both integrated and e-com and trying to highlight some color on that. You know, one of the theories we had is that the traditional business, we could improve and grow faster, and I think we'll see that over time as it flows into the numbers. I think it's a rough way to think about it. We tried to highlight that merchant on a go-forward basis. We anticipate Q4 to be about 10% and in 2020 to be roughly a 10% number, which aligns with that high single low double digit comment that we've talked about over the past couple of quarters, but feel very good about where the business is, health of the very strong growers and our ability to drive some incremental growth in some of the slower business.

Yeah. I mean, in general, Dave, I think the way to think about it is obviously we're going to focus on high growth secular trends that are occurring across our various market segments, right? And so naturally, we're going to be focusing heavily in merchant on technology and high valued e-commerce because there's a very strong secular growth trends there. With that being said, you know, Royal and the team, broader team are doing an excellent job as well with the traditional merchant business. So, you know, we're not going to turn back on these other businesses, but you will see us continue to focus on where, you know, we see high secular growth capital markets. We're seeing a lot going on in reg tech, which is why we highlighted the consolidated audit trail success there. So anywhere we see these high secular growth trends, we're going to sell into, we think we've got excellent technology to deliver against them. And then you'll absolutely see those just grow at a much higher growth rate. Great.

Thanks. And just one follow up on Q4. It seems like the guidance implies growth to be reasonably similar to Q3, unless I'm mistaken. But I know you talked about merchant accelerating. I think capital markets accelerating is banking about the same, but maybe just so you can kind of take the three segments and say which one's accelerating, de-sell relative to the total company Q4 guidance.

Yeah, I think you've got merchant continue to accelerate off of Q3. We anticipate capital markets to continue to accelerate off of Q3 and banking closer to the Q3 number as it faces a little more difficult comps in the fourth quarter. Net-net, you're seeing the increase in the fourth quarter on the guide basically being driven by revenue synergies. And we already had some of those that revenue and cost synergies baked into the original Q4 guidance overall, and we believe it's balanced. Great. Thanks. Nice job. Thank you.

Our next question comes from Bob Napoli with William Blair. Please go ahead.

Good morning. Thank you for the question. Morning, Bob. With the acquisition now of WorldPay, I was just wondering what the thoughts were on your M&A. I understand you're very tied in right now with integrating and cross-selling, but I would imagine that you're generating so much cash flow you're thinking about. I'm sure you're thinking about an M&A strategy. I just wondered if there's any change or any thought in how you're thinking about M&A in the future as you get more into the integration of the two companies.

Yeah, Bob, at the highest level, there's really no change. I mean, obviously, we're very focused on integrating the WorldPay transaction. With that being said, even now, we'll do small tuck-in type acquisitions to augment growth in areas that we're seeing going on in the segments. As you said, we've got plenty of cash flow to not only pay down the debt, as Woody described, also not only to continue to maintain our dividend going forward, but also to make small tuck-in acquisitions. Once we feel like we've got the integration of WorldPay behind us, we want to make sure that we drive the accelerated growth we're looking for, also drive the accelerated shareholder value. We'll then look to see if there's some broader M&A activity. But M&A is going to continue to play an important role in our strategy as we look for ways to accelerate our growth further.

Thank you. Just to follow up on the outlook for EBITDA margins by segment, as you think about that over not only into 2020, but long term, any thoughts on how we should think about which areas will see the most expansion in margins?

Yeah, I think you'll see expansion across all three segments, particularly as corporate costs get leveraged into those segments. You'll see incremental probably in merchant and banking. Most of the revenue synergies are driven out of those two segments, but you'll see margin expansion across all.

Thank you.

Appreciate

it.

Thank you. Our next question comes from Vasu Govil with KBW. Please go ahead.

Hi. Thanks for taking my question and congratulations on a great quarter.

Thank

you. I guess this first question, on the WorldPay and Vantiv cost synergies, are you still tracking in line to deliver that $250 million number that you had called out? And then as we think about the revenue synergies, do you have any updated thoughts given that you've seen this acceleration in deal signings? So could we be tracking better than the $100 million number that you've thrown out there before?

Yeah, on the cost side, we really kind of closed that out last quarter at the $250 number. So most of the tracking at this point of that is behind us, and we're focused on integrating the new WorldPay with FIS. With regard to the $100 million of revenue synergies that was previously outlined, we anticipated more of that to flow into 2020, but I think that's roughly in line with the original expectations, as you're seeing us call out those cross-sells, and feel very confident that that's still a good number.

Great. And just a quick follow-up on the strong new sales number. Can you give us a little bit of color maybe on sort of what the composition of that new sales looks like, where you were seeing more strength? And then you also noted the backlog accelerated to 9%. I think it was 7% last quarter. Does that mean we're running ahead of track for 2020, or is there a different sort of interpretation of that?

Yeah, no, most of our sales success, what we're seeing, obviously we highlighted a number of key wins, but you're really seeing it around our new technology, new innovation, new solutioning. We highlighted the merger of two very large regional banks coming together to form almost a $50 billion institution, and they selected to come with FIS, even though the other bank that was acquiring our bank. So, and that's all just based on the innovations around core bank processing, which was a question highlighted earlier, and also our omni-channel digital experience. We're also seeing it across all of our real-time faster payments type solutions. We've highlighted a lot on this call around merchant. Certainly in capital markets, we're seeing strong growth in reg tech and some of the other areas. What I'm really excited about is just how much of it is really now coming into our full-blown SaaS models. We've talked a lot about this on this quarter. It was really nice to see capital markets growth with actually flat license fees and accelerated, significant acceleration on the SaaS deployment of software. And so really gives us high confidence as we lean into going into next year. And as Woody talked about our accelerated growth targets. So all of that makes us feel really good about what we're seeing going into 2020.

Great. Thank you very much.

Thank you. Our next question comes from Matt O'Neill with Autonomous Research. Please go ahead.

Hi. Good morning. Thanks for taking my question. Most of the detailed questions have been asked and answered. I was wondering though if we could bring it back to I think it was the final slide of the merger deck where you talked about the promise of the -to-end connectivity between issuer data and acquiring. And I think the view that this could bring a durable competitive advantage to authorates and fraud rates longer term. And so I know it's only a few months in, but have the teams kind of met? Have the data pools been sort of discussed and shared? Or maybe could articulate kind of how that longer term synergy process is starting to take shape?

Yeah. No, I think it's a great question, Matt. Absolutely. The teams have met. We've got a full plan around improving our authorates and reducing our fraud rates, the whole -to-end. We're evaluating does even closed loop make sense? So there's a lot of opportunities here that the combined asset pool of the combined company can drive into the future. As we've talked about on prior calls, really need to look to those things starting to come online 18 months and after because there's work. I mean Woody highlighted even our loyalty as a currency where we're bringing that online in a fully integrated manner in the first half of next year. So we do have to do work as we pull these together, but the quick answer is the teams are highly engaged. Excuse me. And we've got a lot of governance around that and we'll continue to drive to that because we think there's a lot of opportunity on that beyond in the 18 months out time frame. Got it. Thank you.

Thank you. Our next question comes from the line of Ramsey Ellisow with Barclays. Please go ahead.

Hi guys. Good morning. This is Damian on for Ramsey. I wanted to ask on the the pin debit routing, you called that out as the driver of the revenue synergies this quarter. Is that opportunity largely complete now or is there more to go there and what would you view as the sort of next synergy driver that you'll focus on?

No, I wouldn't say it's complete at all. I think Woody was just trying to highlight something that drove a big piece of the early synergies win that we highlighted. There were other things that were in that number as well, but as we look for opportunities to leverage our scale, whether it's in debit routing, merchant referral services, even some of the things we talked about on the last question, that'll continue to drive and accelerate the revenue. We really have identified six major areas that we're focused on today. The teams have rallied around those. We built detailed plans around that, whether it's investment in software for development purposes, etc., or just plans and sales tactics and execution. I can tell you we're way down the path on all of those major categories. As we come into future quarters, we'll give you more and more highlights as we see that revenue ramp. Last quarter, we increased the amount of revenue for next year from a cross-sell standpoint. Given the quick out of the shoot success we've had, we're actually very excited and feel that number. We're certainly much more confident in that number as we go into it. Then, in future quarters, we'll give more and more detail for you.

Yeah, that's great. Then, a follow-up, actually. We've been talking a lot about Brazil today. Maybe we could talk a little bit more on India. I know you called that out originally as a focus area. Maybe you could give us more color on just what exists in your India business today, how much is ATM versus core versus core processing, and then which of those businesses you expect to lever the most in the context of this World Bank cross-sell.

Yeah, look, we've talked a lot in the past. Obviously, we've got a large ATM business in India. We've got a large now and growing core banking business in India. We were very successful in leveraging a lot of the new charters that were launched in India as a mandate by the government. We've successfully launched those. We'll leverage, obviously, those customers to cross-sell further payment capabilities in it. We've talked about e-commerce, which we think there's a real opportunity to leverage more e-com in India as well. It's really going to be a combination of all of our capabilities that will continue to allow us to accelerate our India growth rates. Thank you.

Thank you. Our next question comes from the line of Tencent Huang with JP Morgan. Please go ahead.

Thanks so much. Looks like a great start to WorldPay. I heard the 9% organic growth in the back wall, Gary. How about underlying retention and pricing? Is that moving up or holding up as well and driving your acceleration comment next year?

Yeah, you know, what I would tell you, Tencent, we've talked about this in the past. We're not seeing any acceleration, loss rates, or pricing compression has been a fact for years in our banking and capital markets business. We're not seeing really an acceleration of that as well. It seems to be pretty consistent. I would tell you I don't think it's necessarily slowing, but we feel great about the share we're winning and feel great about our competitive positions. We don't see that as an accelerating headwind going into next year and gives us that much more confidence as we look into next year.

It's encouraging. Just two quick clarifications. The merchant bank deals, the US and the Brazil, and maybe just the short-term pipeline as well. I'm curious, are those mostly de novo merchant bank deals? Just curious how quickly those things can ramp. And then also on capital markets, can we say that you've reached an inflection there with converting from licensing to status deals?

Well, let's go to the first one. Both of the merchant deals were competitive takeaways. And so we're excited about that. When you look at the capital markets opportunity that we talked about, I don't know that we're at the inflection point. You know, Q4 naturally has a heavy license component and always has been. You know, we've talked about how we've got a balance from a sales standpoint of our license grow over compared to our SaaS model. We think this quarter was just a great execution by the team. They really did just a really nice job with that management. And so it certainly is a strong indicator. You'll see reoccurring revenue and capital markets continue to accelerate. But we're still, it'll still be, you know, next couple of years before we get truly license fees down and arrange what you're seeing in banking, which is a very small percentage. Understood.

Thank you for the update.

Thanks, Tingen.

Thank you. And our last question today comes from the line of Joseph Forsey with Cantor Fitzgerald. Please go ahead.

Hi. Just two quick ones to wrap up. Maybe you could give us a little bit more color of your on the ground conversation with banks, particularly in the merchant services, how that conversation is going, what pricing looks like, because obviously it's been coming down over a long period of time. And then I'll ask my second one up front as well. Just the delta on the upside on the cost synergies. You know, when we get to that top end of the range, you know, where do you think you might be able to extend the cost synergies and what functions would you be looking at?

I'll take the first one on the merchant conversations. I think if you look, one of the things that we were excited about when we put the combination world paid together was just how much they had spent on next generation technologies themselves. Right. So you look at FIS, we've talked a lot about our modernization efforts, our transformation efforts. I'll tell you, world pay went through a very similar process, whether it's their acquiring platform in the UK or frankly, stuff they've done with high valued integrated payments and then e-commerce. And so when we're talking to our bank referrals for merchant referral programs, they see the benefits of that investment. They see the technology and what it can drive and how it can help them differentiate and actually grow their revenue streams. From a pricing standpoint, like all the industries, you know, it's price competitive out there. And we think our scale allows us to compete in the investments we've made. We think allows us to compete in that category very, very effectively. Are we seeing increases in price competition? Honestly, I'm not from my chair, but I would tell you, it's always been price competitive. Right. And I think FIS is in a real good position to compete on that.

On the almost cost energy side, you know, I think we're really pleased with where we are. At announcement day, we started out with roughly 400 million of cost energies. We increased that to 500 million. On the second quarter call, we increased that to greater than 500 million today. While we're not, you know, to end the job, we continue to focus. I think the teams are very good. It continued to drive costs out of the business. And, you know, we've got a long history of being able to overdrive our synergy targets.

Thank you.

I'm excited by the strength of our performance following the WorldPay acquisition and the progress we've made in bringing our two great teams together. I'd like to thank our more than 55,000 associates across the globe who are working hard every day to deliver exceptional results for clients and shareholders. If you have any questions following today's call, please reach out to our Investor Relations team. I couldn't be more excited about the future of FIS, and I want to thank you for joining us today.

Thank you, ladies and gentlemen. That does conclude your conference for today. You may access the digitized replay system after 11 a.m. Eastern through December 6 at midnight by dialing -475-6701 and entering the access code 473-273. International participants may dial -365-3844. Those numbers again are -475-6701 and -365-3844 with access code 473-273. That does conclude our conference for today. We thank you for your participation and for using AT&T Executive Teleconference Service. You may now disconnect.