Fidelity National Information Services, Inc.

Ladies and gentlemen, thank you for standing by and welcome to the FIS Fourth Quarter 2019 conference call. At this time, all participants are in a listen-only mode. Later, we will conduct a question and answer session. Instructions will be given at that time. If you should require assistance during the call, please press star then zero. And as a reminder, this conference is being recorded. I would now like to turn the conference over to our host, Mr. Nathan Rosehouse. Please go ahead, sir.

Thank you. Good morning and thanks to everyone for joining us today for the FIS Fourth Quarter and Full Year 2019 earnings conference call. This call is being webcasted and today's news release, corresponding presentation, as well as the webcast link are all available on our website at FISglobal.com. Gary Norcross, our chairman, president, and CEO, will discuss our recent business trends and describe our quarterly operating performance. Woody Woodall, our chief financial officer, will then review FIS' financial results and provide first quarter and full year 2020 guidance. 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 FDC. 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 this call over to Gary, who will begin his remarks on slide five.

Thanks, Nate. Good morning and thank you for joining us today. I'm very pleased to be able to announce our fourth quarter and full year results. 2019 was a transformational year for FIS. We successfully closed and are well down the path on integrating the largest financial technology transaction in our industry. This, along with outstanding sales production, delivered strong organic revenue growth of 6% for the full year. All three segments performed exceptionally well for the year as well as the quarter. Our record sales and integration activities position us for an even stronger 2020. Later, I'll talk about our strategy of modernization and how that has led to some very large noble wins that exemplify how our strategy is working, as well as driving increasing demand for our solution suite. This includes signing three of the largest banks in the country this quarter on our core banking solutions. In the fourth quarter, our organic growth rate accelerated to 7%, resulting in $3.3 billion in revenue. Our new sales results were the largest quarter and year in our history, resulting in an increase of more than 20% in new sales for the year. Our installation backlog as well as pipeline continue to expand. Adjusted EBITDA margins expanded by 470 basis points, primarily driven by the high contribution margins resulting from the installation of our new sales, growing transaction volumes, as well as the outstanding execution of our team to overdrive performance of cost and revenue synergies. As we think about integration synergies, we exited the quarter generating $80 million in revenue and $465 million in cost synergies on an annualized run rate basis. When including interest expense savings, we have already exceeded our initial cost synergy target. As a result of our strong performance, we are increasing our future expectations for both revenue and cost synergies, which we will detail later. With our impressive momentum heading into 2020, we expect continued acceleration in organic revenue growth and ranking earnings secretion. Turning to slide six, I want to talk about our strong sales results and client value propositions. Several years ago, we embarked on a transformational modernization journey. We began an ambitious new software development cycle, re-architected our solutions to be open, modular, and cloud based. And we also began modernizing and consolidating our technology delivery platforms. We did this because we believe that the financial services industry was moving towards its own transformation. And we wanted to be able to empower our clients and the broader industry to change. Disruptive technologies and new business models are forcing the industry to evolve. By embracing future ready innovations like automation, artificial intelligence, and machine learning, cloud native technologies, and digital omni-channel. Client demand, as evidenced by our new sales results, demonstrate that our thesis about the industry is correct. The investments we've made over the past several years are yielding results for our clients as well as FIS. In our banking segment, I'm very excited to announce that three of the largest banks in the country with combined total assets of more than $600 billion have embarked on the journey to transform their legacy core banking environment with FIS. This includes a top 10, a top 20, and a top 30 bank. MUFG Union Bank, a top 20 bank that we recently announced, as well as a top 10 bank both selected our modern banking platform for their new business. They selected us because of our ability to deliver an innovative, personalized, and next generation solution as well as our ability to consistently execute large scale complex implementations. The modern banking platform is entirely new and built from the ground up. It was developed with state of the art containers, digital first capability, open APIs, and cloud based delivery through a SAS model. This next generation highly flexible platform enables innovative financial institutions to transform the future of banking and clearly represents a significant milestone for the industry. I'm also pleased to announce that we signed an agreement with First Republic, a top 30 bank, to power its modernization program with our IBS core banking platform including our industry leading open API framework, Code Connect. IBS continues to prove why it's the leading SAS core banking platform for large regionals throughout the US. First Republic is known for its strong growth and outstanding client experience. They chose FIS over the incumbent provider because of our open, scalable platform which will better serve the needs of the bank's existing client base as well as allow them to continue to expand and meet their growing consumer and business clients. These three pivotal wins are the start of what we believe will be a decade long global transition of core banking systems from legacy in-house applications to cloud native open banking deployments. Turning to our merchant segment, we are winning due to our superior client value proposition, strong integrated systems, and continued flexibility on deployment. For example, one of our marquee clients, a top global search engine, continues to shift share to us after developing a proprietary routing engine that evaluates their processors for authorization and fraud rates as well as cost of acceptance. We consistently demonstrate exceptional results across these categories, leading the client to choose FIS for additional volumes across many of their US businesses. In addition, a large global retailer, who is number one in their category, selected FIS to deploy omnichannel payment technology across Europe, covering both in-store and online payments. The company was looking to consolidate multiple acquirers and turn to FIS because of our unique capabilities and global reach. In our capital market segment, our abilities simplify clients' complex needs with our -to-end solution suite as driving demand. Our modernization strategy has resulted in a very strong sales year, and we saw exceptionally strong growth in the fourth quarter. We continue to see increasing demand for SaaS deployments, and the team is doing an outstanding job balancing that demand with our on-premise licensed business. For example, we entered into a SaaS agreement with one of the world's largest asset managers. In this instance, we will be providing a bundled investment solution with the next-generation digital offering and data visualization tools. I'm also excited to announce that one of our premium payback clients, a large oil and gas company, is expanding their relationship with us to include our cloud-based solution for their corporate treasury, cash, liquidity, and risk management needs. This further proves that our ability to cross-sell and up-sell large enterprise customers to help their business on numerous levels. Turning to slide seven. In addition to these new wins, we are also accelerating our achievement of revenue synergies. While initially expecting to reach $100 million of annualized revenue synergies by the end of 2020, we have already achieved $80 million in annual run rate synergies in the first five months after closing. As a result, we are increasing our revenue synergy targets to $200 million exiting 2020 and $550 million exiting 2022. This reflects the -than-expected ramping of our multiple cross-sell opportunities. During the fourth quarter, we continue to see meaningful volumes ramp across our debit networks, as well as ongoing traction for our premium payback solution. We signed two very large premium payback clients during the fourth quarter as we are experiencing significant demand for this innovative solution. First, we will be partnering with PayPal to enable millions of online consumers to redeem earned rewards at checkout by allowing them to pay with points from thousands of U.S. banks. Together, we are enabling this client to deepen its relationships with millions of consumers across its 3,000 locations. We also signed another large merchant referral agreement during the quarter. We continue to be very pleased with our ability to take share from incumbent providers across our mid-size and regional bank clients. In the first five months, we are well ahead of our expectations regarding merchant referral sales agreements. Our pipeline and sales activities continue to grow, and we think this sales opportunity will continue to exceed our initial plans. Now that we are well into our integration execution, we continue to discover new opportunities to cross-sell and bundle offerings as we go to market, giving us strong confidence in our newly raised targets. For example, our joint prepaid solutions have emerged as a new cross-selling opportunity into the WorldPay client base. We have already signed a partnership with the Global Solutions Provider to develop reloadable fare cards for transit systems. Together, this partnership has already won our first large Metro client and expect more to follow. With our very successful achievement of expense as well as revenue synergies, we are running a full 12 months ahead of our original integration schedule. Due to this accelerated timeline, we are also taking earlier steps to further streamline our organization to drive a much more functional operating model. Some of the changes we have recently implemented will allow us to better leverage our -to-market strategies between our banking and merchant segments. We believe this will not only further accelerate our revenue synergies, but also allow us to drive innovation into these markets. We have also consolidated technology development for our merchant and banking businesses within our combined Chief Operating Officer organization. This alignment will allow us to increase our speed of development and deployment in this highly dynamic industry, creating what we believe will be a -in-class software engineering organization. As you can see, we feel great about how the companies have come together, and this momentum and success gives us great confidence for an even stronger 2020. Moving to slide 8. We have a highly resilient business model that is differentiated by our market-leading solutions across our segments. In merchant solutions, we are clearly a leader in global e-commerce and integrated payments. As we continue to grow, these channels have expanded to approximately 45% of our merchant business mix, up from 37% of world pay in 2017. Due to the high secular growth trends in these markets, we expect them to maintain their high rates of growth and continue increasing as a percentage of our revenue mix, reinforcing the durability of our organic growth profile. In banking solutions, we are differentiated by our comprehensive portfolio of next-generation solutions. These uniquely position us to help large global financial institutions as well as community banks and credit unions to transform their business models and to provide seamless customer experiences. Therefore, as the financial services industry continues to evolve, we will be the primary beneficiary of the growing momentum towards outsourced cloud-based technology from legacy in-house software. Finally, in capital markets, our investments in advanced technology and ragtag are paying dividends. We develop bundled offerings to enable our clients to simplify their complex front, middle, and back office processes with an -to-end automated workflow that is helping us to win market share. In addition, by using a SaaS delivery-based model, we have an opportunity to further increase our revenue growth profile by driving an increasing mix of predictable reoccurring revenue streams. In order to reinforce our reporting segments and drive increasing rates of organic growth, our priorities for 2020 are as follows. First, we will continue to invest in sales, innovation, and delivery to capitalize on our growing new sales pipelines. Clearly, our investments over the past five years are driving landmark new wins, and we are going to continue to lean into this strategy in 2020. Second, we will seamlessly execute the world-paying integration in order to achieve our revenue and cost synergy goals. We are already well ahead of schedule, and we will look to further accelerate our momentum in 2020. Third, we will continue to drive efficiency through our data center consolidation program. Last, we will continue to scale in our high-growth secular markets in order to reinforce the durability of our revenue growth profile. As you can tell by our exciting wins and accelerated synergy realization, 2019 was a transformational year, and we have lined aside to achieving even more in 2020. I will now turn the call over to Woody to round out the financial discussion before he opens the call to questions. Woody?

Thank you, Gary. I would also like to welcome everyone to today's call. This morning, I will cover our 2019 financial results and 2020 outlook. But before I take you through this, I would like to recap some of the financial highlights that we achieved in 2019 beginning with slide 10. During 2019, we transformed our company and positioned it for continued acceleration in revenue growth and ongoing margin expansion with an eye toward creating superior shareholder returns both now and into the future. First, we accelerated our organic growth profile by executing the most significant and transformational acquisition in our company's history. We also reinforced the durability of our growth profile with record new sales and notable client wins like the ones Gary mentioned earlier. These reflect the outcome of our investments in innovation and technology that we made to benefit our clients. Given our success, we will continue to make these investments. Second, we expanded margins by aggressively driving cost energies through our integration efforts as well as ongoing internal expense initiatives that were in place well before the WorldPay acquisition. Third, we enhanced these operating savings with disciplined management of our -the-line items. For example, we generated $275 million of annualized interest expense savings by strategically managing our capital structure. Finally, we generated $2.1 billion in free cash flow according to 20% of revenue. We anticipate free cash flow generation to accelerate and expect approximately 24 to 26% conversion to revenue in 2020. We used our strong free cash flow generation to not only pay down $1.4 billion in debt since the transaction closed but also to fund investments in innovation and integration as well as to continue to pay our dividend. For example, we recently acquired a majority stake in Vertis Partners. Vertis is a small but strategic tuck-in acquisition within our capital market segment. It provides high value, managed services and technology solutions focused on the credit and loan markets, which is an area of rapid growth. While it's too small to have a material impact on our consolidated results, it will further reinforce the capital market segment's accelerating growth profile. Looking forward, we will continue to prioritize debt repayment in order to reach our 2.7 times leverage target by the end of 2020. Our strong cash flow will allow us to continue investing in technology and innovation to drive new sales and to make strategic tuck-in acquisitions even as we de-lever. As we move into 2021 and beyond, our capital allocation priority will shift towards reviewing strategic M&A opportunities that will increase our scale in secular high-growth markets. Absent M&A opportunities, we will return capital to shareholders through ongoing dividends and resuming buybacks. As you can see, based on our accomplishments in 2019, we are doing what we said we would do and even more. First, we initially expected the World Pay transaction to be modestly dilutive in 2020 before turning accretive in 2021. Today, we announced our formal adjusted EPS guidance for 2020 and the entire range is now accretive. Second, our initial revenue synergy target was $500 million. Today, we increased our revenue synergy target by 10% to $550 million. Further, we increased our 2020 revenue synergy target by 33% to $200 million. Third, we initially expected cost energies of $400 million, which we raised again today to $675 million. Finally, we continue to see accelerating revenue growth in 2020 and beyond. These accomplishments demonstrate the hard work of the team and further increase my confidence in our strong outlook for 2020. Turning to our results on slide 11, we finished the year on a high note, exceeding our revenue and adjusted EPS guidance. In the fourth quarter, revenue increased 7% on an organic basis to $3.3 billion with strong top-line performance across all three of our segments, which I will summarize in a moment. Adjusted EBITDA increased to $1.5 billion during the quarter and our margins expanded by 470 basis points to 45%. Reflecting our strong operating results, adjusted EPS was $1.57 per share. I'll now provide some color on our segment results on slide 12. Merchant Solutions organic growth accelerated sequentially to 10% as expected and e-commerce and integrated payments saw continued strong growth in the mid to high teens. The segment generated EBITDA of $584 million in the quarter, representing a 52% margin. As we look to 2020, we expect this segment to grow in the low double digits as underlying business trends remain robust and we expect revenue synergies to ramp throughout the year. Our Banking Solutions segment generated 5% organic growth for the quarter and 6% for the year, primarily driven by continued demand for our market-leading solutions. This segment generated $682 million and adjusted EBITDA for a 44% margin. We expect banking to continue to generate strong -single-digit growth in 2020 and our impressive new wins provide increased confidence in the recent trends. Capital Markets organic revenue growth was very strong, accelerating to 6% when excluding a one-time item that drove approximately 2% points of growth during the fourth quarter. This segment generated $339 million and adjusted EBITDA, representing a 51% margin. For 2020, we project Capital Markets to show modest acceleration over 2019 and improvement from our prior messaging as we continue to drive growth in recurring revenue. Turning to slide 13, we have made significant progress on our cost synergies as our integration of world pay is running ahead of schedule. We exited the fourth quarter generating $465 million in annual run-rate cost synergies, including $275 million of interest expense savings and $190 million in reduced operating expenses. We are making substantial progress in reducing duplicative corporate costs as well as consolidating our merchant and issuer platforms to generate the operating expense savings which are also running well ahead of plan. With all of the progress that we have achieved already, we are increasing our 2020 cost synergy target to $600 million in annual run-rate cost savings. We are pushing hard to accelerate cost energy attainment and complete our integration plans as fast as possible. By completing these efforts, along with deleveraging our balance sheet in 2020, we will be able to focus even more of our energy on driving revenue growth and be ready to execute strategic M&A as we enter next year. Before I provide the details of our 2020 guidance, I would like to set the stage on slide 14. We have significantly accelerated our organic revenue growth profile and expanded our adjusted EBITDA margins over the past three years. Revenue topped $10 billion for the first time in our company's history in 2019 and we are highly confident in our ability to further accelerate organic revenue growth in 2020 and beyond. Over the past three years, organic revenue growth increased from 2% in 2017 to 3% in 2018 and now 6% in 2019. With the multiple revenue synergy opportunities and accelerating sales momentum that Gary described earlier, we have significant visibility into the year and are increasingly confident in our expectation for organic revenue growth to approach 7% in 2020 before moving higher in the out years. Turning to margins, we have expanded adjusted EBITDA margins by more than 700 basis points over the past three years and we project another 300 points of expansion in 2020. This consists of ongoing initiatives and synergy achievement to generate approximately 400 to 450 points of underlying margin expansion which will be partially offset by 100 to 150 basis points of additional investments. We are reinvesting a portion of our -the-line interest expense savings back into the business as increased investment in innovation, sales and delivery. All these investments are targeted at driving continued acceleration of revenue growth. We are making these investments in order to capitalize on the significant momentum that we are seeing in the market right now. Our new sales pipeline is the largest I've ever seen and I want to make sure we are positioned to win. In addition, we have the largest implementation backlog I've ever seen. As you would expect following record new sales capped off with the big wins that we announced this quarter. Therefore, I also want to invest in delivery so we can get our clients utilizing these new capabilities faster and start converting those big wins into revenue. Finally, I would like to provide details of our first quarter and four-year guidance on slide 15. Based on current business trends, we expect revenue of ,000,000 to ,000,000 and adjusted EPS of $6.17 to $6.35 per share for full year 2020. This represents organic revenue growth of 6 to 7% and adjusted EPS growth of 10 to 13%. We expect to increase our adjusted EBITDAI margins to approximately 44% for the full year and we will provide more planning assumptions on the bottom of the slide. Our new sales momentum, substantial backlog and multiple cross-selling opportunities provide significant visibility which gives me high confidence in achieving our guidance ranges. Turning to our first quarter guidance, we expect revenue of ,000,000 to ,000,000 and adjusted EPS of $1.30 to $1.34 per share. This represents organic revenue growth of 5 to 6% and adjusted EPS growth of 12 to 16%. As a reminder, we face a tough comp during the first quarter after receiving about a point of one-time benefits during the first quarter of 2019 which we will have to grow over in 2020. After the first quarter, we then expect revenue growth to ramp toward the upper end of our 6 to 7% range for the remainder of the year. Before we open the lineup for questions, I'll wrap up our prepared remarks with the following. We are well positioned to continue delivering substantial shareholder value in 2020 and beyond as we continue to increase revenue momentum, expand margins and generate significant free cash flow. 2019 was a transformational year and I'm looking forward to even stronger financial performance in 2020. This concludes our prepared remarks. Operator, you may help in the line for questions.

Thank you. And ladies and gentlemen, please be advised that we have a new system for asking a question. If you wish to ask a question, please press 1 then 0 on your telephone keypad. You may withdraw your question at any time by repeating the 1 0 command. If you're using a speakerphone, please pick up the handset before pressing the numbers. And once again, if you have a question, you may press 1 then 0 at this time. One moment please for our first question. Operator. And we do have something from the line of Jason Kufferberg with Think of America. Please go ahead.

Hey, good morning guys. Really nice results here in the quarter. So I just wanted to probe the 2020 EPS guidance a little bit further. It looks like share count may be a little bit higher than the street was estimating, which kind of is what it is. But on the margin front, you talked about that 100 to 150 dips of additional reinvestment. Woody, I just want to see if you can elaborate a little bit further, you know, maybe by segment where you're going to be concentrating some of those reinvestment dollars.

Yeah, I thought it might be even helpful to walk you through the margin bridge we expect for 2020. We closed out 2019 with about a 41% margin. We are seeing synergies, both revenue and OPEX driving a little greater than 200 basis points of improvement. We've got normal operating efficiency and scale in the business driving roughly 50 to 100 basis points of improvement. The data center consolidation efforts are driving about 50 basis points of improvement. And then the impact of having world pay in the business for the full year is driving about 100 basis points of improvement. That aggregates to about 400 to 450 basis points. Then we talk about the investments, roughly 100 to 150 basis points offsetting that to get you to about 300 basis points of expansion or an expectation of about 44% for 2020. When you specifically think about the investments, I think a lot of it's being driven towards delivery. Those are those big wins Gary talked about, our significant dollars of revenue sitting in the implementation backlog. We want to get those capabilities in there faster and get the wind turning into revenue. They would flow across both banking and merchant primarily in terms of the incremental investment with incremental sales flowing in banking and merchant as well. We see a very, very robust pipeline, particularly in some large opportunities in the marketplace right now.

Okay, understood. And just as a follow up, the $250 million increase in the run rate of cost synergies for 2020, is that mostly all OPEX or is there a little bit more interest expense in there too? I think you had that incremental levy in December.

We expect it to be almost every dollar OPEX related.

Absolutely. Perfect. Great, thanks guys. Thank you.

Next we will go to the line up Darren Peller with Wolf Research. Please go ahead.

Hey, thanks guys. Nice results. We saw strong revenue trends in the quarter. We saw strong revenue trends of about 7%. I think it was really driven by merchant at 10 and capital markets really strong at 8. When we look at these synergies rolling on notwithstanding the tough comp in the first quarter, can you just touch on the range, the 6 to 7 versus the fourth quarter run rate, you know, notwithstanding the first quarter tough comp. It just seems like there should be a trend towards the better end of that 7 if not higher. And then maybe if you just give us some scenarios that would be at the high end and the low end that you could see flying out through the year. Yeah,

I think I even called it out of my prepared remarks. After the first quarter we anticipate to be at the high end of our growth guidance for the remainder of the year. You know, again, consolidating facing about a point of growth, that's where the 5 to 6 came from. Beyond that we would expect to be towards the high end of that range.

Okay, I guess what I'm wondering is if like what specific scenarios could bring you to the high end or potentially the low end beyond just the timing and the cadence. Timing on synergies perhaps and maybe just some examples of how revenue synergies are going. What led you to raise the revenue synergy targets?

Yeah, no, we raised the, it's a great question, Darren. We raised the revenue synergy guidance just because of our actual cross-sell wins. What propels us to the upper end of that will clearly be the timely onboarding of these large implementations that Woody discussed. And as you see, you know, like we have in the past, we're accelerating some investment into this growth curve as the growth curve accelerates in our backlog fields. Obviously we want to make sure that we have the personnel necessary to install the solutions. But the response to our solution capabilities has just really been tremendous across both banking and merchant refill and capital markets of that nature. We highlighted a cross-sell win in capital markets with a premium payback and prepared remarks. And really across all the segments, we're just seeing really good solid demand for our next generation solution suite. Our pipeline continues to grow and our sales more importantly, we continue to close the business. And all of that pushed us to raise our revenue guide. We exited the year with $80 million in run rate. That's installed and producing revenues. So that's well ahead of our initial $100 million target for the end of 2020. So when you just back into that, we're already at $80 million through the first five months. When you look at the sales that we even just highlighted in Q4 and have those onboard in the first half or through the first three quarters of the year, plus with our pipeline, we feel really good about revenue synergies. And to Woody's point, I feel very confident about the upper end of those guidance ranges.

Thanks, Des. If I could just squeeze in, the two big banks you won, you know, First Republican Union, those are really large wins that we don't see often. So can you just give a little quick color on that and then I'll go back

to you. Thanks. Yeah, we talked a lot about on this call about, one, there was three significant wins. There was a top 10 that we didn't name, but there was also the top 20 and top 30 that you just mentioned. And, you know, we talked a lot about on this call is that there is a tremendous amount of pent-up demand in the marketplace. And this is a global statement of very large financial institutions that are tied to extremely old legacy platforms. And we talked a lot about when we'll see that market finally starting to transition to a much more modern, much more open architecture to allow them to continue to compete for the next several decades. And I think this quarter was a significant moment in the industry where we saw, as I said, a top 10 institution, a top 20 institution, and a top 30 institution all make that decision to go through a transformation of their core banking. And in many instances, they're going off very multiple decades old type legacy capabilities to a much more future modern architecture. So we're real excited about what we're seeing in the industry. I can honestly tell you the pipeline is as full as I've ever seen for banking on a global basis for next generation capabilities. And we feel very good about the fact we started this investment cycle three, four years ago. We've been investing heavily into these next generation capabilities and really feel like we're in a very good spot as far as timing the industry for when that transformation is going to begin.

That's

great.

Thanks, guys.

Thank you. And next we will go to the line of Tim Chiotto with Credit Suisse. Please go ahead.

Thanks a lot, guys. So my question is on the WorldPay e-commerce acquiring business. Clearly a leader in global e-commerce acquiring and then also WorldPay in many, many in-store markets, sort of a good number of key markets globally. But there does seem to be an opportunity to expand in-store acquiring into new international countries. I just wanted to see if you could talk a little bit about how we should think about that expansion, rough timing, what the opportunity is, and just the confirmation that that potential upside is not actually in the formal revenue synergies.

No, Jim, that's a great question. And you're exactly right. It's not in the revenue synergies upside. And we're actively working through those strategies and we will be pushing into those other markets as you describe. We're very excited about the merchant team and how it's come together under FIS. We're very excited about the combinations that we're seeing between our banking relationships and our broader merchant relationships. And so like everything we do, we participate on a global basis. We've already been teeing up the countries that we're focusing on, building out those -to-market strategies, aligning our development initiatives to correspond to that. And so more will be coming on that. But that's absolutely upside to the future of the company. Great. Thank you.

Thank you. And next we will go to the line of Ashwin Shorvakar with Citi. Please go ahead.

Thank you. Hi, Gary. Hi, Woody. Good solid. Hey, good solid 1419 results here. I was hoping that since you stood by the future 8 to 9% growth, I'm hoping you can bridge the 6 to 7 this year. I'm thinking this is going to be closer to 7 like you mentioned in the earlier question. If you could bridge that gap with regards to how much of that flows from incremental synergies versus some of these larger wins, which seem like they are more, they seem to be longer ramps because they're very large. Like a top 10 bank, for example, might take longer. Could you talk a little bit about that?

Yeah, no, I think you're exactly right. Obviously, these larger programs do take a longer period of time to implement. We talk about that multiple times on the call. It's not uncommon to go through a 12-plus month sales cycle, and then you've got a reciprocal 12-plus month implementation cycle. What makes us excited about driving our growth rates beyond 7% and upper single digits is not only the demand that we're seeing on cross-sell and revenue synergies. We talk a lot about that, and we continue to not only raise the dollar amount of that, we also raise the timing of it, being pulling it in earlier than what we thought. But we also, and we've talked about this now for multiple, multiple quarters, we're in well over a year now of really rapid sales growth around our newer technologies. And that's whether it's on the banking business, on the merchant business, or on the capital market business. The demand we're seeing for our cloud-based deployments, our ability to lower the total cost of ownership of these large institutions and drive a real differentiating value proposition is playing out very well in the market. So you've got this combination of revenue synergies, but more importantly, this combination of being able to compete and take share and drive significant new sales wins across all three of our verticals gives us a lot of confidence that our growth profile is going to continue to accelerate in the out years, as Woody discussed.

Got it. And I might have missed it, but did you, from this clarification perspective, provide either the RTRA terminations included in the tax rate outlook, and I might have missed the e-commerce growth rate, if you specifically provided that within merchant?

Yeah, I'll touch on both of those. On the e-commerce growth rate, e-commerce and integrated together grew mid to high teams with e-commerce growing higher over the average and integrated growing slightly lower than that average, rolling back to mid to high teams. With regard to the TRAs, the structure of the deal is only giving an immaterial benefit to EPS in 2020 and 2021 with further EPS benefit in 2022 and 2023, just on the way the deal was actually structured and the timing of the actual ownership of the TRAs. Got it.

Thank you. Thank you. Next, we will go to the line of David Togut with Evercore. Please go ahead.

Thank you. Good morning, Gary and Woody.

Good morning, David.

Good to see the merchant solutions growth return to 10% organic in Q4. If you could break down your expectations for 2020, what do you call the low double digit organic expected for merchant? What would your outlook be for e-commerce and integrated as kind of one bucket and then sort of the other channels kind of growth rate for 2020?

Yeah, if you think about merchant, I think we would still anticipate e-commerce and integrated to be in the mid to high teams from a planning perspective. Growth in the fourth quarter was strong. Expectation of pipeline is strong, so we still feel very good about that with the profile of the remainder of the business being similar to what you saw in the fourth quarter on the growth profile. Obviously, we're hoping to see some of those synergies flow into both banking and merchant, so you've got to balance them around. 2020, our expectation around revenue synergies blends roughly 50-50 going into the banking segment versus the merchant segment, but yeah, we're still pleased with the overall growth, certainly pleased with the acceleration into the fourth quarter and are looking for low double digits all of 2020.

Got it. And then just as a quick follow-up, I think, Woody, historically you model in about 150 basis points of revenue headwind annually from consolidation and pricing pressure. Can you kind of share with us your expectations on that front for 2020? And are there any specific consolidations that are kind of baked into your guidance?

Yeah, we would have similar levels of competitive headwinds that we always bake into the model, so no real change there, David. I would say at this point we don't have anything specifically outlined other than historical trends.

Yeah, no, when we think about consolidation in the industry, we think obviously across our client base, primarily impacting the banking capital markets group, that's going to continue, but we're not projecting that's going to accelerate dramatically from what we saw in 2019. So it's been a fairly consistent trend. One of the nice things about that FIS's position is because we're typically positioned in the large regional market. Those tend to be the customers that are doing the consolidating. So we've been, in a lot of instances, the beneficiary of those combinations. But we'll continue to watch it closely, but modeling pretty well consistent behavior over 2019 on that front.

Understood. Thank you very much.

Thank you.

Thank you. And next we will go to the line of Dave Coney with Robert W. Barrett. Please go ahead.

Yeah, guys, thank you. Good job. Thanks, Dave. Yeah, and I guess first of all, when you first gave the accretion to the 616 number, maybe a few quarters ago or so, I guess since then we've had what we think maybe is 30 cents of benefit from just better synergies, lower refi tax rate, I think a little better. Is it fair to think of the bridge that that would have maybe brought it up 30 cents or so, but these incremental investments and then what looks like no real use of cash in 2020, it looks like you're not really trying to push the share account down at least in guidance. Those two things maybe are what's bringing it back a little bit down. Is that a fair bridge?

That's pretty close. When we guided accretion in I think the third quarter, we didn't anticipate the second round of refi benefit. We absolutely were pleased in being able to go back into the market and grab another 135 million or so of interest savings. We saw that as an opportunity along with the sales execution that was delivered in the fourth quarter to reinvest that in sales and delivery, which we kind of described before. We certainly are not buying back shares at this point until we reach our deleveraging targets. So those are primarily your two big deltas, Dave. You got it pretty close.

Okay, good. And then two really quick modeling ones. The size of that acquisition and when that hits, and then is the Tough Comp and Q1, is that solely in the banking segment?

The Tough Comp and Q1 is in the banking segment. The small acquisition was roughly revenue contribution of about $75 million in 2019 and we closed it relatively early in Q1.

All right, great. Thank you.

Thank you. And next we will go to the line of George Marlos with Cohen. Please go ahead.

Hey guys. Thanks for taking my questions. I guess, Gary and Woody, I'm not sure if I missed it, but did you give what the increase in backlog is year over year? I think it was up 9% last quarter. Just curious if you have an update on that and any color on any specific segment strength that may have been surprising to you.

We didn't give a specific dollar amount of backlog. I will get this closed in the 10K. What we did talk about was the implementation backlog, component of that overall backlog, was the highest I've ever seen. While we didn't give a dollar amount, it certainly connected to the three or four, the three big wins in core banking that Gary described plus some of the big wins in merchant.

Yeah, we really saw great strength in the quarter, frankly for the whole year across all three of our segments. Really saw great growth in capital markets around our red tech solutions and some of the things we're doing through our SaaS model and cloud based technologies. The banking business saw strong sales across our next generation solutions, our next generation digital, our omnichannel things we're doing there. Obviously we highlighted what's going on with our core banking transformation and then Woody has talked about several times on the call the strength we saw across e-com and integrated in the merchant business. We're very pleased with how 19 unfolded and obviously all that pushes us into 2020 with a lot of new sales we have to deliver on, which is good.

That's great. You guys sound really bulled up on the opportunity. Just as a quick follow up, if we can shift gears a little bit just to the merchant side. I'm just curious your perspective. There's been some more consolidation in Europe now. I'm just curious if you think that will have any impact on the business, whether competitively or from a partnership standpoint. And then Visa looking to adjust interchange and potentially raising it I guess on the e-com side. Just curious if you think that will have any impact on the legacy world day business. Thank you.

Well look, we continually focus on all kinds of combinations going on, any M&A activity, any partnerships and obviously we watch that very closely. At this point in time we feel very good about our position across the globe, especially in merchant and our ability when you look at our scale on merchant and our ability to truly be the only global provider of e-com at scale. We feel very good about our positions but we'll continue to watch those things. As far as Visa, typically we pass on all of those through our fee structure very transparently. So obviously we're working through those changes but we don't see any impact at the moment.

Thank you. And next we will go to the line of Tim Woolley with Wells Fargo. Please go ahead.

Yes, thank you and good morning. I had two questions. The first was again back to the merchant a little bit. You know, thinking about again the capabilities that you talked about with World Pay and the Omni Channel. And over the last four to five years, whatever it is, retailers have been investing substantially in their own digital commerce platforms. When you think about pipelines for sales activity, are we at a point where retailers are sort of re-evaluating what they've now built, sort of focusing on the back end side, the operational aspect of this, not what they've been about the consumer side, correct? I'm sort of wondering if there's an escalation in RFPs or something you might see coming down the pipe for sort of global Omni Channel that might be different now than even a year ago, a year and a half ago as we move farther down this journey with the retailers.

You know, Tim, it's a good question. What I would tell you is obviously we've only been involved now a little over five, six months. What I'm telling you, what we're seeing in the sales cycle, I wouldn't say an increase in RFP activity, but what I would say is we're seeing increased pipeline and increased demand for our capabilities. And so we're obviously leaning into that. World Pay had made some significant investments around Omni Channel leading up to our combination. Obviously they had made some significant investments in e-commerce. They had also made some significant investments in the UK on the new acquiring platform. So when you look at all of those things, what they had done on the consolidation between Vantiv and World Pay, all of that's playing in very nicely into our sales success and allowing us to compete on a global front very effectively. So we're seeing very good strong pipeline growth and good solid sales success, especially across the e-commerce and Omni Channel as I highlighted one in Europe in my prepared remarks.

Great. And then my follow-up, and I'll hop back into the queue, is on sales you talk a lot about cross-sell on this call. And I know you guys are always looking at the sales force and optimization and making sure you're cross-selling and selling effectively. Have there been any changes as you've moved through this integration with World Pay in terms of sales structure, compensation for cross-selling, anything along those lines that maybe is kicking in and helping to elevate the performance that you've highlighted on this call?

You know, on prior calls we actually highlighted the fact that we didn't want to change any commission plans. We wanted to make sure that everybody was very focused and prepared to execute and got the same credit they got before the combination pulled together. That's always been an important step for us because the last thing we want to do is create any confusion across our sales force. So I think because of those, because we haven't made any changes and because we're now giving everybody an opportunity to pull these other products, that's helped increase our pull through. I think the other side of it, and we highlighted it on the call in the prepared remarks, is we're just finding more and more capabilities across the two companies that resonate with those existing customers. So I highlighted our prepaid opportunity. That was something we really didn't identify during due diligence, but what that came out of a cross-sell into an existing World Pay, customer that now has allowed us to create a whole new opportunity and we see a lot of growth in that opportunity now as we've built that out. So I think those two things, just pulling the teams together because we're a full 12 months ahead of where we thought we'd be on integration. The benefits of the team coming together and working as a team and identifying those opportunities, you're just really seeing that pay through in the cross-sales. Great. Thank you so much.

Thank you. And next we will go to the line of Craig Mauer with Autonomous. Please go ahead.

Good morning. Thanks for taking the questions. First is, I wanted to understand what's assumed in underlying UK trends to allow you to hit guidance this year, as we've seen some significant call-outs of a weaker UK from Visa, parking card, etc. And just secondly, there was a meaningful uptick or at least significantly more than, higher than our expectation in stock-based compensation and I wanted to understand the trend there. Thank you.

Well, on the UK front, as we talked about in prior calls, we, you know, frankly our UK volumes are already pretty much at recessionary levels. We saw a little softness in quarter on the UK, but we've modeled that in. We've really modeled in no recovery, but we've also modeled in the volumes at about where they were in Q4. In other words, we're not modeling them to fall off a significant amount. We feel very comfortable though with our, with the business that we are signing. We've also got some new leadership in the UK, so we think there's an opportunity to really grow our share in the UK as well. So we're pretty excited of what the team is coming together on that front. But the quick answer is for 2020, we pretty much modeled the UK consistent with what we saw in 2019.

On the stock compensation comment, the vast majority of it is around accelerations related to severance activity in the fourth quarter.

Thank you.

Thank you. And next we will go to Ramsey Elisal with Barclays. Please go ahead.

Hi, thanks for taking my question. I guess I'm filling with Craig's question just before mine. Can you comment on external and macro factors that you have baked into guidance? Obviously, you've been hearing a lot about coronavirus, but also, you know, the bank's IT spending environment, any other election year impacts on bank budgets, what are you presuming in the context of your guidance?

Yeah, let me take a few of these and then we'll let Woody get into the details. But the quick answer is we've modeled a fairly consistent 2019. I would say it that way. Our pandemic task force is obviously very focused on the coronavirus. Right now, we don't see any material impact for us throughout the Asia region. If we do have any impact at all, it would just be a matter of a few million dollars in Q1, but we're monitoring it very closely and frankly, we're very comfortable that that's not going to be an issue. So we continue to watch those things. But as far as when we look at the growth rates around the world, we're modeling consistency through 2020. Any other comments?

Yeah, as we talked about last quarter, we continue to see and model softness in the UK and Europe broadly. We have not put anything in our 2020 plan with regard to some outcome from the election. The remainder of it has been relatively status quo in terms of the underlying health of the global economy. That's right.

Okay. And then secondly and lastly from me, could you give us a kind of a status report on some of the key revenues synergy buckets? I think you mentioned that the 10-debit opportunity is now at scale, I think that was the language used in the presentation, which I presume is somewhat fully executed upon. What about the other key synergy buckets? What ending are you in in terms of the premium payback, realization of synergies, and maybe also in the card not present authorization rates of progress? I think you mentioned that a little bit in your remarks, but it'll be helpful to follow up.

No, no, Ranfield, great questions. I would say we're just, obviously we're just getting started with our revenue synergies. While we're excited about 80 million, we've got a long way to go to reach our race targets. We feel great about our targets and obviously we feel great about the sales success we've had. I would tell you, I even put in my prepared remarks, our debit routing has done very well and so that continues to contribute. We actually saw good volumes, additional volumes even coming through in the quarter. So I would say we're not completely finished there, but as you highlighted, in late innings, and those were some very early wins, premium payback, we're just getting started. I mean we had some very significant signings. You know, you don't want to trivialize the top three merchant and PayPal. I mean those are just huge opportunities. Obviously we've got to deploy those next year so we haven't started seeing revenue growth. But more important than that, we're seeing really large pipeline and additional sales around premium payback. So those aren't the only two we've signed. We've now signed a number of customers. The one that has surprised us is the merchant referral program across our regional banks. We actually didn't predict the response that we're seeing on that base in our larger institutions, which is a very pleasant surprise. As far as the authorization rates and fraud rates, we talked about that on prior calls. We're really just working on the models, working on the data consolidation. So I would argue those results have not even started at this point down. We're doing the work leading up to what, doing the work that will then drive the results in late 2020 and 2021. So very early stages on a lot of these things, but feel really good about the early results, the signings to date, and the pipeline.

That's super helpful. Thank you very much.

Thank you. And next we will go to the line of Brett Huff with Stevens. Please go ahead.

Good morning guys. Congrats on a nice quarter. Thanks Brett. I know we're getting near the end of the game here on the Q&A, so I'll just ask one. A little more detail on the core wins. So we've been doing this a long time and we've been hearing about the big banks going to do their core transformations for what, 15 years? Is this really the beginning of that? And you guys got three of the big ones. But I guess my question really is, if we're finally at that tipping point, what is your visibility into the other big banks that you serve also doing the same thing?

Yeah, I'll add some color Brett and then let Gary follow on. Even if you go back to investor day a couple of years ago, we had one of the questions in the audience was, will you ever see a top 20, a top 30 bank outsource to a company like FIS? This quarter we saw three. So I want to say it's really important that we're seeing some of this as a tipping point. As I described, the pipeline is very full and we're feeling very optimistic about it.

Yeah, no, I really do. I think it's just a matter, we talked about it in the past. We're really seeing a transformation around technology that frankly none of us have seen in our careers. And so with this transformation in technology, a lot of people talk about the fourth industrial revolution, but the reality is these newer technologies are going to require a replacement. You're not going to be able to iterate your legacy technologies. You're going to have to go through a conversion to really take advantage of these new open standards, these new scaled standards, these new availability standards. And so yeah, Brett, I think we really have, as I said in my prepared remarks, we're seeing a significant milestone in the industry when you've got a top 10, top 20, and top 30 bank all making their decision to go through that transformation. Woody's points to add on, we've had a lot of early success with our next generation core banking system, modern banking platform, but now, frankly, that's one of the reasons why we're investing so much in delivery. We've got a very, very strong pipeline and active discussions going on. So we don't expect these to be the only big deals announced. So we're excited about it, and we do believe this is a global issue. I was just over in Asia earlier in January, and every customer I met with, and even in Q4 when I was outside of the country, every CEO I was meeting with is talking about this issue. And so this is a global opportunity for FIS, and I just think we're very well positioned in just getting started. I think for the next 10 years, you're going to see this kind of transformation is going to occur across core banking.

That's what I needed. Thanks, guys.

Thank you. And our last question comes from James Friedman with Susquehanna. Please go ahead.

Hi. Thank you. And let me echo the congratulations. I'll just ask my two upfront in the interest of time. So with regard to the 100, 150 basis points of reinvestment related to delivery, should we think about that as one time in nature, or will it go away in 21? And then while we're making our models on a quarterly basis, thank you for the call-outs about Q1. Are there any other call-outs that we should remember about the other quarters in terms of non-recurring? Thank you.

I'll take your second question first. I think the only other call-out would be, you know, fourth quarter 2019, we called out about two points of benefit in capital markets that we don't anticipate. We actually normalized and said the underlying growth is six versus eight that you see on some of the charts. Beyond that, no other call-outs. You know, if you go back to the original question, would we continue to invest or is this one time? I certainly hope we continue to invest here. If we continue to see sales, particularly as these larger institutions outsourcing their core banking, I'd certainly be happy to continue to make this investment in delivery.

Yeah. You know, look, we want to make sure, James, whatever we do is that we continue to invest behind our growth to continue to accelerate that growth curve. So like we've seen, we've got a real unique opportunity here where we really do see the market moving through our sales results and our sales channels across all of our segments. So they need the ability to invest in that and deliver on these capabilities and get them in market and help further accelerate our sales team. We're investing in sales resource as well. So Woody talked about that. It's not just all delivery. Right now we've got a tremendous amount of demand. We want to make sure that we have the necessary people in markets that can capture and capitalize on these opportunities.

Thank you. And we will now go back to Gary Norcross with any closing remarks.

Thank you. I am proud of our outstanding results in 2019. I also want to recognize the work our team has done to accelerate our integration timeline by a full 12 months. I would also like to thank all of our associates across the globe who are working hard every day to advance the way the world pays, banks, and invest. If you have any questions following today's call, please reach out to our investor relations team. I want to thank you for joining us today.

Thank you. And ladies and gentlemen, this conference will be available for replay after February 14. At 11 a.m. Eastern until midnight March 13. You may access the AT&T replay system at any time by dialing -207-1041 and entering the access code 1-596394. International participants, please dial -970-0847. Those numbers again are -207-1041 and -970-0847 with an access code of 1-596394. That does conclude our conference for today. Thank you for your participation and for using AT&T conferencing services. You may now disconnect.