Fidelity National Information Services, Inc.

Ladies and gentlemen, thank you for standing by. Welcome to the FIS Second Quarter 2020 Earnings 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. As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Head of Corporate Finance and Investor Relations, Mr. Nathan Rosoff. Please go ahead.

Good morning, and thank you for joining us today for the FIS Second Quarter 2020 Earnings Conference Call. The call is being webcasted. Today's news release, corresponding presentation, and webcast are available on our website at fisglobal.com. Gary Norcross, our Chairman, President, and CEO, will discuss our quarter operating performance and business strategy, as well as the trends we are seeing with COVID-19. Woody Woodall, our Chief Financial Officer, will then review our financial results and the trends we are seeing within our segments. 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, who will begin his prepared remarks on slide five.

Thank you, Nate. Good morning, and thank you for joining us today. The COVID-19 pandemic will be viewed as one of the most challenging times for our country and the world. However, I couldn't be prouder of our response and the execution of our more than 55,000 employees in delivering a very strong quarter, despite all the challenges. The pandemic has been a catalyst, driving us to achieve outstanding results, all while maintaining our implementation, processing, and product development commitments to our clients and prospects. This is very important given our strong multi-quarter sales success in converting these wins to revenue as quickly as possible. COVID-19 has spurred changing consumer behaviors and reinforced the many benefits of automation, artificial intelligence, and cloud-native technologies in a true omnichannel experience. Our conversations with clients who wish to adopt our next-generation suite of solutions are gaining momentum, and that continues to show through our strong quarterly sales results that we will discuss later. These trends and results drive our confidence in the company's ability to accelerate growth. Turning to slide seven, I'd like to discuss our strong second quarter. Our revenues grew 40% to almost $3 billion. This exceptional growth was achieved despite the impacts of this historic pandemic's impact. Given shelter-in-place restrictions around the globe, revenue decreased 7% on an organic basis. While revenue faced headwinds, we expanded margins by 150 basis points. as we continue to drive down our cost structures through the WorldPay integration initiatives, as well as ongoing benefits from investments in technology and automation. We generated $1.15 in EPS and over $650 million in free cash flow, reflecting the durability of our business model. Given the ongoing strength in our sales channel, our sole backlog increased 7% organically to $21 billion, giving us clear line of sight to continued acceleration of revenue growth. Given these results, it is clear our resilient business model ensures we can deliver strong results given our breadth and diversity of our solutions. Turning to slide eight, last week marked the one-year anniversary of our acquisition of WorldPay. It was a significant milestone for our company and the industry as two of the preeminent teams in financial technology came together. WorldPay brought us world-class merchant acquiring with its high-value global e-commerce and integrated payment capabilities. In banking, we have continued our investment in the new products and services that are transforming the market, including modern banking platform, Code Connect, and Digital One. And in capital markets, we've brought investments in technology to enable us to be more agile with the movement of money across the world. We certainly have a track record of success when it comes to advancing the way the world pays, banks, and invests. We're thrilled with the traction that we've seen over the past year by creating a company that is significantly differentiated in the market. The subset list of accomplishments that we have achieved on slide nine since last July is extensive and covers every aspect of a new combined company. When we closed the WorldPay acquisition, the teams on both sides immediately came together in very collaborative ways with the focus of creating something unique in the industry. We continue to outpace expectations on our synergy goals and are well ahead of schedule to meet our aggressive three-year synergy targets. At the end of the quarter, our teams have achieved more than $700 million in annual cost synergies and $115 million in annual revenue synergies. We have an additional $60 million in revenue synergies that we are in the process of implementing now, and we have a growing pipeline of cross-sell opportunities that will continue to drive additional growth. Our ability to exceed our synergy goals so early is a testament to the value our colleagues are creating by winning as one team. On slide 10, we recognized early the changing dynamics of the industry and decided to pivot the company to growth by investing in next generation technology that would allow us to successfully compete for the next 10 to 15 years. We launched our journey over four years ago by investing in data center consolidation and network modernization to position us to be the leader in cloud-based technology. Fast forward to today, we have significantly smaller data center and network footprint. We will reduce over $250 million in cost and have 80% of our total compute in the cloud by the middle of next year. Next, we invest in our application stack, which is based on a modular componentized architecture with open APIs that provide our clients the flexibility to innovate at their own pace. These investments included our modern banking platform, Code Connect, Digital One, post-trading derivative solutions, and next-generation syndicated lending. Together, these new products are propelling our growth in our banking capital market segments. Simultaneously, WorldPay was also investing in next-generation technologies. They launched the NAP platform, accessed WorldPay, advanced e-comm capabilities, and innovative off-and-fraud solutions. This has been the primary growth catalyst for our payment segment and what makes the combination of FIS and WorldPay so powerful. Next, we moved on to differentiate ourselves through building on our industry-leading client experience. For example, we proactively committed to groundbreaking 15-minute service level agreements for many of our cloud-based solutions, in sharp contrast to the typical industry standard of 24 to 48 hours. And we simplified our pricing and contracting models for smaller financial institutions in order to make it even easier to do business with FIS. These enhancements to how we support our clients are resonating in the market. Finally, we upgraded and integrated our internal enterprise tool sets, significantly improving our communication and collaboration capabilities and further enabling our colleagues to better support our clients. We began this journey to prepare for the future. While the pandemic has accelerated changing consumer and enterprise behaviors in ways that none of us could have predicted, it demonstrates that the strategic investments we've made in our technology transformation have paid off. As shown on slide 11, our strategic blueprint to ensure FIS continued success revolves around three simple pillars. The first pillar centers around our ongoing investments in technology and innovation. The increasing client demand that we are experiencing for our differentiated and next-generation solutions will continue to power accelerating revenue growth trends for FIS. Second, our relentless focus on driving efficiency and scalability is a key component of driving meaningful operational results. As we continue to integrate strategic acquisitions, we will further build our scale and operational efficiencies, allowing us to lead our peers with best-in-class margins. Lastly, we have a strong track record of strategically allocating capital to maximize shareholder value. Our disciplined approach to capital allocation includes investing in both high-growth acquisition targets as well as our organic investments in product, technology, and innovation. Turning back to the quarter and a focus on sales results on slide 12, our clients are embracing our cutting-edge solutions which empower them to better compete in a world where technology is changing at record speed. In banking, I'm pleased to announce that we extended our streak at consecutive quarters with double-digit year-over-year new sales growth, which now spans more than two years. Our new sales delivered over $1 billion in total contract value during the second quarter, despite shelter-in-place ordinances. Client demand for our modern banking platform remains robust, as clients seek new ways to transform their legacy technology to a frictionless digital experience. We signed another top 30 U.S. bank on our modern banking platform, Code Connect and Digital One Omnichannel Solutions. They chose FIS because of our product suite's cloud-ready modular architecture and due to our ability to implement complex solutions. We look forward to supporting the bank's goal to leapfrog from legacy technologies to the future of digital banking. This marks our ninth modern banking platform win, including four of the top 30 U.S. banks. Our speedy implementation of real-time lending services for many financial institutions allowed us to streamline and process funding under the Paycheck Protection Program, supporting U.S. small businesses and families throughout the pandemic. We also aided several U.S. states by quickly ramping up operations to support prepaid and pandemic EBT card processing during this challenging period. Turning now to merchants. client adoption of our premium payback solution remains strong, and we continue to identify and close multiple cross-sell opportunities. For example, we entered into a strategic agreement with a top U.S. pharmacy to improve their loyalty program with their premium payback solution at its nearly 10,000 locations. Real-time redemption at the point of sale will drive foot traffic, increase spend, and lower the pharmacy's cost of payment acceptance. We also recently signed an exclusive merchant referral partnership with a regional bank of over 500 branches. We will convert their existing portfolio of 15,000 merchants to FIS and will provide all processing and back office support functions for the bank. Additionally, the largest independent gas station operator in the UK chose FIS to enable payment technology at 900 fuel stations because of our in-store payment technology and our robust fraud solution. Finally, I'm pleased to announce that we are increasing investments in our integrated payments channel. Together with several strategic partners, we are developing a creative new go-to-market solution and have commitments to migrate over 20,000 new merchants by year-end. Turning to capital markets, demand for our SaaS-based solution remains robust. Clients are embracing our differentiated end-to-end solutions that span the front, middle, and back office, as well as our innovative RegTech solutions. We signed a deal with the top German bank that will enable them to increase operational efficiencies by consolidating three existing competitor point solutions onto our end-to-end solution suite. In addition, we signed a deal with a nonprofit finance cooperative with nearly $27 billion in assets to power their commercial lending suite. As you can tell, this was a very busy and highly successful quarter on many fronts. I will now turn the call over to Woody to discuss the financials in more detail. Woody?