Fidelity National Information Services, Inc.

Good day and welcome to the FIS first quarter 2023 earnings call. At this time, all participants are in a listen-only mode. After the speaker presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 1-1 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, press star 1-1 again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker, Mr. George Mihalas, Head of Investor Relations. Please go ahead.

Good morning, everyone, and thank you for joining us today for the FIS First Quarter 2023 Earnings Conference Call. This call is being webcasted. Today's news release, corresponding presentation, and webcast are all available on our website at fisglobal.com. With me on the call this morning are Stephanie Farris, our CEO and President, and our CFO, Eric Hoke. Stephanie will lead the call with a strategic and operational update, followed by Eric reviewing our financial results and providing forward 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 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, adjusted net earnings per share, and adjusted free cash flow. 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 is presented in our earnings release. With that, I'll turn the call over to Stephanie.

Thank you, George, and thanks to everyone for joining us this morning. I'm pleased to report that FIS is off to a very strong start in 2023. Our financial results exceeded our expectations on all key metrics, revenue, adjusted EBITDA, and adjusted EPS. Organic revenue growth outperformed across all three of our operating segments. This outperformance was driven by a combination of both stronger execution, as well as better than anticipated macroeconomic impacts, including consumer spending and higher levels of deposit account and transaction growth across the financial services sector. Heritage FIS, which includes our banking and capital markets businesses, posted strong recurring revenue growth of 6%. Merchant revenue grew 2% driven by 15% organic growth in our e-commerce business, well ahead of the broader market. We remain focused on improving cash flow and efficiency across the company and are on track to delivering on our greater than 80% free cash flow conversion target for the year. These are very strong results against our expectations and can be attributed to our leadership team and our colleagues across the globe, all pulling together to build our future forward. I am extremely proud of the team and am very excited about and confident in the future of FIS. As a result of our strong performance, I am pleased to announce we are raising our full year outlook. First quarter results meaningfully exceeded our expectations, reflecting stronger revenue growth of 3% across the enterprise. Solid execution in a more favorable macro environment fueled this outperformance. Banking and capital markets recurring revenue growth of 6% exceeded our expectations, benefiting from elevated financial services activity, including higher levels of deposit account and a transaction growth. Within the merchant segment, improved execution and stronger consumer spend drove most of the revenue upside. E-commerce had another very strong quarter, with 18% organic growth, excluding the Russia-Ukraine impact in the quarter, contributing an additional point of merchant revenue growth relative to our internal expectations. We are updating our second quarter and full year guidance to reflect consistent trends from the first quarter to the second quarter with a very slight moderation in the high levels of trading volume experienced in Q1. Our outlook for the full year has strengthened relative to the outlook we provided in February across all of our operating segments. Given our overall strong results and improving operating performance, we are increasing our full year 2023 outlook while continuing to account for risk associated with macroeconomic impacts to our merchant segment in the back half of the year. We understand the importance of delivering on our commitments and are confident in our recently raised outlook. We continue moving forward with a high sense of urgency and are making progress across our range of initiatives. The spinoff of WorldPay is on track. We are making meaningful progress both internally with the formation of our Separation Management Office and externally with our regulators. Our future forward initiative, designed to drive greater efficiency, effectiveness, and growth, is off to an exceptional start. I am confident we will not only deliver on our 2023 cash savings target of $500 million, but achieve at least our $1.25 billion of cash savings target by year-end 2024. On the governance front, we've taken broad steps forward to align all management compensation with operating share price performance These changes were made in order to further align our executive compensation programs with long-term shareholder interest. We've also reorientated our Salesforce compensation plans to align to our stated goal of pursuing high-quality, higher-margin deals. We are driving a performance-based culture both tops down and bottoms up across the globe. We are making good progress preparing for the plan spinoff of the WorldPay business. This is a testament to the hard work, focus, and dedication of our FIS colleagues and business partners tasked with marshaling forward the separation quickly. We are making meaningful progress having created a separation management office to work with both Charles Drucker and me. In addition to working towards securing required regulatory approvals, we are urgently negotiating commercial revenue and separation agreements across the two companies with an eye towards minimizing business disruption and dis-synergy. While we are not yet ready to provide formal dis-energy estimates on this call, we are actively working to minimize the impact of any dis-synergies. I'd like to offer a framework for thinking through the potential impact, which we believe will be very manageable. Previously, the company disclosed that it achieved a total of $750 million in revenue synergies and $500 million of operating expense synergies post the WorldPay acquisition. We expect to maintain the majority of the $750 million revenue synergy achievement, with WorldPay continuing to act as an important distribution partner for FIS post-spend. We also expect to maintain a meaningful portion of FIS WorldPay operating expense integration savings. Additionally, my partnership with Charles Drucker is already bringing focus to the business and is driving meaningful results in key areas such as sales execution and maximizing pricing opportunities across all of FIS. As I mentioned earlier, our Enterprise Transformation Program Future Forward is off to a great start. We are confident in not only achieving our targeted $500 million of cash savings in 2023, but have direct line of sight into executing on the additional $750 million of cash savings expected in 2024, while investing in improved client service and next-generation product development for our clients. As of first quarter of 2023, we've achieved a total cash savings on an annual run rate basis in excess of $210 million. We expect operating expense savings to accelerate over the course of the year. While we are reiterating our future forward cash savings target of at least $1.25 billion by year end 2024, the team is continuing to identify additional opportunities across the enterprise to unlock growth, efficiency, and effectiveness for FIS and our clients. While we are confident the program will deliver meaningful cash savings for FIS, this will not come at the expense of clients who remain at the center of our decision-making. We believe our solid first quarter recurring revenue growth underscores the importance of our customers' place on our offerings and services and our commitment to their own future. Given recent events across the global banking sector, we want to provide you with an update regarding trends across our banking segments. While recent developments have driven volatility in markets and across the banking sector, we do not expect this activity to impact us significantly in the near term and believe FIS is well positioned to be a beneficiary of the recent disruption in the long term. Our confidence is underpinned both by current factors we are presently seeing in our business and historical precedent, which points to resilient bank IT spend following periods of financial duress. A recent study by Kyrannos, a leading provider of data, technology, and insights to financial institutions, noted recent events should have limited impact on near-term revenue for core processors as the current situation is impacting deposit balances, not accounts. Additionally, technology processing spend across the banking industry has also historically been resilient during prior challenging cycles of uncertainty. In line with Kyrannos' perspective, since the onset of the SVB fallout in early March, we have seen elevated increases in our accounts on file serviced across our core platforms, which is the primary driver of our banking revenue. The resilience in accounts on file is not surprising to us. It aligns with what the banking industry experienced during prior challenging periods, as the Quirino study noted, and supports our confidence and our outlook for the banking segment. As depositors disperse funds across multiple bank accounts, ultimately driving more account growth, FIS is well positioned to benefit as a leading provider of core banking technology, particularly to large financial institutions, which is the primary base of our FI business. Additionally, to the extent the recent turbulence results in increased regulation, FIS is well positioned to benefit across both the banking and capital markets segments. FIS boasts a highly diversified customer base with no one client accounting for more than 1% of company revenue. Given our skew towards somewhat larger banks, consolidation across the FI space should benefit us, as we would expect these larger banks, many of which are FIS customers, to be the buyers of distressed financial institutions. And this is exactly what we've seen play out thus far with respect to recently sold, failed financial banks. Additionally, 60% of our revenue growth is predominantly tied to accounts and 40% to transactions. Since the SBB announcement, we've seen a modest acceleration in accounts on file and transaction volumes remain steady. Given these dynamics, we do not anticipate a significant impact to our business associated with the recent events. Before turning it over to Eric, I'd like to close with a quick refresh of the new agenda we introduced just a few short months ago and the significant progress we are making executing against those goals. As you can see, we are moving urgently to put FIS on a path for sustained value creation for all stakeholders. The macroeconomic conditions, whether consumer or financial services related, have positively impacted our results in the first quarter, and regardless of whether they remain or decline from this point forward, we are confident enough to raise our outlook for the year. The plan spinoff of WorldPay is on track, creating two world-class companies with a sharpened focus on their respective client bases. Our future forward initiative is progressing ahead of schedule, accelerating the transformation of FIS into a more agile and efficient company better positioned to drive innovation. And lastly, we're focused on returning Heritage FIS back to the compounder model of the past, with a focus on steady revenue growth, margin expansion, improved free cash flow generation, and a sustainable double-digit total shareholder return. With that, let me turn it over to Eric, who will take you through the financials. Eric?