Fidelity National Information Services, Inc.

Good day and welcome to the FIS second 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, please 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 Mihalov, Head of Investor Relations. Please go ahead.

Thank you, Shereen. Good morning, everyone. Thank you for joining us today for the FIS Second Quarter 2023 Earnings Conference Call. This call is being webcasted. Today's news release, corresponding presentation, updated investor facts, 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 Eric Hogue, our CFO. 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 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 thank you, everyone, for joining us this morning. We continue to move with speed and a sense of urgency, accelerating our path forward, and we're making strong progress delivering on our financial and strategic commitments to drive change across the enterprise for all of our stakeholders. On July 6th, we announced a landmark transaction with GTCR, positioning both FIS and WorldPay for long-term success and accelerating us on the path to unlock shareholder value from the planned separation. Our future forward initiatives are simplifying our business and driving increased client centricity while improving efficiency and financial outcomes across the company. And our second quarter results show the impact of this effort, exceeding expectations and our guidance. While we have more work to do, I am very proud of our team and am more optimistic than ever as we bring the company's future forward. Turning to slide six, I'm pleased to report FIS delivered another quarter of solid financial results. Second quarter revenue, adjusted EBITDA, and adjusted EPS all exceeded the high end of our guidance range. Solid execution across all three of our business segments and a continued focus on expense discipline drove the outperformance relative to our outlook. On a combined basis, the banking and capital markets businesses posted healthy recurring revenue growth of 4%. This represents a more normalized rate of growth within our 3% to 5% cycle range. Building on the profitability improvements we delivered in the second quarter, we are confident in our ability to deliver sequential adjusted EBITDA margin improvement over the course of 2023, led by improvement in the banking solutions segment. We are on track to deliver on our greater than 80% free cash flow conversion commitment for 2023, with year-to-date conversion an impressive 94%. Post the closing of the WorldPay transaction, we would expect free cash flow to further align even more closely with net earnings. Reflecting the first half outperformance and current business trends, today we are again raising our revenue and adjusted EBITDA guidance for 2023. Turning to slide seven. As we announced in early July, we signed a definitive agreement to sell a 55% stake in the WorldPay Merchant Solutions business to GTCR, a leading private equity firm with deep expertise in the payment space. We believe this transaction represents a superior outcome for FIS shareholders relative to pursuing a spinoff of WorldPay into the public markets. It accelerates our path forward to create two highly focused and independent companies infusing new capital quickly into WorldPay for investment, while generating substantial upfront proceeds to transform FIS's balance sheet, pay down debt, and return capital to shareholders. First, the $18.5 billion transaction immediately establishes an attractive, market-aligned value for the WorldPay business, representing over 10 times WorldPay's 2023 adjusted EBITDA. This represents a premium to FIS's trading multiple of approximately eight times prior to deal announcement. As we continue to execute on our strategy and deliver on our financial commitments, we believe FIS is well positioned to expand our valuation multiple further. Second, the upfront proceeds of at least $11.7 billion will allow us to de-lever the balance sheet quickly while simultaneously accelerating capital returns to shareholders at unique, attractive valuation levels. Eric will elaborate on our capital allocation priorities during his discussion of our financial results. However, we see significant value in the shares at current levels and are eager to rapidly capitalize on the valuation dislocation for the benefit of our shareholders. Lastly, we believe this transaction best positions FIS and WorldPay to better focus on their respective markets clients, and colleagues, while promoting a continued close relationship between the two companies crystallized by commercial partnerships. Going forward, WorldPay will remain an important partner and distribution channel for FIS, while WorldPay will continue to benefit from access to FIS's array of bank tech solutions and services. I look forward to working closely with Charles Drucker and the WorldPay management team for many years to come. The partnership with GTCR also ensures that WorldPay will have ample access to capital to pursue near-term and organic growth opportunities while maintaining a healthy balance sheet. We're excited about the transaction and the prospect of generating meaningful returns for our shareholders, and we will look forward to updating you on developments as we approach closing by first quarter 2024. Turning to slide eight for an update on trends we're seeing across our banking capital markets businesses and the key drivers of growth within our existing base of clients. In May, we held our annual flagship industry conference, Emerald, with 4,000 clients and influencers in attendance. The overarching takeaway from the conference was that clients are excited about our path forward and are looking for their trusted technology partners like FIS to better help them navigate the evolving landscape. FIS is well positioned to serve our clients on several market trends that are top of mind across their C-suites. First, the secular shift towards digital that has permeated money movement broadly defined across banking and capital markets and supports our normalized rate of growth as more and more financial transactions take place across a variety of banking channels. The need to embrace next-generation cloud-native technology with modernized digital user interfaces has never been greater. The competitive lines are blurring as upstart fintechs, global technology companies, and even retailers encroach on the traditional banking landscape with digital-first offerings. FIS was early in embracing the promise of cloud technology, with over 85% of current compute in the cloud, and the launch of several digital native solutions, including Digital One, Payments One, and Modern Banking Platform, which was just recognized for several industry awards. While prior investments position FIS with an early mover advantage, we are not standing still and continue to prioritize spend to further leverage the cloud, improve the end-user experience, and ensure we enable all types of digital money movements. Second, the rapidly rising interest rate environment is creating greater competition for deposits. Financial institutions and asset managers are relying on digital-only high-yield savings accounts and online access to money market accounts, ultimately increasing the number of total accounts across the banking system. Account growth, which continued sequentially from the first quarter, and transactional growth across our platforms are the primary drivers of recurring organic revenue growth across both the FIS banking and capital markets segments. FIS has partnered with a number of blue-chip banks and fintechs powering their digital-only account offerings. Also, post the SVB fallout, financial institutions are proactively preparing for increased regulatory oversight with a greater focus on managing interest rate risk and profitability. The situation is fluid with new regulations still being discussed by regulators and legislators, but the need for best-in-class reg tech offerings is mission critical to banks' operations. We're seeing consistent demand for balance sheet and treasury management solutions and expect that momentum to continue. And lastly, we've recently seen increased consolidation across the financial industry and acquiring institutions requiring the expertise of a trusted core provider to assist in quickly and seamlessly onboarding new accounts at scale. We believe FIS is a relative beneficiary of industry consolidation, given the company's skew towards larger financial institutions. Turning to slide 9, FIS offers a wide range of software-led solutions that are resonating across a diverse range of end markets, with our product reach increasingly extending beyond traditional financial institutions. I'm pleased to report we've closed several notable wins this quarter across a host of solutions, beginning with enterprise core platforms we saw a solid momentum across our product set. Notable wins include the sale of our Digital One platform, as well as an expansion of services provided to a large global FinTech provider. Next, our payments and networks offerings, underpinned by our loyalty solutions, including premium payback, and our proprietary debit network, NICE, continue to see tailwinds. We signed several new premium payback engagements in the second quarter, including a leading retailer and a major U.S. financial institution. We continue to be excited about the prospects of our nice debit network going forward, and expect the offering to be a beneficiary of the recently implemented Reg 2 rules. In our capital markets business, demand for our institutional solutions continues to be robust. Sales of our treasury risk management solutions remain particularly strong. And we're seeing solid traction across the board with increased penetration across non-traditional verticals, such as large corporates, including insurance and auto finance companies. Finally, I'm delighted with the progress we're making across our Amplify initiative, which was designed to accelerate cross-sells across the enterprise. We had a solid quarter of Amplify-driven sales, particularly the selling of acquiring services into multiple banking and capital markets clients. Amplify remains a core part of our sales strategy going forward post the WorldPay transaction. Supported by commercial partnerships, we expect WorldPay will remain a key distribution channel for banking and capital markets services for years to come. Turning to slide 10, we're making continued progress across our enterprise-wide transformation program, Future Forward. We're well on our way to delivering on our previously communicated cash expense saving and shifting those savings into client-centered outcomes. We continue to prioritize investments focused on modernizing our technology stack, leveraging the cloud, simplifying our user interface, and improving the digital experience for end users of our products. We recently welcomed a new chief technology officer at FIS with an extensive background in the consumer digital technology space. Our CTO is entrusted with ensuring FIS continues to embrace a developer-focused, innovation-driven culture with the appropriate personnel in place to lead FIS forward and stay ahead of the curve. We're excited about the prospects AI presents for our business and our clients. AI holds the promise of improving employee and client productivity accelerating development and implementation timelines, reducing costs, and improving product quality and customer care. We have several ongoing AI-driven initiatives across the company, and we expect to materially increase the number of programs over the coming months. The early results from these initiatives are encouraging. With that, I will turn the call over to Eric. Eric?