Fidelity National Information Services, Inc.

Good day and welcome to the FIS fourth quarter 2023 earning 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 Mihalov, head of investor relations. Please go ahead, sir.

Thank you. Good morning, everyone. Thank you for joining us today for the FIS fourth 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. On the call with me this morning are Stephanie Farris, our CEO and President, and James Keough, our CFO. Stephanie will lead the call with a strategic and operational update, followed by James, who will review our financial results. 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. And with that, I'll turn the call over to Stephanie.

Thank you, George, and thank you everyone for joining us. 2023 was a year of significant positive momentum at FIS. When I stepped in as CEO, we were facing an uncertain economy, a banking crisis, inflation, and a market where new capital was scarce. And while FIS was a statured company with over 50 years of market success, it had lost its focus in recent years. Simply put, the company was not meeting expectations. It was missing financial commitments and growth opportunities. It was slow in the delivery of products, too complex for clients to navigate, and selling in areas that didn't contribute to the bottom line. Fast forward a year later, and we are now a much different company with renewed focus, vision, and measurable results. We took a decisive action and moved with urgency to put the company on a sustainable path for long-term success, unlocking value for shareholders and recommitting to our clients who are at the center of everything we do. In a short period of time, we successfully executed a number of significant operational commitments while consistently delivering financial outcomes ahead of expectations. Earlier this month, we announced the successful completion of the majority sale of the WorldPay business to GTCR, a key milestone for our future. This landmark transaction creates two market-leading companies with greater strategic flexibility and operational focus to capitalize on their respective growth and margin opportunities in rapidly evolving markets. FIS holds a meaningful 45% stake in WorldPay and the two companies will continue to work together closely in the future. The strategic go-to-market partnership we established with WorldPay through our commercial agreements preserves the key value propositions for clients of both companies. And it is a powerful continuation of what we started when our two organizations first came together. WorldPay will remain an important distribution channel for FIS while continuing to benefit from access to FIS's array of bank tech services, such as our embedded finance solutions. We are excited to partner with Charles Drucker, the World Pay Management Team, and GTCR, and we are confident the business is on the right trajectory to reinvigorate revenue and earnings growth. The separation reinforces FIS's position as a global enterprise software leader, servicing the technology needs of the most complex global financial institutions, multinational corporates, and governments. With a sharp focus on our marquee set of clients, we are well positioned to capitalize on favorable industry trends, and quickly push into faster growing verticals and segments of the market. This builds on our first mover technology advantages, allowing us to accelerate revenue growth as our 2024 outlook demonstrates. The WorldPay transaction also allows us to recapitalize our balance sheet, providing ample flexibility to reinvest in the business while at the same time accelerating capital returns to shareholders and lowering our leverage ratio. I'm pleased to announce that we are once again raising our share repurchase target. We are now committing to buying back at least $3.5 billion of stock in 2024, up from our previous $3 billion target. Including repurchases completed in the fourth quarter of 2023, this brings our total share repurchase commitment up to at least $4 billion. This increased buyback reflects our confidence in the business, a strong capital position, and our view on the intrinsic value of FIS's shares. Lastly, we continue to execute against our future forward strategy, exceeding our targets for 2023 and increasing our commitment for operational excellence in 2024. The program is changing the way FIS operates with a focus on driving greater efficiency, effectiveness, and growth for our clients and for FIS. Our successful efforts are underpinned by distinct and tangible proof points. For example, over the second half of 2023, we were able to return the company to year-over-year margin expansion. And we expect to drive further profitability improvements in 2024. We refocused our sales force to prioritize higher value, higher margin technology sales. And we intensified our efforts to improve the customer experience, including accelerating implementations of our next generation technology solutions. While there is still plenty of work to be done, I couldn't be prouder of the FIS team and what we've accomplished together in just a year's time. Now let's turn to a discussion of our financial results. Turning to slide six. The significant actions we undertook in 2023 are already driving improved financial outcomes. We delivered full year 2023 financial results ahead of our outlook, including four consecutive quarters of outperformance on a total company basis. Adjusted revenue growth of 2% was driven by strong total company recurring revenue growth of 4%, including 5% recurring growth across our banking and capital market segments. Profitability improvements were primarily driven by our Future Forward program. This resulted in adjusted EBITDA margin expanding over the second half of 2023, despite headwinds in high-margin, non-recurring revenue, such as license and termination fees. we meaningfully improved adjusted free cash flow conversion in 2023 to a normalized 95% as compared to 72% in 2022. Capital expenditures declined to approximately 8% of total company revenue in 2023, down from 9% in 2022 as a result of continued execution against future forward initiatives. Lastly, we returned over $1.7 billion in capital to our shareholders through the combination of both dividends and share repurchases with over $800 million in the fourth quarter. Turning to slide seven. The trajectory of our recurring revenue growth trends exiting the year and continued expense management gives us confidence that both revenue growth and profitability are inflecting in 2024. We expect a sustainable acceleration in adjusted revenue growth from 3% in 2023 to more than 4% in 2024. This acceleration is principally driven by a meaningful improvement in banking's revenue growth from 2% in 2023 to at least 3% in 2024. We expect the momentum we've been experiencing in our capital markets segment over the past few years to continue, with healthy growth in excess of 6%. The segment will continue to benefit from market share gains and expansion into newer verticals. During the third quarter of 2023, fueled by the success of our Future Forward strategy, we returned the company to year-over-year adjusted EBITDA margin expansion for the first time in nearly two years. Building on the success of Future Forward and the underlying fundamentals of the business, we are confident that the company is positioned for sustainable margin expansion in 2024 and beyond. The revenue acceleration and operational improvements just discussed, coupled with balanced capital deployment, will allow us to deliver 5% to 7% normalized EPS growth, which includes a high single digit negative dis-energy impact. As a result of this improved financial outlook, we are committed to returning over $4 billion of capital to our shareholders across buybacks and dividends in 2024. Looking forward, current favorable market trends, as well as the operational efficiencies we continue to drive, leave us confident that we are positioned for further earnings acceleration beyond 2024. Turning to slide eight, we are seeing increased client demand and a growing sales pipeline as our products and services continue to resonate, especially with large financial institutions. Based on the current level of activity we're seeing across our pipeline, we expect an acceleration in new sales in 2024 as compared to 2023, aiding revenue growth beyond 2024. During the fourth quarter, we find multiple marquee wins across our businesses. Beginning with enterprise core platforms, we're seeing increased demand from the regional community bank market for our bundled offerings of core digital payments through strong new sales and implementations. Additionally, we signed several new and expanded core engagements with regional community and international financial institutions, including a key competitive takeaway, Bank of California, with approximately $40 billion in assets. Also, demand for FIS's digital banking solutions remains strong. Our Digital One platform was selected by some of the most demanding banks and financial institutions, including a global asset manager with greater than $1 trillion in assets under management. Likewise, we've seen continued robust sales for our Digital One studio, with leading national, regional, and super-regional banks, including Hancock & Whitney, First Citizens Bank, and Bank of Montreal. These banks have all deployed solutions from our digital suite, which offers deeper personalization capabilities in support of their deposit growth, product cross-sell, and customer experience improvement objectives. To underscore our progress in digital banking, our sales pipeline continues to expand with demand from large financial institutions increasing in the double digits. Our payments and network businesses continue to gain traction and we are expanding our sales focus in these areas given the long growth runway they represent. The NICE Debit Network had another strong quarter of new sales. We signed multiple new engagements with premier financial institutions retailers, and global media companies. Additionally, FedNow continues to gain traction. We now have over 215 clients either in contract or in our pipeline and we're now certified to both send and receive payments. Moving on to capital markets. Beginning with securities trading and processing, our market leading clear derivative solution was selected by a global financial technology provider and a leading alternative asset manager. Additionally, our treasury solutions had another strong quarter of new sales. We signed new engagements with a leading financial technology company, several municipal governments, a multinational healthcare provider, and an online consumer apparel provider. Our lending solutions also had a number of impressive new or expanded wins in the quarter. This included a leading U.S. automaker, several European automakers, as well as several global financial institutions who were seeking a partner who could service and support their global client base. I'm encouraged by the trends we experienced over the second half of 2023 and confident we are poised for a meaningful sales acceleration in 2024. 2023 was a year of significant positive momentum at FIS. I'm incredibly proud of the team for their commitment to our future forward strategy and the heightened focus on improving client centricity, accelerating product innovation, and simplifying our go-to-market approach. Our performance in 2023 and our strengthened position entering 2024 give me confidence that we are on the right path to further improve operational and financial outcomes going forward. With that in mind, FIS plans to host an Investor Day in New York City on Tuesday, May 7th. We hope you can join us for a discussion on our go-forward corporate strategy post the WorldPay separation, our playbook for sustainable success in our banking and capital market segments, and of course, our multi-year financial targets and capital allocation framework. With that, let me turn it over to James for a discussion of our fourth quarter financial results in 2024 outlook. James?