Fidelity National Information Services Q1 2024 Earnings Call Transcript

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May 6, 2024

Key Takeaways

  • We exceeded our financial outlook for the 5th consecutive quarter, delivering broad-based outperformance across revenue, adjusted EBITDA and adjusted EPS, and remain confident in our 2024 targets.
  • We saw strong new sales momentum in digital banking, payments and risk compliance solutions, and expect this pipeline growth to continue throughout the year.
  • We increased our 2024 share repurchase authorization by $500 million to a total of $4 billion, returning $1.6 billion to shareholders in Q1, including $1.4 billion through repurchases.
  • Q1 continuing operations adjusted EPS was $1.10, up 53% year over year, and we raised our full-year EPS guidance by $0.22 to a range of $4.88 to $4.98, reflecting a lower sustainable tax rate and higher Worldpay EMI contribution.
  • Q1 free cash flow conversion was 18% due to temporary timing items totaling $195 million, but adjusted conversion was ~54%, and we remain on track for our full-year 85%–90% target.
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Earnings Conference Call
Fidelity National Information Services Q1 2024
00:00 / 00:00

There are 2 speakers on the call.

Operator

On the call with me today are Stephanie Farris, our CEO and President and James Keogh, our CFO. Stephanie will begin the call with a strategic and operational update, followed by James, who will review our financials. Turning to Slide 3. Today's remarks will contain forward looking statements.

Operator

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.

Operator

Reconciliation of our non GAAP information to the GAAP financial information is presented in our earnings release. And with that, I'll turn it over to Stephanie.

Speaker 1

Thank you, George, and thank you everyone for joining us this afternoon. I'm pleased to report that 2024 is off to a very strong start. We're outperforming on our financial commitments to shareholders, experiencing solid new sales momentum and leveraging our strong capital position to aggressively return capital to shareholders, while also investing for growth. The decisive actions we took in 2023 through our FutureForward strategy are resonating across the enterprise and improving operational and financial outcomes. This is the 5th consecutive quarter where we've exceeded our financial outlook with broad based outperformance across revenue, adjusted EBITDA and adjusted EPS.

Speaker 1

While still early, we are confident in achieving our 2024 outlook for revenue and adjusted EBITDA, and we are meaningfully raising our EPS outlook to reflect a sustainable lower tax rate and a higher EMI contribution from our Worldpay stake. Momentum is building across our new sales pipeline as our solutions continue to resonate with clients. We saw strong new sales growth in the Q1 with good demand across digital banking, payments and risk compliance solutions. We expect the strong new sales activity to continue over the remainder of the year. Moving on to capital allocation.

Speaker 1

We are once again increasing our share repurchase target for the year by $500,000,000 We now expect to repurchase a total of $4,000,000,000 in 2024. During the quarter, we returned $1,600,000,000 to shareholders including $1,400,000,000 through repurchases. And we continue to evaluate highly synergistic tuck in opportunities to further our business. Before turning it over for an in-depth discussion on our Q1 financial performance and updated 2024 outlook, I'd like to remind everyone that tomorrow we will be hosting an Investor Day, where we will be showcasing our corporate strategy, providing segment deep dives and introducing medium term financial targets. We hope you can join us in person in New York City or via the webcast.

Speaker 1

And with that, I'll turn it over to James. James?

Operator

Thank you, Stephanie, and hello, everyone. We are very pleased with our performance in the Q1 and our successful cash management and tax initiatives have allowed us to meaningfully raise our full year EPS outlook. On a continuing operations basis, adjusted revenue growth accelerated to 3% compared to flat in the Q4 of 2023. The adjusted EBITDA margin expanded by 200 basis points year over year, primarily reflecting cost optimization initiatives, which boosted margins in the Banking segment. Adjusted EPS from continuing operations was $1.10 in the quarter, up 53% compared to the prior year and up 24% on a normalized basis.

Operator

On a total company basis, including 1 month of discontinued operations, revenue was $2,900,000,000 with adjusted EPS of $1.33 Beginning in February 2024, our 45% interest in Worldpay is reported on the EMI line of the income statement. Moving now to our balance sheet and cash flow metrics. After paying down debt with the Worldpay proceeds, our total debt at the end of the quarter was $11,200,000,000 with a leverage ratio of 2.7x. We repurchased approximately $1,400,000,000 of shares resulting in over $1,600,000,000 of capital return to shareholders during the Q1. Additionally, we are once again increasing our share repurchase target for the year by $500,000,000 to $4,000,000,000 in total.

Operator

We will deploy this incremental $500,000,000 over the course of the Q4 of 2024, benefiting 2025 EPS. On a continuing operations basis, we generated free cash flow of $95,000,000 in the 1st quarter with a free cash flow conversion rate of 18%. Free cash flow was negatively impacted by a number of factors, which are temporary in nature, including the delay of prior year tax payments for the Q1 of 2024 and the timing of TSA reimbursements from Worldpay. Overall, these temporary items amounted to $195,000,000 or 36 points of negative impact. Adjusting for these items, free cash flow conversion would have been approximately 54% compared to 40% in the Q1 of 2023.

Operator

Importantly, these temporary items were already factored into our full year cash conversion target of 85% to 90%, and we are confident that we will achieve this target. Turning now to our segment results on Slide 8. Adjusted revenue growth was 3%, in line with our expectations, and recurring revenue growth was a steady 5%, broadly in line with the trends we saw during 2023. One quick note on backlog. While we will continue to provide backlog data in our quarterly 10 Q filings, we will no longer be focusing on backlog during our earnings presentation.

Operator

As you already know, backlog does not appropriately capture underlying growth from existing clients such as account and transaction growth. Last quarter, we provided you with increased disclosure around our recurring and non recurring revenue streams within the banking segment. And building on that transparency, we have now added a schedule in the appendix highlighting the resiliency of our recurring revenue growth across a multiyear period. Compared to backlog, recurring revenue growth is a more meaningful predictor of sustainable future revenue growth, and we will be increasingly focused on this measure as a key indicator of the underlying strength of the business. Moving on to segment performance.

Operator

Banking adjusted revenue growth was at the high end of our outlook range and accelerated to 2% in the quarter compared to flat in the Q4 of 'twenty 3. Adjusted EBITDA margin expanded by an impressive 3.50 basis points, primarily driven by cost initiatives and favorable revenue mix. Banking recurring revenue grew a healthy 4%, representing continued steady growth. Other non recurring revenue grew 9% with strong year over year growth in license fee revenue, more than offsetting declines in pandemic related revenue. Professional services revenue declined 14%, reflecting a difficult year over year comparison in project revenue related to a large client.

Operator

Turning now to Capital Markets. Adjusted revenue growth was 6%, an improvement from 1% growth in the 4th quarter, led by strong recurring revenue growth. Excluding the impact from acquisitions, adjusted revenue increased 5%. Adjusted EBITDA margin contracted 80 basis points during the quarter, primarily reflecting less favorable revenue mix. And for the year, we continue to expect modest margin expansion.

Operator

Capital Markets recurring revenue grew by a strong 9% in the quarter, whereas other nonrecurring revenue was flat and professional services declined 4%. Turning now to our full year outlook on Slide 9. Our Q1 operational performance gives us great confidence in meeting our full year outlook. However, given that it is so early in the year, for now, we are reiterating our full year outlook for revenue and adjusted EBITDA. We are raising our full year adjusted EPS outlook by $0.22 to $4.88 to $4.98 as we drive broad based favorability across taxes, interest expense, depreciation and EMI.

Operator

Let's walk through the key changes on Slide 10. We continue to project total reported revenue of $10,100,000,000 to $10,150,000,000 with adjusted revenue growth of 4% to 4.5%. We expect the banking segment to grow between 3% to 3.5%, and we anticipate capital markets revenue growth of 6.5% to 7%. We continue to forecast year over year margin expansion of 20 to 40 basis points for the full year, implying an expected moderation in the margin expansion relative to the Q1's 200 basis points. Over the past few months, we've been very focused on optimizing our cash management, taxes and capital structure.

Operator

And these initiatives are driving $0.22 of favorability compared to our original EPS guidance. We are now in a position to reduce our tax rate projection to around 14.5 percent from over 17% previously. This contributes approximately $0.14 and the lower tax rate is sustainable going forward. More to follow on this at Investor Day. We are also reducing our depreciation and amortization projections by $5,000,000 to $10,000,000 compared to our prior outlook, and we now anticipate full year interest expense of 320 to $325,000,000 an improvement of $25,000,000 reflecting strong execution and quickly deploying the Worldpay proceeds to maximize returns.

Operator

Lastly, we have raised our 11 month Worldpay EMI contribution by $15,000,000 to $20,000,000 mostly reflecting their strong start to the year. As a result, we are raising our full year EPS outlook to a range of $4.88 to $4.98 growing more than 45% on a continuing operations basis. On a normalized basis, we now expect adjusted EPS to grow 10% to 12%, including a high single digit negative impact from dissynergies. Let's now move to our 2nd quarter outlook on Slide 11. We are forecasting another quarter of accelerating revenue growth, margin expansion and strong earnings growth.

Operator

We are projecting adjusted revenue growth of 3% to 4%, with banking solutions at 2% to 2.5% and capital markets at 7% to 8%. We expect banking revenue growth to accelerate over the course of the year, reflecting easier year over year revenue comparisons and the favorable impact from stronger new sales over the second half of twenty twenty three. We expect steady capital markets adjusted revenue growth over the remainder of the year, in line with our 2nd quarter outlook. We are projecting adjusted EBITDA of 980 dollars to $995,000,000 which translates to year over year margin expansion of 80 to 100 basis points. Continuing operations adjusted EPS is projected to increase 59% to 64% to $1.21 to 1 $0.25 In summary, we expect the favorable first quarter trends to continue into the 2nd quarter, and we are confident in our full year outlook.

Operator

Let me now wrap up on Slide 12. In closing, we are very encouraged by our Q1 results, delivering our 5th straight quarter of outperformance. We are raising our full year EPS outlook by $0.22 an increase of 4.5 percent. And we are reaffirming our revenue and adjusted EBITDA targets. We are confident in our full year outlook and are well on track to deliver accelerating revenue growth and expanding margins in 2024.

Operator

Lastly, we returned over $1,600,000,000 of capital to our shareholders in the quarter and increased our 2024 share repurchase target by $500,000,000 to $4,000,000,000 With that, we will be concluding today's call, and we look forward to speaking with you and taking your questions at tomorrow's Investor Day. Have a good evening.

Speaker 1

This concludes today's conference call. Thank you for participating. You may now disconnect.

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