Fidelity National Information Services Q3 2021 Earnings Call Transcript

Participants

Corporate Executives

• Nathan A. Rozof, Executive Vice President of Corporate Finance and Investor Relations
• Gary Adam Norcross, Executive Chairman and Chief Executive Officer
• James W. Woodall, Corporate Executive Vice President and Chief Financial Officer
• Bruce F. Lowthers, President

Analysts

• Tien-Tsin Huang, JPMorgan Chase & Co.
• Jason Alan Kupferberg, BofA Securities
• Darrin David Peller, Wolfe Research
• David Mark Togut, Evercore ISI Institutional Equities
• David John Koning, Robert W. Baird & Co. Inc.
• Georgios Mihalos, Cowen and Company
• Dan Dolev, Mizuho Securities USA
• Ashwin Vassant Shirvaikar, Smith Barney Citigroup

Presentation

[Operator]

Good day, and thank you for standing by. Welcome to the FIS Third Quarter 2021 Earnings Call. [Operator Instructions] Please be advised that today's conference call is being recorded. [Operator Instructions] I would now like to hand the conference over to Nate Rozof, Head of Investor Relations. Please go ahead, sir.

[Nathan A. Rozof, Executive Vice President of Corporate Finance and Investor Relations at Fidelity National Information Services]

Thank you. Good morning, and thanks to everyone for joining the call today for the FIS third quarter 2021 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. Gary Norcross, our Chairman and Chief Executive Officer, will discuss our performance and review our strategy to continue accelerating revenue growth and maximizing shareholder value. Woody Woodall, our Chief Financial Officer, will then review our financial results and guidance, then take you through some additional disclosures in our Merchant segment. Stephanie Ferris, Chief Administrative Officer; and Bruce Lowthers, President of FIS, will also be joining the call for the Q&A portion. Turning to slide three. Today's remarks will contain forward-looking statements. These statements are subject to numerous 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. Reconciliations 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 remarks on slide five.

[Gary Adam Norcross, Executive Chairman and Chief Executive Officer at Fidelity National Information Services]

Thanks, Nate, and thank you for joining us. Our third quarter results demonstrate continued strength of execution across the company, with revenue growing 10% to reach $3.5 billion. Margins expanded 270 basis points to exceed 45%, and adjusted EPS increased 22% to $1.73 per share. We continue to see elevated demand across our solution portfolio, with sales execution driving a 7% organic increase in our $22 billion backlog across banking and capital markets. Revenue synergies related to our Worldpay integration increased to $150 million in the quarter, bringing the total to $600 million on an annual run rate basis. We remain on schedule to exceed $700 million exiting this year, beating our original target by 40%, while accomplishing this feat a year early. Our cost synergies tell a similar story, increasing to $875 million in the quarter and on schedule to exit the year around $900 million.

This is inclusive of approximately $500 million in operational expense as we look to conclude our Worldpay integration well ahead of schedule. In the quarter, new wins across a wide range of clients illustrate that our strategy is working and gives us confidence in our growth. In Banking, these include another two modern banking platform wins, including one with PayPal. PayPal will utilize the Modern Banking Platform to enable their new high-yield savings account. These new wins continue to demonstrate the versatility of our new cloud-native software. Turning to our Merchant segment.

We continue to build on its differentiated global e-commerce offering. Our extensive global reach is a significant differentiator for us. We operate in 146 countries, accounting for 126 different currencies and support more than 300 alternative payment methods. This allows us to remove complexity and cost, while increasing authorization rates for multinational enterprises like Microsoft, who recently expanded our relationship from a single region to now span the globe. Our ability to offer sophisticated capabilities and rapidly expand into emerging new verticals also differentiates FIS. For example, we continue to build a strong foundation in crypto, signing Crypto.com, this quarter. We won this business by demonstrating authorization rates that are far superior to their incumbent provider.

We also expanded our global travel and airlines market share, winning Allegiant as an impressive new domestic carrier. In Capital Markets, Citi is the latest example of a client transitioning from legacy in-house to a fully outsourced solution with FIS, while another innovative technology company will leverage seven of our capabilities to help power their digital registered investment advisory solution. We cannot be happier with the significant growth the team is driving out of our Capital Markets segment. Our solutions are highly differentiated and proven throughout the industry. It's important to note that our new wins across all our segments include financial institutions, domestic and multinational merchants as well as leading technology companies and innovative fintechs.

Few other companies can provide such a complementary set of solutions. I am proud of our team for their ongoing dedication to our clients and for delivering another strong performance this quarter. Turning to slide six. While our team continues to execute at a very high level, our share price is clearly not performing well. Over the last few months, our management team engaged in open and constructive dialogue with the investment community about areas where we can improve the messaging and transparency of our business. We believe in the strength and value of our company. And on today's call, we will directly address the three most common questions we heard. I'll begin by providing an update on our leading competitive position as well as our capital allocation strategy to sustain and accelerate growth.

Woody will then provide a deep dive into the Merchant segment after he recaps the quarter's financial performance. The bear case assumes that FIS is standing still or unable to compete, and this is definitely not the case. We anticipated the changing competitive landscape and invested heavily in technology and innovation over the last five years. Ours is a durable business model, and FIS will remain a global leader with sustainable competitive advantages now and into the future. Therefore, we will continue to provide additional clarity as needed to ensure that our shareholders properly understand our business, strategy and the true value of FIS.

Turning to slide seven. FIS has the best collection of assets in the industry. Banking and Capital Markets generate approximately 2/3 of our revenue mix, with exclusive long-term contracts and deep client relationships covering mission-critical applications needed to operate our clients' businesses. These segments grew through the pandemic, demonstrating the durability of their revenue streams and are growing faster than ever. Our ongoing investment in new technologies, Indian software suites within these segments generates increased recurring revenue and accelerated organic growth. Through three quarters, our year-to-date new sales already exceed that of the entire year in 2020, which was also a record year for FIS.

This historical success has now created $22 billion in backlog of signed revenue, which I referenced earlier. Given our year-to-date success, 2021 is going to be another record-setting year for sales, and that will drive continued strong growth across these segments into 2022 and beyond. Our Merchant segment currently accounts for about 1/3 of our revenue mix. It boasts deep client relationships with exceptionally high retention rates that are supported by sophisticated vertical expertise and five-star client service. Our expert professionals are on the ground in every geography to meet any need.

Our clients depend on us to support their global ambitions by opening every sales channel to them with innovative software-led and omnichannel capabilities. Here, too, we are generating record new sales, and revenue growth is accelerating as high-growth channels account for an increasing proportion of the segment's growth. Given the market dynamics in these high-growth channels, we expect to consistently win new clients and expand our share of wallet. Another key advantage is our extensive global distribution and enviable client portfolio, which enable us to quickly and effectively drive adoption of new technologies. There's a reason why incumbents, innovators and disruptors consistently choose FIS as their partner of choice. These durable revenue streams, combined with our scale of delivery, allow us to aggressively invest in differentiated solutions and capabilities.

Turning to slide eight. I'd like to directly address the strength of our competitive position and why this company will continue to lead the way powering the global digital economy. FIS powers the intersection of software, payments and embedded finance. Our core competency is commerce enablement, whether that's the electronification of banking, enabling electronic transactions online or at the point of sale or automating treasury, B2B and wealth and retirement. We have multiple competitive advantages, including breadth of capability, global reach, extensive distribution and an enviable client portfolio.

With our infrastructure migration to the cloud now complete and the Worldpay integration coming to a close, I'd like to share our strategy to further enhance our competitive position and generate shareholder value. Our strategy is to unlock the true value of FIS by weaving together our extensive digital assets into a global platform that facilitates the rapid adoption of new technology and speeds innovation. By componentizing our capabilities, we will expose our unique set of financial assets to the market as well as continue to push new product through this emerging platform. It expands our TAM by positioning FIS as the destination for innovators and developers, where they can get everything they need to create exciting new customer experiences.

And it helps them to do it faster by providing preconfigured capabilities, low-code and no-code technology, third-party integration as well as sandboxes for experimentation and rapid prototyping, complete with the developer forum. Importantly, for our shareholders, it will speed time to revenue for FIS through automation and self-service, while simultaneously creating additional scale benefits by eliminating technology debt. This strategy supports our midterm outlook for 7% to 9% revenue growth, 50 to 100 basis points of annual adjusted EBITDA margin expansion and superior free cash flow. Our past success demonstrates that we execute major programs very well, and our team will keep FIS at the forefront of the industry by executing the next phase of our enterprise technology transformation.

As we do this over the next three years, you'll hear us talk less and less about segments, as traditional silos and old ways of thinking fade to the background. Instead, we'll begin sharing exciting examples of a new class of super users, who combine technology across the breadth of FIS in new and exciting ways. Each of these super users is buying capabilities from all three of our traditional segments, demonstrating a powerful value unlock for FIS. Amazon is a great example of the power that our portfolio brings to clients. They started their journey with us by leveraging our nice debit network capabilities a decade ago.

Today, they utilize our enterprise acquiring capability for Whole Foods, our global e-commerce capability to enter new online markets and our treasury cash management solution out of Capital Markets. And we've expanded the relationship by leveraging our omnichannel capability to empower their new Amazon 4-star in-store concept internationally, opening its first location in the U.K. At FIS, we embrace being a scaled technology leader and look forward to continuing to advance the industry by enabling the next generation of innovative client experiences.

I'll conclude my prepared remarks by reviewing our capital allocation strategy on slide nine. Our priority is to deliver long-term growth by investing internally to improve the value we bring to our clients, while expanding our TAM. In parallel, we continue to actively pursue M&A to add innovative new capabilities as well as to enter high-growth adjacencies. Our team has a well-established track record of successfully integrating the businesses we acquire, consistently outperforming our synergy targets and driving shareholder value. Through this combination of investments in organic and inorganic opportunities, we have successfully accelerated revenue growth by positioning FIS to deliver innovative solutions in attractive markets where our technology and expertise are highly differentiated.

The scale and profitability of our business puts us in the enviable position of being able to both invest for growth while simultaneously returning capital to our shareholders. Year-to-date, we have repurchased $2 billion in shares, reflecting our view that FIS currently represents a generational buying opportunity. We still maintain significant headroom for accelerated share repurchase, with 85 million shares of authorization remaining, and we will buy back stock aggressively. We are committed to consistent dividend growth and are increasing our expected annual dividend growth rate to 20% in 2022 and beyond.

This will enable us to expand our dividend payout ratio over several years without affecting our ability to invest in growth. Our capital allocation strategy is underpinned by a strong balance sheet and investment-grade credit ratings. This strategy has been consistent for many years, and we will continue to allocate capital to drive robust shareholder returns. In conclusion, while competition is intense across our industry, FIS is built for purpose as the leading commerce enablement company. At FIS, we're doing what no one else can, bringing together a unique breadth of capability and global reach to enable our clients to innovate at speed.

With that, I'll now turn the call over to Woody to discuss our financial results and to provide a deep dive into the Merchant segment. Woody?

[James W. Woodall, Corporate Executive Vice President and Chief Financial Officer at Fidelity National Information Services]

Thanks, Gary, and thank you all for joining us today. Starting on slide 11, I will begin with our third quarter results and touch on our balance sheet, cash flow and guidance before taking you through our additional merchant disclosures. Both reported and organic revenue growth were 10%. Adjusted EBITDA margins expanded 270 basis points, reflecting high contribution margins and ongoing synergy benefit. Banking revenue growth accelerated to 8%, reflecting continued new sales execution. The Banking segment's adjusted EBITDA margin expanded 250 basis points to 46% primarily due to ramping revenues from recent large bank wins as well as continued recurring revenue growth.

Capital Markets revenue growth also accelerated to 11% this quarter primarily due to strong recurring revenue growth as well as two points of tailwind created by the timing of client renewals. Capital Markets adjusted EBITDA margin expanded 330 basis points to 48%, again reflecting high contribution margins and operating leverage. I'll leave Merchant for now and discuss its quarterly performance with its deep dive later. Turning to slide 12. We generated free cash flow in excess of $1.1 billion in the quarter, representing 33% of revenue or 107% of adjusted net earnings. We tripled the pace of our share buybacks during the quarter, repurchasing nine million shares for approximately $1.2 billion.

While we are aggressively buying stock back right now, we remain active in the M&A market. As Gary mentioned, we are increasing our dividend growth rate in 2022 from 10% to 20% per year. We're going to continue to invest for growth, and this will have no impact on our ability or intention to do so. In fact, it will only consume about $100 million of incremental cash during 2022, which is insignificant as compared to our annual free cash flow.

To be clear, if our adjusted EPS grows mid-teens and our dividend grows by 20%, we will reach the 35% payout ratio towards the end of this decade. On slide 13, you'll see that we're keeping our full year guidance mostly unchanged after raising it earlier this year. We're increasing the lower end of our adjusted EPS range to $6.50 from $6.45 per share. We brought up the lower end of our EPS guide due to our operating results and share repurchase during the third quarter. To add further color on fourth quarter, consensus revenue and EPS are in line with our expectations.

I'm expecting some incremental pressure on margins due to rising labor costs and for this to be offset by lower share count. As it pertains to the platform initiatives Gary mentioned, this does not represent incremental investment, but continues the enterprise transformation that we've been executing on for the past five years. This is included in our midterm outlook of 7% to 9% revenue growth and 50 to 100 basis points of margin expansion. As usual, we will provide detailed guidance assumptions in the appendix. With that, let's begin the Merchant deep dive on slide 15. As Gary mentioned, we heard your feedback and are striving to further increase transparency into the Merchant business.

I will provide an additional layer of revenue detail and outlook for the business in the next several slides. Starting with our third quarter results, Merchant revenue grew 18%, excluding about four points of headwind created by the unusual timing of the U.S. tax filing deadline in 2020. Merchant's adjusted EBITDA margin expanded 380 basis points to approximately 52%, which reflects the segment's high contribution margins and ongoing synergy benefit. Many of our shareholders told us they are evaluating Merchant growth rates versus the comparable period in 2019.

Therefore, I will describe growth rates through the rest of this deep dive on that basis as compared to 2019 and pro forma for the Worldpay acquisition. It's clear that our business is rebounding, with revenue growth accelerating from 3% in the first quarter to 9% in the second quarter to 16% in the third quarter. On slide 16, we show how closely our volumes continue to track with the networks. Clearly, the three of us don't grow exactly the same every quarter or in every country, but the consistency of FIS' performance relative to the networks throughout the pandemic challenges the bear case in my mind. In addition, we included quarterly volume and transaction data within our earnings release going back to the first quarter of 2019.

We provide this extra level of transparency to create easy comparisons, so the shareholders can better evaluate any concerns about share loss. We provide additional revenue detail by client type on slide 17. Our global e-commerce business serves web-only merchants. It excludes omnichannel merchant revenue, which is included in enterprise. Global e-commerce is our fastest-growing client type and creates a key strategic advantage. Enterprise includes North American merchants with more than $5 million in annual sales volume in the U.K. This is a scale business with meaningful cross-selling opportunities.

We have powerful distribution channels and serve marquee brands across both global e-commerce and enterprise, making us the go-to choice for new technology partners striving for adoption. Finally, software-led SMB is comprised of U.S. small merchants with less than $5 million in annual sales volume. We service these merchants primarily through software-led or technology-enabled partners who are attracted to our world-class scale and leading enterprise capabilities. Moving down this slide, the pie chart show merchants revenue mix by these three client types. The text below the pies defines each client type and summarizes our respective strategies for each.

Along the bottom of the slide, we show the quarterly revenue growth progression on a pro forma basis as compared to 2019, where the clear takeaway is the [quick] recovery thus far. The next three slides dive deeper, including TAM growth for each client type based on total merchant acquiring TAM from BCG's Global Payments 2021 report. Beginning on slide 18, our global e-commerce business is differentiated by its global reach. We have the unique ability to help leading multinational companies and global brands seamlessly transact around the world.

Unlike most of our peers, who gateway domestic card-not-present transactions within various countries, we enable multinational transactions with local licensing to support our clients' global expansion. In the upper right-hand corner, we show global e-commerce's estimated TAM growth of 13% to 15% on a revenue basis. Our e-com mix is split roughly 50-50 between the U.S. and international. As you can see, domestic e-com TAM is growing upper single digits, while cross-border TAM is growing 25% to 30%. This is why our global reach is so important. It provides a distinct advantage in the fast-growing area -- fastest growing area of the market.

Lastly, SMB e-com TAM is growing 12% to 14%. We don't currently play in this portion of the market and see it as a strategic expansion opportunity. As you can see by the elevated growth rates in the lower right corner, FIS is benefiting from the accelerating shift online. Our mix of fast-growing e-com revenue continues to increase, creating the opportunity for us to continue to outpace global merchant acquiring TAM as a whole. Turning to slide 19 to discuss enterprise. Many of our enterprise relationships are decades long and built on sophisticated vertical expertise, such as our unique debit routing, SNAP and WIC capabilities within the grocery vertical.

Serving global enterprise clients require significant scale economies to compete at low price points, while quickly and nimbly integrating new technologies. Enterprise TAM is growing 4% to 7%, split between the U.S. and international. Within the enterprise, we see the greatest potential for future growth through continued geographic expansion, enabled by our global footprint and international banking relationships. Our software-led SMB business is shown on slide 20. U.S. SMB TAM is growing 7% to 9%. We have experienced significant recovery each quarter this year, with most of our verticals growing 20%-plus during the quarter.

Restaurant is the notable exception. While it's also demonstrating a strong recovery trend, its growth is slower than other verticals. It's difficult to discern whether this is due to slower reopenings, staffing challenges or the performance of some of our partners. However, our win rates continue to improve on leads given to us by our ISV partners, and we continue to sign new ISV partners, making it clear that there is not a problem with our service. Further, our software-led strategy provides significant advantages across the SMB space by providing deep vertical expertise. As I mentioned earlier, we believe that expanding SMB e-com is a significant opportunity for us, especially following the launch of Access Worldpay.

In any event, as you can see on slide 21, it's 2% of our consolidated revenue. I'd like to leave you with two thoughts before we open the line to Q&A. First, we continue to enjoy significant competitive advantages across the breadth of our business. 65% of our revenue is driven from Banking and Capital Markets with long-term contracts and sticky client relationships. Within the 32% of our revenue mix in Merchant, we are differentiated by our global e-com, enterprise and software-led capabilities. While the market appears to be focused on U.S. SMB, which represents a sliver of our revenue, our strategy is about driving growth across the enterprise by enabling digital commerce in every segment and in every vertical, as Gary described.

Second, on slide 22, we believe that 8% to 10% TAM growth for the total acquiring market reinforces our outlook for sustained double-digit revenue growth within Merchant. We have a strong e-commerce business that continues to grow as a portion of our overall revenue mix. The international expansion opportunity in enterprise creates additional upside, and we have a really unique opportunity to drive our e-com capabilities downstream into SMB. We are confident in the future of FIS, and I would like to thank our colleagues for their continued efforts in serving our clients and driving our business forward. Operator, would you open the line for questions?

Questions and Answers

[Operator]

[Operator Instructions] Our first question comes from the line of Tien-Tsin Huang with JPMorgan.

[Tien-Tsin Huang, Analyst at JPMorgan Chase & Co.]

Thank you and good morning to all of you guys. I'll start with that, and I had a bigger picture question for Gary, if you don't mind, as my follow-up. Just on the Merchant volume and transaction data, you've given us a lot of good stuff here. The lines clearly show you're tracking very well with the network data. But I guess, on the revenue side, you do derive revenue both from volume and transactions. So if we want to benchmark revenue against some of those metrics, how would you guide us there? And I think, ultimately, we all want to get a better sense of pricing like-for-like and how that's evolving because mix clearly plays a role.

[Gary Adam Norcross, Executive Chairman and Chief Executive Officer at Fidelity National Information Services]

Yes. It certainly plays a role, Tien-Tsin. We've tried to outline both volume growth and transaction growth within the detailed materials in the press release. I think we also gave growth back to 2019 as many of us have been trying to effectively forget 2020 in some levels and ways. We have seen volume growth compared to 2019, a track very closely to the networks.

We've also see transaction growth slow a little bit in terms of its growth rate, ultimately providing us incremental yield on that volume, which is what we expected and where we expected to continue to track. If you look at 2Q 2019 growth of revenue versus the global volume compared to the third quarter, we had about nine points of incremental yield benefit, and that really takes out kind of the noise between both 2020 and the move shift of the tax movement. So that's the one we've been very focused on. But we try to be extremely transparent today to give you every piece of data that we look at and thinking about our revenue growth trajectory.

[Tien-Tsin Huang, Analyst at JPMorgan Chase & Co.]

Thank you for that. We'll definitely be studying it. As my follow-up, if you don't mind, just bigger picture for you, Gary. I want to hone in on your super user comment because I thought that was really interesting. A lot of things to think about there. But I'll summarize it, I guess. Does this mean you envision FIS servicing larger diversified clients that I would imagine have some buying power? But are you also suggesting that there's a shift from maybe point solutions or best-of-breed consumption versus bundled buying? Just trying to think about all of this because you have different peers and, of course, you have a lot of scale across all these different businesses. But what's the vision here longer term?

[Gary Adam Norcross, Executive Chairman and Chief Executive Officer at Fidelity National Information Services]

Yes. No. I mean, absolutely. I would tell you, Tien-Tsin, we're already seeing it, right? So I think a lot of people want to put us in a point world. What we've seen across all markets, all industries is really what we've talked about is more around solutioning and being able to leverage a platform in a way to drive very dynamic outcomes for our customers, and that's what we're all about. So as you think about FIS, all large companies are going to have to go through a massive transformation, and so we started that journey five years ago.

And we now have completely completed our transition to cloud. So we've made that migration, and we're getting all the benefits of the cloud platforms that are available. We then leaned in with next-generation application stacks, and we talked a lot about that through componentization, whether it's Modern Banking Platform, whether it's Payments One, whether it's Digital One, whether it's NAP, the list goes on and on. So now the next phase is how do you bring that together and weave that together to a one-stop place for innovators, large conglomerates, anybody looking to take advantage of various capabilities in the open market, and we see it as a huge opportunity.

We highlighted just a very small subset of clients already leveraging our next-generation capabilities across all three segments. You're going to see that grow very dramatically over the next three years. You will also continue to see our level of technology debt get displaced, as our existing clients migrate to this framework as well. So we're really excited about the future. We highlighted another two wins on Modern Banking Platform today.

One of those wins was the first customer that has signed up for an existing core banking system of FIS to start transitioning to MBP. So as we've talked a lot, we're really at the forefront of this transformation, and this is just the next step in FIS' journey. And we'll continue -- and while we're so confident in our long-term guide of 7% to 9% and mid-teens EPS, and you'll continue to see that resonate in the coming years.

[Tien-Tsin Huang, Analyst at JPMorgan Chase & Co.]

Good stuff. Thanks for your thoughts.

[Operator]

Your next question comes from the line of Jason Kupferberg with Bank of America.

[Jason Alan Kupferberg, Analyst at BofA Securities]

On margins, and I know you're targeting 50 to 100 basis points a year on average of expansion there. And certainly, we understand there's natural economies of scale in the business. But just wanted to make sure, do you feel this type of margin expansion still gives you enough flexibility to invest in the business to the extent that is contemplated by the updated capital allocation strategy just given the dynamics in your various end markets are obviously changing faster than ever? And maybe just as an extension to that, just what's your current thought process around where consensus sits for 2022? I think it's kind of exactly in line with your multiyear guide, but just wanted to see how you're feeling about that.

[James W. Woodall, Corporate Executive Vice President and Chief Financial Officer at Fidelity National Information Services]

Yes. With regard to the 50 to 100 basis points of margin expansion, we do think that's sustainable through our midterm outlook. As we've talked about numerous times, there's tremendous operating leverage within the business, as we continue to drive automation and drive efficiencies through normal operations of the business. Incremental revenues have high contribution margins that help with that margin expansion as well. With regard to the investment side of it, we've baked in our expectations of investment into that 50 to 100 basis points of margin expansion. So we feel good about our ability to continue to invest to drive and sustain that accelerated growth profile that we've built out.

So yes, Jason, those are the two comments I really would think about margin. If you think about 2022, we're not updating our formal 2022 guide until February. That said, we're not changing anything in terms of our midterm outlook around 2022 of 7% to 9% revenue growth and 50 to 100 basis points of margin expansion. So continuing to keep that as a longer-term outlook, consistent with what we've been saying for a number of quarters.

[Jason Alan Kupferberg, Analyst at BofA Securities]

Okay. Understood. And just for my follow-up, I wanted to ask on M&A. It sounds like a little bit more emphasis there as part of the updated capital allocation strategy. I know Stephanie is spending a lot of time in that area. Can you help us understand just where are you in terms of M&A pipeline build? It certainly sounds like the tilt there will be towards some higher growth assets. And could you be considering deals that might be dilutive initially?

[Gary Adam Norcross, Executive Chairman and Chief Executive Officer at Fidelity National Information Services]

Yes. Look, let me start, Jason, and then we'll let others add on. Certainly, Stephanie's return, focusing on strategy and helping to drive and continue to focus on M&A is important. I would say our strategy has not shifted there. We've been very focused on M&A throughout the years. As you know, we've also been very consistent about getting other large M&A opportunities behind us before we typically move on into other areas. We've talked on prior calls, the market is pricey on certain things, but we're definitely going to continue to lean in on M&A. We're going to be a buyer in the market on things that fit our strategy, that expand our TAM, that drive us new product or new capabilities, that drive us in to adjacent market. Anything we do, we will look for things that will accelerate our growth. And so that's going to continue throughout 2021 and 2022 and beyond. So it will always be an important part of our strategy.

[James W. Woodall, Corporate Executive Vice President and Chief Financial Officer at Fidelity National Information Services]

You probably also saw some emphasis there as we round out and complete the Worldpay integration. We are very focused on completing each integration before we move to the next. So we feel good about where we're at on that integration. Secondly, on your accretion dilution comment around whether we would do something that's dilutive, we don't look at accretion dilution as the only value metric. In fact, we think it's probably just one of many. Value creation long term is much more in how we think about M&A, whether it's enhancing our growth profile or filling out gaps strategically into our product portfolio that we can push through our distribution channel. So yes, we would think about something potentially dilutive from an accretion dilution analysis, but never that doesn't drive incremental value to shareholders long term.

[Jason Alan Kupferberg, Analyst at BofA Securities]

Thank you.

[Operator]

Our next question comes from the line of Darrin Peller with Wolfe Research.

[Darrin David Peller, Analyst at Wolfe Research]

Thanks guys. Thanks for all the disclosure on the Merchant side. For this, though, I really want to focus on the Banking and the Capital Markets side for a minute just given, obviously, it's still the majority of your revenues and very strong growth with 8% on the Banking side, 10% organic on Cap Markets. I know there were some items pulled forward. But can you just touch on, especially the pipeline on the banking side, when you think about how well Modern Banking Platform has been doing and the demand we're hearing about from just end markets and financial services for tech, in general? What kind of growth do you see that potentially being able to generate over the next several years when you see that kind of demand on the banking and the products you offer? And then maybe just quickly touch on the strength in Cap Market's revenue.

[Gary Adam Norcross, Executive Chairman and Chief Executive Officer at Fidelity National Information Services]

Yes. Darrin, I'll start. We'll let Bruce add on to this. I mean, we couldn't be more excited about what we see going on in Banking and Capital Markets, both. I'll remind you, we started this journeyalmost five years ago as we started really embracing cloud computing, and then we started really leaning in on next-generation capabilities that I mentioned when I was talking to Tien-Tsin about and all the investments we've made. So you're now seeing the results of that. Our pipeline continues to grow. You're also seeing record quarters being put up by the sales team in record years, year after year. If you'll remember in Banking, especially, this journey started well over three years ago, and you've seen that growth rate move from low single digits to mid-single digits.

And now it's performing consistently in the upper single digits. So we feel great about the business. We feel great about our solution set. The TAM is very broad because, obviously, we're not just a domestic player in the U.S. We can expand out into international markets as well in global markets. So we've got a really bright future with this group. And frankly, it's where the industry is moving, more importantly. Capital Markets, as I said in my prepared remarks, couldn't be prouder of the team of what they've done. When you go back to 2015, you had a business that was growing about negative 2%.

We've repositioned the portfolio. We invested heavily in product and solutioning. We started going -- and we expanded outside of traditional customers because what we found is there was a lot of market that needed those kind of capabilities, and you're now seeing the results. That's a very, very clean quarter for Capital Markets. I mean, there was a two percentage point tailwind on license renewals. But once again, what a great part of that business is those licenses are term in nature. And so you get those bumps. But even if you adjust that out, just really, really strong results.

[Bruce F. Lowthers, President at Fidelity National Information Services]

Yes. I'd just add on to Gary a little bit here. I think, again, we started this several years ago. We really had a strategy around how we were going to accelerate growth in those verticals, obviously, before Worldpay became part of the organization. And even to the question earlier, we focused on how do we cross-sell. We have this big broad set of assets that we wanted to be able to cross-sell into our client bases. And our teams have really rallied around that. They've done an excellent job of building out the product set, building out how people consume them and put us in a very good position.

As Gary mentioned, our pipeline has been excellent. Sales execution has been at an all-time high. Yet again, after an all-time high last year, Capital Market is same thing, a lot of is pretty crazy. Probably the other comment I would add is, as we've gone through these projects over the last several years, while our capital was originally on data center consolidation and some of those things, as we've come to a close of those, we're taking that capital and redeploying it in new products and accelerating our new products to meet the challenges of our customers.

And we stand today very excited about the opportunities to continue to grow, to continue to cross-sell. We see lots of TAM expansion as we're moving into these markets. So we feel very comfortable that we can continue to grow this business at a very healthy clip.

[Darrin David Peller, Analyst at Wolfe Research]

Okay. That's really helpful. And just a quick follow-up. I mean, when you look at the growth profile of these two segments, I mean, these higher or more elevated rates, is that somewhat of a new norm for you guys in some regard in terms of -- especially on the Cap Market side versus what it used to be? Like you mentioned, 2015 was obviously negative. Hopefully, we won't be there again. But just curious if you think the demand for that.

[Gary Adam Norcross, Executive Chairman and Chief Executive Officer at Fidelity National Information Services]

Yes. Darrin, I think at the end of the day, you got to back up a little bit and really look at these businesses and look at the customers they serve. And these customers have traditionally been on older, more legacy technologies. And so I've shared for the last several quarters, we're at an inflection point where our clients and our prospects are going to have to start moving and lower their overall total cost of ownership, increase their openness in the way they deliver, increase their speed, which is what Bruce likes to always talk about, the speed at which they serve their customers. And you just can't do that on your historical point-to-point solutions.

At FIS, we've made the investments to time this shift. And so as you -- now you're seeing the benefits of what that timing is starting to produce. So these are very long-term contracts, are high reoccurring. We're averaging nine to 12-month sales cycle. We're averaging about nine months now on an onboarding cycle. Bruce and his team has done a nice job of pulling that back, and that will get faster over time. But you're seeing a very different businesses and very different segments positioned very well for a unique inflection point in the industry. And so you will continue to see these segments maintain and grow not only mid, but upper single digits given the nature of what's going on in the markets.

[Bruce F. Lowthers, President at Fidelity National Information Services]

And I would just add, reiterating there's a lot of our clients that have the need for all of the products that we have, so it's running their business. And one of the things that we've been able to do in the financial services vertical over the years is be able to help those institutions run their business. We're taking that same model, capital markets, treasury management, those things are really applicable across all of our client base. And so we talked about it in prior quarters as well. One of the things that happens even in our e-commerce clients is they're looking for a partner that can offer a broad set of solutions that handle everything they need to do. That trend is continuing, and we're positioned exceptionally well to capitalize on that.

[Darrin David Peller, Analyst at Wolfe Research]

Really helpful guys. Thank you.

[Operator]

Our next question is from the line of David Togut from Evercore ISI.

[David Mark Togut, Analyst at Evercore ISI Institutional Equities]

Good morning. Also appreciate the expanded disclosure on Merchant KPIs. Looking at slide 17, you highlighted a 12 percentage point headwind to global e-commerce revenue growth, looking at the two-year stack versus 2019. As you look to 2022 Merchant Solutions revenue growth, how do you expect the travel and airlines or like global travel recovery to progress in terms of thinking through what your growth rate could be next year in Merchant Solutions?

[James W. Woodall, Corporate Executive Vice President and Chief Financial Officer at Fidelity National Information Services]

Thanks, David. Yes, we continue to see travel improve. I would tell you, from a few quarters ago, it's probably improved slower than we originally anticipated. So we do anticipate travel to continue to improve over the course of 2022. I would tell you, I don't know that we believe it's going to be back at 100% by the end of 2022, but it's certainly going to be better than where it is today, which is at about 65% or 70% of what we saw in 2019. It will help in terms of 2022 and just help support that outlook for low double-digit growth in the Merchant business through 2022.

[Gary Adam Norcross, Executive Chairman and Chief Executive Officer at Fidelity National Information Services]

Yes. I'd just add. I mean, it's going to be a good tailwind for us going into 2022 and into 2023. But the reality is, given the nature of our e-commerce business and how rapidly it's growing, you see the disclosure there, almost mid-30% in the last several quarters and trending up. T&A will become a smaller and smaller segment of our overall business. And so that's what we're really thrilled about our positioning in the Merchant space. As you look at that business, we are best positioned in the market area that's growing the fastest.

And we've got industry-leading capabilities there. So as long as we continue to execute on it, like Woody said, we're seeing a little slowing in the recovery in T&A. But the good news is the other side of the business has actually accelerated a little faster in some of the verticals. So all in all, we've got a great business model, and we've got one that's going to continue to perform in the double digits going forward in 2022 and beyond.

[David Mark Togut, Analyst at Evercore ISI Institutional Equities]

Appreciate that. And just as my follow-up. Woody, could you expand upon your commentary for 2022 free cash flow outlook? Fiserv cut their free cash flow outlook for this year by 10% last week. Just want to make sure I understand your comment on free cash flow conversion for 2022 versus 2021.

[James W. Woodall, Corporate Executive Vice President and Chief Financial Officer at Fidelity National Information Services]

Yes. I haven't given you a free cash flow conversion for 2022, yet. That said, we don't anticipate any reduction in our conversion metrics or ratios. This quarter, we did 33% in terms of revenue conversion at 107%, in terms of adjusted earnings conversion and feel very good going into 2022 that we'll continue to be generating those levels of free cash flow conversion, as we've previously guided, high 20s being the revenue item and roughly 90% plus on adjusted net earnings going forward. So no, we're not having to pull back any cash flow conversion for investment or anything else. We feel very good about how we're positioned going into 2022.

[David Mark Togut, Analyst at Evercore ISI Institutional Equities]

Understood, thank you very much.

[Operator]

Our next question is from Dave Koning from Baird.

[David John Koning, Analyst at Robert W. Baird & Co. Inc.]

To start off. It's such a hot button topic with just every metric as it pertains to '19. And I think your U.S. numbers, I think, we're 125%. Mastercard and Visa, maybe high 120s. The bears would just say, well, that signals that you're losing share. But is there really a bullish argument to say it's just a mix issue? And if anything, as you catch up, that means there's outsized growth coming. Like do you think it's just a mix issue that causes that little bit of gap?

[James W. Woodall, Corporate Executive Vice President and Chief Financial Officer at Fidelity National Information Services]

Absolutely. We believe it's just a mix issue, Dave, and nothing to have on outside growth coming. It continues to show recovery from the pandemic. Volumes are coming back. Yields are coming back. Travel is coming back. Everything that we talked about over the course of the last year is portraying or laying out the way we thought. So yes, I think that's the only thing you got there.

[Gary Adam Norcross, Executive Chairman and Chief Executive Officer at Fidelity National Information Services]

And given this level of granularity we provided you today, I mean, I think as you guys really start digesting all this, you'll see the same thing. I mean, various verticals have come back at different rates. So it's absolutely a mix, but we feel very good about the business.

[Bruce F. Lowthers, President at Fidelity National Information Services]

And I would just add, just operationally, we're seeing a lot of sales acceleration as well. You go back from last year to this year, you're seeing an increase in close rate on deals. So a lot of positive momentum in the Merchant space for us across the board, actually.

[James W. Woodall, Corporate Executive Vice President and Chief Financial Officer at Fidelity National Information Services]

That's right.

[David John Koning, Analyst at Robert W. Baird & Co. Inc.]

Got you. And then just, secondly, as we look at just sequential trends in Merchant, I know in 2019, I think Merchant was up 9% sequentially. That seemed to be more normal. Last year was actually down sequentially. Is this year just back to that more normalized pace? And maybe what was so different about last year?

[James W. Woodall, Corporate Executive Vice President and Chief Financial Officer at Fidelity National Information Services]

Yes. Comparing 2019, we think it's a more normalized pace going forward. We'll give you some color that we think the fourth quarter continues to accelerate sequentially and compared to the 2019 two-year stack. So we think we're just headed back in the right direction, Dave.

[David John Koning, Analyst at Robert W. Baird & Co. Inc.]

Okay. Well, thanks guys.

[Operator]

Our next question is from George Mihalos from Cowen.

[Georgios Mihalos, Analyst at Cowen and Company]

Thank you for the disclosure. I guess first question for me, if we look at slide 22, just talking about the double-digit growth that you're expecting for Merchant going forward, is the right way to think about it for global e-commerce that, that business should be able to sustain growth rates, call it, kind of in the high teens? And as that increases, as a percent of revenue, I would think that would be accretive to your revenue yield, right? You should be able to increase that, and there's no reason you shouldn't get back to where you were in 2019, if not higher going forward. Is that the correct assumption?

[James W. Woodall, Corporate Executive Vice President and Chief Financial Officer at Fidelity National Information Services]

Yes. I think a couple of things in there. First, we've tried to give some color that we think, on a normalized basis, global e-com will grow 20% plus for us. So that certainly helps as we get to a larger and larger portion of our revenue mix. I think there's been at least some skepticism that we won't be able to support double-digit Merchant growth for the long term, and we really tried to highlight that, that we do not believe that is the case, with global e-com really helping us drive that accelerated growth longer term and/or to sustain that accelerated growth longer term.

But I think you're right. We continue to see yields coming back as we thought. We think, over time, as everything normalizes out, call it, end of 2022, you'll see those yields where they were pre, with continued double-digit revenue growth within the Merchant business.

[Georgios Mihalos, Analyst at Cowen and Company]

Okay. That's great. Really appreciate the 20%. I think that's really important to get out there. And just as a quick follow-up, just kind of going back to the capital allocation priorities, maybe a little bit on the spend on the M&A side. Woody, it sounds like, again, we shouldn't really expect any sort of a change from a capex perspective as a percent of revenue or anything like that going forward. And on the M&A side, is that predominantly going to be focused on M&A within Merchant? Or is it sort of a broader strike zone that you guys are targeting?

[James W. Woodall, Corporate Executive Vice President and Chief Financial Officer at Fidelity National Information Services]

Let me touch on the capex side, and then I'll let Gary give you a point of view on the M&A. You're correct. Our expectations around, call it, 8.5%, which I think is where we're at year-to-date on capex to revenue, we would probably continue to drive about that level of capex going forward into 2022 and beyond. The discussion today does not anticipate any incremental capex, which I think is supported by my continued free cash flow yield discussion, and that we're not changing anything around free cash flow yields or expectations there. So no incremental capex over what we've historically been doing. And then, Gary, you could touch on M&A.

[Gary Adam Norcross, Executive Chairman and Chief Executive Officer at Fidelity National Information Services]

Yes, yes. Look, I mean, George, on our M&A strategy, it's really unchanged. We have an opportunity to have a wide aperture. We're looking for things that can accelerate our growth and continue to drive our growth from here. We're going to continue to -- I appreciate you pointing out, really, our capital allocation strategy has not changed other than we are raising our dividend starting next year by 20%. But Woody talked through all the financials that it's really immaterial in the overall use of cash.

So we've got a very open lens of our free cash flow to either buy companies or continue to buy back our share back. And as you saw, we think it's a generational buying opportunity for FIS at the moment. We really leaned in Q3. But we'll continue to look for things that we think can accelerate our growth rate from where we are, keeping in mind that, really, all three of our segments are really operating at some of the highest levels in their history. I mean, Q3 was the biggest quarter for Capital Markets and Banking, I think, in its history of this company.

But meanwhile, you see Merchant every trend we'll give you shows that Merchant is heading in the right direction at an accelerated rate over where it was pre-pandemic. And all three are very durable business model. So if we can find M&A that complements that from a strategy standpoint, that expands that market, drives new TAM, grows us faster, then we absolutely are going to continue to be in the M&A business.

[Georgios Mihalos, Analyst at Cowen and Company]

Thank you.

[Operator]

Our next question is from Dan Dolev from Mizuho.

[Dan Dolev, Analyst at Mizuho Securities USA]

Thank you. Great result, guys. Great quarter. So I have a question, and then I have a follow-up. You got it. I have a question and then I have a quick follow-up. And I'm sorry if I missed it. I mean, you did 16%, right, in this quarter, over 2019. And it sounds like you feel very bullish into the fourth quarter. Are we talking about high teens? Or are we talking about potentially having a two handle on this in terms of the comparison versus 2019 and kind of where you're seeing October trends? And then I've got a quick follow-up.

[James W. Woodall, Corporate Executive Vice President and Chief Financial Officer at Fidelity National Information Services]

Yes. Consistent with how we described it last quarter, we expect mid- to high-teens growth compared to 2019 in both the third and the fourth quarter. We did 16% on that comparison in the third quarter. I actually anticipate a bit of sequential growth into the fourth quarter, but still keeping with the mid- to high-teens comparison to 2019.

[Dan Dolev, Analyst at Mizuho Securities USA]

Got it. Makes sense. And then regarding restaurants, I know this was like, if I look through the release, I mean, this seems to be maybe the only thing that's not as good there. I think, Gary, you mentioned at the beginning that you're still seeing wins there. Does it make sense to keep, I guess, operating in that space? Or is there at some point where you're saying, "Well, I'm better off focusing on where might forte is, like e-commerce, etc," Kind of from a strategy perspective?

[Gary Adam Norcross, Executive Chairman and Chief Executive Officer at Fidelity National Information Services]

Yes. Dan, look, obviously, we'll continue to lean in e-com. We're going to continue to lean in on that. Our software-led strategy in SMB though has been very sound since the start. Woody did a great -- I think a very good job of describing what's going on in our software-led initiatives in SMB specifically. You have seen restaurants starting to recover. I mean, it's a very small overall percentage of our company, so it's really a bit of immaterial at this point in time. But you have seen it starting to recover. And whether that was due to closures, whether that was due to staffing issues, whether that was due to some of our software partners didn't respond to some of the changing needs as quickly as they might should have during the pandemic, all of that would be open to debate.

But we feel very good about our software-led strategy within SMB and going to that with partners. The team has done a great job of continuing to sign up partners throughout the pandemic. Bruce just highlighted our sales strength. And that's not just in SMB, I mean, our strength in e-com has been fantastic. And what we've seen driving across our e-commerce segment, we've disclosed a lot here on what we're seeing the growth rates going on with and without travel. You can actually see travel's improvement Q2 to Q3, which Woody talked about from a domestic standpoint.

Now we've got to start leaning into international. But the business is really solid across all of those fronts, and we'll continue to go to the SMB market through our software-led strategy.

[Operator]

Our next question comes from Ashwin Shirvaikar from Citi.

[Ashwin Vassant Shirvaikar, Analyst at Smith Barney Citigroup]

Thank you, folks. As we digest that, I mean, it's quite clear that you've done a lot on the cost of delivery front between cloud and componentization and so on. Can you speak to ongoing innovation, perhaps the level of intended spend? How do you stay nimble? Do you need a consulting or SI set of relationships as a tip of the spear that you need to kind of build out from a channel perspective? Thoughts on that would be great.

[Gary Adam Norcross, Executive Chairman and Chief Executive Officer at Fidelity National Information Services]

Well, let's first start with the last part, which do we need a consulting group. As you know, Ash, when we own the consulting company for a number of years and actually didn't see that fit in our overall strategic narrative. So we'll continue to partner with large system integrators out there and other large consulting firms. As you can imagine, given the investment we've made in componentization, we have a lot of people wanting to partner with us on that front, which is great. And given the demand we've had, you'll continue to see those partnerships grow, but that's owning another consulting group is not necessary.

I think Bruce summed it up on a prior question very well, and Woody just confirmed it. If you look at the amount of capex that we're investing back into our existing systems, really, right now, it's operating about 8.5% of revenue that's trended up a little bit. Historically, before we started on this journey, as you might remember, it was down in the 4.5% type range. So we trended it up years ago because we saw this coming. The reality is, as you think about it, this transformation has come in waves, right? We had to embrace the cloud technology to get our cost down, to get our availability up, to get our speed on delivery up.

You're seeing that in the numbers. You then saw us come on our application wave and really building out within our industry verticals, whether that's NAP, Access Worldpay, whether that's Modern Banking Platform, Payments One, Digital One, whether that's all the things we're doing in Capital Markets around solutioning and really going end to end and front, middle and back office. You've now heard us talk about, on this call, we're now rolling out the next generation of our platform, which is really taking those components and weaving them together in a really way to embrace new markets that we're not serving today.

So we're still going to be taking advantage of all the markets we're in, driving the kind of growth you're seeing, but now as you weave that in through a platform, as you start bringing in low code and no code environments, as you start bringing in places for innovators to come and incubate, we see that a whole another opportunity to expand TAM given the investments we've made. And we don't think that's going to require an increased capital investment at all because as those other programs are closing, that frees up capital to now redeploy. So I think it shows a real confidence in execution. Given where our guide is, it shows a real confidence in the company, and we'll continue to lean in on all those fronts.

[Bruce F. Lowthers, President at Fidelity National Information Services]

Yes. I would just add. I think the team has done a very nice job continuing to focus on innovative products and accelerating the revenue that we're driving from new products. And so when we track it internally, we look at what our revenue is as presented from new products and that continues to accelerate. So we feel very good about the innovation engine and the ideation of new products in partnership with our customers trying to solve the challenges that they're facing, and our team has done a nice job delivering new solutions to the market.

[Ashwin Vassant Shirvaikar, Analyst at Smith Barney Citigroup]

Understood. I'm kind of looking at Chart 22 as well, global acquiring TAM. And as it relates to the chart, I mean one of the things that sticks out, obviously, is you're very big in the enterprise segment, and that's kind of how it's been for years, but that also happens to be the slower CAGR, right? So in terms of just actively pivoting your mix towards faster growth areas, could you talk a little bit more about that particular strategy? I mean, obviously, you have to stay exposed to enterprise because the dollars are large. But how do you pivot faster is the question?

[James W. Woodall, Corporate Executive Vice President and Chief Financial Officer at Fidelity National Information Services]

Yes. Ashwin, it's a great question. I think you've heard us over the last several quarters and really even pre our acquisition of Worldpay that the Worldpay team, and we believe it was the right strategy, continues to focus and invest on e-com and to drive e-com growth even faster. If you remember, this 27% of our revenue mix in the highest growing segment,was significantly lower, about four, five points lower than that just a few years ago. So most of our investment in geo expansion, most of our investment in NAP, most of our investment in Access Worldpay, continuing to improve speed of onboarding, capabilities in market and investment in that growth profile, that's absolutely where we've been focusing.

Further, if you go back to the global e-commerce slide where we talk about it specifically, our mix right now is 50-50 between domestic and cross-border. We think you can also grab some incremental e-commerce market share over time in a pretty high growing SMB market, where we really don't play today. So yes, that's where a lot of our focus is, is to drive this portion of our revenue mix up significantly, hopefully, over time, getting in as much as 50% of our total revenue mix in these high-growth markets. And we think that's an excellent way for us to continue to sustain very strong growth in the Merchant segment.

[Ashwin Vassant Shirvaikar, Analyst at Smith Barney Citigroup]

Thank you all.

[Operator]

At this time, I would like to turn the call back over to Gary Norcross for any closing remarks.

[Gary Adam Norcross, Executive Chairman and Chief Executive Officer at Fidelity National Information Services]

Thank you again for joining us this morning, and thank you to our dedicated colleagues who continue to show their commitment to providing world-class technology solutions for our clients, so that they can stay ahead of the curve. This commitment will lay the foundation for our growth in 2022 and beyond. If you have any further questions that were not addressed on this call, please reach out to our Investor Relations team. Thank you, and I hope you enjoy the rest of your day. Goodbye.

[Operator]

[Operator Closing Remarks]