Erik Hoag
Chief Financial Officer at Fidelity National Information Services
Thanks, Stephanie, and thank you all for joining us this morning. I'll begin on slide 12 with an overview of our second quarter financial results. Overall, we delivered effectively against our commitments, exceeding the high end of our outlook for the quarter. On a consolidated basis, revenue increased 2% organically to $3.7 billion, with adjusted EBITDA margin of 41.4% and adjusted earnings per share of $1.55. Revenue outperformance in the quarter was driven by our Capital Markets segment, exceeding the high end of our outlook, with Banking and Merchant both in line with the high end.
As we anticipated, each of our three operating segments saw sequential improvement in their adjusted EBITDA margins, with Merchant returning to expansion in the quarter. Adjusted EPS exceeded the high end of our outlook by $0.05, driven by outperformance in EBITDA and some below-the-line favorability in the quarter. Moving to cash flow and our balance sheet. We continue to see improvements across multiple vectors.
Our capital expenditures decreased 13% year-over-year to $267 million or 7% of revenue, reflecting continued benefit from our Future Forward initiatives. We generated free cash flow of $953 million in the second quarter, resulting in a year-to-date free cash flow conversion of 94%, well above our full year commitment of greater-than-80% conversion. Lastly, we reduced our total debt by approximately $500 million to $19.5 billion, yielding a leverage ratio of 3.2 times at a weighted average interest rate of 3.4%, and we returned over $300 million to shareholders through dividends.
The team continues to focus on both our operational strengths, cash flow fundamentals as long-term drivers to sustainable shareholder value creation. Turning to our Banking and Capital Markets results on slide 13. On a combined basis, the segments delivered organic revenue growth of 3% in the quarter, driven by 4% recurring revenue growth. Our large and stable backlog held steady, in line with our expectations, exiting the quarter with $23 billion, reflecting flat year-over-year growth and sequential growth of 1% as we recognize revenue while replenishing with new sales.
This backlog metric includes contracted yet unrecognized sales with varying contract durations and times to implementation, making it one of many inputs to our underlying growth. Looking back, outsized backlog growth over the past few years was largely driven by a handful of large and unique transactions. Excluding these outsized transactions, backlog growth has been stable, while recurring revenue, excluding these transactions, posted growth within our cycle guidance.
And more recently, while our year-over-year backlog growth has ranged between flat to 2%, we've seen healthy recurring revenue growth in the first half of 2023 for Banking and Capital Markets. As we noted previously, our sales teams continue to transition to higher quality new sales, which will drive sustainable high-margin long-term growth. This change in sales initiatives is incorporated into our outlook for the year.
And while still early in the transition, we're seeing some early indications of success with improvement in the contribution margin on new sales. At the segment level, Banking increased 2% organically in the quarter with recurring revenue growth of 3%. Adjusted EBITDA margin contracted 200 basis points to 42.5%, an improvement from the down 250 basis points we saw in the first quarter. Margin contraction was primarily driven by revenue mix as we saw a 10% reduction in high-margin onetime revenue.
We continue to anticipate margin expansion in the back half of the year for the Banking segment as Future Forward continues to ramp. Shifting to the Capital Markets segment, which continues to perform exceptionally well. Capital markets increased 7% organically in the quarter with recurring revenue growth of 10%. Revenue growth was driven by the strength of our modernized solution suite, strong sales execution and the multiyear shift from a license to SaaS-based go-to-market strategy.
Adjusted EBITDA margins expanded 100 basis points to 50.2%. Margin expansion in the quarter was driven by high contributions on recurring revenue, growth in high-margin license revenue and a reduction in low-margin professional services. Overall, we're pleased with the progress in the first half of the year as we continue to position FIS for sustainable growth in revenue, profit and earnings for years to come. Turning to slide 14. Worldpay revenue increased 1% organically with similar subsegment trends as seen in the first quarter.
Adjusted EBITDA margins expanded 120 basis points year-over-year or 480 basis points sequentially as we grew our high-margin revenue streams across the operating segment and delivered on cost management. Global volumes grew 6% in the quarter, driven by both consumer spending and strong execution, while our revenue yield improved by two points compared to our first quarter results. Turning to slide 15 for a financial update on Future Forward.
As previously messaged, we remain committed to rightsizing our expense base while ensuring an appropriate level of investment in the initiatives outlined in Stephanie's comments. Our Future Forward program centers around this goal with a focus on improving the ways we work and go to market as a company. On a holdco basis, we continue to make significant progress in our cash savings achievement. Exiting the quarter, we achieved over $175 million in annual run rate operational expense reduction, resulting in over $35 million benefit to the quarter.
We also increased our capital expenditure achievement to over $140 million as we continue to trend to our $200 million commitment in 2023. In summary, the Future Forward program continues to provide a tangible benefit to our financial P&L and operational health, while enhancing the ways we work. In a moment, I'll provide some estimates on the operational expense targeted to FIS moving forward. Turning to slide 16 for a recap of our capital allocation priorities for FIS.
Throughout 2023 and following the transaction close, FIS will remain focused on reducing debt, paying an appropriate dividend and using excess capital for share repurchase or tuck-in M&A. Our first priority remains a strong balance sheet and investment-grade ratings. Given our free cash flow generation and highly recurring revenue streams, we're comfortable with the long-term gross leverage range of 2.5 times to three times adjusted EBITDA. Next, we remain committed to paying our dividend, and we are reiterating a 35% payout ratio based off FIS adjusted net earnings.
We intend to grow this dividend in line with adjusted net earnings going forward, consistent with our historical practice. Lastly, our default use of excess capital will be share repurchases, inclusive of at least $2.5 billion tied to transaction proceeds with potential upside to this number given the attractive valuation of our stock. Longer term, we intend to consistently return excess capital to our shareholders through share repurchases, while leveraging our advantages of scale and distribution to supplement growth in strategic verticals with complementary tuck-in M&A.
This capital allocation strategy provides a robust value proposition for long-term shareholder value creation over a multiyear period. Turning to slide 17 for an overview of our revised outlook. On a holdco basis, our second quarter results lead us to confidently increase our guidance to $14.5 billion to $14.63 billion in revenue and $6.03 billion to $6.15 billion in adjusted EBITDA. Consistent with our first quarter revision, this increase aligns with the high end of our guidance to our second quarter beat, in addition to a change in FX assumptions while significantly increasing the low end of our ranges.
Beginning in the third quarter, the Worldpay business will be transitioned to discontinued operations, and we will be restating our first half 2023 financials to reflect this. At that time, we will look to provide an updated outlook for FIS's continuing operations. Our adjusted EPS metric will now be less meaningful given the impending transition of the Worldpay business into discontinued operations. And because of this, we're focusing investors on revenue and adjusted EBITDA until we provide an updated outlook for FIS's continuing operations.
On a consolidated basis, we now anticipate organic revenue growth of approximately 1%. This reflects an increase to the low end of both Banking and Capital Markets organic growth outlook to 1% to 2% and 5% to 6%, respectively. Given the impending transition to discontinued operations, we are not updating our Merchant segment outlook from our previously issued full year guidance at this time. That said, we're pleased with the segment's performance over the first half of 2023, and we remain confident in the underlying strength of the Worldpay business.
We continue to anticipate margin improvement in Banking and Capital Markets as we ramp the benefits associated with Future Forward. And we are reiterating our outlook for free cash flow conversion of over 80%. As seen in our year-to-date results, we remain confident in delivering on our commitments. I'll conclude on slide number 18 with some considerations for FIS in 2024. Following the close of the transaction, FIS will retain a 45% equity stake in the Worldpay business in partnership with GTCR. This equity stake was valued at over $4 billion, accounting for approximately $7 per share at our current share count.
We anticipate an effective tax rate for FIS of approximately 19% to 21%. This increase from our current effective tax rate is primarily due to the reduction of the TRA benefit and accounts for increases in the corporate tax rate in certain regions. As previously stated, we would anticipate $10 billion of total gross debt after the transaction close. We expect this debt will carry a weighted average interest rate of approximately 3.25% to 3.75%.
As noted in the announcement of the transaction, we would anticipate deleveraging to approximately 2.5 times, translating to an adjusted EBITDA of approximately $3.9 billion to $4 billion, inclusive of our estimated RemainCo corporate expense. With regards to our Future Forward program, we expect substantial cost savings of approximately $1 billion for FIS post the Worldpay separation, retaining 80% of the original program.
We previously anticipated a year-over-year benefit of approximately $300 million to adjusted EBITDA in 2024. Following the close of the transaction, this $300 million will become approximately $215 million, with an annual run rate of approximately $425 million exiting 2024. We also anticipate adjusted EBITDA dis-synergies for FIS of approximately $200 million, including $100 million of revenue dis-synergies and $100 million of incremental operational expense dis-synergies. We will look to minimize these dis-synergies with our Future Forward program.
While we've made significant progress, we're still working diligently to disentangle both allocated infrastructure expense and depreciation and amortization expense between the two entities. When appropriate, we'll provide further commentary on both of these items. I'll conclude by saying that the team and I are excited about the progress that we've made to continue to move FIS forward and the underlying fundamentals of the business for years to come. I'd like to thank everyone for their time this morning.
Operator, will you please open the line for questions?
