Fidelity National Information Services(FIS) - 2023 Q3 - Earnings Call Transcript

Financial Data and Key Metrics Changes - Total debt was reduced by approximately $800 million to $18.7 billion, resulting in a leverage ratio of three times while returning over $300 million to shareholders [1] - Total company revenue increased 2% on an organic basis to $3.7 billion, with an adjusted EBITDA margin of 44.2% and adjusted EPS of $1.65 [25] - Adjusted EBITDA margin expanded 50 basis points year-over-year, marking the first year-over-year improvement since Q4 2021 [25] - Free cash flow conversion was strong at 92% for the quarter and 94% year-to-date, exceeding the target of greater than 80% [28] Business Line Data and Key Metrics Changes - Recurring revenue increased 7%, leading to organic revenue growth of 4% for the quarter [2] - Banking revenue grew 3% organically, with an EBITDA margin expansion of 120 basis points to 44.6% [3] - Capital markets revenue increased 6% organically, driven by strong recurring revenue growth of 8% [3] - Professional services revenue decreased 8% as the company shifted to recurring revenue engagement [3] Market Data and Key Metrics Changes - Backlog was $22.5 billion, increasing 2% compared to the prior year, reflecting improved sales execution [2] - The company anticipates organic revenue growth of approximately 5% to 5.5% in capital markets for the upcoming quarter [6] - The company expects a five-point headwind in capital markets in Q4 due to a strong year-ago quarter for license revenue [6] Company Strategy and Development Direction - The company is focused on transforming into a cloud-based enterprise software-as-a-service provider, targeting complex financial institutions and capital markets participants [38] - The Worldpay separation is expected to close in Q1 2024, providing substantial upfront proceeds to improve capital structure and reduce debt [8][43] - The Future Forward program aims to deliver $1 billion in total savings across the enterprise by year-end 2024 [44] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the business's strength and sustainable operating model, anticipating continued solid recurring revenue growth [19][38] - The company is optimistic about the sales momentum and the strong pipeline of high-margin opportunities [39] - Management noted that while there are non-recurring revenue headwinds, they expect these to dissipate moving into 2024 [70] Other Important Information - The company is resuming share repurchases in Q4, increasing the total buyback goal to at least $3.5 billion by the end of 2024 [40][51] - The effective tax rate is now anticipated to be 17% to 18%, down from previous estimates [55] - The company plans to maintain a competitive dividend and selectively invest in M&A targeting smaller, synergistic opportunities [50] Q&A Session Summary Question: What is the outlook for adjusted EBITDA margins post-Worldpay sale? - Management refrained from providing specific guidance for 2024 but indicated confidence in margin improvements due to the Future Forward program [87] Question: Is there an opportunity to return additional capital beyond the current buyback plan? - Management suggested waiting until the year-end call for more visibility on 2024 plans and potential additional capital returns [88] Question: How should performance in new bookings and signings be measured? - Management highlighted strong demand and increased sales productivity, with a focus on selling higher-margin technology-enabled solutions [76] Question: What is driving the recurring revenue growth in banking and capital markets? - Management noted high demand for digital solutions in banking and strong recurring revenue growth in capital markets driven by regulatory mandates and increased wallet share [110][97]