Fidelity National Information Services, Inc. Q1 FY2025 earnings call

• 2025 off to a strong start with adjusted revenue growth of 4% ahead of expectations, recurring revenue growth accelerated to 4%.
• Strategic acquisition of global payments issuer business and sale of minority Worldpay stake strengthens value propositions and financial profile.
• Signed several new marquee engagements across money life cycle, with momentum building in second quarter.
• Digital solutions gaining traction, office of the CFO offerings resonating with clients, expansion in private equity and private capital.
• Announced acquisition of Issuer Solutions business and sale of Worldpay stake, expected to close in first half of 2026, accretive to adjusted EPS, EBITDA margins, and adjusted free cash flow.

Banking segment: grew 2% in the quarter, recurring revenue growth outpaced adjusted revenue growth at 3% in the quarter, non-recurring revenue increased 3%, EBITDA margin contracted to 40.1%. Capital Markets segment: adjusted revenue growth came in ahead of the high end of our outlook at 9% with recurring revenue growth of 6%, non-recurring revenue advanced 47%, adjusted EBITDA margin expanded 90 basis points. Recurring revenue was 81% of total revenue.

• Reaffirming full-year outlook, not changing key assumptions.
• Second quarter adjusted revenue growth expected 4.2%-5%, banking revenue growth 3.7%-4.4%, capital markets adjusted revenue growth 6%-6.7%.
• Projected sequential margin improvement in second quarter to around 39.8%-40%, with continued sequential marginal improvement for the year to target of 41.3%.
• Adjusted EPS projected $1.34-$1.38, held back by lapping one-time interest income rollover and tough year-on-year comparison on EMI.

Q: Hey, good morning, everyone. Thanks for the update. Just want to – [Julian] [ph], I think Stephanie talked about timely conversions under the 3 delayed deals did go live, it sounds like you're not hearing any decline decision delays. I'm just curious what other feedback you're getting in terms of decision making, pipeline rebuild, and of course any client feedback that's worth sharing with respect to bringing the Issuer Solutions business on.

A: Yeah, thanks Tien-Tsin. So a couple of things, yeah, as we had indicated, those client conversions were going live in first quarter and second quarter. They're all live, so really happy about that and you're seeing that show up in the banking revenue guide in second quarter and full year. So, very good, everything went well, progressing exactly as expected and maybe even slightly positive. In terms of overall pipeline from clients, I mean that's the benefit of FIS is regardless of the economic cycle, we have very highly recurring and were required spend, so not seeing any impact from clients in terms of slowing spend down. In fact, our pipeline is actually increasing very significantly even as we compare it to year-over-year. So, feeling really good about pipeline, we're obviously keeping a very tight watch on it in terms of tariff and economic activity, but I'd say that's the benefit of FIS, it's very durable, highly recurring and required spend, it's not really discretionary. And then with the last piece on TSYS, I have to say from a client standpoint they -- it's been really, really positive. So, we did obviously a lot of diligence on the TSYS business. We know them. We know the team there just from being in the market for a long time. We didn't compete against them, but they have such a great brand. And from their clients that are also clients of ours, people were -- we are hearing very strong commitments to them in terms of best in class product suite, as well as client service and then consistent with didn't really see a value of having merchant acquiring and TSYS together, so like the focus with the ultimate acquisition by us in terms of continuing to focus on financial institutions and on that solution set, because that customer base is typically not looking at merchant acquiring, so very positive all around.

Q: Hey, good morning guys. Just wanted to drill in a little bit to 2Q guide for capital markets, a little bit of a de-sell. You do have a little bit of a tougher comp, anything else to call out recurring, non-recurring, anything else that would be helpful.

A: Yeah, so I think when you think about second quarter, it really is a first quarter, second quarter. If you look at our first quarter results for capital markets, they had a very high non-recurring benefit in the first quarter from a renewal. So, that was a timing related benefit in the first quarter. We saw their recurring revenue first quarter to second quarter is very consistent and then the license and the renewal activity goes back to more of a normalized. So, they were benefiting in the first quarter from that. And so you see our second quarter guide being very consistent with first quarter excluding that renewal timing.

Q: Hey guys, great results there, really nice to see that. Stephanie, can you maybe give us a sense of how you're feeling about the Worldpay EMI outlook and how's revenue growth has been tracking their relative to your expectations.

A: Yeah, thanks, Dan. So, the Worldpay EMI outlook is very consistent year-over-year with what we've been putting in the guide. We're not seeing any softening there. In fact, we always think, as you know, that [Charles] [ph] has strong growth, so we're always hoping for outperformance, but nothing negative at all in the EMI outlook very consistent with what they've provided to us. In terms of revenue growth, and I think [Cameron] [ph] gave some updates as well on the call this morning, we're really pleased to see the acceleration of revenue in Worldpay last year, separating it was clearly the right decision and bringing back [Charles] [ph] and having growth and focus there and investment, they've really been able to turn that business around. You're seeing the revenue growth in the fourth quarter and then into the first quarter. They obviously have lapping of Easter and leap day like everybody else, but their revenue growth continues to be consistent with the market, and they're feeling really good about where they're taking it -- taking it from when we had it really as a low single digit grower to back up to mid to upper. So, feeling really good about the performance there, they're highly focused on execution, and I think it'll be a great asset for Global Payments.

Q: Hi, this is [Ryan] [ph] on for Ramsey. Thanks for taking our question today. As we start to think about the pro forma business, what would you consider the lowest hanging fruit from a cost synergy standpoint and any additional color you could provide on the rate in which you expect to realize these synergies would be helpful.

A: Sure, maybe I'll take the types of cost synergies and I'll default over to James in terms of rate, but I think what we shared was, we think the biggest amount of cost synergies and just as a reminder we talked about 125 million, would be rationalizing duplicate vendor costs. So, when you think about bringing the both card businesses together, whether it's debit or credit, we use the same set of vendors. Think about vendors like technology, software, fraud vendors, etc. So, we think there's quite a bit there. You would expect us to pull those very quickly. We also anticipate back office optimization. So, when you think about whether you're producing a debit card or a credit card, we have consistent card production capabilities, we have print and mail capabilities, those can be optimized. You can imagine that the TSYS side is bigger than our side, but we don't need all of them. And so you would expect us to have back office optimization there. And then to the extent we have operational capabilities that we think we can bring together and quite frankly use the TSYS expertise, because it's much larger than ours on the credit side, we think we could see opportunities there. In terms of cost synergies, you should expect to see us get out the gate very quickly with those. They're obviously the lower hanging fruit, and so we will use the time frame between now and signing to get very organized around that. I don't know that what cadence James we gave a view towards revenue and EBITDA synergy?

Q: Hi, Stephanie. Hi, James. Thanks for taking my questions this morning. I know you mentioned that the Issuers Solutions transaction will be accretive in the first 12 months, but I'm wondering if you could just comment on the level of accretion that you expect, we get to those single digit in 12 months and then higher maybe mid single in 24 months, obviously there's probably some upside to that depending on timing and favorability and things like that, but any comments there would be helpful.

A: I think we're not going to go any further than what we said on the transaction call. We're very happy that it's immediately accretive, and as I said -- what will happen is, it's immediately accretive, but it's transformational at the same time. So, the EPS accretion I think is the least important number, because we're losing a fairly and very accretive Worldpay stake that also gave us tax benefits, but we're replacing it with a boost to our banking revenue at 35%. More importantly, our cash flow will go up 35%, so the construction of the company is completely different. The scale is flowing through to cash as opposed to EPS. That's the part I would point to more than anything else. The margins are boosted as well, which strengthens our banking business. The specific EPS accretion is not the most attractive part of the deal. It is solidifying the strength of the banking business and call it fortifying our banking business going forward, driving enhanced scale on the total company. But you know, where it really plays out for me is on the cash line, which is adding 700 million when the reality is our current cash flow is in the region of 2 billion on an adjusted basis. So, that's an incredible boost. And I think, you look at the revenue synergies longer term, and that can only be additive to the attractive financial profile of the company.

Q: Good morning guys. Thank you. I wanted to start on the banking side. It looks like based on the Q2 guide, we'll need maybe 200 basis points of acceleration in the second half to get to the midpoint of the full year, and I know that's pretty consistent with what you originally anticipated. Now that we're a third of the way through the year, can you hone in on the specific drivers there? I don't know if it's mostly just the ramp of the 3 delayed implementations and just your overall visibility and confidence level on that acceleration?

A: More numeric, I think as you think about margins for us, it's really 2 things going into second quarter in the back half of the year. The first one is just overall mix. So, as we talked about the sales and high levels of revenue retention, when we did our guide in the fourth quarter into 2025, we talked about the mix of less lower margin and more higher margin and not really taking hold in the back half of 2025. So, we think from a margin standpoint, we would expect and as you know, as you can see, we now have really strong visibility to a positive mix driver for that in the back half of this year. In addition to that, we, as you know, have been executing against all of our future forward cost programs and continue to significantly ramp those and so as we sit here today and may feel very confident about the activities we've already done and what are yet to be done, as we think about going into the rest of the year, we have a lot of muscle around this, we have a lot of programmatic focus on this and have been doing it since the end of 2023 and then probably the last thing I would say is we just have an easier comp as we go into the second half if you look at the year-over-year. So, really focusing on mix continued of our operating expense programs, which we think we're really good at this point and an easier comp makes it where we feel really confident around the margin expansions. I don't know, James, do you want to talk about anything else?

Q: Hi guys, good morning. I wanted to start on free cash flow. Could you just comment on further progress in the net working capital optimization initiatives you have? And then as you think about combining with Issuer Solutions, appreciate the OpEx leverage commentary you shared earlier. From a CapEx standpoint, may a broader scale give you added flexibility there to drive more favorable terms in areas like infrastructure?

A: [Questions.] [ph] The thing we're really pleased. We did say it on the last call, we were rolling out working capital initiatives, and we said we weren't going to steer at the problem, we're going to move pretty quickly. So, most of the cash flow improvement versus prior year is coming from net working capital. And if you split that in 2, last year was a rocky first quarter and there were some one-time items. I would say of the total improvement year-on-year from 18% to 71%. Half of it is coming from a bad year last year, and slightly more than half is coming from initiatives put in place. I'll give you examples. The procurement organization is -- has worked on the top 50 customers and taking them to -- sorry, vendors and taken them to 90-day turns. We're not all the way there yet, but we've already locked in a large number for the current year, and we're working now on Tier 2 suppliers. So, that's actively in motion and then increased governance around the extension of terms to clients. And sometimes it's the simple stuff that gives you the biggest benefits. What I'm really happy about is we're seeing it early in the year, and we don't have a show-me story in the second half. And just to emphasize this, the Q1 is historically an incredibly low quarter. So, Q1 of 2023, I think was 40% and Q1 of 2024 was 18% and this year is 71%. This is a great start ahead of the gate that really makes us comfortable on the full year of cash guide. So, I'm feeling good about that. Your point on CapEx, if I get my numbers right, I think the Issuer business is running at about 8% of revenue, and we we're at 9% this year with a long-term outlook of 8. I think you're right. We will be looking, as Stephanie said earlier one of the synergy opportunities is, we are -- we have bigger scale with our vendors and suppliers, and we would be expecting more attractive terms. And you're exactly right. You would expect to see a benefit in the P&L in terms of lower OpEx and you would expect to see a benefit in terms of lower CapEx. But, we still got to approve all this stuff out. It's well in front of us, but your point is not -- is well taken.

Q: Hi, good morning. Can you talk a little bit about any potential dissynergies that may be tied to the sale of your Worldpay business? And any potential offsets to it?

A: We don't have any dissynergies from the Worldpay business. I mean I think we already took all of that as we separated the 55%. So, there aren't any.

Q: Hi, thank you for taking my question. Apologies if I missed this in the prepared remarks, Stephanie, but can you comment on the ACV growth this quarter? I know historically you've given us that number.

A: I don't think we've historically given that number. I think we talked about it for a full year basis. I think we feel good about ACV coming into the year. First quarter is typically our lowest quarter in terms of sales, and that's consistent year-over-year. See very strong growth across the business in cores, digital, consistent with the way we talked about it on a year-over-year basis. As James mentioned, our products continue to drive increased ACV in sales, but we also are seeing the incremental benefits of the product investments in high levels of revenue retention, we talked about as we come into the fourth quarter, our level of confidence and then James just reiterated it in the first quarter in both sales that we saw at the end of the fourth quarter and in the first quarter, as well as high levels of revenue retention, both of those were part of the commercial excellence program, I put in place since I started as CEO, because as James mentioned, it's not just about new, it's about making sure we can cross-sell into the existing base and that we have high levels of renewal rates. And we think that's significantly as well, underpinning the confidence we have as we go into the back half of the year. And then we'll continue that program as we think about continuing to activate sales as well as recurring revenue or high renewal rates into 2026. So, feel very good about the activity; but as I mentioned, first quarter always is our lowest quarter, but things continue to go well.

Q: Yes. So we -- as I mentioned, we are on both sides of that transaction, very excited to partner with Capital One and help them meet all of their expectations as they look to close on that transaction. It's always an opportunity for us. I think as we think about being a good partner to them in terms of whatever they want to do, it would be part of our sales goals for the year. And obviously, that getting closed is important to us like it is important to them. I don't know that materially moves the needle for us as we think about what we need to do for them; but, it's a very active and very important relationship.