Q3 2019 Earnings Call

Those yourself from Q at any time by pressing the pound key.

Maybe should require assistance during the meeting please press star zero.

You will see recurring revenue and capital markets continue to accelerate.

But we're still it'll still be next couple of years before we get truly license fees down in the range, what you're saying and banking, which is a very small percentage understood. Thank you for the update.

Thanks to engine. Thank you and your last question today comes from the line of gentlemen, Joseph Foreseen with Cantor Fitzgerald. Please go ahead.

Hi, just two quick ones to wrap up maybe you could give us a little bit more color of you're on the ground conversation with banks.

Currently in the merchant services.

How that conversations going with pricing looks like because obviously, it's been coming down.

Over a long period of time and I'll ask my second one up front as well just the delta on the upside on the cost synergies, we get to that top end to the range, where do you think you might be able to extend the cost synergies.

And what functions would you be looking at.

I'll take the first one on the on the merchant conversations I think if you look one of the things that we were excited about when we put the combination world paid together was just how much. They have spent on next generation technologies themselves right. So you look at half I as we've talked a lot about our modernization efforts our transformation efforts okay worldpay.

They're very similar process, whether whether its or acquiring platform in the UK or frankly stuff they've done with high valued integrated payments and then e-commerce and so when we when we're talking to the to our bank referrals for merchant referral programs I see that the benefits of that investment they see the the technique.

Allergy and what it can drive and how can help them differentiate and actually grow their revenue streams from a pricing standpoint like all the industries, it's price competitive out there and we think our scale allows us to compete in the investments. We've made we think allows us to compete.

In that category very very effectively and are we seeing increases and price competition honestly I'm not from my chair, but I would tell you. It's always been price competitive right and I think at bias is in a in a real good position to compete on that only almost cost synergies I think we're really pleased with where we are.

Sure.

At announcement that we started out with roughly 400 million of cost synergies, we increased that to 500 million on the second quarter recall, we increase that the greater than 500 million today, while we're not to into job. We continue to focus I think the teams are very good and continue to drive costs out of the business and we got a lot.

In history of being able to overdrive or synergy targets.

Thank you.

I'm excited by the strength of our performance following the Worldpay acquisition and the progress we've made in bringing our two great teams together I'd like to thank or more than 55000 associates across the globe. We're working hard every day to deliver exceptional results for our clients and shareholders.

But any questions following todays call. Please reach out to our Investor relations team I couldn't be more excited about the future of F. I asked and I want to thinking for joining us today.

Thank you, ladies and gentlemen that does conclude your conference for today.

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Thank you for standing by welcome to the F.I.S. third quarter 2019 earnings call.

At this time all participants are in a listen only mode.

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I would now like to turn the conference over to our host head of corporate Finance and Investor Relations Nate Rolls off. Please go ahead.

Good morning, and thank you for joining us today for the.

Third quarter 2019 earnings conference call.

The call is being webcast of today's news release corresponding presentation and webcast are all available on our website at by US Global Dot com.

Beginning on slide two Gary Norcross, our chairman President and CEO will discuss our third quarter 2019 business highlights and fastest growth strategy.

Woody Woodall, our Chief Financial Officer will then review by US as third quarter financial results synergy performance and provide updated guidance for the fourth quarter and full year.

Turning to slide three today's remarks will contain forward looking statements.

These statements are subject to risks and uncertainties as described in the press release and other filings with the SEC.

The company undertakes no obligation to update any forward looking statements, whether as a result of new information future events or otherwise except as required by law.

Please refer to the Safe Harbor language.

Also throughout this conference call, we will be presenting non-GAAP information, including adjusted EBITDA adjusted net earnings and adjusted net earnings per share. These are important financial performance measures for the company, but are not financial measures as defined by GAAP.

Reconciliation 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.

Thank you Nate good morning, and welcome to todays call beginning on slide five I'm very pleased to be able to share outstanding third quarter performance with you. Our financial results were excellent with revenue adjusted EBITDA and adjusted EPS, all significantly exceeding our expectations.

We also got off to a very fast start, we'll both revenue and cost synergies, especially considering we operated for only two months as a combined company.

As a result, we're raising our fourth quarter and full year guidance for revenue EBITDA and EPS as well as our 2020 cost synergy target.

The strength of our third quarter performance and raised outlook clearly demonstrates the power of this combination on our overall growth strategy.

Including two months of Worldpay contribution, we generated more than $2.8 billion in revenue and approximately $1.2 billion in adjusted EBITDA. This represents 35% revenue growth on a GAAP basis over 5% organic growth and 350 basis points of margin expansion.

We generated a $1.43 cents of adjusted EPS, which was well above our expectations and the third quarter sales were up more than 25%, increasing our backlog, 9% organically accelerating from 7% growth last quarter. This gives us clear line of sight to continued revenue growth throughout 2020.

Fi assess successfully generated seven consecutive quarters of exceptionally strong sales merchant solutions also saw continued strong sales momentum within our ecommerce both wasn't portfolio, including 23 cross sell wins in the quarter accelerating from 14 wins in the second quarter.

We think these cross sell winds are another strong indicator of success and scale that our newly combined company can deliver.

Turning to our early synergies from the Worldpay integration, but clearly show that the combination of our two companies is paying significant dividends. Our combination has strategically differentiated on three main fronts first we have a unique strategy to accelerate organic growth by aggressively investing and innovative technologies.

And automating complexity second we're combining the premier assets in the industry to create leading solutions focused on secular high growth markets.

Third we are bringing value to our clients with our world class scale.

We exited exited the quarter generating more than $30 million, an annualized run rate revenue synergies with significant future opportunity I'm excited to announce that we have already signed agreements with two of our bank clients to expand our relationships in the merchant services. This includes a merchant referral agreement with an $11 billion bank in the United States.

As well as an agreement with a large banking client in Brazil with this agreement we are now enabling merchant processing in Brazil at the point of sale for over 500000 merchants. This step forward demonstrates the power of our new companies global reach as neither company would have one these transactions on their own.

These early wins illustrate the power of our end to end value proposition and we have a solid plan in execution timeline that will drive our results to achieve our 500 million dollar revenue synergy goal with regard to cost synergies. Our team began executing immediately and upon close in generated well over $200 million in savings.

Our lives run rate basis exiting the third quarter. What are you will go into more detail regarding cost synergies, but given the outstanding results today and our current plans, we're very confident in delivering more than $500 million in total cost synergies.

The integration of these large transformational M&A transactions continues to be a core competency and we will utilize that as part of our strategy and further accelerate organic growth and shareholder value.

Turning to slide six discuss our growth strategy, we continue to aggressively invest in new technologies across all three of our segments investing in future innovation to benefit our client started more than three years ago as part of everything we do at AFE is and we will continue to drive our client value proposition.

The significant innovations are now coming to market and not only driving our sales results, but leading to our accelerated growth.

Our clients depend on us to stay ahead of the market and make investments and enable them to run their operations more efficiently connect with our customers and grow their businesses.

With the addition of merchant solutions, our growth rate will expand the 6% in the fourth quarter, we see numerous secular growth opportunities in all three segments and our clients and partners are excited about the potential value, we bring to them by solving their current and future needs.

Turning to our segment performance our merchant segment continues to benefit from its exposure to secular high growth markets and ability to win market share through superior client service.

For example, a leading global coffee chains selected at bias for in store payment technology across more than 600 locations in the UK in Europe , our global reach innovative capabilities and differentiated approach resonated with the iconic coffee John as it expands into new markets.

In addition to this marquee new client win merchant renewed its important strategic relationship of Kroger to continue providing our innovative suite of omni channel payment solutions, while we typically do not highlight renewals. This is one of the largest clients are the former Worldpay business and we were thrilled with the early commitment Kroger showed and extending our long standing.

The partnership.

And our banking segment, our clients are reinventing their business models to great seamless digital experiences for their customers using our advanced technologies.

For example, we expanded our relationship with the global bank to implement a real time payments solution for their corporate clients in nine countries. The bank chose to partner with us due to our proven capabilities and expertise as well as our ability to move quickly to meet Europe's regulatory requirements.

In addition, a large regional bank in the US decided to switch to our outsource suite of core banking solutions. After acquiring one of our clients. The combined company now has assets approaching $50 billion and represents a consistent theme of large financial institutions looking GAAP bias to solve their complex core banking business channel.

Just the decision was driven by our scalability and our consistent investment in new products as well as our tremendous scale in the large regional banking market.

Similarly, and our capital market segment, our investments to automate complex processes using advanced end to end technologies are resonating clients. For example, how large institutional broker signed an agreement to implement our consolidated audit trail solution to effectively meet new regulatory requirements for monitoring security staff.

Rating.

Regulatory compliance is critical for our capital markets clients and our ability to automate these processes as a true differentiator. This is our 12 consolidated audit trail when this year and shows our ability to work at scale to simplify the complex.

We also expanded our strategic relationship with a large global financial Services Corporation. In this instance, where bundling several app is cloud based solutions to help this organization global travel services enhance treasury controls optimize cash visibility and reduce fraud.

These impressive client wins across our segments demonstrate the strength of our business model and powerful client value proposition I'm very proud of the team sales and operational execution, especially given the backdrop of the significant integration activities occurring throughout the company with such strong results in revenue synergies already starting to ramp I am incur.

Recently confident in our expectation for organic growth to approach, 7% next year and to further expand 8% to 9% in the future I'll now turn the call to would need to round out the financial discussion before we open the call the questions ready.

Thank you Gary I'll begin on I'll begin with our results on slide eight we had an outstanding quarter revenue increased 5.4% on organic basis to $2.8 billion with strong topline performances from all three of our segments.

Adjusted EBITDA increased to $1.2 billion during the quarter and our margins expanded 350 basis points to 42%.

We expanded margins by generating operating leverage driving data center consolidation and achieving cost synergies. We also benefited from the inclusion of high margin merchant revenue for the last two loans.

As a result, adjusted EPS was $1.43 cents per share, reflecting our strong revenue and EBITDA performance.

Turning to slide unknown, we accelerated the timing of both revenue and cost synergies and only two months, we've already achieved revenue synergies of more than $30 million on an annualized run rate basis, primarily through the benefits from debit card room.

We expect revenue synergies to ramp up from here, giving us clear line of sight to our $150 million target by the end of 2020.

This faster gives us confidence to increase the fourth quarter revenue guidance and gives us an early lead them achieving our revenue synergy goals.

In addition to the debit card routing benefits. We also expect to achieve revenue synergies through cross selling our combined portfolio, improving authorization rates, reducing fraud and expanding our geographic presence for example, our first joint loyalty as a currency client is on track to go live during the first half of next year.

Depleting the integration of this solution into the Worldpay platform will Mark a significant milestone it will streamline the onboarding process for future clients, allowing us to significantly ramp up sales and distribution in order to accelerate revenue synergies.

At this early point in the integration. We are ahead of our planned revenue goals.

Which puts us clearly object track to achieve our 500 million revenue synergy goal by the end of 20 to 22.

Turning to cost synergies, we achieved more than $200 million in annualized run rate cost synergies exiting the third quarter as a result of our rapid progress.

Very pleased to increase our 2020 call synergy target by $50 million to more than 350 million <unk> million dollars in annual run rate savings. The team has been working hard to drive costs out of the business and started executing day one.

We drove cost synergies in the third quarter by reducing duplicative corporate costs as well as but GP interest expense savings that we announced last quarter.

Moving forward, we will achieve our cost synergy targets, primarily by consolidating our merchant in issuer processing businesses as well as best streamlining operating and technology costs, while maintaining a focus on accelerating revenue growth, we feel very confident about our ability to achieve or exceed our synergy expectations and look forward to continue to update you on our.

Progress each quarter.

Moving to slide 10, I'd love to add some color on our segment results merchant solutions grew 8% organically, including two months of Worldpay during the quarter.

We expect merchant solutions to accelerate the 10% growth in the fourth quarter as we realize additional revenue synergies and we expect similar growth levels in 2020.

Turning to adjusted EBITDA, the merchant segment generated $371 million in the quarter, representing a very healthy 52% margin.

Our banking solutions segment increased 5% organically.

This strong performance was primarily driven by continued new sales over the past several quarters as Gary described earlier as a reminder, it takes several quarters convert new sales to revenue, giving us great line of sight to our organic growth targets through 2020.

Our strategy to accelerate growth by investing in technology and innovation is clearly thing though.

Banking generated $641 million, an adjusted EBITDA drilling a 43% margin.

Capital markets also generated very strong organic growth of 5%. This topline growth was primarily driven by significant increase in recurring revenue. While license revenue remained relatively flat. We continue to shift the revenue mix of this segment from license fees to a recurring or SaaS based subscription revenue model our growth.

We were occurring revenue base is building a strong foundation for future revenue growth as well as providing more visibility into our go forward revenue expectations.

The capital market segment generated $280 million, an adjusted EBITDA, representing a 46% margin.

Turning to our capital allocation strategy on slide 11, this quarter, we sell 23% conversion of revenue into free cash flow up from 20% last quarter. As a result, we generated $640 million and free cash flow was only two months of world today, which is nearly double the amount that we achieved in the prior year period.

We use the strength of our third quarter cash flow to aggressively repay debt.

We've already paid them was $700 million and outstanding debt since closing closing, even as we continue to fund integration.

We also doubled our quarterly dividend payment to approximately $215 million following the increased share issuance related to the royalty transaction.

We are committed to our investment grade credit ratings and will quickly de lever to achieve our 2.7 times leverage target by the end of 2020.

Even as we de lever the strength of our balance sheet gives us flexibility to continue to invest in innovation for the benefit of our clients as well as to execute tuck in acquisitions to further enhance growth.

Moving to our fourth quarter and full year guidance on slide 12, we're raising our revenue adjusted EBITDA and EPS guidance ranges for both the fourth quarter and full year.

At the midpoint, we are increasing our revenue guidance by $7.5 million for the fourth quarter and by approximately $40 million for the full year.

We are raising our adjusted EBITDA guidance by $10 million for the fourth quarter and approximately $50 million for the full year.

Finally, we are increasing our adjusted EPS guidance at the midpoint by three cents for the fourth quarter and about 12 cents for the full year.

The increase to our fourth quarter guidance, primarily reflects current business trends and ongoing synergy achievement.

While our higher full year ranges reflect both the outperformance that we generated in the third quarter as well as our increased fourth quarter expectations, our results and outlook demonstrate the strength of our business model and the power of our growth strategy. This concludes our prepared remarks, operator in the open the lines for questions.

Thank you, ladies and gentlemen, English to ask a question. Please press Star then one on you touched on towns.

Our first question comes from the line of Dan Perlin with RBC capital markets. Please go ahead.

Thanks, Good morning, guys and nice results I wanted to ask a little bit about.

Kind of the modernization of you banks you know in the pass you talked about where they.

They had to kind of go down this path way in order to really implement a lot of the new technologies and I'm. Just wondering what you saw now you've got this combined entity and those kind of conversations and is where we are in that process.

Yes, no Dan. Thanks, It's great question I think we're in the early early innings of the of the transformations going on at high gas where in the later innings of and obviously, we started well over three years ago modernizing all of our technology stack and pushing our compute into our own private cloud. We then also started monitor.

Rising all of our application.

Layer in bringing on next generation digital experiences and frankly next generation capabilities across all of our segments and that's resonating well with our clients and you're seeing that in our our quarterly results was seven strong quarters of revenue sales, but we think we're very early in the process frankly, as we discussed on prior calls.

Yes, I think the industry held on too long to legacy based technologies and really we're seeing our clients now have to make that transformation. So we're excited about the investment that we started years ago. We are excited about our timing for where the market is and really puts us in a really good spot as we look look to the future.

And just as a quick follow up can I ask about the geographic mix as you're thinking about the demand environment and specifically, we've just heard concerns around Europe kind of intra quarter. So anything on that would be great. Thank you.

Now, it's when we look across Europe , and frankly, the UK, what we're seeing in the UK with Brexit specifically, we've already seen that volume kind of go down the recessionary period. So anything that would see show any kind of improvement and would actually be a tailwind for us.

I would agree Europe has been a little slow for us across the broader banking capital markets as well, but we've had we have had some nice wins here recently other areas like Brazil, we've seen some nice growth data, we continue to see Asia strong. So our geographic footprint continues to be a very good differentiator for us from a glow.

Global perspective, but but when we look at Europe , and what he talks about our guidance and where we're seeing coming in we're really keeping keeping Europe and broader UK at current levels.

Great. Thank you.

Thank you. Our next question comes from Lisa Ellis with Moffett Nathanson. Please go ahead.

Hi, good morning, guys.

Results here just one thanks later Tonight.

The merchant solutions.

Can you I realize will occasionally in that number for two months ended the quarter can you give assistance for one what the whether or not that legacy business is still running at that sort of 10% organic growth number it's been running ads and then.

And then also just within that can you give a sense for how E com and integrated are tracking E. Com in particular, just I realize that small pieces of business, which is so critical to the to the overall growth. Thank you.

Yes, it's a great question is we're trying to highlight last quarter, we expected a little noise related to the transaction.

In the third quarter, and we only had two months in there.

That probably impacted by roughly a point negatively in the quarter.

We also saw technology solutions in the old World. They nomenclature mid to high teens with continued momentum an expectation is that mid to high teens type level. Both E. Comm in integrated had very strong quarters as we expected and we continue to see that through both the fourth quarter with the with the.

Call out of expecting 10% growth for the merchant solutions group in the fourth quarter and continuing that momentum into 2020, yes listened to build on that we kind of highlighted in in the prepared remarks on our ecommerce sales success, we saw a really nice sales when in that in those sales wins accelerating from a cross sell standpoint.

With the with 23 wins this quarter compared the compared to last quarter. So so everything I would tell you have we're seeing good strong results and actually in to your point E. Commerce is very very important to the overall growth strategy and continued leadership in that space.

Your next question comes from the line of George Mihalos with Cowen.

Hello.

Hey, Good morning, guys and let me add my my congrats on a on a strong quarter.

Thank you George if if we can just digging a little bit on that I'm not last question specific to detect solutions I think what do you said it was grown condom into mid to high teens that would seem to suggest that ecommerce I would think economies kind of still growing in that in that twentyish percent range show. So one is that the right way to think about it and then you had a lot of momentum with.

Cross sells and the like just curious is servicing marketplace is a big opportunity for that E com business or is it more khan of blocking and tackling in getting sort of a full suite for Rob for merchants that you might be servicing.

Offline and trying to get the online business.

Yes, I'll get the first question and maybe let Gary could have kids to second half of it.

We talked about integrated or the old technology solutions growing roughly mid to high teens.

Within if you break that down even further we would anticipate E com in the fourth quarter and into 2020 to stay at close to that 20% level and feel very good about the momentum in that business right now within in the third quarter specifically it was in the mid to high teens. When you normalize some some wins from last year, but very.

We're pleased with the overall growth of that business and anticipated continue to stay at those nearly 20% levels of eco, yes, and George to build on that and I think it's important when we talk about E. Com, we're talking about really pure play level.

Online.

Acquiring so when you think about brick and mortar moving the online that really falls up under our Omnichannel deployments. So now our E com business, which is pure play.

Really is growing very very high as Woody just said greater than 20% I think the cross sell wins are important indicators, you're talking about first quarter. We did 16 of those second quarter came in at 14 wins and then Q3 at 23 wins, so mark chain in the group are really doing a nice job continuing to grow that business.

That's great really really appreciate that and just just one more if I can kind of sneak in we look at kind of though.

The synergies on the revenue side is there any way to think about that opportunity near term kind of domestic us versus international maybe where years, you're you might be seeing some more momentum.

Yes, I would anticipate we expected to come out of the gate strong with highlighted debit routing is some of it let's say more that's in the US right now, but I would tell you. We're actually slightly ahead of plan on our revenue synergies coming out of the first couple of months and feel very good about executing that but more of that in the run rate right.

I would have been in the US yes, I mean, I think George just building on that if you look at our revenue stream you now more than 70% of our revenue streams in the U.S. So naturally our cross sells nationally our revenue synergies is just going to be heavily weighted towards the U.S., but I think youre going to see our revenue synergies really.

Pretty much in alignment with the way the revenue falls as the company. So we'll see nice opportunities outside the us as well we highlighted the Brazil opportunity that we just signed and they'll be more that come online, but just given where the bulk falls.

In general and all of these revenues are going to be cross sell up sell pull through.

Data utilization et cetera, the revenue synergies will predominantly following the same manners, our current revenue.

Thanks, guys.

Thank you are next question comes from Jason Kupferberg with Bank of America Merrill Lynch. Please go ahead, Hey, good morning, guys. How are you.

Great Jason.

So just wanted to ask following up from last quarter. When I think you had indicated that the deal should be modestly accretive to adjusted EPS in 2020 and that was relative to the Standalone. If I ask number of I believe $6 in 16 cents I just wanted to see if you wanted to put a finer point on the magnitude of accretion we should be thinking about.

In 2020, especially since you've now raise the expense synergy target for next year.

Now going to give 2020 guidance today on the call, but I would tell you that gives us.

Incremental confidence on both remarks on made last quarter, which were approaching 7% organic revenue growth has incremental confidence on that coming out of the gate with strong revenue synergies.

And then accretive to that $6 from 16 cents number you mentioned there.

Of incremental confidence on that when we look at the overall increase in the cost synergies next year.

But not giving a finer point on at this point, we'll give more color in February we actually outlet in the 2020 guide specifically.

Okay Fair.

Fair enough just as a follow up I wanted to get your latest observations in terms of some of the the smaller competitors in the market that tend to be turned more of the cloud based competitors in core banking there was a bit of chatter on that topic Moneytwo thousand 20 last week. So just wanted to get your perspective, especially is more the neo banks keep popping up.

Yes, now I think what would keep highlighting every.

Throughout our call, saying you know, obviously, we would say.

We're the leader in cloud based computing today at this point in time in financial services, given all of our.

Datacenter consolidation and ask consolidating.

The vast vast majority of all that work to the cloud today some of the things we're doing what technology.

Really hasn't been seen in the industry before when you look at our application stack of bringing online.

Our next generation cloud based applications, you are seeing success and we've announced several wins on the call.

And we have several more coming on specifically core banking, so whether you're looking at our Omnichannel digital experience as digital one full cloud based type technology, you're also we've announced several wins on our on our core banking next generation core banking platform and actually have one of those online as well so we.

I think.

We respect that there isn't going is going to be competitors in the industry, but but given our position given our scale given our historical investment and timing, we think we're well positioned to take advantage of.

The next generation of technology and computing in the in the industry.

Okay, well, thanks for the comments and congrats on the quarter.

Thank you Jason.

Your next question comes from David Togut with Evercore ISI. Please go ahead.

Thank you good morning, good to see the strong sales growth in bookings growth, Gary and Wendy. Thank.

Thanks, David David.

Given the strength you've seen in bookings in this looks to be the third consecutive quarter of Corefive, yes in the mid single digits should we expect this mid single digit growth rate in banking solutions to be sustainable into 2020, given the seven consecutive quarters of strong bookings you put up.

Yes, I think thats right David maintenance.

The way the business flows we anticipate sales growth driving revenue growth. So as we're we're seeing that sales growth for several quarters gives us good visibility and we would expect that mid single digit growth that we highlighted last quarter in the banking segment to continue through 2020 and have a high level of confidence and visibility into that as we continue to.

Click off months of sales.

Understood and then the big when you called out Gary in Brazil in merchant, how does the pipeline look for cross selling merchant business in Brazil going into 2020.

I would say that whole holistically the the pipeline for cross sell for merchant across all of our customers looks very good right. I mean, we were excited about the.

The Brazil win and so, but when I look more holistically on a global basis and some of the things that we have going on and the sales channel with regards to merchant.

I'm very excited about that overall business and our ability to cross sell into our customer base. The response has been very strong.

Since the since the closure.

Understood just a quick housekeeping question for the third quarter, what would total revenue and EBITDA had been if worldpay were included for the full quarter.

I don't have the dollar amounts of revenue David I would tell you they will be slightly under the 6% number as we had some of the noise from the transaction in there we do still anticipate full year pro forma revenue as if worldpay would've been in since January at right at 6%.

Understood. Thank you very much thank you David.

Thank you. Your next question comes from Darrin Peller with Wolfe Research. Please go ahead.

Thanks, guys.

Maybe just touch a little more on the drivers supporting the strong growth on the legacy Fi aside for a minute just because.

I know bookings have been good, but just more particularly what's driving that 5% of cap markets I know that you expected to accelerate again it was.

Definitely a rate we haven't seen much a while on that segments and it's great to see but that segment as well as even the banking side I mean, I know you just said it would be sustainable.

Maybe a little bit more detail around what's driving that sustainability now.

I mean, I just want to hone in on one follow up.

I won't go ahead bearing get your follow up questions, Yes, I mean.

Really just trying to understand when you combine that if that stable. If you combine that with the traction we're seeing on the cross sells you went through on the merchant side right, whether it's the cross sells vantage and world pay and some of those synergies just talk about timing on when we would expect those to come on when do you expect the revenue from legacy Cross sells band of World pay deals you did to actually start showing up in revenue.

Some of the clients you want last year.

And then where are we on the rewards nice in the car production build out.

Okay. So I look a lot in their less less backup to the to the based banking business capital markets business and acceleration capital markets specifically.

We talked about last quarter that we were seeing acceleration capital markets. One of the things that we're real pleased with is actually license fee in capital markets were flat, we actually saw an acceleration we've been telling.

The market for some time that we're seeing this movement from licensing on premise to deploying our technologies and our SaaS model.

Thats back to our investment and innovation and back to investment in technology and leverage leveraging cloud based computing technology. So all of that is playing huge dividends for us when you look at our scale. So we expect to see capital markets continued to accelerate in Q4.

Based on an investment banking as well we're at an interesting inflection point in the industry. You know, we really have a lot of legacy technologies end market and frankly, we.

We started those investments as I said more than three years ago, where AFE I asked started investing heavily and new innovation, where we really pivoted our span from legacy technologies to the future you saw that impact our growth rates in the short term.

Because frankly, we were spending our capital dollars in areas.

Where we didnt have product to deploy against but now youre seeing the timing worked out very well for F. I asked where our customers are looking to take advantage of some of these lower their total cost of ownership and prove their overall digital experience across their end customers and thats all resonating not only in our sales pipeline, but you're saying our CFO .

Closings I mean, those are very strong results on on sales now for seven consecutive quarters, So whether you're looking at merchant, where we're leading an e-commerce high valued ecommerce high valued technology integration banking or capital markets that that that key thing plays out very well and is really.

Playing into our accelerated growth rate significantly.

If you're looking at the specifics on timing of revenue synergy they'll ramp over the course of the year next year, we're starting to see some of those call sales from the whirlpool advantest flow into the actual results now and they were built into our expectations as we outlined those.

Last quarter, and we will see the the new revenue synergies with flowing through over the course of the year next year.

Okay. All right just one last quick follow up I mean, the RFP is that we're hearing about on E. Com sounds like you've accelerated maybe even two to three times, what they were last year for gateway consolidation.

Are you seeing the same thing and it seems like Theres, maybe only four or five key players winning a lot of that bulk of those RFP is what's what kind of when rates are you seeing obviously the 23 you announced is is it good sign of that.

Yes, and outlook I mean, we're seeing obviously increased demand for our for our solution set him an E. Commerce is doing very well, we think there's really three significant players in the space today, and clearly where where the lead global player in that mix and you're seeing that in our cross sell wins and the team.

I'm just doing a really nice job of selling into this key high growth secular market man and give them you'll continue to see us ramping that up and also the revenue associated with that and driving into the results as Woody talked about.

All right thanks, guys great.

Thank you. Our next question comes from Ashwin Shirvaikar with Citi. Please go ahead.

Thanks again highlighting.

Hey, good thank you.

Good results appreciate the days maybe solid.

Let me give me can I start with I know, you're not providing 22 any guidance, but investors. That's clearly focused on the future. So perhaps maybe I can you start by asking.

Net teas investors should watch out for from a modeling perspective, as they put down more than your numbers any quarterly 10.

So the cadence of synergies coming in.

Any any any composting piece to watch out for.

Yeah. It's a good question, we'll continue to add color I would tell you first quarter comps next year have some some challenge in them. If you remember this year banking at a very strong first quarter of 2019 that had some some tailwinds in it. So there is some costs in there.

We anticipate revenue synergies to.

Increment over the course of the year as they take form from achieved through realizing them into PNM oil.

So we'll see that we tried to give some color around.

Merchant being it.

Roughly 10% going into 2020 with good line of sight banking to be mid single digits and.

The capital markets grew to be low single digits with some optimism on capital markets. As we continue to see the quality of that revenue recurring nature of that revenue continue to increase.

But we have incrementally more confidence in a in a 7% or approaching 70% organic growth in 2020, and certainly had an incremental more confidence on the comment regarding it being accretive.

To the $6.16 I mentioned last.

Quarter, so those will be centers and incremental color points ashland's as we go into 2020.

Got it thank you for that and then.

The.

I know as as a company both let you guys and.

And legacy loan pay.

I'll always be sort of focused on investing so when you talk Wilson.

Energy.

He is that a gross number is that a net number and it BD investments what Andy focus areas for you now and then the sort of cancer indication.

You guys have announced new headquarters aegis Crane, Co. and capital allocation on on that.

Yes, the synergy number is a number net of dis synergies. If you will so things that we would have to invest related to the transaction specifically would be would be netted into that number to the extent, we decided to invest further in other areas. We would obviously called that out in a different way, but that that.

Synergy numbers net of dis synergies within within the within the overall guide for 2020.

We are or just announced we will be a building a new headquarters here in Jacksonville.

It's effectively consolidating existing three existing spaces that we have today in Jacksonville, and will expand and grow some incremental jobs, we continue to grow.

The overall company. It is in our overall guidance is our overall capital allocation and would not change anything that we've outlined already.

Got it thank you guys.

Thank you. Your next question comes from the line of Brett Huff with Stephens. Please go ahead.

Good morning, Gary what do you need.

Hey, Brett Laura.

Two questions one to follow up on Brazil, we're pretty excited about that opportunity given the limited U.S. presence there.

You talked about a big bank referral win which is great can you tell tell us a little bit about your strategy going forward are we gonna lead with E Com I wouldnt lead with sort of integrated.

But I trying to leverage the issuing relationships we have down there can you kind of give us a sense of that and then number two question is.

The 25% seals increase your bookings increase was that organics, including.

We'll take I'd, just make sure that I understand what that number is thank you.

Yes, the first roulette, let's get the second question first the 25% as an organic growth number right. So.

And been very consistent on a on the quarters that we've disclosed that back to Brazil, obviously what will.

We'll continue to focus on we've been driving heavily into e-commerce , and we want to continue to make sure that we leveraged e-commerce .

Where we can appropriately in Brazil, certainly a great opportunity for that for us on that but that being said, we also want to make sure that we take.

Advantage of we've got a really good strong client base in Brazil, we want to make sure that we're partnering with those clients in a way and adding value to and through cross sells and upsells as well so it'll be a combination of both but I would tell you in general.

Given what we're seeing in that high gross secular market, we prefer to lead with E. Commerce in any point, we can on the merchant side.

Okay, that's great I needed. Thank you.

Thank you. Our next question comes from the line of Dave Koning with Baird. Please go ahead, yes. Thanks, guys. Good job. Thanks, David Yeah, and I guess, just first of all on the merchant segment is it is it easy just to think about the legacy Tech solutions high teens in the legacy merchant part low single digits and that just blends to.

About 10 overtime and then as part of that isn't merchant growing low single digits, an income that actually get better like the merchant the old legacy merchant segment.

That's that's a rough way to think about as Dave mentioned pieces that removed around as you know we certainly saw very good growth in both integrated and E com and trying to highlight some color on that one of the theory as we had as the traditional.

Business, we could improve and grow faster and I think we'll see that overtime as it flows into the into the numbers I think it's a rough way to think about it we tried to highlight that merchant on a go forward basis, we anticipate Q4 to be about 10% and in 2020 to be roughly a 10% number which aligns with at high single low double digit.

Comment that we've talked about over the past couple of quarters, but feel very good about.

Where the businesses health of the very strong growers and their ability to drop some incremental growth in some of the slower business, yes, I mean in jet and general Dave I think the way to think about it is obviously, we're going to focus on high growth secular trends that are occurring across our various market segments right and so naturally we're going to be.

Focusing heavily in merchant on technology and high valued e-commerce , because there is a very strong secular growth trends there with that being said royal and the pain broader team are doing an excellent job as well with the traditional merchant business. So yeah, we're not going to turn back on these other businesses, but you will see us continue to focus on where.

We see hi, secular growth capital markets, we're seeing a lot going on and ragtag, which is why we highlighted the consolidated audit trail success. There. So so anywhere we see these high secular growth trends were going to sell into them. We think we got excellent technology to deliver against them and then youre absolutely see those just grow.

A much higher growth rate.

Great. Thanks, and just one follow up on Q4.

It it seems like the guidance implies growth to be reasonably similar to Q3, unless I'm mistaken, but I know you talked about merchant accelerating I think capital markets accelerating is banking about the same but maybe just so you can kind of it takes three segments, and say, which ones accelerating D cell relative to that total company Q4 guidance.

Yes, I think you've got.

Merchant continued to accelerate off of Q3, we anticipate capital markets to continue to accelerate off of Q3 and banking closer to the Q3 number as it faces a little more difficult comps in the fourth quarter.

Net net you're seeing the increase in the fourth quarter on the guide basically being driven by revenue synergies.

And we already had some of those that revenue and cost synergies baked into the original Q4 guidance overall and we believe it's balanced day.

Great. Thanks nice job.

Thank you.

Our next question comes from Bob Napoli with William Blair. Please go ahead.

Good morning, Thank you for the question Hi, plenty about.

Which the.

Acquisition now of Worldpay I would just.

Wondering what did the thoughts were on your M&A I understand I understand you're very tied in right now with integrating and cross selling.

But I would imagine that you're generating so much cash flow, you're you're thinking about I'm sure you're thinking about an M&A strategy. Just wondering if there's any change or any thought and how you're thinking about M&A.

In the future as you.

Get more into the integration of the two companies.

Yeah, Bob at the highest level, there's really no change I mean, obviously, we're very focused on integrating the world pay transaction with that being said, we'll do well even even.

Now, we'll do small tuck in type acquisitions to augment growth in areas that we're seeing going on the segments as he said we've got.

Plenty of cash flow to not only paying down the debt as Woody described also not only to continue to maintain our dividend going forward, but also to make small tuck in acquisitions. Once we feel like we got the integration a world pay.

Behind us we want to make sure that we drive to accelerate growth. We're looking for also drives a accelerated shareholder value will then look to see if theres some broader M&A activity, but M&A is going to continue to play an important role in our strategy on as we look for ways to accelerate our growth further.

Thank you and just to follow up on.

The outlook for EBITDA margins by segment.

As you think about that over you know not only into 2020, but long term.

Any thoughts on how we should.

Should think about which areas. So we'll see the most expansion in margins.

I think you'll see expansion across all three segments, particularly as corporate costs get leveraged into those segments.

You will see incremental probably in merchant and banking as some of the most of the revenue synergies are driven out of those two segments, but you'll see you'll see margin expansion across all.

Great. Thank you appreciate it.

Thank you. Our next question comes from Vasu Govil with KBW. Please go ahead, hi, Thanks for taking my question congratulations great quarter.

Thank you. Thank you I guess just first question on the World Ban Vanda cost synergies are you still tracking in line to deliver that do 50 million number that you had called out and then as we think about the revenue synergies do have any updated thoughts given that you've seen this acceleration in deal signings. So could we be tracking better than the 100 million number that you thought.

Not that before.

Yes on the cost side, it really kind of close that out last quarter. It's at the 250 number.

So most of the tracking at this point of that is behind behind this and we're focused on integrating.

The new Worldpay without bias with regard to 100 million of revenue synergies that was previously outlined we anticipated more of that the flow into 2020 .

But I think thats roughly in line with the original expectations as you're seeing this call out those cross sells.

And feel very confident that that's still a good number.

Wait and just a quick follow up on that strong new with sales number can you give us a little bit color you may be on for what the composition of that you sales looks like where you were seeing more should trend and then you also noted the backlog accelerated to 9% I think it was 7% last quarter does that mean were running ahead of track for 2020 or is there.

And interpretation of that.

Yes, now most of our sales success, what we're seeing obviously, we highlighted a number of key wins, but you're really seeing it around our our new technology, New innovation, new new Solutioning right. We have highlighted the merger of two very large regional banks come together to form almost 50 billion dollar institution.

They selected to come with that by asset even though the other bank that was was acquiring our bank. So and that's all just based on the innovations around core bank processing, which was a question higher earlier and also our Omnichannel digital experience. We're also seeing it across all of our real time.

Faster payments type solutions, we've highlighted a lot on this call around merchant certainly in capital markets, we're seeing strong growth and rag tack and some of the other areas what what I'm really excited about or just how much of it is really now coming into our full blown.

SaaS models right, we've talked a lot about this on on this quarter. It was a really nice to see capital markets growth with actually flat license fees and accelerated significant acceleration on the.

SaaS deployment of software and so really gives us high confidence as we lean into going into next year and as Woody talked about accelerating growth targets. So all of that makes us feel really good about what we're saying going into 2020.

Great. Thank you very much.

Thank you. Our next question comes from that O'neil with Autonomous Research. Please go ahead.

Hi, Good morning, Thanks for taking my question most of that the as detailed questions have been asked and answered I was wondering knows it could bring it back to I think it was the final slide at the merger Dankworth you talked about the promise to the end to end connectivity between issue or data and acquiring and I think you know the view that this could bring a durable competitive advantage to.

Oh, Straits and fraud rates longer term and so I know, it's only a few months in but yes. The teams kind of med tech data pools been sort of discussed and shared our yeah, maybe can articulate kind of how that longer term synergy process is starting to take shape.

Now I think it's great question, Matt absolutely the teams of Matt We've got a full plan around you know improve improving or off rates and reducing our fraud rates. The whole end to end. We're evaluating does even close loop makes sense. So theres a lot of opportunities here that the combined.

Asset pool of the combined company can drive into the future as we've talked about on prior calls really need to look those things starting to come online.

18 months and after because Theres work I mean, what he highlighted even our.

Our loyalty as a currency, where we're bringing that online in a fully integrated manner and this and the first half of next year. So we do have to do work as we pull these together, but the quick answers. The teams are highly engaged.

Excuse me and we've got.

We've got a lot of governance around that and we'll continue to drive the that because we think theres a lot of opportunity on that beyond in 18 months out timeframe.

Got it thank you.

Thank you. Our next question comes from the line of Ramsey El Assal with Barclays. Please go ahead.

Hi, guys. Good morning. This is damian on frenzy I wanted to ask on the pin debit routing you called that out as the driver of the revenue synergies. This quarter is that is that opportunity largely complete now or is there more to go there and what would you view is this sort of next synergy driver that you will focus on.

No I wouldn't say so I wouldn't say, it's going played at all I think 40, we just trying to highlight something that drove.

A big piece of the early synergies when that we highlighted there were other things that were in that number as well, but as we look for opportunities to leverage our scale, whether whether it's in debit routing milk merchant referral services, even some of the things we talked about on the on the last question.

And that will continue to drive and accelerate the revenue we really have identified six major areas that we're focused on today. The teams have rallied around those we've built detailed plans around that whether its investment in software for development purposes.

Sandra or just sales plans and sales tactics and execution and I can tell your were way down the path on all of those major categories and as we come into future quarters, We'll give you more and more highlights as we as we see that revenue ramp, but you know last quarter, we increase the amount of revenue for next year from across sales.

Standpoint, given that quick out of the out of the shoot success, we've had where we're actually very excited and feel that number is we're certainly much more confident in that number as we go into it and then future quarters, we'll give more and more detail for you.

That's great on and then follow up actually we've been talking a lot about Brazil today, maybe we could talk or zero in a little bit more India I know you called that out.

Digitally as a focus area, maybe you could give us more color.

Just what would exist in your India business today, how much of it is ATM versus core versus card processing, and then which of those businesses you expect to lever. The most in the context of this world Bank Cross sell Yeah look I mean, we've talked a lot in the past obviously, we've got a large ATM business in India, We got a lot of large now and growing core.

Our banking business in India, we were very successful and and leveraging a lot of the new charters that we're launching Andy as a mandate by the government. So we've successfully launch those will elaborate obviously those customers to cross sell further payment capabilities and then we talk about ecommerce, which we think there's a real opportunity to leverage more.

He common Andy as well, but it's really going to be a combination of all of our capabilities that will continue to allow us to accelerate our India growth rates.

Thank you.

Thank you. Our next question comes from the line of Tencent Bond.

Morgan. Please go ahead.

Thanks, so much looks like a great start to two world pay I heard the I heard the 9% organic growth in the backlog, Gary how about underlying retention and pricing is that moving up are holding up as well in driving your acceleration comment next year.

Yeah, you know when I would tell you turn Gen. We've talked about this the pad we're not seeing any you know acceleration loss rates or pricing compression is meant to a fact for for years and our banking and capital markets business. So we and we're not seeing really an acceleration of AD as well I mean, it seems to be pretty.

Consistent I would tell you I don't think it's.

Yes, Sir is slowing but we feel great about the share we're winning and.

I feel great about our competitive positions, but we don't we don't see that.

As an accelerating headwind going into next year and gives us the that much more confidence as we look into into next year.

It's encouraging to just two quick clarifications the.

Merchant bank deals, the U.S. and Brazil, and maybe just the.

The short term pipeline as well because of this mostly denovo merchant bank deals just curious how quickly those things can map and then also on capital markets can we say that you've reached an inflection there with converting from licensing to to SaaS deals.

Well, let's go the first one that is above both at the merchant sales were competitive takeaways and so were excited about that.

When you look at the capital markets opportunity that we talked about I don't know that were at the inflection point Q4 naturally has a heavy license component and always has man.

We talked about how we've got a balance from a sales standpoint of our.

Of our license grow over compared to our SaaS model. We think this quarter was a we're just a great execution by the team. They really did just a really nice job.

With that what that management and so.

Certainly as a strong indicator you will see recurring revenue in capital markets continue to accelerate.

But we're still it'll still be next couple of years before we get truly license fees down in a range, what you're saying in banking, which is a very small percentage understood. Thank you for the update.

Thanks to engine. Thank you and your last question today comes from the line of.

Joseph Foreseen with Cantor Fitzgerald. Please go ahead.

Hi, just two quick ones to wrap up maybe can give us a little more color of you're on the ground conversation with banks.

Particularly in the merchant services.

How that conversations going with pricing looks like because obviously, it's been coming down.

Over a long period of time and I'll ask my second one up front as well just a delta on the upside on the cost synergies, we get to that top end of the range, where do you think you might be able to extend the cost synergies.

And what functions would you be looking at.

I'll take the first one on the on the merchant conversations I think if you look one of the things that we were excited about when we put the combination world paid together was just how much. They have spent on next generation technologies themselves right. So you look at half I as we've talked a lot about our modernization efforts our transformation efforts I will tell you worldpay.

They're very some are process, whether whether it's our acquiring platform in the UK or frankly stuff they've done with high valued integrated payments and then e-commerce and so when we when we're talking to the to our bank referrals for merchant referral programs I see that the benefits of that investment they see the the tech.

Allergy and what it can drive in how can help on differentiate and actually grow their revenue streams from a pricing standpoint like all the industries, it's price competitive out there and we think our scale allows us to compete in the investments. We've made we think allows us to compete.

In that category very very effectively and are we seeing increases and price competition honestly I'm not from my chair, but I would tell you. It's always been price competitive right and I think F. I asked is in a in a real good position to compete on that only almost cost synergy side I think we're really pleased with where we are.

Sure.

Announcement, they we started out with roughly 400 million of cost synergies, we increased that to 500 million on the second quarter call, we increased that to greater than 500 million today, while we're not to into job. We continue to focus I think the teams are very good continue to drive costs out of the business and.

We go long history of being able to overdrive or synergy targets.

Thank you.

I'm excited by the strength of our performance following the Worldpay acquisition and the progress we've made and bringing our two great teams together I'd like to thank or more than 55000 associates across the globe. We're working hard every day to deliver exceptional results for our clients and shareholders have any questions.

During today's call. Please reach out our Investor relations team I couldn't be more excited about the future of that I asked and I want to thinking for joining us today.

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