Q2 2020 Fidelity National Information Services Inc Earnings Call

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Ladies and gentlemen, thank for standing by welcome to the F. <unk> second quarter 2020 earnings Conference call. At this time all participants are in the listen only mode. Later, we will conduct a question and answer session and instructions will be given at that time.

If you should require assistance during the call. Please press Star then zero as a reminder, this conference is being recorded I would now like to turn the conference over to your host head of corporate Finance and Investor Relations Mr. Nathan Rosen. Please go ahead.

Good morning, and thank you for joining us today for the second quarter 2020 earnings Conference call.

Call is being webcast at today's news release corresponding presentation and webcast are available on our website at up I ask global Dot com.

Gary Norcross, our chairman President and CEO will discuss our quarter operating performance that business strategy as well as the trends we are seeing what govan 19.

Woody Woodall, our Chief Financial Officer will then review our financial results and the trends we are seeing within our segments.

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 that 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 ill turn the call over to Gary will begin his prepared remarks on slide five.

Thank you Nate good morning, and thank you for joining us today, the coping 19 pandemic will be viewed as one of the most challenging times for our country in the world. However, I couldn't be prouder of our response and the execution of our more than 55000 employees and delivering a very strong quarter. Despite all the challenges the panel.

Nick has been a catalyst driving us to achieve outstanding results, all while maintaining our implementation processing and product development commitments to our clients and prospects. This is very important given our strong multi quarter sales success and converting these wins to revenue as quickly as possible.

Kelvin 19 has spurred changing consumer behaviors and reinforce the many benefits of automation artificial intelligence and cloud native technologies, and a true omni channel experience.

Our conversations with clients, who wish to adopt our next generation suite of solutions are gaining momentum and that continues to show during our strong quarterly sales results that we will discuss later these trends in results drive our confidence in the company's ability to accelerate growth.

Turning to slide seven I'd like to discuss our strong second quarter. Our revenues grew 40% almost $3 billion. This exceptional growth was achieved despite the impacts of this historic pandemics impact given shelter in place restrictions around the globe revenue decreased 7% on an organic basis.

While revenue faced headwinds, we expanded margins by 150 basis points as we continued to drive down or cost structures through the worldpay integration initiatives as well as ongoing benefits from investments in technology and automation.

We generated a $1.15 cents, an ABS and over $650 million in free cash flow, reflecting the durability of our business model given the ongoing strengthen our sales channel are sold backlog increased 7% organically to $21 billion, giving us clear line of sight to continued acceleration of revenue.

Growth.

Given these results it is clear our resilient business model insurers when delivered strong results, given our breadth and diversity of our solutions.

Turning to slide eight.

Last week marked the one year anniversary of our acquisition of Worldpay. It was a significant milestone for our company in the industry is two of the preeminent teams and financial technology came together Worldpay brought us world class merchant acquiring with its high value Global E Commerce and integrated payment capabilities and banking, we have continued our into.

Yes, when in the new products and services that are transforming the market, including modern banking platform code connect and digital one and in capital markets. We brought investments in technology to enable us to be more agile with the movement of money across the world. We certainly have a track record of success when it comes to advancing the way the world pays banks.

And invest we're thrilled with the traction that we've seen over the past year by creating a company that is significantly differentiated in the market.

The subset list of accomplishments that we have achieved on slide nine since last July has extensive and covers every aspect of the new combined company. When we closed the Worldpay acquisition. The teams on both sides immediately came together and very collaborative ways with a focus of creating something unique in the industry. We continued.

Outpaced expectations on our synergy goals and are well ahead of schedule to meet our aggressive three year synergy targets at the end of the quarter. Our teams have achieved more than $700 million in annual cost synergies and $115 million in annual revenue synergies, we have an additional $60 million in revenue synergies that.

We are in the process of implementing now and we had a growing pipeline of cross sell opportunities that will continue to drive additional growth.

Our ability to exceed our synergy goals. So early is a testament to the value our colleagues are creating by winning as one team.

On slide 10, we recognized early the changing dynamics of industry and decided to pivot the company to growth by investing in next generation technology that would allow us to successfully compete for the next 10 to 15 years, we launched our journey over four years ago by investing in datacenter consolidation and network modernization to.

Position us to be the leader in cloud based technology.

Fast forward to today, we have significantly smaller datacenter network footprint, we will reduce over $250 million and cost and have 80% of our total compute in the cloud by the middle of next year.

Next we invest in our application stack, which is based on a modular componentize architecture with open Apiay does that provide our clients that flexibility to innovate at their own pace.

These investments included our modern banking platform code connect digital one post trading derivative solutions in next generation syndicated lending.

Together these new products are propelling our growth in our banking capital market segments simultaneously Worldpay was also investing in next generation technologies. They launched an app platform access Worldpay advanced econ capabilities and innovative often fraud solutions.

This has been the primary growth catalyst for our payment segment and what makes the combination of Fi Essen Worldpay. So powerful next we moved on to differentiate ourselves through building on our industry, leading client experience. For example, we proactively committed to groundbreaking 15 minute service level agreements for many of our cloud based solutions in <unk>.

Sharp contrast of the typical industry standard of 24 to 48 hours and we simplified our pricing in contracting models for smaller financial institutions in order to make it even easier to do business with that by us.

These enhancements to how we support our clients are resonating in the market.

Finally, we upgraded and integrated our internal enterprise toolsets significantly improving our communication and collaboration capabilities in further enabling our colleagues to better support our clients. We began this journey to prepare for the future. While the pandemic has accelerated changing consumer and enterprise behaviors in ways that none of us could have predicted.

Demonstrates that the strategic investments we've made in our technology transformation that paid off.

As shown on slide 11, her strategic blueprint to ensure App I ask continued success revolves around three simple pillars. The first pillar centers around our ongoing investments in technology and innovation the increasing client demand that we are experiencing for our differentiated next generation solutions will continue to power accelerating rep.

The new growth trends RAF is second our relentless focus on driving efficiency and scalability is a key component are driving meaningful operational results as we continue to integrate strategic acquisitions, we will further builder scale and operational efficiencies, allowing us to lead our peers with best in class margins.

Lastly, we have a strong track record of strategically allocating capital to maximize shareholder value. Our disciplined approach to capital allocation includes investing in both high growth acquisition targets as well as our organic investments in product technology and innovation.

Turning back to the quarter and a focus on sales results on slide 12, our clients are embracing our cutting edge solutions, which empower them to better compete in a world War technology is changing at record speed and banking I'm pleased to announce that we extended our streak of consecutive quarters with double digit year over year, new sales growth.

Which now spans more than two years, our new sales delivered over $1 billion in total contract value during the second quarter. Despite shelter in place ordinances client demand for our modern banking platform or remains robust as clients seek new ways to transform their legacy technology to a frictionless digital expense.

Trends, we signed another top 30 US bank on our modern banking platform code connect and digital one Omnichannel solutions. They chose App I asked because of our product suites cloud ready modular architecture and due to our ability to implement complex solutions, we look forward to supporting the banks gold to leapfrog from legacy.

Analogies to the future of digital banking this marks our ninth modern banking platform when including four of the top 30 us banks.

Our speedy implementation, a real time lending services for many financial institutions allowed us to streamline process funding under the Paycheck protection program supporting us small businesses and families throughout the pandemic.

We also added several use states by quickly ramping up operations to support prepaid and pandemic GBT card processing. During this challenging period, turning now to merchant client adoption of our premium payback solution remains strong and we continue to identify and close multiple cross sell opportunities for example.

We entered into strategic agreement with a top us pharmacy to improve their loyalty program with our premium payback solution edits nearly 10000 locations real time redemption at point of sale will drive foot traffic increased span and lower the pharmacies cost of payment acceptance.

We also recently signed an exclusive merchant referral partnership with a regional bank of over 500 branches, we will convert their existing portfolio of 15000 merchant staff I assume provide all processing and back office support functions for the bank.

Additionally, the largest independent gas station operator in the UK chose F. I asked to enable payment technology at 900 fuel stations because of our in store payment technology in our robust fraud solution.

Finally, I'm pleased to announce that we are increasing investments in our integrated payments channel together with several strategic partners. We are developing a creative new go to market solution and have commitments to migrate over 20000, new merchants by year end.

Turning to capital markets demand for our SaaS based solution remains robust clients are embracing our differentiated end to end solutions expand the front middle and back office as well as our innovative Rentech solutions, we signed a deal with the top German bank that will enable them to increase operational efficiencies by consolidating.

Existing competitor point solutions and our end to end solution suite. In addition, we signed a deal with a nonprofit finance cooperative with nearly 27 billion assets to power their commercial lending suite.

As you can tell this was a very busy in highly successful quarter on many fronts I'll now turn the call over to Woody to discuss the financials in more detail Woody.

Thank you Gary. Thank you all for joining us this morning, I'd like to think our colleagues who have done exceptional work to empower clients, giving back to opportunities and support one another through a very difficult.

While the global pandemic had a significant impact on our quarterly financials, our second quarter results exceeded our expectations across the board.

I'll begin with our financial results before transitioning to our merchant transaction trends, then I'll finish with an update on our balance sheet liquidity position and cash flows.

This quarter demonstrated the durability of our business model as we continue to provide mission critical technology to our clients. We remain confident in their long term fundamentals competitive position and overall investment thesis.

Turning to slide 14 for highlights and accomplishments in the quarter.

The consolidated basis revenue decreased 7% organically were 6%, excluding corporate and other exceeding our expectations from a few months ago.

Organic growth is also includes with two point headwind, primarily associate with the shift in the us tax filing deadline.

Each of our segments performed better than expected driven by strong execution and durability in banking and capital markets as well as improving consumer volumes in our merchant segment.

While we remain uncertain times, we firmly believe that last we even stronger coming out of the spending as we leverage our global scale robust cash flows and commitment to investment and innovation.

Adjusted EBITDA increased a $1.2 billion during the quarter in our margins expanded 150 basis points to 39% is high margin transaction volumes improved in May and June.

We are reiterating our commitment to 300 million and annualize short term cost savings in response to dependent.

Our integration remains ahead of schedule as is still ongoing traction in the bank referral channel as well as continued cross sell wins for our premium payback solution.

In the quarter, we achieved $115 million in annual run rate revenue synergies well ahead of our initial expectations, which is especially impressive considering the multiple headwinds caused by the codependent.

We also achieved cost synergies in excess of $700 million, including $350 million in operating expenses.

As a reminder, we originally targeted $400 million and operating cost synergies by the into 2022 at this stage. We are on track to reach our initial target by the end of this year full two years ahead of schedule.

In addition to operating expense savings, we also permanently eliminated $90 million in annual maintenance Capex. This quarter by consolidating ledge legacy technology platforms, which will manifest itself in the form of reduced DNA on our income statement.

Our sales performance continues to benefit from long term SAS based agreements and we continue to have meaningful dialogue with our clients around digital banking continuity of operations and increasing their ecommerce presence.

This increase demand is driven by our clients looking to effectively manage their operations through the pan limit and transform their business for a post cobot environment.

The pipeline continues to remain strong, giving us confidence that the investments. We've made are paying dividends and we'll continue to win market share in attractive verticals.

Turning to slide 15 to review our segments banking solutions increased 4% organically were 5%, excluding a one point headwind associated with the decline and transaction related revenue caused by shelter in place orders and other impacts associated with dependent.

Ongoing investment in our banking segment continues to drive recurring revenue as we leverage our cloud based solutions to drive value to our clients.

Looking adjusted EBITDA was $608 million, representing 40 basis points of margin expansion to 41%.

Our merchant segment performed significantly better than anticipated as transaction trends improve during may and June from April lows.

The delay in the U.S tax telling them that alone contributed to a six point headwind during the quarter as approximately $60 million revenue pushed out of the second quarter and ended the third quarter 2020.

Excluding this impact merchant revenues down 19%.

While significant this when we came in approximately $30 million better than expected lessen some consumers elected to pay their taxes early ahead of the delay July 15th deadline.

Merchant adjusted EBITDA was $331 million, representing significant margin expansion of 41% over the prior year period, primarily due to the Worldpay acquisition.

Capital markets grew 3% organically in the quarter driven by balanced demand across our buys on Intelsat verticals as our innovative into end solutions drove continued strength in recurring revenue.

Adjusted EBITDA was $287 million representing margin expansion to 46%.

Turning to slide 16 for an overview of our recent merchant volume and transaction trends, given our size and scale, we've been improving trends throughout the quarter and continuing into July consistent with the major networks merchant volumes return to growth by the end of the quarter, increasing 4% in June while transaction trends exited the quarter approximately.

Flat.

Trends, improving both us and international with particular strength in global ecommerce, which is experienced strong transaction growth and approximately 30% when excluding traveling airlines.

Code is dramatically accelerating the speed of adoption for ecommerce and we will continue to invest in our next generation axis Worldpay gateway as well as accelerate our global expansion in order to capture new sources of growth and addressable market.

While we are pleased with the improving transaction trends I will not be providing formal guidance for 2020 due to the dynamic and unpredictable outcomes associated with the ongoing payment.

Turning to slide 17, and were to provide some color and our balance sheet cash flows and liquidity position.

Our total debt is about $20 billion, yielding a three and a half times leverage ratio with a weighted average interest rate of 1.7%.

In the quarter, we generated $655 million of free cash flow or 22% of revenue an increase from 18% in the first quarter of 22 weeks.

We paid down $544 million in debt and issued dividends of $217 million.

Capital expenditures were $243 million were 8% of revenue in the quarter.

We remain highly committed to investing internally in organic growth with no reduction in our 2020 capital budget.

Liquidity remained strong at $3.5 billion, having further increased by approximately $500 million during the second quarter.

This robust cash flow strong balance sheet and ample liquidity allows us to continue to invest heavily in technology and innovation, even as others are retrenching due to the pending.

While the second quarter was clearly challenging for all of this I couldn't be prouder of how our team responded the strength of our financial results demonstrates the unique durability and resiliency of our business model, increasing my confidence in the future of Fs I'd now like to turn the call back to Gary for some closing remarks before we open the line up for questions Gary.

Thanks, Wendy I wanted to conclude our prepared remarks with slide 18 by stating our continued commitment to growth and innovation is unwavering.

We're focused on continuing to keep our colleagues safe while simultaneously pushing forward to become the fintech employer of choice, we truly cannot be successful if we don't maximize our talent inclusion and diversity is very important to meet both personally and professionally as well as it has to all of US here at biomass recent social unrest in the us under.

Or scores the prevalence of systemic racism in our country and around the world to that end, we recognize our responsibility to strive for sustained social change both domestically and globally.

We are setting significant goals for our company, including a double the representation of black and lack of next leader that Fi EPS. We are also rolling out further programs to help our colleagues with the increasing problem related to student loan debt for incoming US College program participants for our clients, we will continue to deliver innovative.

Solutions and support you during these difficult times, we will leverage our scale and global reach to provide best in class service and quality for our communities. We are continuing to work on integrating environmental social and governance factors and the every aspect of our business.

And we recently launched our first ever global sustainability report, which I encourage you to download from our website as we maintain our commitment DSG described in our report I am proud of how we are operating our company with integrity and the highest ethics promoting diversity and inclusion in preserving our natural resources further we will continue.

Due to contribute to our communities by donating both dollars and volunteer hours to organizations that support financial literacy and inclusion we won vast $30 million in minority owned Fintech startups and double loss supplier span with minority owned businesses by 2023, creating an environment that enables our college.

Leagues clients in communities to thrive demonstrates how we are leveraging our technology and innovation at scale to reinforce F. highest global leadership position and drive above market growth. This concludes our prepared remarks operator. Please open the line for questions.

Thank you, ladies and gentlemen, if you'd like to ask a question. Please press. One then zero on your telephone Keypad. You me withdraw your question at any time by repeating the one.

If you are using speakerphone, please pick up the handset before pressing the numbers. Once again, if you have a question. Please press one than zero at this time then one moment. Please for your first question.

Your first question comes from the line of Jason Kupferberg from Bank of America. Please go ahead.

Hey, good morning, guys Nice results here I wanted to start with a topline related question, you've now secured seven large nexgen core banking wins over the past three quarters. So wanted to see if you can help us roughly size how much revenue they could contribute in aggregate next year as they start to go live.

And maybe as part of that can you just comment on 79% organic revenue growth target you guys had pre coded and your confidence level in that range as we move into 2021 in 2022.

Thanks, Jason if you step back about a year ago.

One of the things we've talked about was banking being able to accelerate its revenue growth profile to get us into that seven to nine time zone of growth.

I think these NBP wins and the timing of the revenue that will come on we'll certainly give us more confidence if you will in that being able to drove drive into that 7% to 9% range in a pre code world or a post cold world. It is where we are today.

The revenue comes all of these NBP clients about a year after the signing so as we've talked about in last couple of quarters with should sourcing some revenue very late in 2020, but really more of that revenue starting to flow into 2021, I don't think we're going to give a dollar amount of were those NBP revenues are at this point.

It certainly gives us incremental confidence and being able to deliver seven to nine on a go forward basis, Yes, let me just add a little color to that when you look at the size and these contracts compared to our traditional core banking deals down across community banks order of magnitude major hands down the very very significantly large contracts compared to any.

She would do in core banking the other thing that's important to no not only have we signed seven as we described but keep in mind in the modern banking platform wins those are really deposits only at this point. So we have an opportunity as we launch their deposit portfolios and bring their deposit products.

Online and this newer technology, then to move and to their lending portfolios and other areas of a traditional core bank. So so we're real excited about this potential and not only is we've talked about for years penetrating the top 30 with really transformation on core we've got an opportunity to grow these.

Core relationships with successful launches on deposit so it's a it's a really good indicator as woody said to push that banking business.

Above mid single digits into more upper single digit kind of growth rate over time and makes us very confident into the seven to nine as we discussed earlier.

Terrific maybe just another question on the margin front I know last quarter, you gave us a guidepost for second quarter EBITDA margin. So wanted to see how we should think about Q3 margin spend year over year basis. I know it was kind of a stub period in last year's Q3, and then maybe as part of that I know last quarter, you said that full year EBITDA.

Margins will increase year over year. So now that we're halfway through the year any thoughts on on kind of magnitude potential year over year improvement from a full year perspective.

Yes, I think is as we go back a quarter, we try to give you got some of the low watermark Bakken and where we thought we would be certainly have seen improving trends over that time as we tried to highlight in the prepared materials. If you think about the third quarter really in the fourth quarter I would expect to see sequential.

As mentioned in both Q3 in Q4, Jason.

No the questions common slugs dollar go ahead and that just address that we've also taken a look at consensus revenue for the third quarter and it's reasonably in line with with my expectations, even though we're not giving a formal guide with respect to margins.

I think about margins for the third quarter. If you look back to 2019 margin was about 43% we've got to two tailwinds in one headwind going into the third quarter from a margin perspective.

The first tailwind is about $90 million and operating expense synergies associated with the world to acquisition.

The second is a tailwind of about 100 million in those short term cost actions that we've taken in response to the pay and limit and finally, we've got a headwind due to coded impacting our transaction revenues, which have close to a 90% contribution margin and just as a reminder, as those revenues come back in a post coded world, we would anticipate them to return.

With that similarly high contribution margin. So as you think about third quarter. That's how we're thinking about kind of the revenue outlook in the margin profile.

Okay I appreciate all the color guys. Thanks again.

Thank you.

Your next question comes from the line of Darrin Peller from Wolfe Research. Please go ahead.

Alright, thanks, guys.

Hi, there let me just ask I mean, it's it was great to see the re acceleration on the banking segment and the capital market segments in positive territory.

We can you talk about the drivers that really really inflected in what changed in this quarter versus last and assuming a lot of that transactional revenue that hit you in March April is gone back to positive or closer to positive category and then.

When we talked about the digital transformation work, we're seeing given the pandemic I guess, Gary can you give us examples of words structurally you guys are coming out stronger because of this year products are meeting the.

Incremental demand given the digital transformation needed across probably mostly in banking, but maybe across the segments, yes, no its or hits really across.

All key areas Darren it's a great question I'm in the banking business and the capital market businesses. Both performed very well we did see some return in our issuer transaction volumes just like you would expect as they acquiring volumes start increasing so we say that flowing to our issuer cards, but honestly the baseball.

Business really perform because of all the investments we've made.

Over the last four years in newer technology and if you look at the success of the sale channel. We highlighted today, we really had now two years of double digit sales growth and so what you're really seeing is that sales growth coming on board 12 months later in starting to see good solid performance in the banking.

Business and and Thats going to continue to trend up we're seeing those sales come across our next generation digital platforms. Our next generation code connect platforms, which is when you hear people talk about open agile ATP eyes or micro services code can act as our solution for that we've been in market now for about four.

For years with that really extends the openness of all of our banking systems and we're seeing tremendous growth in that area and then we've also seen very very strong winds in core banking in the top 100.

Which is which is really in new trend that we've talked about that was being accelerated by the next generation of technology, but now I think it's being further accelerated by the pandemic. If you look over in capital markets. Once again, another really strong quarter by that team, we've made a lot of investment and.

Product over the last several years and also in the technology platforms, a datacenter consolidation and when we looked at product. We started building out a lot more robust digital enablement, we really started looking at solutions that go across the front middle and back office, we also pushed hard.

Several years ago, and opened 80 eyes, and micro services and as you look at that now the market is starting to transform that so.

We really think we're just getting the advantage of strategic pivot that we made started four years ago and is ongoing.

Of this rapid investment in next generation technologies and as the markets breaking that direction, we're seeing the benefit of that and the growth curve.

Alright, Thats really helpful. Very quick follow up just the E com business in merchant is always something that we owned in on a lot.

It was up 30% right. The actual volume can you talk about the inbound new bookings you are seeing just given its still seems like theres only a handful of companies that can really handled cross border E. Com what in this environment I would expect that to be strong.

Yes, I know I, absolutely agree with you I think that was actually the crown jewel that came out of the Worldpay combination we've been real excited when you really look at global E Commerce and dealing with the complexity that comes from that you really can continue to see us being that kind of destination of choice and so.

Some of these large complex Nielsen so very focused on pushing that strong demand. We had some nice wins already this year as woody highlight it very strong growth in our existing clients up 30% minus travel and airlines, it's important to make sure we carve that out but when.

When you're looking at really that underlying health of this business and so very pleased date, our position I think woody.

Commented in his prepared remarks were really leaning in to some of the next generation capabilities. There with access Worldpay and also doing a number of other things around or processing platform. So we really feel great about our position in and payments and in merchant specifically.

Sauce highlight another a number of other wins and so postcode bid on it. This is really good solid double digit grower for F. I asked.

Great. Thanks, guys.

Thanks.

Your next question comes from the line of David Togut from Evercore ISI. Please go ahead.

Thank you good morning, Gary and Wendy Hey, David David.

What do you called out achieving your 400 million op back savings target on the World pay acquisition two years early by the end of this year how are you thinking about.

That target beyond the end of this year is that a number that can move up substantially.

Anticipate reinvesting the access in the business.

Yes, a great question, David I think we're always focused on continuing to drive margin expansion and look for efficiencies I think looking back over both gearing as career here that by US. We've always had a focus on that and we'll continue to have a focus on the.

I will say, if we continue to see.

The amount of sales growth and delivery need that we'll have to go make these implementations will continue to invest some of that savings back into the business to drive that drive topline growth David Yeah. When you look David you look at this quarter are we at 150 basis points of margin expansion, we actually invested heavily in our delivery capabilities.

I guess as you're ramping on this kind of sales growth. It's important that we've got the necessary staff.

To be able to pull away.

These these complex solutions, so what we want to make sure that we continue to balance it between innovation and driving modernization and transformation and also make sure that we continue to have margin expansion, but beyond the end of this year. There are a lot more levers that we have the country.

When you did drive operating efficiencies, whether it's increased automation using artificial intelligence, which we're doing a lot with today and really investing heavily there or whether you look at leveraging our COO organization and drive more functional alignment they get more leverage and scale across some of our existing.

Capabilities, but I'm very confident that you'll continue to see margin expansion.

For years.

With that by Us.

Understood and then.

The capital market solutions business, you've talked in the last few quarters about transitioning that to a higher growth SaaS model, perhaps more mid single digit plus organic.

How far along are you in that transition.

Might we expect that higher growth rates start coming through its been very resilient certainly, yes, I'll start David any our recurring revenue within the capital markets group is grown so a little over 70% now we anticipate that to continue to grow as we see more and more SaaS sales versus license sales licenses were down in the core.

Peter.

From from the capital markets group, So I would anticipate starting to see that I mean, what you're seeing more resiliency in the growth rate right now.

In the capital markets group, but I would anticipate starting to see some acceleration of that into 2021 and.

Yes, just build on that the team's doing an excellent job really leaning into the market and selling into the opportunities that we're seeing with regards to SaaS every quarter or not what do you really look at it with regards to how many SaaS sales compared to license sales and and once again and at this.

Order was no different we saw a lot more SaaS sales come in and then than what we down a license that we talked a lot about banking and they had double digit sales success. This quarter capital markets was equally very strong on sales and one large.

Novelists license fee last year, but when you really look at the fundamental underlying growth of the sales and Jim just a phenomenal quarter and you saw the resiliency of it in the.

And its growth rate. So these two businesses are proving to be in very good shape at the right time in the market as you see the market breaking toward some of these newer technology. So I couldn't be happier with the with the teams are doing here.

Congrats on the strong results in a tough environment.

Thanks, David.

Your next question comes from the liner Tim Chiang Ling from Jpmorgan. Please go ahead.

Hey, Thanks, good morning lot of encouraging trends here just a follow up on some of the questions asked just on the baking side.

Are you taking share from how complex are these transitions going to be and just thinking about the delivery cost of that if there's anything unusual to consider with so much.

In the backlog.

Yeah now look it's a great question our bank competitors here are typically in house develop software over decades augmented by typically some form of consulting or offshoring firm is typically who are running into as you would suspect. These these are very complex implementations at this site.

And one of the reasons why not only do we have compelling technology.

It really competes very well in the industry really the only proven company that can do these kind of large scale complex transformations and with proof points over the years.

Around the globe, so as Woody talked about they run anywhere from 12 to 18 months.

They focus we got some of our customers that were really that were literally moving off technologies that were installed in the early seventies and we have some that are moving off technologies that were.

Installed in the last 15 years, but but theres a lot of complexity in this it takes a large program effort to manage through that at this point you would expect on very close to these implementations as well as the rest of our leaders in the company in and every one of these implementations are in green.

Status at this point, so we feel very good at how the teams are working together. These these customers have not band or these clients have not been through this kind of transformation in decades. So they're very excited about the opportunity of what this is going to drive for them to help them compete.

End market and so theres, a real sense of energy now and getting these right, but getting these installed on time, if anything they'd love assays pull them early so.

So we're real pleased at where we are as I mentioned with David where we're certainly focused on investing in our implementation pipeline. We understand we don't want our operating units to be the bottleneck for growth and so we're making sure that we're investing there to be able to accelerate in.

And meet our implementation demand as the sales team.

Things these bring the brings these contracts into the company.

Yes, owning the tech and owning the deliveries should should be an advantage. So.

Got it it's helpful to get my follow up if you don't mind, just a quick one jitter no I just trying to understand I know you a large debit processor.

Both sides will pay and legacy if I guess debit has been outperforming would be getting questions on how much of this is secular versus stimulus. So.

I figured I'd ask you for your thoughts on that and can maybe its overall you can remind us of your exposure to debit.

In any way thank you.

Yes, I'll give you some color into as Weve message before and continue to message that we think our overall debit trends will match those that have been disclosed by the broader groups in the marketplace. We continue to see growth. There I think the movement of cash out of the system more and more we'll continue to drive more.

Actions there its engine.

Don't have that we disclose the specific exposure on debit in the past but.

We certainly are seeing incremental growth there and so feel really good about how we're positioned there for the long term, yes, as we we were talking about this.

Yesterday as you think about how much cash has actually come out of the global economy, We're very bullish on on all of our payment offerings and as we think about how much does that naturally come back post coven, we think there's a real opportunity there really see a significant jump too.

Electronic a lot of it moving the card not present all of that paying significant benefits to us not only in acquiring side, but also back into the issuing side. So.

We're very bullish on these businesses at the moment.

Great great. Thanks, we have take us.

Your next question comes from the line of Timothy Chan Ono from Credit Suisse. Please go ahead.

Thanks. Thank you for taking the question a little bit of a follow up there on a related matter. So just a broader update on the top 100 banks I believe last fall you mentioned about 30 of those had been penetrated in terms of outsourcing and clearly signed a good handful. Since then when we think about that other two thirds or so that's remaining you talked about.

Some of them using sort of in house developed software that's been augmented over the years to what extent or some of those banks already F. I ask customers may be paying maintenance fees on something that was purchased kind of license basis years ago, you might already have a little bit of a foothold or a relationship there and then a quick follow up after related to you.

Digital world pay down to about E com synergies.

Yeah, I know, it's a it's a it's a great insightful question, we've got a number of those customers have substantial number of those customers.

That are running in house on our legacy technology or even outsourced on some of our legacy technology and so it's a real opportunity for us to cross sell the modern banking platform.

Frankly, a lot of those customers are watching how a number of these top thirtys top 30 institutions or are going to transition in their success with the technology, but it really not only do we have an opportunity to bring on our lending assets on top of modern banking platform, but we have a huge amount of runway.

Through the rest of the top 100, 100 and frankly.

Through the entire regional bank market. So just a lot of opportunity in the US with this new technology. We also are seeing similar demands outside the us.

But given all the movement right now in the US markets. The sales teams are pretty focused there for now but.

But we think Theres as I've said in my prepared remarks easily 10 plus years of runway.

With this next generation core banking transformation.

Great. That's helpful color. Thank you and the follow up as a quick one and they're not generally providing updates on the prior worldpay advantage.

Ecommerce synergies, but I believe the original target was roughly 100 million in run rate reps by the end of Q4 this year and I just wanted to see if there any comments or updates you can provide around that.

No. It's honestly as we've integrated the company's it's almost getting too complex to break out synergies related to what deal or this deal. So we've really been just focusing on a go forward clearly that the vantage Worldpay combination was very successful and I think given our synergy results or so.

During the success come out of the AFE is worldpay combination, but we've talked about this in the past on calls we integrate these companies. So tightly it gets difficult actually track what is a synergy and whats just operating execution and what sales execution at some point in time.

And so so really we've we've kind of moved on beyond trying to track the van.

Okay, and just really focused on the F.I.S. worldpay going forward, but feel great about where we are in synergies revenue side already being at a 115 million is significant.

You can go back on what our original estimate an estimation was which was just a 100 million by the end of this year are at a 115, we've got 60 million more in the implementation cycle with a really strong pipeline. So feel great about that execution as Woody highlighted will have the operating expense side of this completely done it.

400.

This year, so just a lot or really positive results coming out of the.

Coming out of the teams.

That's all really good color. Thank you so much.

Thank you.

Your next question comes from the line of Dave Koning from Baird. Please go ahead.

Yes, hey, guys. Thanks, great job.

Thanks, Dave.

Yeah I.

I guess my my first question just when we think about the gap between merchant kind of core revenue decline emerged from 19% and then some of the volume and transaction metrics that were maybe 10% or so give or take better than than the revenue.

Which is because the SMB I get all that but as volume and transaction trends get better does that gap shrink, meaning could we have a closer tie between revenue and some of those other metrics as as things progress.

It certainly should Dave you've got some mix issues flowing as you described there with the SMB versus let's call it grocery and drug as an example.

As you see those volumes return you should certainly see the associated convergence of the transaction trends in the revenues.

Okay, and you get do you get the full 6% back from the tax impact in Q2 do you get that both 6% back in Q3, we would certainly anticipate that yes, yes.

Okay, and then I guess my follow up question EBITDA adjusted EBITDA on a pro forma basis, I think was down almost 200 million year over year in Q2.

Revenues were down a little over 200 million so they actually matched pretty closely even with the synergies coming in why Didnt EBITDA declined less than that just given the synergies.

Yes, I mean, the synergies are certainly flowing through as we've talked about I think you've got the high contribution margin associated with the revenues themselves also impacting you. There and then we've tried to manage our manage our costs as rapidly as we good reaction to declining volumes days of the three of those together really the the impact.

Okay, Okay, great well, thank you great job.

The other thing Dave I'd, just highlight two based on some of the results that we saw through the second quarter and based on some of our outlook, we actually re put in some bonus adjustment back into our results and that maybe the other components to you might be missing as your bridging there.

Your next question comes from the line of Matt O'neill from Goldman Sachs. Please go ahead.

Yes, hi, Thank you guys for taking my question.

There's been asked and answered however, I was curious at a higher level.

On the core banking side, it's as a result as the pandemic you guys are are seeing.

A repositioning of investment dollars from your bank customers, specifically around mobile and digital it sounds like as result of the double digit sales trends in the quarter that that trend is likely underway, but I was just wondering if there's any incremental color. There started from the customer perspective, and then I had a quick follow up thank you.

Yes, I know, we clearly are clearly are seeing that repositioning and you've seen strong double digit sales growth for the last two years every quarter coming out of the banking group and when we Donna sales growth, that's new TCV, that's not renewals that.

We don't where we don't disclose that we have very very high retention rates, but really focusing on new business coming into half I asked and you're exactly right that the banking industry and we talked about it on last quarter's call. If you look at what's happened they continue to invest in digital over the years the problem.

On the is given their legacy technology thats underlying their digital frameworks. They just can't move fast enough. There. They don't have enough agility in deployment and I just can't get their costs down.

Because of this foundational issue and so we're now seeing people lean in heavily on modern banking platform there leaning in heavily into micro services and their leaning into next generation digital to take advantage of all that and just really seeing strong growth across the pipeline and then well.

Augment all of that with a lot of back office services that banks are continuing to push push on all about trying to just lower their total cost of ownership. So.

A lot of people have asked given the interest rate environment and given the pandemic why arent, we sending seeing span decline. The reality is most of our customers have just held onto long and I think at this point they realize they're gonna have to transform and spend their way.

Out of this issue they have in order to be able to compete in the future and so we're certainly seeing the benefit of that their sales success.

Thanks, Thanks, a lot of sense and then just as a follow up to the last question. I know this has been talked about a little bit, but just on the merchant yield.

Just curious around that how how impactful that underlying mixed of transactions kind of away from travel for example, and presumably a shifting more towards things like big box in grocery and things like that there may be lower yield at that.

Underpinning some of the trends that we saw in the quarter.

That is that is certainly a component of medical the mix of the customer base.

And where the volumes come off and where they came by going Thats certainly a component of what's going in yield there.

Okay. So much.

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Your next question comes from the line of Ashwin Trizec earned from Citi. Please go ahead.

Hey, guys, hi, getting heavy duty.

Got it.

Hey, Sunit desserts, congratulations to you in the team and good deal here.

Thank you.

Hey, so the TV.

Sure.

Synergy goals two years in advance intensive quick clarification, then is that even though you had obviously certain volume related headwinds with EBITDA flow through.

The rewards without that you would be taking up the number and more broadly as you kind of learn to operate in this current environment can you call out factors that you know could do you said why don't you meet this change permanent so what Mike your cost structure. It looks like next year, you talked about people product development data state.

It seems like that.

I think if you think about what we did we had more permanent long term synergies that we've talked about at 700 plus.

400 to that operating by the end of the year. We also took about a 300 million dollar set of actions that were more short term in nature Ashland in response to declining volumes.

Can some of those being permanent probably so we haven't gotten through exactly where we have some of that won't be permanent in terms of like short term bonus in terms of some of the travel that may or may return in the process, but we're working through how much of that can we keep out of the cost structure permanently that's ongoing right now.

As we speak very live in terms of facilities rationalization in terms of other things. We think we can do and reduce our cost structure permanently and it will flow into 2021 as part of longer term margin expansion opportunities. Yes. Some examples of that Ashland you actually you said in your question, we're looking really hard at below.

Real estate.

We are successfully operating.

From home today, we're taking a real hard look on whether we even reopen those offices.

We're also looking at some of the basis of some of our travel that we'd done historically and really taken hard look at that.

We're also bringing a lot more leverage through our Toolsets and technology as I mentioned then all of these things are good short term leavers, but there is 40 pointed out there will be a number of things that we don't think will will.

Spend in the reopened.

And so that will then push into next year. We also have growing efficiencies around you know some of these large programs multiyear programs. We've been running the math program is wrapping up our datacenter consolidation program are wrapping up so all of these things will also push into our margins next year as well.

Got it okay.

And.

Some pretty good sales announcements, Dave it seems like you might have cracked the code and how to send our east close deals in this remote do lineman.

The can you talk broadly about how the bank spending Enlightenment easy laundry you kind of mentioned, obviously some category changes.

Yes, just seem somewhat more data on mobile.

Less branch World copy is going to sounds the puts and takes it down to how the offering is changing.

How the setting process is changing.

More detailed would beginning.

Yeah, you know, we're really seeing spending increase in the areas that we started focusing on about four years ago, So where are people spending and let's first start where they're not spending theyre not spending for on premise type deployments. They are not spending in legacy technology today.

Those are areas, they're not spending on.

Which is where traditionally they were spending in many instances over the last 345 years, what we're seeing is that really high accelerated spend.

How do we take advantage of the massive deployment of cloud technology that is has done over the last four years, it's certainly raises their availability.

To any to nothing the industry is seen frankly lowers their overall total cost of ownership. So really taking advantage of our cloud investments has been very important they are leaning in hard on our open apiay frameworks and spending a lot of money in that area. One it gives them flexibility.

To modernize their a more component past approach. So instead of trying to do something big Bang are going to focus on individual components.

Hi, Dan leads into saying a lot of spend around our next generation component past architecture, whether its digital enablement. So as you think about or digital one platform that really is truly a new omnichannel platform, where no matter, where they interaction with the consumer or the business occur.

There's no matter what channel it goes through unique platform. So there's a consistency and literally someone can start one channel and in the interaction totally different channel and we're seeing that now in banking, we're seeing the same thing in capital markets frankly, seeing the same thing over in our merchant business.

As well so you're right. They are definitely moving span from the traditional legacy they're putting a lot of those solutions more Ana and a maintenance mode.

And then really trying to move in spend in next generation digital engagement.

That's great I might've missed whether you mentioned something on the pipeline in Pete.

Yes, I know the pipeline is very strong we're very pleased with where what we're seeing going on in our pipeline. It continues to grow we traditionally have run our pipelines at about two acts of what we're looking to generate.

In any given quarter in sales and I would say our pipelines are are running higher than that today. So we're real pleased with where not only our sales success, but the sales teams done a very nice job of of going out and building.

Transaction momentum through pipeline, obviously, not everything in your pipeline close as we've talked about that a lot over the years that I've been CEO, but we're seeing very healthy activity in the pipeline as well seeing a lot of deal flow.

Coming in and going all the way through the decision. So so at this point in time, I think Q3's shaping up to be another strong quarter and salesforce.

That's great. Thank you.

And your final question today comes from a line of George Mihalos from Cowen. Please go ahead.

Hey, congrats guys on on very solid results and encouraging trends.

Hi, Thanks.

I just wanted to circle back to your commentary on volumes within within the merchant segment I think up four.

For center so in in June and getting better just a point of clarification. When we compare that to the networks that would seem to suggest an acceleration to kind of up high single digit 70 screens or something like that just want to make sure I'm thinking about that correctly and then related to that.

Like E com clearly getting better more momentum there are you continuing to see improvement, though in the U.S. SMB channel or has that started to kind of flatten off in terms of Recruitments in July.

Yes, I'll touch base on the volumes and sales we continue to see in continued to message that we are seeing volumes and trends right in line with the networks. They continue to drive information in the marketplace out by week by month, we continue to be right on top of those trends overall, so I think thats absolutely case.

We continue to expect that given the scale.

And size of the business in our exposure across the globe similar to the networks.

On the E com side could you repeat the question on the E Com side I couldn't remember I couldn't hear you exactly George.

You can side sounds like it's it's selling additional momentum, but just curious about us SMB that continues to improve as well or was that.

Flatten out.

No I think it would can continue to improve as well as we go forward here E com demand for E. Com continues to be robust across the board. So yes, I think that trend will continue for quite a long time, given the environment that we're in.

Okay, Great and just a quick follow up as it relates to the E com side competitively.

Demise of.

Of wildcard in Germany is not an opportunity for you guys.

That is that something that out.

That that.

It would be helpful for women's business with respect.

Yeah, you know as we look at it I met we certainly.

Some of the some of the customers that were utilizing or some of the merchants that we're utilizing wire card, we see that as an opportunity for organic sales we've already had.

Some success in signing some of those some of those customers and well continue to focus on it.

Lastly, they've got a clearer our standards around risk tolerance, and other things, but but we see we see a rowley.

Continued good sales opportunity across the board through our organic approaches with our go to markets and the various market.

Thanks, Matt No step.

Thank you.

Well, thank you for joining us today and for your ongoing interest and investment in F. I guess I'd also like to thank our clients for the trust they placed in us to keep their businesses up and running every day I'd also like to send my sincere thanks to our more than 55000 employees worldwide, who without their efforts we could not accomplish these results.

So if you have any further questions that were not addressed on this call. Then please contact our investor relations team. Thank you be safe and goodbye.

Ladies and gentlemen that does conclude your conference for today. Thank you for your participation and for using 18 to teleconference. You may now disconnect.

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