Q3 2020 Fidelity National Information Services Inc Earnings Call

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Ladies and gentlemen, thank you for standing by and welcome to the.

Third quarter 2020 earnings call.

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After the speaker's presentation, there will be a question and answer session.

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I would now like they have accomplished over to your host today. They rose all head of corporate Finance and Investor Relations. Please go ahead Sir.

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

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

Gary Norcross, our chairman President and CEO will discuss our quarterly operating performance and share our strategy for continued accelerating revenue growth.

What do you what all our Chief Financial Officer will then review our financial results, including our balance sheet cash flow and still at the segment level trends.

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

Eight months are subject to risks and uncertainties as described in the press release and other filings with the FCC.

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.

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 very 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 presented in our earnings release with that I'll turn the call over to Gary who will begin his remarks on slide five.

Thank you Dave Good morning, and thank you for joining us I'm extremely proud of our third quarter results, which were turned to positive organic growth for the quarter. An impressive result for team given the backdrop of a global pandemic what.

We continue to sell new business grow the topline expand margins and generate exceptional free cash flow our.

Our strong performance demonstrates the durability of our unique business model and underscores our commitment to lifting your clients and communities, while others have been forced to retrench and preserve capital we continue to invest for growth, bringing new solutions and services to our clients now.

This quarter alone, we launched several new solutions, including access World paid which is now the world's most advance payments gateway.

Clear edge and new subscription based offering that enables community banks to run a highly efficient modern bank, while also benefiting from simplified pricing and contracting.

Those is our innovative new data ecosystem that provides clients with a unified view across their enterprise powering data driven insights and automating reporting.

In addition, we partnered with the clearing house to watch our new real time payments managed service, which provides a complete turnkey service for financial institutions to quickly and cost effectively connected United States real time payments that were equal.

Even with all these new solutions, we continue to look beyond our own current capabilities to see what's next on the horizon for our clients.

I'm pleased to announce that we recently completed our fifth annual Fintech accelerator program, which was just named best in Tech accelerate accelerator about innovate.

And we launched our new F.I.S. impact labs, both of which are focused on accelerating transformative innovation into the market.

Now more than ever our clients are embracing innovative technologies like the center scalable end to end solutions are increasingly in demand.

We saw evidence of the demand from a recent in focused one event, which was heavily depended and expanded its reach virtually this year to nearly 40 countries in which drove a 25% plus an increase in demand for half my assumptions.

Our strong sales performance is increase our backlog by 6% organically during the third quarter and our pipeline is exceptionally strong up more than 30% year over year as we continue to grow and win new business.

We're also adding our new sales opportunities for revenue synergies.

As of the end of the third quarter, we're generating a $150 million in annual run rate revenue synergies and we have $60 million more currently being implemented with our clients.

This puts us in great shape to exceed our 200 million dollar revenue synergy target before the end of the year.

We clearly have the momentum to continue accelerating revenue growth through 2021 into sustaining high single digit topline growth into the future.

Our ability to leverage our world class sales driving ongoing margin expansion adjusted EBITDA margins expanded 340 basis points sequentially and 30 basis points year over year during the third quarter as we continue to harness the operating leverage inherent in our business.

We remain focused on further enhancing her superior cost structure by driving automation streamlining our organizational structure and generating expense synergies through her appointment integration capabilities.

Our unique combination of durable revenue growth and persistent operating leverage enables us to generate exceptionally high levels of free cash flow.

We will use our free cash flow to invest back into our business both organically to deliver innovative solutions like the ones that I mentioned, a few moments ago as well as inorganically to expand into new high growth segments of the market. This in turn will reinforce the momentum that we're building to drive continued growth acceleration.

Turning to slide six people often ask me, what's next wrap my ass and how their investments allow us to compete with Disruptors in order to answer that question. It's important to understand not only where we can where we are going what's new and what's next for F. I asked and most importantly for our clients. It begins with the power.

Halfway to transformation that we started five years ago, we consolidated data centers and lose solutions to the cloud we re architected our application start to be modular and component guys want upgrading and integrating or enterprise Toolsets and we launched a dramatically more client friendly approach to delivery and service now we are.

Were leveraging your technology and expertise to lead pause over in flexible point solutions using cloud native open architecture to deliver digital omni channel solutions that are simple to integrate and easy to navigate.

In this way we are helping our clients to quickly adapt to rapidly changing consumer expectations with innovative solutions that are fast flexible and frictionless.

Well you can expect to see next from our centers around her unique ability to pay or end to end experiences by connecting the global financial ecosystem in ways that only I ask Andy which sold for each of our clients as a trusted partner by building, new and unique capabilities to better solve their challenges. We then scale these new capabilities.

Also a cloud based environment for the benefit of all of our clients and a highly efficient and cost effective manner.

This is the advantage of our unique business model and we're just getting started.

By investing approximately $1 billion annually in new product development and R&D, we're bringing tomorrow's innovation for now and by using our one to many model we continue to grow faster than the market support our clients needs and sustain their technology leadership.

I'll give you a few examples of how we are bringing together capabilities from across the business to create new and exciting growth opportunities on slide seven.

Face New Holland is the global leader in agriculture, and industrial equipment, they've done a value client with our capital markets business for the past three years, leveraging our auto and equipment finance solutions deliver a robust and automated digital experience for its customers I recently asked us to help them to drive data and insights as well.

And prudent acceptance across our network of more than 900 dealerships now, we're bringing capital markets together with merchant not partnering to drive friction wants payments.

Another Great example is our premium payback solution, which enables consumers to paper purchases with reward points demand is very strong from both our banking and merchant clients is there is a compelling value proposition for each of them as well as for the consumer thousands of financial institutions, representing more than 7000 card role.

The programs are enrolled in the F.I.S. premium pay back ecosystem and this quarter. We added one of the largest issuers in the world there are points nine further driving adoption.

In addition, we announced this quarter that Walgreens is now one of a growing number of merchants to offer its customers our premium pay back circus, joining companies like pay Pal shell and BP.

The ability to use loyalty points is becoming an increasingly important factor in consumer decisions on where to shop highlighting the type of next generation value that we're offering to our clients now.

Another area, where we're driving phenomenal value is with her merchant bank referral network. When we signed the world pay deal. We thought that we would be able to sign three to four new bank referral agreements for you as it turns out we've signed more than 15 significant new bank relationships, adding well over a thousand branches through our partner distribution network.

Sales in the first year.

Lastly, it's gratifying to see one of the key benefits of the deal come to fruition as we expand our global reach we are leveraging our combined scale to enable our merchant business into new countries and markets. Our E. Com business remains the global leader in continues to be a partner of choice for multinational companies and leading global brands.

We're expanding into six new countries, this year, including Argentina, which we announced most recently.

With our new domestic acquiring licenses wallpaper map I asked can be 10 deliberate advanced payment technology to both merchants and global companies operating in these countries around the world I'm also happy to announce that we have successfully expanded our integrated payments business in Europe.

We signed more than 30 partners there already and are finalizing agreements with several more winning these new partners gives us access to distribution that will drive accelerating growth through 2021 and beyond.

With recent investments in the U.S. as well new wins are up significantly within or integrated payments. Despite the pandemic.

Before I turn the call over to Woody to discuss the financials I do want to highlight a couple of marquee wins that we had this quarter on slide eight.

In banking, we added another top 30 financial services firms are growing roster of large client wins, they will use our modern banking platform to power their online bank in Joseph I asked because of their cutting edge technology and omni channel capabilities. We're also seeing strong success with our digital and mobile banking solutions.

This quarter, we signed an agreement with a top 50 bank. He chose us because of digital water and mobile banking solutions will enable them to rapidly innovate further differentiate their consumer user experience and increase our speed to market for new products.

In merchant, we signed the top 100 luxury retailer he chose to partner with us because of our end to end capabilities, including her debit routing E commerce and differentiated omni channel technology.

Sticking with the Omnichannel theme for a moment I'm very pleased to announce that Walmart the worlds largest retailer recently began processing E commerce transactions with us further expanding our existing relationship. It's a testament to our superior client value proposition and omni channel capabilities that we continue to win share of wallet with.

Our largest global clients in integrated payments, we signed two of the world's leading dealer management system software providers, one in the U.S. and one in the UK between the two it will provide us with distribution to thousands of dealerships through these leading highest fees turning.

Turning to capital markets demand for our end to end SaaS based solution remains robust I'm excited to announce that we signed a deal with a leading global technology company to power their complex multinational treasury function as well as to modernize their b to B payment operations. The company selected if I ask the customer cloud based technology flow.

Small deployment in simple integration.

We also signed a significant new deal with a large Japanese banks to provide a middle and back office post trade derivatives clearing solutions. The bank chose us in order to leverage our new eight the AD driven technology stack to drive efficiencies and reduce operational risk.

I'll conclude my prepared remarks back where I started we clearly have the momentum to continue accelerating revenue growth through 2021 and to sustain high single digit topline growth into the future based on our new solutions, our unique ability to combine or knowledge and expertise from across our business and new ways to solve our clients' chat.

Challenges and do their continued sales success with marquee clients.

Ill now turn the call over to Woody to discuss the financials, let me.

Thanks, Gary and thank you for joining us this morning as Gary highlighted we are excited about the momentum that we are building in the business. Our pipelines are full but more than 30% in banking and capital markets and remain the largest that I've ever seen.

Our cloud based end to end solutions are clearly resonating in the market right now.

Transaction and volume growth continued to improve in our merchant segment, and we're seeing positive trends in our revenue yield as well.

And with our backlog consistently growing in the mid to upper single digits for multiple quarters in a row I feel really good about our ability to accelerate revenue growth next year consistent with the 7% to 9% range we've been messaging.

Let's start with our third quarter results beginning on slide 13.

We delivered a strong set of financial results were significantly improving trends on a consolidated basis revenue increased 13% to $3.2 billion.

1% organically, which represents a marked improvement from the 7% decline that we experienced last quarter.

Improving revenue growth was primarily driven by two things stronger recurring revenue in both banking and capital markets as well as improving trends throughout the quarter within our merchant business.

Adjusted EBITDA increased to $1.4 billion with margins, expanding 340 basis points sequentially, and 30 basis points year over year to 42%.

We continue to expect margins to expand sequentially again in the fourth quarter as consumer spending trends continue to improve driving margin expansion for the full year as compared to 2019.

As a result of our improving revenue growth and profitability, we achieved adjusted EPS of $1.42 cents for the third quarter.

Touching on our World Penny integration, we are more than two years ahead of schedule, we've achieved a $150 million in revenue synergies as we continue to see really strong traction with our premium payback solution and we are significantly outperforming our initial expectations for merchant microphone sales.

We have also achieve cost synergies of over $700 million, including $385 million in operating expense savings contributing to our adjusted EBITDA margin expansion.

Oh, Snam, all our segments with slide 11.

Banking solutions revenue increased 3% organically to $1.5 billion. This includes a three percentage point headwind related to covance as well as an exceptionally large license comparison in the prior year period the.

Excluding these organic revenue growth was closer to 6% for banking, which is more consistent with our strong growth in recurring revenue.

Adjusted EBITDA was $653 million for banking, representing 220 basis points of sequential margin expansion to 43%.

He is a very good result, as a team drove effective cost management to overcome the large margin headwind associated with last year's license comparison.

Our merchant segment also saw a significant rebound in the quarter.

Revenue was flat on an organic basis at $1 billion. This represents 14 points of improvement over Twoq you when normalizing for the U.S. tax deadline shift as we continue to win market share, particularly in our E commerce integrated payments and merchant bank referral channels.

Adjusted EBITDA in the segment was $487 million, representing over 700 basis points of sequential margin improvement as we saw material rebound in our higher margin transaction processing revenue.

Capital markets revenues increased 3% year to date on an organic basis, demonstrating more than a point of acceleration compared to the prior year period. We continue to see good progress in transitioning this business to a SaaS based recurring revenue model and away from Washington sales.

Capital markets declined 1% in organic revenue growth for the third quarter and was primarily due to the quarterly differences in the timing of license renewals and we expect quarterly variability of this segment to continue to improve as we complete the transition to sales.

Recurring revenue continues to grow strongly and new sales for our SaaS based recurring revenue solutions increased by nearly 50% during the third quarter reinforcing our confidence for continued acceleration in revenue growth during 2021 and beyond.

Adjusted EBITDA was $286 million, representing a consistent 46% margin with last quarter as capital mortgage teams continued to manage cost and executed a very high level.

Turning to slide 12 for an overview of our recent merchant volume and transaction trends, we continue to see improvement throughout the third quarter with volume and transaction growth exiting the quarter at 6% and 3% respectively.

France has consistently improved since April and this is especially especially notable for our revenue yields historically merchant revenue growth has been highly correlated with transaction volumes with the severe impact of the cobot pandemic on cross border and SMB sales revenue growth to fall by more than volume growth last quarter. This.

This quarter as expected, we saw that spread narrowing as yields continue to improve primarily with improving SMB trends.

E Commerce transactions increased 30% in the quarter, excluding traveling airlines, while the global pandemic continues to affect US. All we believe this is a critical time to continue to invest in our solution suite to empower our merchants into an accelerating digital economy.

As Gary mentioned, we have rolled out significant enhancements within our merchant segment, all of which continue to position F. I ask as a premier provider of global ecommerce and integrated payments.

Turning to slide 13, I wanted to provide some color on the strength of our balance sheet cash flows and liquidity position.

We ended the quarter with total total debt balance of about $20 billion in a weighted average interest rate of 1.6%.

Our debt balances up slightly quarter over quarter, primarily due to FX translation as we carry significant euro and pound denominated balances we.

We continue to generate high levels of free cash flow this quarter, we generated $866 million, representing a 27% conversion of revenue.

Capital expenditures were $263 million or 8% of revenue.

As a result liquidity increased again to $4.2 billion up.

By more than $700 million quarter over quarter.

Our business model remains durable and our strategy is clearly working to help us win market share before.

Before concluding I'd like to acknowledge the dedication and expertise of our colleagues who have done a tremendous job to continue and power clients, giving back to our communities and supporting one another through this pandemic. Thank you for all that you've done operator.

Operator, now we'd like to open the line for questions.

Thank you.

As a reminder to ask a question you will need to pass so I think one on your telephone to lift all your question. Please press the pound King.

Our first question comes from the line of tendon Qual with JP Morgan. Your line is now open.

Thank you so much so yes, good results and when you've got a nice backlog of large deals that you've built up here of last few quarters I'm. Just curious I mean, just give us an update on.

On timing of when some of these deals will convert and how impactful they might be for 21 revenue as well as margin assuming there might be some startup costs with with the deals. Thanks.

Yes, now we appreciate that complement I think the team didn't execute well we continue to build the backlog now that you are seeing the the implementation as have been going very well in the modern banking platform instead.

Installs as well as across a number of our other.

New products that we've launched a you'll start seeing some of our modern banking wins start to come online.

Towards the very end of this year through some friends and family rollout, but primarily will ramp up.

Throughout next year as we've talked about on prior calls and Jan I mean these are these are really big contracts.

Measured in tens and and several instances well over $100 million and so as they start launching up you'll see that you will see that growth.

All right through 2021 and contribute to that from a margin perspective, you're right. There are some startup costs, but there you will also see well ahead of where we thought we were be on costs. So very comfortable as we look towards margins into next year and continue to expand those and that's really just given the durability of our business model, we are able to.

Oh, you're able to offset some of those start up costs through other margin acceleration in other areas. So we're very comfortable where we are there.

Alright, Thats great goods, if you don't mind, just one follow up I like your comments around end to end solutions and how it compares to some of the points solution out there and move.

Louise debating this debt versus Brett.

Sort of debate and the strength there it seems like breast is where you're going do you see sort of demand changing for.

That whole depth versus breadth I mean is that people looking for is more diversified solutions from one vendor I'm just kind of understand how that pendulum swing.

Yeah, I would actually put a little span on what you just said I would say depth and breadth are required in this industry is what we're seeing we're starting to you need the DAP in order to drive the scale to be able to to be at a total cost of ownership to drive value to then customer you need the Brad because frankly.

Especially what we're seeing in some of these large signings that we've had over the last nine months is people are looking to leverage more of their buying power with a single solution provider frankly eliminate the need for custom code and carrying cost and uniqueness and even with the openness of like you know coke.

Enact enter opened 18 framework, our ability to leverage that and drive value into the customer. It is is differentiated compared to the customer and then having to manage now on a new third party et cetera. So I think breadth and depth are important and we're continuing to see that expand in the sales cycle.

Thanks for that.

Thank you. Our next question comes from a line of Brett Huff with Stephens incorporated your line is now open.

Good morning, guys, congrats on a nice quarter.

Brent Thanks, Brett.

Wanted to follow up on the new Gateway dairy I think you might add.

I think we all know and I know you guys see it's a competitive market out there and the multinational kind of gateway big Big merchant space.

What is that new gateway get us specifically in terms of enhancing competitive position and whats. The initial feedback specifically in any kind of wins, but that has driven so far thank you.

Yes, no look I think thats very important for us we've talked a lot about it we're really excited about getting that end market, we've actually been testing it with US a series of our new customers when it gets us as really speed of implementation our ability now to bring people into and gain access to all of our marriage.

As payment types and all of our various currencies that we transact business on a global nature is really second to none and so if you look at the ground up build.

That really is a next generation innovation that gives our new customers. These large global merchants an opportunity to bring in their developers and to adapt bops environment to quickly and expeditiously test in real time and onboard so you see speed of Onboarding.

You seek flexibility engain have access to all of our back end systems all through a very simple.

Easily utilized deployment mechanism. So we're excited about this that this will clearly be the.

The single Gateway for us for the future going forward and obviously overtime will move our other remaining gateways to the to this over the next 12 to 18 months. So real excited about this development coming online.

Great. Thank you.

Thank you. Our next question comes on the line of Dave Koning with Baird. Your line is now open.

Yeah, Hey, guys. Thank you and I guess first of all in banking I mean, it's pretty remarkable that you talked about normalized growth I think excluding some license headwinds and maybe some one off co that impacts of about 6%, which is better really then than probably any point in the last several years and it sounds like the pipe.

In line with the wins, maybe you can talk about.

What's different right now that that that's happening either in the market, which you threw in a different than the last few years and if next year grows even faster as all those big wins pile on.

Yes, no I think it's a great great comment Dave I mean, obviously, you've got to go back to almost five years ago. When we really put the company through just a huge pivot towards next generation technology and transformation, we invested heavily in cloud based computing, we then brought on or applications back and start invest.

Being heavily there to take advantage of the cloud and so now if you look what's different is we're really at a really differentiated level at this point in time, we've lowered our availability times now that in some instances 10 minutes or less where a lot of the industry still at 24 hours, we brought on new Kate build.

He's the speed at which we're able to drive new capabilities in market have accelerated dramatically and as I said in my prepared remarks were really just getting started and all of that is really translating into our sales engagement. So kind of to the comment 10 Gen made about Brad what we're really starting to see is people are looking.

Not for just what's the next generation status on I'll pick modern banking platform, but that's just one of many solutions, we're bringing to market, but what we're seeing in banking is people are looking for that they're looking for an open eight the AI layer and they're looking for a differentiated digital experience they're looking for.

Back office services to augment some of theirs are looking for advanced automation around data and Decisioning and all of that is now coming together in solution. So were pretty pleased with what we're seeing in the sales channel at this point and really seeing the results accelerate through the growth curve.

In banking and as you said if it wasn't for the license Grover's, which you know you guys look at the license fees every quarter. That's consistently declined every quarter. This year and so it really just shows the power of the company through driving long term scalable recurring revenue to offset that as we.

As we transition through that so yes banking had a great quarter.

Okay, great. Thanks, and I guess, just one follow up you know when we look at EBITDA. It grew modestly year over year, and then revenue I think was up just a touch year over year to.

Give or take and I know you have a lot of synergies, but why wasn't EBITDA up a little more is is it a mix of business and is it investments and all the new products and stuff is it is it those two factors really that aren't unlocking kind of that just big synergy growth or that big EBITDA growth.

I'll take that one day I think it is a combination of two things one the revenue and volumes from merchant that have extremely high contribution margin there uplift to your point, we have not pulled back on our investment in the current year. We think it's the right answer to continue to drive acceleration into 2021, and it continued to build the business.

The long term, but it's a combination of those two items is why if there is an expectation of higher margin, while you're not necessarily seeing and again those merchant volumes come on and go off at very high contribution margins.

Yeah, Yeah, well great job on the sales thanks.

The next day.

Thank you. Our next question comes from the line of their earnings However, with Wolfe Research. Your line is now open.

Hey, guys. Good to see some of these were going but I guess before we get into the the magnitude of the wins just given the noise in the market. What do you can you give us a quick update on other any other kind of saved onetime rollovers or items in the next one or two quarters, we should be aware of.

When we think about modeling out each of the three main segments tough.

Tough comps licensees and then really just bigger picture now when we think about the magnitude of some of these banking wins coming on you.

You mentioned some of them could be over $100 million in size and so the work's being done now so just remind us the magnitude of what that could mean for that segment's growth rate and the uplift not only in revenue growth potential for that segment, but really I mean, you've done you're doing a lot of the work now so could the cost that you're working on start to flow through with much better margins and 21.

Yes, I'll take that one Gary.

I'm on the <unk> side of the business I mean access world pay with.

Pretty big headlines and I'm, just wondering what that could could you guys. We used to hear a lot of big Tom wins for the World pay you know opportunity is that something you're seeing is a big big deal still.

Okay. Yeah, Yeah, now look on it I think access world pay and and honestly just our current position and global Econ puts us at a very competitive advantage to compete and continue to win share. We highlighted you know a new winter, bringing on some Walmart volume and E. Com. So as you look we're really differentiated in that space continue.

To be the later in global e-commerce and and we continue to feel very bullish on where we are going with our with our sales <unk>.

Okay. Thanks, guys.

Thank you. Our next question comes on the line Okay. Thank Tupperware with Bank of America. Your line is now open.

Good morning, guys I wanted to just start on the merchant segment and he talked about a narrowing of the the spread there can you just bonafide what what that was I think you were at 12% spread last quarter extra tax filing timing. So if we have sent out again in Q3, what was bedspread look like.

Yes, if you think about Q2, there was about 12 point spread there between volume in revenue growth. It was about nine points. This quarter. If you normalize for all the tax where volumes were up roughly 4% for the quarter and after the tax shift revenue was down about five so it's about nine point.

<unk>, we're seeing it in a combination of SMB improvements.

The primary driver is you're seeing yields on those SMB clients higher than some of the other vehicles that we've talked about before and we've even seen some improvement in travel an airline while it's still solved it certainly improved over too few levels and the yields in that in that vertical tends to be a little higher force as well. So yes as expected we did see the coral.

Ocean between volumes and revenue narrowing and we anticipate that the continued in there as we go forward.

Okay understood and then for queue for just two things I know you were walking through the segments I. What did you say specifically on on merchant and then can you give us just a little bit more color on margin I know you said that you'll be up year over year on a full year basis, but with just a couple of months up in the air I wanted to see if we can now.

Right down a little bit just in terms of when do you want to think about a quarter over quarter versus Q3 or just the magnitude a full year your beer improvement. Thank you.

Sure, Jason we did anticipate and see trends in merchant continuing to improve again the growth dynamics in the fourth quarter for merchant are really around the pandemic status potential fiscal stimulus and ultimately their impact on holiday spending which is the wildcard for US right now, but we do continue to see improving true.

<unk> obviously.

Existing September at 6% in terms of volume growth, helping us in terms of the merchant outlook for the fourth quarter on the margin profile. We do expect sequential margin improvement for future for Q and full year margin expansion to be very clear based on current expectations and trends that we see we expect fourthquarter margins.

About 45% roughly flat with last year Jason.

Thank you.

Thank you.

Question comes on the line of Ashwin <unk>, let's.

Okay.

Thank you hi, gay heavily good stuff here an explanation.

Hey, Thank you.

I want to actually start with.

Segment that gets Ness focus capital markets.

Could you quantify the impact of the SaaS transition and growth and are there other facts to consider it and then when you lay it in that 50% <unk> and doing SaaS because it.

It seems quite impressive do those SaaS sales can work to revenue faster and Kenny perhaps high margins does that I mean, what's a good way to kind of frame forward today of growth and margin profiling. This segment.

Yeah. Thanks, Ashwin for the quarter, specifically I will tell you a license and renewals was about a three point headwind or set a different way cap markets would've grown about 2% versus minus one if you think about it going forward. We've been talking about this transition to sass I think it will continue to take the recurring revenue right.

Up from roughly 70%, where it is today up into the 80% or more overtime.

We will see those those dollar start converting as most of the sales a majority of the sales. If you will are coming on from SaaS base revenues and we do anticipate margins to drive forward with that and removing some of the lumpiness around the quarterly impacts of license, but looking at yearly trans that could drive Martin's.

And that business longer term.

If you look at camp market, specifically, we've been beginning the message that cat markets would move from the low single digit growth towards low to mid single digit growth that is our current expectation for 2021 is we see the SaaS revenues and contracts begin to convert into revenue. So so we certainly anticipate accelerate.

<unk> into 2021 based on the backlog in the sales that we've experienced in book to date. So that's that's how we're thinking about the revenue profile on cap market's going into 21.

Got it. Thank you and then the other question I had was with two guards to the.

<unk> commented in the banking segment with the.

Obviously D E tough comp license and.

Andy Covid impact if you can I might've missed this breakdown.

D V D relative size of those and when you take covid impact is that essentially.

You were in branch transactions other factors in that kind of looking for.

Sort of tightening of when that goes away is that a technology solution to the Covid impact I know you mentioned, a snap back and forth Q, but I just wanted to get get into that a little bit more.

Yeah, and the three points of Delta between organic at three and sort of normalize it six roughly a point of that is around the difficult license compare specifically around the $20 million kind of anomalous license. If you remember licenses are relatively low number for us in the banking organization. The two points, that's generally covid related.

It is really around issue where payment volumes between network debit credit et cetera on the issue or side.

And the overall payment volumes being lower than they were last year, that's the real the real Delta there.

Thinking it.

Thank you. Our next question comes from the line of David to that with Evercore eyes.

Okay.

Thank you good morning, Gary Good morning Woody.

Good morning, guys looking good morning, I'm looking at the.

Looking at the banking solutions business, and we talked to your customers about spending intentions. They do consistently highlight.

Payments now with the top three spending priority I'm, just curious I'm looking at those five M. B P wins.

With top 30 banks over the last four quarters on what percentage of those big transactions was payment a significant component of the contract.

Well I mean.

As I described earlier and then every contracts a little different but what we are seeing is broad breath.

Additional services being wrapped around these modern banking wind so and all in some instances those customers were already doing issuer payments on.

On the debit side for example, with those customers in some instances we've expanded payments into those spaces and other instances we had the leverage code connect in order for them to gain access into their existing payments provider. So it's really been a combination of all of the above David as we work through.

That it's it's a real interesting dynamic as as we see these customers we talked about several quarters ago would we see what we see.

30 institution really go through a core transformation will now we've answered that question resoundingly, which is yes, we've had several but what's really interesting is more and more now are expanding more of what they're taking from us which starts to making them much more like a a regional or.

Even a community bank and how they're thinking about their next generation total cost of ownership you deploy retail banking. So it's a long winded answer to it a little bit of all of the above.

Got it just as a quick follow up.

On capital allocation priorities I see the.

The goal of hitting two seven times net debt to EBITDA next year, but you're weighted average cost of that is one 6%, which is exceptionally low. So I'm just curious how you way deleveraging given touch a low interest rate.

Versus.

Committing capital, let's say to M&A.

Dividend growth and so forth.

The all star and maybe Gary you can add on if you'd like we have been a very committed to both the equity capital markets and the debt capital markets in terms of.

Commit commitments, we've made and delivering on those commitments.

We're very focused on continuing to delever the balance sheet and we'll be focused on delevering the balance sheet and of 2021 at that point in time, Dave We've got more flexibility.

Utilized capital in a different way to continue to drive incremental shareholder returns whether that be M&A, which is our preference to be candid or through potentially share buyback are longer term, but we are still focused on delevering back to Ah roughly two seven times and living up to those commitments on the deck capital markets I think.

Living up to those commitments long term is given us a lot of credibility with the agencies and has allowed us to ultimately utilize that capital.

And very cheap that capital about living up those commitments long term.

Understood. Thank you very much.

Thank you.

Thank you. Our next question comes on the line of Dandala.

Wow.

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Thank you. Thanks for taking my question, so I am sorry to harp on this but can we go back into the merchant acquiring segment.

Last quarter U your volume for roughly in line with visa your 4% growth now, which is nice but visa was a little higher can you may be help us give us some more shed some more light on what is happening with the smbs how much I would imagine that's the drag on volumes.

Those are more profitable too, but anything that you can shed more light on sort of how the smb's are trending.

Because we know E com and we sort of know travel that would be really helpful. Thank you.

Sure sure we did see volumes increase in September at about 6% as we described on the chart or 4% for the quarter. We continued to generally trend in line with the networks would tell you in the third quarter, we were a little closer to visa with U S volume growth at about 7%.

And double digit growth and debit.

I believe a good bit of that was continued improvement in SNB I think thats why you continue to see the yields from our revenue and the gap narrowing around the correlation between volume in revenues. So we do continue to see SMB recovery, particularly in the U S. Right now as you mentioned travelling airlines can.

<unk> to be solved, but it actually improved as well, particularly over Q2 levels and then E. Com X traveling there continues to be really strong at 30% growth for the quarter. So.

Moving parts within the verticals, but with the SMB, specifically, we certainly continue to see incremental levels of improvement there driving improvement in our revenue yield.

That's really good news to just to make sure I got it so in the U S you're volumes of tracking visa.

Correct statement.

That's very true for the third quarter closer to 7% I think basis was seven and a half or so.

Alright Fantastic news. Thank you so much.

Thank you.

Lashing comes on the line of John Davis, with Raymond James Atlanta's not open.

Hey, good morning, guys.

I just wanted to start with your comments on 21 revenue growth I think you said you feel comfortable at 7% to 9% just curious they're hanging should be thinking about why wouldn't be above that giving you are going to calm.

Minus flat this year going into next year and maybe if you can give any color by segments that would be super helpful. Thanks.

Yeah, I think it's really around three key fundamentals for not only growth in 21, but sustaining that growth new sales or building our backlog backlog was up 6%. This quarter and is consistently up mid to upper single digits over the past several quarters.

We've got revenue synergies that continue to outpace our original expectations, both and timing and quantum so that's driving our confidence level and then the third would be as Gary talked about last quarter, Our chief growth Officer Office continues to drive incremental product. We tried to highlight that as part of some of the incremental innovations that we're getting to me.

<unk> place pushing new product into the market faster is not only going to help us into 2021, but help will help us sustain that growth once we get through the revenue synergy timelines if.

If you look at banking, specifically, we got large signings coming online as well as very good sales that we've been talking about that will help us continue to accelerate growth in that mid to upper single digit area that we've been talking about merchant to your point. We currently believe the impact of Covid will obviously at least anniversary at some level and should drive.

Incremental growth. The question is ultimately how much and we continue to take share in those key verticals and then camp markets as I mentioned, a little bit earlier before continues to benefit from the transition to SaaS, including some higher normal renewals in 2021, and we will link will believe that will move us towards mid single digit growth.

A combination of all those items is what's giving us confidence in the 79% organic growth not only for 2021, but we've been messaging that for several years to come.

Some color around the revenue outlook and really the fundamentals and how we believe it builds up from 2021 forward.

Okay. That's helpful. And then just a quick follow up on the margin I think it's about 30 basis points year over year them down modestly on a pro forma basis, and he called out incremental investments and obviously the negative.

Revenue mixture from merchant just kind of think about next year, how much of that can you parse out how much that an incremental investment versus revenue shifts because assuming transactions combat that rather than accept should also come back next year.

I think that's right and we're.

We're not going to provide specific 2021 margin today. It is November we are in the planning process.

And we're in a pretty uncertain backdrop as everybody knows that said I can give you some color around the building blocks for 2021 will continue to see operating leverage and the base business, you've seen that year in and year out since Gary and I've been at the helm.

We are also outperformed on our cost synergies and we'll see that benefit flowing through 2021.

The majority of our short term cost actions will reverse primarily.

Bonus compensation.

Will hold the line on the rest of it or try to hold the line on the rest of an understanding some of his travel related and we believe some of that will return later next year and then ultimately based on the demand in the pipeline, we could be looking at some potential incremental investment to further accelerate growth again, not giving a specific guide today, but when we do provide guidance in February.

I'll give you guys a bridge with all these building block home and owned how margin right bills up from 2020 into 2021.

Okay. That's helpful. Thanks, Scott.

Thank you. Our next question comes on the line and George Ross What's talent.

Hey, good morning, guys and and congrats on the on the sales momentum.

I guess my my first question is it it certainly doesn't seem to be.

Impacting up sales at all particularly on the banking side, but yeah, just just curious as we're seeing more.

Bank consolidation in in in Europe Internationalists, specifically.

And the potential for that to kind of pick up going forward, how do you see that impacting or for that matter not impacting the business both around kind of pricing and the ability to sign you deals.

Yeah, I think it's a great question, George I mean, what what what we consistently seen obviously, we've actually seen a slowdown during during the pandemic with with M&A activity across our crossfire various clients, but but I'll just go back to historically and remind you, especially in the banking business weekend.

To be in the larger side of the market right. So the largest regionals superregionals.

National and global institutions, and because of that our customers tend to be they acquired sent over the last several years, what we've really seen even why are they are not at most of the time when our customers me acquired given our scale and the large side of the Mark.

We've been very fortunate in not only being able to retain the business, but actually grow the business through through moving they acquire onto our platforms and so we think that trend is gonna continue.

We do see continue.

The strength and the sales channel frankly is based on some comments on made in prior calls.

I think a number of the larger global institutions and a number of the larger institutions frankly, I've just held on too long to make technology investments, especially around core banking, especially around modernization digital enablement openness et cetera, and I think you're seeing that now translate just into a really strong.

Not only pipeline.

Sales success, and obviously increasing backlog.

I want to thank you for your questions for your participation in today's call will conclude with slide 15.

While we are excited about the momentum that's building within our business and the growth prospects wrap Ias I do want to reinforce reinforce our continued commitment to helping our colleagues clients and communities thrive by advancing the way the world pays banks and invest.

We continue to invest in innovation to drop top and bottom line benefits wrap I asked and our clients, but we haven't achieved success through investments alone. Our colleagues remain key stakeholders in our business and we are becoming the fintech employer of choice by maintaining an inclusive and diverse environment, while fostering a culture of innovation and growth.

As a surely wanna. Thank each of you for your continued efforts, we would not be where we are without.

For our clients, we will continue to deliver tailored and and experiences by leveraging differentiated technology and unique expertise together, we will exceed consumers rising expectations with solutions that are fast flexible and friction losses and lastly for our communities. We will continue to get back not only during these challenge.

And cons, but always in order to have a positive impact on a places where we live and work together, we will continue to win as one team and deliver on our commitment.

In closing I'd like to thank you for your investment in F. I S. We appreciate your support thank you Stacy and goodbye.

Ladies and gentlemen. This concludes today's conference call. Thank you all for your participation you may now disconnect everyone have a great day.

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