Q4 2020 Fidelity National Information Services Inc Earnings Call
[music].
Ladies and gentlemen, thank you for standing by and welcome to the F. I S fourth quarter 2020 earnings call.
At this time all participants are in a listen only mode. After the speaker presentation. There will be a question and answer session to ask a question. During the session you will need to press star one on your telephone please.
Be advised that today's conference is being recorded if you require any further assistance. Please press star zero I would now like to hand, the conference over to your speaker, Mr. Nate Rozanov head of corporate Finance and Investor Relations. Please go ahead Sir.
Thank you good morning, and thanks to everyone for joining us today for the <unk> fourth quarter and full year 2020 earnings conference call. The call is being webcast at today's news release corresponding presentation and webcast are available on our website at Fas Global Dot com.
Gary Norcross, our chairman President and CEO will discuss our operating performance and share our strategy to continue accelerating revenue growth and maximizing shareholder value.
All our Chief Financial Officer will then review our financial results and provide forward guidance, Bruce Leathers President of banking and merchant solutions will also be joining the call today for the Q&A portion.
Turning to slide three today's remarks will contain forward looking statements. These statements are subject to risks and uncertainties as described in the press release and other filings with the SEC.
The company undertakes no obligation to update any forward looking statements, whether as a result of new information future events or otherwise except as required by law. Please refer to the safe Harbor language.
Also throughout this conference call, we will be presenting non-GAAP information, including adjusted EBITDA adjusted net earnings adjusted net earnings per share and free cash flow. 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 information infill.
<unk> are 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 Nate good morning, and thank you for joining us I'm pleased to announce our fourth quarter and full year results. Starting on slide five 2020 was an unprecedented year for the world and for Fas with the COVID-19 pandemic impacting the world on a human as well as an economic level. Despite the extraordinary year, we leveraged our scale.
And resources to keep the global economy running while delivering solid results, we generated $12 $6 billion in revenue as our balanced solution portfolio allowed us to offset weaker consumer spending trends with strong demand for our banking capital market solutions as we closeout 2020, all three of our business segments ended the year.
With record annual sales continue to prove that our solutions and technologies are winning share around the globe. Our backlog grew 7% organically to $22 billion. This gives us exceptional visibility into our future growth trajectory and drives our confidence in accelerating organic revenue growth for our banking capital market.
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From a merchant perspective, given the accelerating rollout of Covid vaccines globally, and improving trends and economic indicators. We are confident we will see strong merchant revenue acceleration throughout 2021, our team continues to execute at the highest level as demonstrated by our ability to expand adjusted EBITDA margins by 120 <unk>.
<unk> points for the full year, despite near term Covid challenges. We also made great progress with the world pay integration remaining well ahead of plan and exited the year generating more than $200 million in revenue synergies and more than $750 million in cost synergies with its impressive momentum we're excited to build on our.
Strengths as we look ahead to accelerating organic revenue growth in 2021.
Turning to slide six.
<unk> had a very successful year operating the business and I couldnt be prouder of the team's accomplishments and unwavering commitment to support our clients and communities. The modernization and innovation investments. We've made are paying dividends, enabling us to accelerate organic growth across our entire business Amazon are long term merchant client added our capital.
Markets industry, leading treasury management system to the growing portfolio of services that we provide them further walgreens and giant eagle expanded their long standing relationships with Fas Walgreens selected our integrated payable solution and giant Eagle selected a series of our back office financial solutions from our comprehensive banking suite.
Lee.
We also recently developed an innovative benefits card solution with United Health Group that combined strength from across Fas in this partnership we created a fully in our solution, where we accept transactions as the merchant processor route them through our network and finish with our own authorization and settlement engine 2020 highly.
<unk> at how our unique capabilities are being successfully combine to serve our clients in ways that they cant find anywhere else we.
We continue to invest in cutting edge technologies for the future, including contactless voice enabled and self service solutions as well as AI and automation, we launched over 60, new products in 2020 with a focus on enabling our clients to grow their revenues and operate more efficiently. All of this enables us to emerge from the <unk>.
<unk> in an even stronger competitive position. We also continue to be relentlessly focused on improving our own operational efficiencies. We made exceptional progress in integrating world pay as well as consolidating platforms and data centers with over 70% of our global compute now running in the cloud to continue our upward margin momentum.
We are beginning the next phase of our enterprise transformation, we will average data analytics and automation to reduce our cost and create new efficiencies by upgrading and consolidating our technology platforms as well as continuing to simplify our technology architecture.
As a result, Fas will be faster more agile and deliver frictionless service by transforming our operating model and streamlining our organization given.
Given the tremendous achievements from our data center consolidation program and ongoing cost synergies I am confident in our ability to deliver 45% adjusted EBITDA margins. This year, and then continue to expand them and each year for the foreseeable future.
From a market viewpoint demand continues to increase both our sales pipeline and backlog continued to grow and we are finding new sources of revenue synergies and cross sell wins to accelerate our business further.
Turning to slide seven.
In banking solutions, we continue to win share and accelerate revenue growth our investments have enabled us to build a differentiated offering winning new logos across markets of all sizes and actively expanding wallet share with existing clients as a result, our backlog within the banking business expanded by 8% organically and generated.
<unk> three $5 billion in new sales during 2020, which is our largest selling year ever cross selling them new solutions into our existing client base is also up including a 23% increase in cross selling solutions to our top 100 clients. In addition, three of our recent modern banking platform wins are now live.
We project that the modern banking platform will generate in excess of $100 million of revenue in 2021, we expanded our relationship with bank of Hawaii to power their digital banking product offering they will implement our digital one solution to bring modern best in class capabilities to both self service and banker assisted channels lastly.
U S Bank a top five bank selected our bill pay solution due to our simple integration and personalization across digital channels are multiyear sales success strong revenue backlog continued strength in the pipeline and ability to consistently drive innovation into the market lay out a clear path for banking accelerate revenue growth in 2020.
One.
Turning to slide eight and merchant, we will leverage our technology advantage and leading competitive position to continue to win share all while taking advantage of other revenue tailwind being presented by recovering economic and pandemic indicators, we continue to outpace the industry regarding total volume is being processed indicating not only the AUM.
The strength of our capabilities, but our continued ability to gain share throughout the pandemic.
We are also seizing the opportunity created by the rapid shift of consumer spending to online and digital channels, where E commerce volume, excluding travel and airlines grew 32%, we provide advanced and highly differentiated omnichannel capabilities, including buy online and pick up or return in store, which merchants must have.
To compete in the digital economy, our expanded relationship with Walmart to process ecommerce transactions is a great example, and we're also winning new business with innovative online providers like Grubhub Norton Lifelock also selected FIS to provide global ecommerce acquiring using our innovative access world pay gateway, which is.
Strong hacker group just recognized for having the highest authorization rates in the industry looking forward, our global reach tailored solutions and innovative technology will continue to drive share gains for us is changing merchant and consumer behaviors play to our strengths.
Moving to slide nine demand is strong for our end to end front middle and back office solutions within capital markets and our leading regulatory compliance technology, we continue to gain traction with our SaaS based delivery model, which drove a 7% increase in new sales for reoccurring revenue in 2021, including a 19%.
Increase in the fourth quarter. In addition, new logos contributed to 26% of our fourth quarter, New sales and average deal size grew 9% as we continued to add to our portfolio of leading buy side and sell side clients. All of these are strong indicators for accelerating growth in 2021.
A few sales highlights include BNP per about who recently chose to expand our relationship we will transform their post trade derivatives clearing platform, which will allow them to benefit from significant cost and operational efficiencies as well as enhanced customer service all while reducing risks. We also signed an agreement with Allianz a large.
Global insurance company to provide payment and cash processing platforms on the buy side Vanguard recently expanded their relationship with US to include outsourced tax reporting highlighting one of our leading Reg Tech solutions. Our differentiated end to end solutions are winning share and our transition to recurring SaaS based revenue streams as well.
Also taking hold which gives us confidence in our ability to further accelerate this business.
To underscore that we are pleased with our full year 2020 results across all of our business segments. We expect this positive momentum to continue into 2021 and beyond Woody will now provide additional detail on the financial results for the quarter as well as forward guidance Woody.
Thanks, Gary and thank you all for joining us starting on slide 11, I will touch on our fourth quarter results before transitioning to our forward guidance.
We remain excited about the trajectory of our banking and capital markets segments and look forward to significantly rebound in growth in our merchant segment as global economies reopen.
On a consolidated basis organic growth was flat during the fourth quarter and adjusted EBITDA margins expanded by 60 basis points to generate adjusted EPS of $1 62.
We expect to exit 2021 generated $400 million of run rate revenue synergies based on strong client demand for our premium payback solutions growing distribution with new bank referral partners as well as geographic expansion and cross sell initiatives across the enterprise.
These revenue synergies will help supplement our organic revenue growth profile.
Giving us increased confidence in achieving 7% to 9% organic revenue growth on a sustained basis. We also have line of sight to execute an additional $100 million of operating cost synergies, bringing that total to $500 million exiting 2021 or 125 per cent of the original opex target.
Turning to segment results on slide 12, and banking organic revenue growth accelerated to 5% and our strong execution more than offset lower termination fees.
Based on our large and growing backlog as well as our growing pipeline of new opportunities. We continue to expect the banking segment to accelerate into the mid to high single digits.
Our merchant segment revenue declined 9% organically or 7% on a normalized basis when excluding the step up in debit routing synergy that we achieve following the royalty acquisition.
As we begin to lap the impact of COVID-19 in the second quarter, we expect merchant revenue growth to rebound sharply driving mid to high teens growth for 2021.
Our capital market segment continues to exceed expectations with organic growth of 3% in the quarter, which includes about one point of headwind associated with the timing of license renewals.
This segment is positioned for low to mid single digit organic growth in 2021, driven by another strong year of new sales and recurring revenue growth.
On slide 13, we provide more detail about how client mix is affecting merchant revenue growth during the pandemic.
The significant difference in consumer spending trends between discretionary and non discretionary verticals is creating an unusual revenue mix headwind for us discretionary spending verticals, which typically carry higher yields experienced a sharp contraction during the pandemic. Meanwhile, non discretionary verticals and most of E. Com typically comprised of lower price.
Large enterprise and multinational clients experienced strong demand as a result merchant revenue declined even as volume continued to grow beginning in the second quarter. We expect these mix headwinds on yield to reverse as discretionary verticals rebuild over easy comps.
This should create a significant yield tailwind for our merchant revenue growth that extends until these verticals rebound fully.
Turning to slide 14, I want to touch on the strength of our balance sheet cash flow and liquidity position, we generated over $3 billion of free cash flow in 2020, which was up about 50% over last year, we invest over $1 billion in Capex in order to drive new technology and solutions to the market.
We made the strategic decision to maintain our capital expenditure budget through the pandemic as others are forced to retrench in order to continue to accelerate our new sales and competitive momentum relative to our peers, even as we continue to invest in innovation and growth our liquidity position continues to grow and reached $4 $6 billion by the end of the fourth quarter, which is up by about.
<unk> $400 million sequentially.
Looking forward, we expect free cash flow conversion to continue to improve up from 24% of revenue in 2020.
Increasing to 25% to 27% of revenue in 2021, as we continue to drive integration and efficiency throughout the business.
Turning to slide 15, I want to touch on our capital allocation priorities in light of the large share repurchase authorization and simultaneous dividend increase that we recently announced over the long term organic growth and M&A opportunities have been and will continue to be our first priority for long term success, we will invest aggressively in our fastest growing businesses and target high.
Gross assets for M&A to accelerate or extend our growth profile.
If it fits our overall strategy drives accelerating growth for our company as an and is actionable we will execute accordingly.
Next share repurchase will continue to be a primary tool for returning excess free cash flow along with consistent 10% to 15% dividend increase each year.
In the short term, we believe that <unk> shares are trading well below their intrinsic value, creating an opportune time to buy back stock.
We recently announced board approval to buy back 100 million shares which represents approximately 16% of our shares outstanding are over $13 billion at current stock price.
The board's decision to approve this program reflects continued confidence in the strength of our financial position and the durability of our business model.
No time limit on this authorization and we expect to begin buying stock as soon as we can.
I'd like to begin our discussion of 'twenty, one guidance when the view into our adjusted EBITDA margin expectations on Slide 16, we expect to achieve 250 to 300 basis points of adjusted EBITDA margin expansion in 'twenty one.
The biggest driver of this will be high incremental margins as revenue growth accelerates, we anticipate approximately 100 basis points of margin expansion associated with our ongoing achievement of operating expense synergies.
Unwinding, our COVID-19 related short term cost actions will create approximately 150 basis points of headwind in 2021 as these costs come back online.
We continue to anticipate meaning margin meaningful margin expansion beyond 2021 supported by our one to many operating model and ongoing efficiencies as we continue to optimize our infrastructure.
Turning to our guidance on slide 17 in the first quarter, we expect organic growth of 1% to 2% generating revenues of three three to $3 6 billion.
Once we lap the Covid pandemic comps in late Q1, we expect revenue growth growth to accelerate materially beginning with the second quarter and driving us to our full year expectations, we expect to generate $1. Two five to $1 2 billion of adjusted EBITDA for a margin of approximately 40% to 45% as we begin to fund.
Our bonus pool. This will result in adjusted EPS of $1 20 to $1 25 for the quarter for the full year, we anticipate revenue of $13 five.
To $13 7 billion.
This represents 8% to 9% organic revenue growth, which is higher than the 7% to 9% range that we initially expected, reflecting our increased confidence as Gary described further we expect to generate six to $6 one $5 billion of adjusted EBITDA for a margin of approximately 45%.
As a result of our accelerating revenue growth and expanding margins, we expect adjusted EPS to grow 14% to 17% to a range of $6 20 to $6 40 <unk>.
Finally, we provide some additional guidance assumptions in the appendix material.
As we enter 2021 and I am excited about our accelerating revenue growth and free cash flow generation.
I believe we are uniquely positioned as a sustained higher gross large cap stock and will be able to drive consistent long term shareholder value. Operator would you. Please open the line for questions.
Of course, ladies and gentlemen, as a reminder to ask a question you will need to press star one on your telephone we ask that you. Please limit yourself to one question and one follow up question.
With John Your question press the pound key please standby, while we compile the Q&A roster.
Our first question will come from Jason Kupferberg with Bank of America. Please go ahead.
Hey, good morning, guys. Thanks for sharing some of the.
Merchant volume data I think clearly shows that there is no signs of market share loss here, but I wanted to actually start with the question on the banking segment. Obviously, it's still your largest segment and I wanted to just get a sense of your conviction level and the growth acceleration path for banking. During this year what are the potential risks there in any year over year comp issues.
Round termination fees or other dynamics, we should be aware of aside from obviously the lumpiness in the transaction based portion of that business.
Yes, Jason Gary that's a great question, we're very confident in accelerating growth in the banking channel. It's clear when you look at the backlog you've seen acceleration over the last several quarters, which is a testament to our sales engine closing a business. So now as we enter into this.
Year, it's really all about implementing that backlog and getting it stood up I felt it was important to let everybody know that for example, the modern banking platform. We had three deals already go live this year, which is a good testament of that platform. It is now in market processing, obviously, we've got a lot of sales behind that.
That are in the implementation cycle and continuing to progress but.
We feel good about where we are we're not it's hard to predict termination fees.
At this point, but we see no indications that we're going to have challenges with termination fees or growing over a termination fee. So I think it's just going to be good execution on behalf of banking through the implementation channel. Obviously, we want to continue to have our sales engine continue to add to that backlog so that growth acceleration maintains Boeing.
Into 2022, but we feel good about 2021, Jason to add a little color on the cadence of the year. We anticipate Q1 to continue to accelerate off of Q4 and continue to see solid growth each quarter over the course of 2021.
Okay and then just for my follow up what are you just maybe two clarifications for you first off have you factored any of the share buyback into the EPS guidance for the year because it looks like the full year share count outlook is actually up from what you just reported and then can you just run us through the first quarter segment level growth.
Patients thanks, guys.
Yes, we have not factored in share repurchase into the EPS upside opportunity as we go into market over the course of the year, we think we'll be in market over the entire <unk>.
Span of 2021.
And we'll continue to pay back debt as well to meet year end leverage below three turns but anticipate absolutely driving share.
Share repurchase over the course of the year and if not in the EPS Guide right now Jason.
Along with the segment guide Youre looking at capital markets, having a difficult comp in Q1, and then seeing significant growth over the remainder of the year, we anticipate merchant revenue to be roughly flat for Q1. This year with accelerating growth heavy acceleration in Q2, an ongoing acceleration as we lap.
Covid Covid pandemic comps.
Thank you.
Thank you. Our next question will come from George Melas with Cowen. Please go ahead.
Hey, good morning, guys and thank you for taking my questions.
Wanted to start off with sort of a high level question maybe for Greg.
For Gary and in per Bruce and that's just when you look at the banking segment and you highlighted cloud native technology that youre going to market with.
Maybe you can just kind of explain to us youll cloud native versus cloud enabled.
What does that differentiate for you in the eyes of your customers. What are you able to deliver whether it be faster or more that would be a differentiator and then maybe related to that.
Look at the landscape of competitors in the market has that changed at all.
In terms of the.
The competitive landscape and maybe their ability to sort of move upstream to larger customers.
Yeah, No George a great question and I'll start and then I'll turn it over to Bruce I think youre hitting a very important point, we were well ahead of the cloud migration as you remember going back five years ago, where we started moving in and enabling our capabilities in the cloud and taking advantage of that and the vantage in March.
<unk> was certainly resiliency availability speed et cetera.
Vantage to us was lowering our overall cost. We then started three years ago or building cloud native applications to sit on the technology framework and what Youre seeing there is a totally different paradigm shift.
You are starting to see some startups in the market, but I would say, we're well ahead, whether it's our modern banking platform. Our code connect platform. Our digital one all of those are in about enabling speed lowering overall costs being able to deploy in more component past architecture and really take advantage of the cloud.
<unk>.
Yes.
Add on I think that's right Ben.
Evolution for us over the last few years as Gary just stated and the benefit for US has been able to drive more product into market and you can see those new products coming to market are fueling our growth rate.
That's great color just a quick follow up on the M&A side.
Gary there are a lot of assets out there.
He is willing to do sort of a larger act.
Acquisition that will accelerate revenue growth, but might be dilutive to earnings.
Earnings over over the near term and then just how are you thinking about targets, whether they be on the merchant side or the banking side.
Yes, I think it's a great question and you know what he tried to address that in some of the capital allocation in the prepared remarks as you think about it M&A is going to continue to be important pillar in our strategy. We're going to continue to look for things that accelerate our growth further from where we are today.
Large transformational M&A, where we think we're extremely good at integrating those kind of companies you see the success rate, we've had now with well over $740 million of cost out of out of world pay in over $200 million revenue at this point. So we think we think there is a way to drive scale and drive comp.
Elements to that as we think about it our aperture can be pretty wide our diversification of revenues an important differentiator for us you've seen us actually do very well against our.
<unk> our peer group.
In the middle of a COVID-19 in the middle of a pandemic, which is all due to that diversification of revenue. So opening our aperture and looking for things that maybe could drive those kind of benefits I. Just described would be important but we also to Bruce's point earlier, given our investment in innovation, given our investment in technology, our ability to launch new products.
Capability, we don't have to do M&A to continue to grow but if we could find something that accelerates our growth brings the necessary scale.
Scale that we're looking for additive scale as the ability to take out cost integrate that company absolutely we would do.
Another M&A transaction.
Thanks, Gary.
Thank you. Our next question will come from Darrin Peller with Wolfe Research. Please go ahead.
Alright, Thanks, guys. Your margin targets are back to what you said they would be when you pretty much announced the deal with world pay at 45% and so.
We get a lot of questions on where margins should be giving us scale and operating leverage.
And the business combined with versus investments Youre, making so I'd love to talk through first of all the areas of focus of investments you want to make this year.
And then going forward make sure we're still back on track, where you I think you said before where Gary maybe it was you earlier that you would expand margins in years after or is it back to that 50 to 100 basis points type model of margin expansion going forward.
And then maybe again, just really focusing on where you guys plan to lay out incremental dollars for investments throughout this year index.
Yeah. Thanks, I'll touch on the margin profile beyond 2021 Youre right.
We're seeing significant operating leverage in the business as we anticipated as we see revenue rebound again thats roughly 300 to 350 bps, we are seeing incremental synergies driving us up another 150 basis points with some headwind across the short term cost actions that we have within the operating leverage.
Component there is some incremental investment there to drive the sustained growth.
Look beyond 2021, I think youre right were more back into a roughly 50 to 100 basis points a year of annual margin expansion that we feel good about based on ongoing initiatives operating leverage within the business and continued focus on cost initiatives to take cost out of the business long term.
Yes, let me add a little color on that Darrin I mean, if you think about our investment strategy. We obviously.
<unk> datacenter consolidation, which was very successful and we've talked about that a lot now it's our opportunity to really move to the next evolution of our technology and so as Woody talked about we'll be investing in our businesses not only in new product that actually Bruce brought up and deploy more new product faster than market, which is going to be.
Are important we have a really unique opportunity to now start consolidating our platforms.
And getting significant cost down so we're very confident in continuing to accelerate that $50 100 bps beyond this year, all while maintaining what we would view as really industry, leading investment back in innovation and growth and so we've been able to maintain that balance throughout the datacenter consolidation than we would.
Spect that to be no different with this next wave, but very comfortable and continued margin expansion on an ongoing basis.
Okay, and just one quick follow up.
To George's question before I think was.
When we think about M&A versus capital allocation you guys. Obviously moved your your thresholds to three turns at the end of the year for debt, which gives you more flexibility on buybacks. This year is that a signal that.
We're hanging tight a little bit on buybacks I'm, sorry on M&A rather.
I know you mentioned youre looking for potentially both types of growth tuck in but also large transformational what would you prefer Gary.
I'll leave you to do a large transformational given.
Good at that or.
Or do you have any preference thanks guys.
I think our preference would be the one that drives the most shareholder value at the end of the day right something that feels like it's a GAAP and our capability that brings the necessary scale that we would need in a particular area that we're focused on I think that can be translated into whether it's tuck in or large transformational M&A I also would tell you.
We also have been pretty disciplined in our approach over the years right. So this is not a company that has to do M&A.
In order to continue to grow and accelerate and you've seen you see that with our guide when we did the world pay combination we guided to 79% growth in.
This year, we're going to be in that range and obviously, we feel comfortable we can maintain in that range going even into 2022 and beyond with margin expansion based on the things we've talked about so.
We'll continue to look at things that make sense for the company.
Things that drive scale things that fill in product things that we see perhaps some markets moving in a direction, where we think.
Doing some type of M&A activity will be faster than us building. It ourselves all of that will be taken in consideration in making sure that it drives the appropriate shareholder returns.
Alright that makes sense thanks, guys.
Thank you. Our next question will come from David <unk> with Evercore ISI.
Thank you good morning, Gary and Woody.
Good morning, David.
Good morning, Gary could you give us a sense of how you expect Q2 to Q4 to play out both in banking and merchant solutions. When we think about the underlying drivers for example in merchant.
Yield where you've been a little challenged given the pressure on the smaller merchants so yield.
<unk>, how that might play out.
Through the year, particularly travel.
And any other factors.
For merchant and then take you through banking solutions can you give us a sense of when some of these big deals might convert by quarter, you called out $100 million in MVP revenue expected.
And any thoughts on sort of demand and banking solutions.
On kind of the cross sell and up sell side would also be appreciated.
Yeah, I'll touch on the cadence of the growth there David and then we can touch on the MVP impact as well.
We anticipate significant growth, particularly in merchant in Q2, as we lap COVID-19 impacts.
We anticipate the mix to flip the other way as we've talked about before when we see volumes coming back in the discretionary areas and in travel and airlines to improve we certainly do not have travel and airlines at the same pre COVID-19 levels. Throughout 2021, we think it will take into 2022 before that actually.
It comes back a 100%, but certainly see outsized growth expectations in merchant in Q2, and Q3 and Q4 of 2021, the remainder of the business banking again, we anticipate acceleration off of Q4 into Q1, and then continue to see good solid growth in each quarter.
<unk> and then capital markets, we anticipate actually to accelerate over the course of the year with a difficult comp in the first quarter, and then second and third quarter to move on if you think about the cadence of EPS for the year.
Outline the information around Q1 versus consensus estimates obviously, we think consensus estimates are a little too high for Q1, we think Q2 and Q3 are roughly in line in Q3 is a little low to give you sort of a full cadence of the year.
For Q4 Little hope excuse me.
So that's a little bit of their MVP, we have converted three customers that are live now and we do anticipate it to drive a $100 million of revenue in 2021, and we'll continue to work through the conversions of additional sales that we made throughout 2020.
Bruce why don't you take that.
Just adding onto what you comment from a demand perspective.
<unk> around MVP and particular in banking as a whole.
We continue to see excellent demand for MVP is our qualified pipeline has doubled.
Coming out of the year and so we really see a lot of activity in this space certainly in the large bank.
Category, So feel very positive about continued momentum in MVP and then on the cross sell again I think as Gary mentioned early on in the call. It.
It was a record sales year for the for the group in banking actually in all three segments and we're continuing to see a lot of opportunities and a lot of success.
Really driving our synergy numbers as well so great pipeline for cross sell yes significant indicator of that David was was I mentioned in the top 100 financial institutions, we saw a 23% increase in cross sales that significant for the for the year and continuing to see that from a pipeline stand.
Point, so obviously, we've really differentiated herself in the large end of the market in banking.
And that level of cross sell given the product new product capability that Bruce and the team are bringing online is.
It continues to be a very important indicator.
Understood. Thank you very much.
Thank you. Thank you. Our next question will come from Dave Koning with Baird. Please go ahead.
Hey, guys. Thanks, so much.
And I guess my first question just revenue last quarter I think in merchant was down mid single digits kind of on a core normalized basis any went to negative nine volume actually accelerated from 2% to 4% and like you said, that's very much market growth in volume.
Why did that GAAP wide and was there something in Q4, specifically that just move towards away from high yielding merchants, just kind of accelerated in that quarter.
Yes, I think you had two things really roll into the fourth quarter day, where volume and.
Non discretionary continued to increase which carried a lower yield as we described in the prepared materials. The combination of lower travel into Q4, which we saw even lower travel into Q4, and the very tight lockdown in the U K.
Which impacted retail and restaurant in the UK certainly we saw impact from that in the fourth quarter that continues to show that separation. If you remember we saw yields in the second quarter move away from volumes.
We saw those come back some in the third quarters as the economy Reopens and then as you saw Lockdowns go back in place in fourth quarter, we saw yields diverge again so.
Certainly a trend around that that we're seeing at this point and can kind of predict and get some some expectations around I think at the end of the day, it's around when do the economies reopen and certainly either way we are going to lap the COVID-19 items by the end of March this year, regardless youre going to see easier comps over the remainder of the year no matter.
How fast the vaccine.
Got you. Thanks for that and then the second question. This is kind of two parts there both short but.
What moved out of banking and capital markets into corporate and then secondly margin by segment. This year, our cap markets and banking kind of normal 50 to 100 bps of expansion and then merchant up like 5% 600 bps does that kind of how we should think of it.
Yes, a couple of things in there we did lose a couple of things that are non strategic force in the corporate and other.
And think about <unk> in India ATM business for example.
One area and then cat markets had a smaller piece that was put over and there we anticipate either selling or winding down those businesses as they don't fit long term strategically or structurally not as solid as the remainder of the business. It's about 3% of total revenue and is anticipated to impact.
2021 is the organic growth a very small amount less than a half a point.
With regard to the margins you are right. We anticipate good solid margin growth in both banking and capital markets over the course of the year with obviously outsize margin expansion in the merchant business.
Great. Thanks, guys.
Thank you. Our next question will come from Tien Tsin Huang with Jpmorgan. Please go ahead.
Thanks, So much good morning, you covered a lot of stuff here.
Wanted to ask about merchant as the world Reopens here and we see new business formation come back do you do you feel confident they are the right distribution channels to capture.
The shift in where the merchants are are going seems to be a shift for example to marketplaces and software led sales in integrated payments and that kind of thing do you do you think you have enough muscle in those areas as we reopen.
Yeah, Tien Tsin I think it's a great question I think Lee I think we actually do have.
Good muscle in that space, we've done a really nice job increasing our direct sales force. We also had a lot of success last year, increasing our partner led sales I mean, a lot of our partner growth areas were up $4 five times over the prior year's whether thats banking referral or even some of our isd referral programs, which will.
Pay huge dividends to us.
Going into the recovery, but I think we're well positioned to take advantage of it. We also have made a lot of investments in our technology as well, which really allows for more rapid onboarding of merchant. So all of those things would be great indicators of us being in really good position on the recovery.
Okay, Okay, great and just a just a quick follow up then just with all the retail trading going on that we've seen recently any impact to your capital markets business and also just a clarification on the margin side.
Capturing an unusual amount of implementation cost this year on margin debt you might get relief from next year, just wanted to make sure I caught that sorry, two quick follow ups. Thank you.
Yes, I don't think Youre seeing an impact on the trading side of any significance.
Based on recent activity there and then on the <unk>.
Arjun.
Number of those implementation.
Capitalized in the balance sheet and amortize back off over time. So we're not we don't anticipate a significant lift up associated with that it will be more to that normal 50 to 100 basis points a year in the ordinary course of operating leverage and focused cost reduction.
Thank you Beth.
Thank you. Our next question will come from Ashwin <unk> with Citi. Please go ahead.
Sure.
Hi, Thank you.
Yes. My question is force upon on overall growth.
In <unk>, you were talking about the 7% to nine expectation.
The organic expectation now is 8% to nine.
And as I look at it as potential underlying improvement did see <unk> zone, which is a day.
At TD based mining this inc.
Excluding corporate now from the baseline definition is FX. So can you walk through the breakout of what changed.
And that's what the underlying improvements part of it maybe perhaps you can even breakdown.
What's coming from better synergies versus net new sales.
Yes, I think you've got a combination of things there ashwin first and foremost the new sales, we've been talking about from banking and the growth in the backlog.
Is what's driving us to accelerating growth expectations in that segment into the mid to high single digits, we outlined an accelerated expectations for Q4, we delivered on that.
Ascribed earlier in the call. We anticipate continued acceleration over the remainder of the year. So that's pretty solid there we've got a difficult comp in cap markets, we anticipate accelerating growth into the mid to high mid sorry, low to mid single digits and cap markets with accelerating growth over the remainder of the year I think that is a combination.
<unk> of the SaaS story, we've been talking about where we're seeing more visibility into the revenue and less license sales and ongoing SaaS based subscription type revenue in the capital markets Group and then merchant obviously, we're looking at Covid rebound as we lap comps and we continue to see economies reopen and some of the volumes come back.
If you look at the corporate and other component again, it's about 3% of overall revenue the impact of the of that moving in there is less than a point less than half a point actually of 2021. So.
So very miniscule impact, but we are going to look to monetize <unk> wound down some of those things.
Aren't going to be a strategic fit on a go forward basis.
Got it got it and then on the merchant piece are you actually incorporating a.
A second half rebound in travel retail and ask James to the discretionary part is that.
Kind of the upside on the range and as that comes back the flip of that question on the margin side is.
You talked a little bit about how we should think about the yield progression through the course of the year.
Yes, we do anticipate some rebound on some of the discretionary verticals that we mentioned in the material.
We do not see travel coming back 100% in 2021, we've got that kind of model back into 2022 being sort of back at pre Covid levels. We certainly do anticipate restaurant and retail to come back over the course of the year with obviously in Q2, probably with the highest level of growth because it's the <unk>.
<unk> comp based on what happened last year in Q2.
So yes, we have an expectation of it growing there ashwin.
But I wouldn't say that that's what gets us to the high end or the low end of the range.
But it certainly is an area that we've got to continue to monitor over the course of the year, but we do have modeled in obviously rebound from Covid coming into Q2, three and four next year or the share excuse me.
Got it.
Thank you for all the other.
Andy This is Greg thanks.
Thank you. Our next question will come from Matt O'neill with Goldman Sachs. Please go ahead.
Yes, hi, good morning, gentlemen, thanks for taking my question I was hoping we can follow up on David's question, a little bit more specifically on the modern banking platform win.
Three that are now live and you're expecting $100 million revenue for 2021 can you just parse for us.
The $100 million explicitly from those three that are live or does it incorporate additional wins that have been announced but hasn't yet gone live in that number.
And then can you also just give us a little bit of the high level kind of glide path talking about just remind us again, how you kind of get get started with a modern day when and then what the longer term kind of cross sell and upsell opportunities look like and if there's been any sort of traction with that obviously understanding where we're only with three live in kind.
In the first year here.
I'll take the revenue question, and then Gary and Bruce kind of chime in on the O&M a model around it with regard to the $100 million. We've talked about certainly includes the three that are that are alive now but would also include some level of expectation of conversion over the course of the year or previous sales that we made throughout 2020. So.
There is a ramping if you will of the MVP over the course of 2021.
Yes, no I think I think that's exactly right I mean, basically you look at the $100 million commitment. What we're seeing is a steady ramp over the over the year with implementations will also as Bruce talked about our backlog to more than doubled on that front, so being able to drive additional sales the nice thing about the business being reoccurring.
Nature, you'll grow from there going into 2022, so that will continue to accelerate with more pipeline being added from a cross sales standpoint, you want to take that Brett.
Just like all of our core platforms. It really is the center of a lot of our cross sell activities. So.
MVP will follow that same trend, where we have the opportunity to sell digital front ends to do the application will have.
Our whole suite of products.
We have over 20 products on average with our core.
Customers today, we expect that we'll be able to continue to drive.
New product into those MVP clients.
Yes, I mean, just to build on that we talked about in prior calls.
Our focus on the lending side over the next several years we did.
We build these solutions in a very agile agile way as you would expect being a modern technology.
Being cloud native and so the reality is we did make our first drop on.
Our unsecured lending so we're starting to build out those capabilities. So that will also be a cross sell opportunity in the back half of this year and going into 2022 and went to Bruce's point keep in mind that becomes the center of all of our cross sales to drive our back office services. Some are ranked debt capabilities.
And the list goes on and on and on and as you've seen last year. We saw a huge increase once again in our top 100 cross sales at 23%.
Got it thanks, thanks very much.
A quick follow up to that are these predominantly from banks that had been in sourced or competitive takeaways or a good mix.
Yes, right now early on and we consistently see the early adopters and we want to make sure that everybody understands we're just getting started on this right. So as you start thinking about people really moving to cloud native core banking a lot of it has been either on in house built systems or very very old legacy Tech.
Knowledge today, what we're starting to see gathering pipeline is as we get launch now with some of the customers you've got another wave of people now really starting to evaluate.
Existing technology, there on that would be more more modern in nature, but still not cloud native and taking advantage of that but but the early adopters have been primarily coming off more in house developed systems are systems that are multiple decades old.
That makes sense. Thanks, so much I'll hop back in the queue.
Alright, thank you.
Thank you. Our next question will come from Timothy <unk> with Credit Suisse. Please go ahead.
Thanks, a lot for taking the question we've covered a lot of great ground here honestly, if we can shift gears over to premium payback. So clearly that was one of the earlier and larger revenue synergies. It sounds like you are making great progress there you announced Walgreens BP Paypal.
Maybe you could just give us a brief update on how that program's doing maybe size. The revenue contribution expected for 2021 would appreciate any added context there.
Yes. This is Bruce just jump in on the overall program I'll leave kind of revenue.
But the program itself continues to see a lot of.
Positive momentum.
So we continue to see a very very strong pipeline.
I think the only impact Q premium.
It has been through Covid right. So it is.
Transaction that is driven by retail purchase so that COVID-19 is going to have some impact there, but we expect.
That product to really rocket forward and continue to move its really met delight right. It's the customer's delight the retailers delight and the financial institutions.
Positive win for all three and there's very few products that kind of come to market that have that kind of success.
We haven't given a specific number around the product related revenue for competitive reasons, but I can tell you. It's built into the confidence level, we have in the acceleration of revenue synergies.
The 400 million exiting 2021, absolutely.
Alright, great and a brief follow up is still related to premium payback could you just talk a little bit about how that mix can evolve in terms of in store and E. Com clearly Paypal being a partner helps with that but anything you could talk around how we could start to see that show up on websites a little bit more.
Yes.
As we move forward with premium payback. It really was not designed to be necessarily in store or online. It was really just about as I said, a kind of a surprise and delight per consumer that it shows up at the checkout and allows you to.
Pay for a portion of your transaction through the points that you've aggregated and it's really bringing financial assets.
That were hard to get access to and bring those to the consumer and allow them to monetize those assets as they've acquired over time, and so whether it's online through someone like Paypal or some of our E comm clients.
Or in store at the end of the day it really doesn't matter. It just shows up at the point of point of sale whatever that may be whether it's your mobile phone or in store.
And again, it's really the surprise and delight.
As soon as love about it.
Alright, great. Thank you for all that context.
Thank you and today's final question will come from Brett Huff with Stephens. Please go ahead.
Good morning, Gary Woody Bruce.
Okay well.
Hey, Brett.
Great.
Two questions one I just want to make sure in all the commentary on the gross what are you that you gave us the kind of midpoint is call. It 50 basis points above the long term growth I'm.
I'm trying to sort through the puts and takes.
I understand that some moved into corporate and that may have given us a little benefit of growth.
But also I'm trying to figure out where beyond that is the above kind of a long term growth is that more of an easy comp from a merchant point of view or is it more confidence in them.
Banking and modern banking platform.
As you guys sat and thought about how do we got.
What got you over the long term kind of range midpoint, it and got some a little higher.
I think first of all the impact of moving some stuff in our corporate and other was less than half point, it's not much at all in terms of our expectation.
I would tell you that our confidence level is really in banking and the backlog around banking and seeing it accelerate.
Move that up to mid to high single digits, you saw 5% in Q4, we anticipate that to accelerate into Q1, So I think that moving into mid to high single digits is a good bit of the confidence.
Previously to we've talked about cap markets in the low single digits, we've actually kind of moves at a slightly into low to mid single digits. So we anticipate GAAP markets to see better growth than historical this year as well. So I think those are the two biggest items.
Moved our confidence level up from the seven to nine to the eight to nine specific 'twenty One guide.
Versus outsized merchant merchant, we didn't anticipate.
Mid to upper teens.
It could be higher than that if we see rebounds faster, we don't anticipate anything below mid teens at a merchant this year.
Any scenario that we have.
Greg just a bigger picture follow up.
You guys talked a little bit about the need to continue investing organically and Gary you mentioned that over the last few calls that dumped on a lot of money into the modern banking platform that new SaaS.
Technology, It seems like the price tag of competing effectively in bank Tech and payments is going up and so theres a bit of an arms race. As you guys think about the capital intensity of the business in that 50 to 100 basis points kind of big picture margin expansion, how do we balance.
Participating in that arms race in winning an arms race.
Along with still needing to still wanted to drive some of those scale advantages and showing that that margin expansion to investors.
Well.
Honestly, Brian I think it's a great question I think you know, whether it's an arm race or not I hope that what youre, saying is <unk> is leading that.
We started our cloud based deployments five years ago and at this point in time, we're well in excess of 70% of all of our compute now in the cloud and that will trend over 80% here over the first half of this year. If you look at our investment Woody highlighted almost $1 billion capital year keep in mind that.
Is us driving.
60, new products and market modern banking platform retooling, our payments one initiatives digital one.
<unk> native omni channel platform on deployment as well as all of the things we're doing in capital markets and merchant.
With our access world pay gateway and others and also nap conversion. So so I think we're balancing it very well and we're doing that because of these new technologies not only allow you to compete on the revenue front, they should and will drive cost out variety of destock driving true AI into your organization you're going to eliminate.
They cost Theres no way around it if you automate youre going to eliminate cost and so our balance that we've done over the last several years as we went through the cloud migration Thats now complete we're doing the exact same thing with our platform rationalization as well as the exact same thing with new product launches all while balancing but we think we're in a really good performance.
<unk> with about 8% of our revenue being deployed back into capital keep in mind also as Woody talked about our free cash flow converting.
We will have our debt completely re loaded by the end of this year no sense paying our debt structure now faster so that will even give us additional capital to deploy process strategy, whether it's increasing share buybacks, whether it's increasing M&A or whether it's increasing new product capabilities to continue to drive.
Our organic revenue growth in those upper single digits, and then moving from there.
Great I appreciate the perspective.
Thank you ladies and gentlemen, thank you for participating in today's question and answer session I would now like to turn the call back over to management for any closing remarks.
Thank you I want to provide some closing thoughts before we end the call while the one year anniversary of the COVID-19 pandemic isn't something we may celebrate with Joy a strongly believe there are reasons to applaud our collective perseverance and a passion for standing up and doing what's right. In this same time period dominated my daily.
<unk> of the virus, we stretched ourselves to evolve to think and deliver differently at Fas. We took these challenges head on and I firmly believe that we are a stronger more resilient company from where we were a year ago.
As the backbone to the global financial ecosystem, we ensured that transactions and accounts continue to be processed 24 by 7%, while we re imagined our system implementation processes, enabling us to implement systems and a 100% virtual environment, we rapidly implemented our real time lending platform for a financial institution.
Ants, streamlining and speeding the processing of more than 225000 Triple P approved loan.
Under the cares act so far in 2021, we've expanded our reach and successfully processed nearly $8 billion of Triple Pete loan applications for more than 68000 U S merchant and small businesses. We also manage the rollout and distribution of expanded EBT benefits under snap in 28 U S States and territories.
<unk>, helping over 10 million children.
Just as important we doubled down on our commitments to support our communities by executing global give back programs to nominate PP&E equipment and prepaid cards to support our frontline health care workers.
We also recognize our responsibility to push for sustained social change both domestically and globally. As you have heard as mentioned before increasing inclusion and diversity financial inclusion and climate change initiatives are important goals for all of us at FIS building, an environment that enables our colleagues clients and communities to thrive demonstrates how we are.
Leveraging our technology and innovation at scale to create lasting change that benefits everyone to our colleagues. Thank you for all your hard work and ongoing commitment to our clients communities and each other and for everyone else on the call. Thank you for joining us today and for your ongoing support if you have any follow up questions. Please reach out to our <unk>.
Investor relationship team. This concludes our Q4 earnings call have a great day.
Ladies and gentlemen, this concludes today's conference call. Thank you for your participation you may now disconnect.
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