Q2 2021 Fidelity National Information Services Inc Earnings Call

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Ladies and gentlemen, thank you for standing by and welcome to the F. I S second quarter 2021earnings call. At this time all participant lines are in a listen only mode. After the speaker's presentation there'll be a question and answer session to ask the question. During the session you would need the press Star then 1 on your telephone.

Please be advised that today's conference is being recorded if you require any further assistance. Please press Star then zero I would now like the hand the conference over to your hosts a day Nate Rose off head of corporate Finance and Investor Relations. Please go ahead.

Good morning, and thank you for joining us today for the <unk> second quarter 2021 earnings Conference call. This call is being webcast at today's news release of corresponding presentation and webcast are all available on our website at FY at the global Dot Com.

Gary Norcross, our chairman and CEO, who will discuss our performance and review our strategy to continue accelerating revenue growth and maximizing shareholder value Woody Woodall, Our Chief Financial Officer will then review our strong financial results and provide updated forward guidance Bruce.

Bruce <unk> President of <unk> will also be joining the call to the Q&A portion.

Turning to slide 3 today's remarks will contain forward looking statements. These statements are subject to risks and uncertainties as described in the press release on 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.

Cash flow. These are important financial performance measures for the company, but are not financial measures as defined by GAAP reconciliations of our non-GAAP information to the GAAP financial information are presented in our earnings release with that I will turn the call over to Gary who will begin his remarks on slide 5.

Thanks, Nate good morning, everyone and thank you for joining us our second quarter results exceeded expectations across the board and demonstrate the continued success of our pivot to growth strategy that we laid out before the pandemic revenue of $3.5 billion was the highest quarterly revenue in our company's history revenue increased more than 500.

Or 17% year over year, and adjusted EPS grew 40% sales results, which were the strongest in our company's history or being driven because of our solutions remain in high demand, enabling businesses of all sizes to advance the way the world pays banks and invest this demand combined with our.

<unk> focus on delivering broader value to our clients was also reflected in a very strong cross sales driving our largest revenue synergy quarter to date, increasing our run rate by 50% or $150 million sequentially to $450 million.

This sales execution in turn drove a $1.5 billion increase to our backlog, which is now greater than $22 billion. Our strong execution is driving us to raise both of our 2021 guidance and increase our year end revenue synergy target to $700 million.

In addition, as we consider client demand across our portfolio of solutions, we are extending our midterm outlook of 7% to 9% revenue growth through 2024, I want to thank and recognize our colleagues around the globe for their continued hard work and dedication. They are our most important asset and play a vital role in advancing the <unk>.

<unk> financial technology that keeps thousands of clients up and running and the economy moving.

Turning to slide 6 I'd like to highlight a few recent wins that demonstrate FIS is differentiation.

Clients are increasingly demanding access to new capabilities that are outside of their traditional solutions. So they can innovate in new and interesting ways. We have the unique ability to serve our clients horizontally across the breadth of financial technology with the integrated cloud native platforms. Further our open API is a resilient and ease.

To use as clients expand their relationships with Fas our sales success with the modern banking platform demonstrates the client demand as they look to differentiate with cloud native capabilities.

This quarter, we delivered the largest release since the start of MVP, including expansion of commercial deposit functionality as well as new enhancements to our lending module as we have previously discussed 1 of the exciting opportunities with the current MVP clients as an ongoing ability to cross sell additional functionality of module.

This quarter, we had our first cross sell to American Express who added a new checking account feature to their deployment. This is a great example of our ability to land large complex clients and the value of our modern platform as we continue to add functionality clients continue adopting these new capabilities to grow their businesses, which drives additional revenue.

For FIS and expand these important relationships fifth third bank provides the second key example of the ways, we grow our strategic relationships fifth third is a longtime client who is on the journey to reengineer its technical infrastructure with the focus on resiliency and scale.

This quarter they expanded their relationship with us to replace our legacy in house core with the modern banking platform in the legacy wealth management system with <unk> Unity Unity is our leading edge global wealth management system and will provide rich data and insights for fifth third's customers throughout their wealth journey. It incorporates all of.

<unk> cash management multi currency and other advanced wealth management functionality in the flexible design that is fully integrated with FIS Trust accounting.

T. Rowe price provides yet. Another example of an industry later looking to FIS to help them modernize their 401 K retirement offering with advanced technology. This landmark win will lay the foundation for other large asset managers to utilize the Fas as they look to leverage our scale and expertise in the retirement space. In addition.

Paypal on Chevron, both expanded their relationships with us to begin utilizing our cloud enable payment switching capabilities.

And finally, Westvaco joined our merchant referral network in order to upgrade to our leading acquiring technology as we continue to innovate our integrated cloud native ecosystem creates a powerful network effect that empowers our clients to transform and grow.

On slide 7 I wanted to highlight another important win I am pleased to announce that Walmart will begin utilizing our innovative loyalty network premium payback for both in store and e-commerce transactions the value proposition for this solution is exceptional driving positive outcomes for our merchants issuers and the end consumer.

In other retail locations, where we've rolled out the solutions, we are seeing consumers accept premium payback offered the pay with points approximately 50% of the time when they are prompted both of our merchant and our issuer clients are increasingly eager to participate and we expect the adoption to continue to ramp as we implement the solution with all of the innovative climb.

And as shown on the slide as well as more in the future premium payback is a clear example of the network effect that we've created by integrating issuing and acquiring.

Turning to slide 8.

We invest heavily in new solutions and capabilities with the belief that the market is changing and how it consumes technology and looking for cloud native architectures. The revenue contribution from solutions developed over the past 3 years continues to grow as a percent of our total revenue mix up from less than 1% in 2019 to over 4% and <unk>.

<unk> thousand 21. This rapid growth is driven by our ability to cross sell new solutions into our existing client base as well as adjacent verticals, which increases our total addressable market New solutions also contribute meaningfully to our total revenue growth with contribution increasing from less than 1% in 2019 to more than 2.

2% of total revenue growth in 2021 looking forward, we expect new solutions to drive up the 3 points of incremental growth each year supporting our outlook for 7 of 9% revenue growth through the mid term at this point of strong commitment to innovation is embedded in our culture and will continue to drive growth for years to come.

I will conclude my prepared remarks with slide 9 before handing the call the Woody.

At the forefront of the industry with the broadest collection of cloud Native solutions available, we remain uniquely positioned to serve domestic and multinational merchants who are looking for a single trusted provider for all of their acquiring needs. We solve our clients' most complex problems ranging from global acquiring for their ecommerce business to treasury and cash management with our <unk>.

Innovative quantum software further on the right side of the page we show our unique bundle of cloud native solutions for financial institutions that demonstrated our ability to innovate at scale. Lastly, we highlight a few examples of innovative solutions that create compelling value propositions for both merchant and F on clients in the center of the page.

Clearly the investments we've made and during the pandemic and driving differentiated outcomes for our clients of for US and we continue to make these investments today in order to power future growth. It's why we are confident on our forward momentum to drive strong 7% of 9% revenue growth through 2024, I will now turn the call over to Woody to discuss.

Our financial results and forward guidance.

Thanks, Gary and thank you all for joining us today.

Starting on slide 11 of our second quarter results, which exceeded our expectations on the consolidated basis revenue increased 17% of 3.5 billion.

Driven by outperformance in each of our operating segments organic.

Organic revenue growth of 16%, we haven't had the material M&A activity over the past year. So the difference between reported and organic revenue growth. This quarter is primarily due to the impact of foreign exchange rates adjusted.

Adjusted EBITDA margins expanded 460 basis points of 44%, reflecting strong operating leverage and synergy contribution as a result, adjusted EPS increased 40% year over year to $1.61 per share.

As Gary mentioned, we had exceptional cross selling quarter, driven primarily by premium payback issuer processing merchant referral and data analytics William <unk>.

Given our progress and strength of our pipeline, we are increasing our revenue synergy target for 2021 by $100 million.

At the year at $700 million on it.

The annualized run rate basis.

Our achievement of cost synergies also continues to be successful running further ahead of schedule than we anticipated when we announced of the U.

We have more than double of our initial cost synergy target of $400 million and are on track to exit the year. So the approximately $900 million in total annualized savings, including approximately $500 million and the operating expense synergies.

Turning to balance sheet and cash flow, we repurchased 2.7 million shares worth approximately $400 million during the quarter.

Bringing share repurchase to a total of $800 million year to date.

On an average price of $145 a share.

Our leverage ratio declines of 3.3 times, keeping us on track to end the year below 3 times leverage.

Lastly, we generated free cash flow in excess of $1 billion. This quarter, which is the most of our company's history and reflects the highly cash generative nature of our business.

Turning to slide 12 to review our segments banking revenue growth accelerated to 8% due in part of the strong issuer processing growth of 17% and of 30% increase in modern banking platform revenue.

As Gary noted we had another 2 MVP wins this quarter as well as an add on sale in the MVP revenue will continue to accelerate as more clients go live with.

We currently expect MVP revenue growth of nearly 50% for the full year 2021 and for this to further accelerate into 2022.

The banking segment's adjusted EBITDA margin expanded 410 basis points to 46% the.

The strong results were driven primarily by ramping revenues from our recent large bank wins as well as continued recurring revenue growth.

Capital markets revenue growth also accelerated to 6% of this quarter.

Reflecting strong recurring revenue growth and sales execution.

The capital markets adjusted EBITDA margin expanded 100 basis points to 46%.

Lastly for merchant revenue growth rebounded sharply to 45% in the second quarter, which includes 10 points of yield benefit and the segment generated its largest new sales quarter in the history of the business.

<unk> revenue acceleration included 31% revenue growth in E Commerce, our E. Com revenue growth is particularly impressive in light of in store reopening as lockdown orders eased and cross border travel remains affected making it an avenue for significant future growth.

Growth was also broad based spanning both domestic and international and discretionary verticals like restaurants are accelerating sharply.

Merchant adjusted EBITDA margin.

<unk> 910 basis points to 50%, primarily reflecting its high contribution margin and synergy benefits.

As we begin to lap dependent with the growth spanning online and in store SMB and enterprise across North America, and the international or <unk>.

<unk> clearly demonstrated the strength of our competitive position. In addition growth includes both the rebounding volume and yields.

As we expected.

Relative to 2019, we've seen no increase in nutrition.

To grow our client count.

We have not taken our foot off the gas investing through the pandemic completing the ramping access world.

Spending our sales force entering new countries, and adding multiple strategic ISBN bank partners, including expanding integrated payments to Europe. The business clearly has strong underlying momentum we expect to further drive acceleration relative to 2019 in the second half of the year.

Turning to guidance on slide 13 based.

Based on our strong results and favorable outlook I am pleased to raise full year guidance. We now anticipate revenue of $13.9 billion of $14 billion for the full year 2021, which represents an increase of $250 million over our prior guidance.

This guidance assumes full year revenue growth for banking in the upper single digits and capital markets in the mid single digits.

We now expect merchant growth to approach, 20%. This year ahead of our initial expectations relative to 2019.

The merchant revenue growth accelerated to 9% of the second quarter or 12% in the U S.

We expect merchant revenue growth to continue to accelerate into the mid to high teens in the second half of the year as international revenue and discretionary verticals like travel and airlines continue to rebound versus 2019.

We're also raising our full year 2021 on adjusted EBITDA guidance to $6, 125% to $6.2 billion and increasing our adjusted EPS guidance to $6.45, since the $6.60 per share.

For the third quarter, we expect 9% to 10% revenue growth and to generate revenue of $3.49 to $3..5 2 billion as a result of the high contribution margins on our business. We expect adjusted EBITDA margin to expand by more of a 50 basis points sequentially.

200 basis points year over year to approximately 44% for the third quarter.

The result in adjusted EPS of $1.66, since the $1.69 sales this year.

I am excited about our results and raised guidance.

Beyond our guidance for the year, we expect to generate 7% to 9% revenue growth in the mid term through 2024 as Gary discussed.

I have confidence in this outlook for a number of the reasons.

Our sharp second quarter revenue growth acceleration in our ability to significantly increase revenue guidance shows strong execution and the underlying strength in the business.

Second strong new sales on cross selling activity drove our backlog of about $22 billion and increased our revenue synergy attainment of about 50% of just 1 quarter, which will continue to drive future growth into 2022 and beyond and finally, the investments we've made and continue to make driving strength across our segments and accelerating our revenue growth.

Our cloud native ecosystem of solutions is highly differentiated helping us to grow in new and emerging verticals.

I would like to thank our colleagues for their efforts to drive the Fas forward and to empower our clients operator would you. Please open the lines of questions.

Thank you.

<unk> to ask a question you any depressed star then 1 on your telephone to withdraw your question. Please press the pound key.

Our first question comes from the line of David <unk> with Evercore ISI. Your line is now open.

Thank you good morning, Gary and Woody.

David Good morning.

Looking at the 2021 guidance.

It is increasing by $153 million over the second quarter beat EPS by a penny over the second quarter beat.

Buying of about 50 basis points less of EBIT margin expansion. So can you talk to your margin expectations.

For the second half and what might be driving higher opex.

And then just as a follow up Gary you've laid out very extensive product innovation, both on the merchant and banking solutions business I'm.

I'm curious.

How do you respond to.

The squares the acquisition of after pay yesterday with their intent really to move more into the national account space in.

In merchant acquiring.

I'll touch on the margin profile of gear Thats, yes, absolutely.

Absolutely we continue to have margin expansion, including more than 200 basis points of this year and we expect 50 to 100 basis points longer term in.

In the quarter to the guidance, we significantly increased the revenue based on the strength of our new sales on our competitive position of excited about driving and another 250 million of up to 10% to 11%.

On the margin itself, we are increasing incentive accruals to reward our people for their very strong performance compared to our operating plan, which were outpacing significantly this year.

And as we continue to post some of the successive quarters of very big wins. It does create some near term margin pressure as we ramp these contracts margins from these new wins will expand as revenue hits full run rate as we get those clients up and running and David.

Yes, as far as the square acquisition of after pay when we think of buy now pay later, David It's just another payment type for us it's another unsecured Len.

Lending mechanism, obviously, we're enabling buy now pay later in our largest merchants we're doing it through partnerships because we don't want to take the credit exposure risk that comes with that.

But frankly, we feel very comfortable on not only competing in the national markets, but as we push down market into the SMB verticals, you're starting to see we're coming off record gross over the last 2 quarters and our merchant sales as we've now retooled our sales force and the increase that and start pushing down market.

But clearly we've got the most extensive capabilities in the merchant acquiring space today, and youre seeing that growth across our large enterprise or large nationals are multinationals and thats playing to our strength and our sales results, but at this point in time.

Our view on buy now pay later is just that another payment type that we're going to accept will make sure that we have that available to our customers is they want to offer that but we're going to minimize taken the credit exposure.

Understood Thanks very much.

Thank you.

Thank you.

Our next question comes from the line of Jason Kupferberg with Bank of America. Your line is now open.

Good morning, guys. My first question was just to actually build on David's and get your thoughts.

In terms of attractiveness of transformational type M&A, given what's going on in the environment, just how youre thinking about that for us.

Specifically.

Yes look.

Jason we've always.

Had transformational M&A in our strategy, we continue to look for opportunities that bring us a new capability or a new service in an existing market or adjacencies. The team is doing an excellent job of delivering new product.

Out of our engineering group mean, youre seeing the results of that contribute to our accelerated revenue growth.

Will we do additional M&A in the future absolutely things are expensive right now we continue to see the intrinsic value of our stock is undervalued and so obviously, we're very focused on share buybacks and deploying free cash flow in that manner, but we're not we're not opposed to doing.

M&A activity, if it fits our strategy and fills in fills in our GAAP and our and our overall capability right now we feel very good about our competitive position of products that you are seeing it come through in our our sales results on the second quarter was the largest sales record for us across the board across <unk>.

Capital markets across banking gross merchant, we hit record numbers for that from the sales in existing quarter. So we feel really good about the strength of our position and where where the demand for our products and services the market, but M&A will always continue to be something that we evaluate and look.

That makes sense, then we will execute.

Okay, and just a follow up for Woody on the margin front. It looks like there is an implied step up on maybe about 300 bps of margin expansion from Q3 to Q4. So can you just talk about the visibility on that acceleration what's driving it is it is it just the topline or the Opex cadence I know you were calling out.

Some of incentive comp.

Some contract ramp up costs, but is there just some cadence considerations there between the 2 quarters and just wanted to get the sense of the visibility of their on the Q4 ramp.

Yes, there is certainly some ramp in the fourth quarter as we saw on clients and get them up and running and drove the revenue at that point in time I think there's also just some cadence of the quarterly spread and the consensus is a little bit of between Q3 and Q4 no more than that.

To be honest with you Jason we feel very good about the outlook for the remainder of the year across all 3 segments.

Continuing to drive the growth profile and continuing to fuel the accelerating revenue growth. So we feel really good there.

Okay I appreciate the thoughts thank you guys.

Thank you. Our next question comes from the line of Tien Tsin Huang with Jpmorgan. Your line is now open.

<unk>.

Okay. Thanks always good to connect.

I wanted to get a sense on the the.

The backlog being up but up 8% it sounds like the pipeline Gary is related to the strong.

Just I heard the revenue synergies I think up $100 million of those all related just trying to better understand.

If you can unpack or decompose the new sales the backlog from the revenue synergies where is it coming from is it driven by the.

The synergies or is it really from the return on investments on some of the the product.

Product and monetization of efforts that you've taken on.

Yes, Greg.

Question, Yes, it's a great question, it's really coming across the board you.

Youre seeing youre seeing.

Succeed across sales and revenue synergies with the world pay integration, we're real pleased on that with the acceleration in Woody highlighted a number of those products, but we're also seeing great adoption of our new product and innovation capabilities.

On her banking platforms up over 50% Youre seeing our issuer business with payments 1 up substantially.

You would look at what we've done in capital markets about in the end solutions across the front middle and back office and Youre seeing accelerated revenue growth there in capital markets as well. So when we look at sales Holistically as I said, all 3 segments were up.

<unk> had a record quarter from a sales perspective, but it really was it was new logo sales actually gaining share and taking share. It was cross sales to existing customers of new product capabilities, we're delivering the market or cross selling existing products and then revenue synergies across the world pay integration effort.

So couldnt be more pleased with our with our sales channel.

As I pointed out and you guys have seen this we've now had multiple years of record sales and seen that demand continued to accelerate so that's what that's what has the so bullish on the future of <unk>.

And you've seen the growth rates across all 3 segments consistently trend up as well on now that the.

The global pandemic, we are starting to see opening.

Obviously in the U S. Europe's lagging a little bit there in Asia, but as you're starting to see reopening.

We'll just continue to see more accelerated growth going forward.

Perfect.

Based on just real quick follow up just the visibility into getting on the banking accelerated a little bit sequentially in the second quarter. It sounds like it's going to Covid more on the second half do you need to sell more business to get there or is it really just timely conversion of the backlog and then really quickly if you don't mind the fifth third.

Modernization effort to the modern piece on the Faa's unity is there a change in annual contract value by moving from legacy to 2 of modern solution there.

Thank you sorry for the yes, no 2 points.

It's a great question.

2 points on the banking backlog in Q3, we don't we don't need a lot of sales to hit that Q3 number. It really is backlog you saw the backlog increase 8%.

Which is I think on memory, 1 largest increases we've seen of that backlog of certainly the largest the backlogs. So the team is doing a great job of delivering new capabilities. We've now got 6 of our clients on MVP and production.

So you get a ramp of effect of that going in to that and also the new products and capabilities, we're selling but it's really just in delivery of that backlog into Q3, and so that just goes to show is that backlog build youre going to see of consistent ramp across that across the banking segment. When you look at the third it's a substantial increase for us.

In contract value and the relationship because keep in mind of number of those capabilities that are going off in house systems to our systems and our fully outsourced manner and so so for US we see a significant step function as we deliver those capabilities and then start recognizing that revenue through the processing channel. So it's a great relationship we have.

Had with fifth third for a very long time. So we're excited about expanding this and excited about helping them re architect their technology stack for the future.

Terrific. Thank you. Thank you so much.

Thank you. Our next question comes from the line of Darrin Peller with Wolfe Research. Your line is now open.

Hey, Thanks, guys.

I just wanted to volume for a minute on the on the merchant side you talked about.

Record sales growth I think the second quarter in a row. If you could just give us the day. Some some of the dynamics of where the what kind of business you are seeing from that front and then the confidence level on the second half of 'twenty, 1 being mid to high teens above 19 levels I'm, assuming that's in part of these mix travel in certain geographies. If you could just give us a little more of a loan.

More color on understanding the drivers there.

How much pressure was the second quarter impacted by whether it's volume or revenue for most of those aspects and then what could that mean for the second half.

Yes.

I had a hard time hearing the beginning of the question, but I think it was around the sales.

And.

So what I would just say first of all of the team has just done a phenomenal job kind of embracing that of the playbook of sales on mobile we're trying to accomplish so whether it be the banking organization of the merchant organization on capital markets. All 3 had really strong sales outings for Q2.

The merchant team in particular is really kind of turn that engine around and really creating a lot of momentum whether it be in the SMB space as you have heard or the enterprise space and our ecommerce space.

Really had strong sales right across the board of continued expansion with our.

Partners continued expansion in our channels.

On the SMB space as I said, so really just a strong out of our pipeline is really robust it as we come into Q3. So we feel very good about where we're heading in the back half of the year and we would expect to continue.

From the great success that we had in the first half of the year.

Darrin I'll add too we've seen yield dynamics are positive as we see volumes in reopening happen the international businesses reopening, but lagging the U S. In terms of timing. So that's a tailwind in the back half of the year.

Discretionary verticals are also improving as we've seen in both restaurant being up very sharply both domestically and internationally, we really haven't seen in the attrition in our actual merchant count is up year over year and about 5% up sequentially. During the second quarter. So the head of sales you add the merchant count and the outlook in terms of the.

Yield benefit in the volume of expectations, we feel really good about the back half of the year being in that mid to high teens. Further we saw July improving compared to June.

It's in line with our 3 key guidance. So we just put out and generally in line with the networks as well and then the international business is trending a little higher than the U S. In terms of volume improvement in July so yes on.

All of those things together, that's how we think about mid to high teens growth compared to 2019, both Q3 and Q4.

Alright. Thanks, very quick follow up is just your extension into 2024 of your confidence on the 7 to 9 what really changed about that was just the big pipeline was it bookings.

Or maybe broad base.

Well I think the nature of our business day on we've talked about this a lot of it.

So highly reoccurring in nature and when you look at the backlog you look the acceleration of 22 billion you look at the pipeline you look at records.

The signings in Q2 following record signings in Q1, followed by a record year last year in sales you look at the delivery channel of what we're Onboarding you look at the trend in the recovery going on I mean, we feel very confident in extending the 7 of 9% in growth and look at accelerating.

Further beyond that you've got capital markets that we used to look as is.

Low single digit grow or are you seeing that move into what 6% organic growth. This quarter here now on the mid single digits, you're going to see capital markets given its sales success trend towards the upper single digits banking is getting well established on the upper single digits, giving its backlog and giving it sales success and then you look of the strength.

Of the merchant portfolio on the recovery I mean, we had strong recovery across every 1 of the verticals that we participate in our sales were strong across all of those verticals as well the yield dynamics have have recovered from where we were.

Just as we said they would back to kind of 2019 level. So all of that comes together, we just got a lot of confidence at the engine is running very well in the.

And the growth aspects just booking the historical sales to date.

We will continue to propel us into that 7% of 9% range through 2024, now obviously, we look at the pipeline as well we've got a lot of confidence in what we're seeing shaping up in Q3 Q end of next year. So all of those things are just.

Driving us to extend the the long term the mid term outlook.

If I could just add and underscore the the really bringing new product to market and the innovation that we're driving there has really helped us accelerate and we expect that to continue we've really created the wonderful process with the organization, we're seeing a lot of success, whether it be access world pay whether it be MVP payments 1 week.

Got a whole litany of new products that have come on are really making a material impact for us and we expect that to continue as we are driving forward.

Okay very helpful. Thanks, guys.

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

Hey, guys, thanks, and nice job.

Thanks.

Yeah, and I guess my first question when we think of some of the yield dynamics.

Are starting to really play out now when we look into next year.

Is this year still depressed from the standpoint, the mix of of of.

Revenue is still coming less this year from Smbs the normal.

In.

Volumes are probably a little bit of especially in Q1. This year were also a little bit non normal.

Do we think yields into next year provide another catalyst to the.

The positive catalyst as smbs recover as part of the mix as part of the mix.

Yes, I think it's beyond just the smbs to some of the verticals that had richer margin profiles like traveling the airlines, we anticipate the continued to recover in the 2022.

We continue to go forward. So yes, we think it will still be a bit of a tailwind at least through the first half of 2022 over time, we anticipate yields to be a net positive for us but of.

Obviously, not quite as big as we've seen this year with the dynamics that we've seen around the pandemic, but but you are right. Both of the combination of the sharp increase in some of the more discretionary verticals that continue to reopen both in the U S and outside the U S as well as some of the other verticals like travel in the area. We will certainly be some benefits of yield next year.

Got you Okay. Thanks, and then just as a follow up it seems like the market. The banking market is really good and you are taking share on top of I guess is there is there a way to almost <unk>.

Disaggregate the 2 like do you feel like the market is.

Than usual and maybe sustainable for several years and then how much of of the growth do you think is just kind of above market gain share type type stuff.

I think we positioned Dave it's a great question and I think we've positioned in banking and frankly capital markets for the last several quarters were really at.

And the inflection point for the industry a lot of those technologies are legacy of what people call of legacy based technologies. There at the are in very old architectures that are trying to respond.

Becoming more nimble and take cost out and getting more digitally native and Thats, where that plays to the strength of Fas. We started this transformation.

Almost now 4 years ago.

Bruce mentioned on a number of the products, we're bringing online modern banking platform digital 1 payments 1 the list goes on and on and on in banking and Youre seeing the high demand for that so we're taking share from traditional in house, where cost of the large very large financial institutions actually built their own Sis.

<unk> or leverage some type of offshoring capability to build their own through some augmentation or just running a very old piece of technology. That's been in existence for decades, and so they are now reaching in and taking advantage of some of our modern architectures and doing it through our cash.

Cloud because of all of the investments that we've made in cloud based technologies and all of that really is timing us very well for this inflection point. So we feel very confident that we're just getting started on what on what I've described as a journey over the next decade, and <unk> is exceptionally well positioned to take advantage of.

Of that globally and will yes.

Yes, Dave I'll just follow on 2 we've highlighted over several years of the investments that we've been making we anticipated those investments to turn into sales and they did we've told you those sales will turn into revenue acceleration and they are and now we're even highlighting the contribution of that new solutions on that new innovation revenue as part of the overall.

The contribution mix and the revenue growth profile to try to give you some confidence on our ability to sustain these higher growth levels based on the investments and the innovation work that we're doing.

Greg and I would just add from a customer perspective, the thing that I hear back from our customers is really twofold, they're very focused on kind of modernization in the banking space and they are extremely focused on new product offerings, how do we get more.

Product offerings out of them and I think.

<unk> heard us talk over the last year about these 2 themes and actually the longer as Gary has talked about our modernization efforts started years ago.

And we're positioned very well to kind of meet what our customers are asking for and and we feel very good about that.

Great. Thanks, guys.

Thanks, Dave.

Thank you. Our next question comes on the line of Jean Louis from the House with Cowen. Your line is now open Hey.

Good morning, guys.

Congrats I think in normal times this would be considered a good quarter. So congrats.

Yeah.

Yes.

I just wanted to ask.

Good to see that debt longer term outlook, just for the 7% to 9% I think that's something thats being.

Underappreciated by by the market Gary I'm just curious.

The the derivation of that 7 to 9 has that changed at all at the segment level, meaning are there segments of our businesses, where you feel.

Youre doing better than sort of post pandemic and that will continue and others that may have been perhaps somewhat impacted.

In the.

In the post pandemic World, just just curious how youre thinking about that.

It's a great. It's a great question, George I would say I would say that.

Our merchant business is we're seeing good acceleration there. The team has done a very nice job of expanding the sales team and the technology stack and starting to push into the markets that oral pay traditionally didn't play in we're starting to see a nice acceleration there. So we expect that that segment.

In the coming years to be of consistent double digit performer on the organic growth, which it used to perform below that.

Historically, when you look at the banking business I would say the banking business is operating the way we thought it would we have had good line of sight on that for a number of years of our investments and we're seeing that.

Actually kind of hit the numbers exactly where we projected and realizing that we were expecting some big ramps and big ramps through the sales initiatives. So we made a lot of investments there and that business has been fundamentally transformed then.

So we're seeing the results that we had hoped for capital markets actually has improved over what we thought we traditionally thought when we bought capital markets. There was a strong position debt expand there we saw the ability to bring solutions to market not just products move beyond the licensing business into an outsourcing business.

And we thought if we did that we were conservative in thought mid the mid to low single digits organic growth. There on what we've seen is that businesses has transformed actually faster and the demand for our front middle and back office solutions, the new investments we made around <unk>.

And some of the higher growth areas of that market have really paid big dividends and so now we're seeing that move much closer to the banking business. So I think thats kind of continue to accelerate for us and Thats why we think that the 7% to 9% is it very we're very confident in executing in that range for the coming years.

And.

And we look forward the continuing execution.

Okay, that's great color.

Sort of a quick follow up I know you got the bite out of pay later question, but maybe I'll ask is 1 of a little bit more broadly some of your your competitors of your partners.

They are acquiring models with the obviously own proprietary AP.

Atms.

I'm curious is that something that could potentially be of interest to you guys or do you just sort of 1 of sort of stay in the the Switzerland approach in terms of how you're servicing clients.

Yes, I think from our perspective.

We participated in APM for a long time, and we'll continue to do that in.

More of a Switzerland type of of we're going to.

Take the right payment types in the right markets and continue to partner 1 of the things we talk a lot about is being kind of a world class collaborator with others.

On the bedrock of that for US has really been code connect and won't pay connect as we have built out these experiential API and it's allowing us to bring product to market faster and meet the needs of our customers. So I think for US we're going to continue to go down that path building out solutions that I think other people won't be able to do it in the timeframe that will be.

Bring them.

Thank you.

Okay.

Thank you.

Next question comes from the line of Ashwin <unk> with Citi. Your line is now open.

Thank you again.

Hey, Ashwin nations.

Oh of imagination and other stuff.

On quarterly.

I guess I wanted to go back to the margins and complete the understanding of investing in people clients on product.

Good thing.

The the.

The question is what drives lower lower end of year.

Margin range, what does the upper end of the margin of the engine and lot of sticking on margins.

But that any 1 timers like maybe.

Non of the cutting things like the Ohio, Costco, the things that might be the win.

Thanks for taking the quarter here.

Yes.

Yes, a couple of things we are seeing higher incentive accruals as we've talked about driving that up to reward our people for outperforming our operating plan.

That is 1 component I would tell you incremental incentive accruals ashwin on or about <unk> <unk> and our full year outlook of of incremental there. We also were seeing continued.

Wins in these large deals that are taking some time to get up and running of <unk>.

The price as well as fifth third are 2 of the largest transactions that we've ever won in terms of size of contract.

They will have some short term pressure on margin as we continue to ramp up those customers.

To get their revenues moving this flows all the way from.

Revenue driving at full run rate showing the operating leverage in the business.

But you have to ramp that revenue up and you have a little bit of a headwind in terms of the margin rate as we continue to see accelerating revenue on the top line. So those are really kind of of the components that drive the highlight in there.

What's driving the margin from a 1 timer perspective, not a lot of 1 timers in here pretty clean in terms of the quarter.

And feel good about what we've what we've executed on.

We do feel good ashwin long term even in the out years, we've talked about 79%, but we've got consistent margin expansion built into our models and the.

The out years as well on the contribution margins of these new sales come on as we've talked about in the past they come on and very high margins. Bruce has talked about our ramp in investment in new products and obviously, we continue to do that that continue to bring new product capability to continue to consol increase our overall growth rate.

But we feel very good about where our margins are today, we'll have really strong margin expansion for the full year. This year also highlights just how well we're dealing with the operating synergies and all of the revenue growth. So that will continue as we as we push into the out years with margin expansion in.

In the midterm guidance, we gave each year.

No I definitely agree on it.

Maybe you guys on executing.

There was some speculation.

The last 2.

Of course coming up here.

Capital markets.

Potentially.

Being divested David.

On that perhaps open to the divesting it.

Any updates include the broadly venue.

Sure Doug.

The current book of current.

Current businesses.

All of it still fits together.

<unk>.

Yes.

The strategic viewpoint, you Michael 1 of this year.

You know Ashwin, we don't comment on rumors as you know, but what I would tell you is we've always had a strong viewpoint as part of our strategy is the continued to look at on portfolio and make sure that our portfolio of assets makes sense for our long term strategy we signaled.

Recently that we pushed some things into our other segment.

As non strategic.

Would we divest things in the portfolio don't fit our overall strategy, we've done that historically and when you think about what we did years ago with our healthcare business on our public sector business, but.

Typically as I said, we signal of that as we move things into the other category things that we're considering.

As non strategic but we really don't comment on rumors on divestitures.

Or acquisitions for that matter.

Got it got it got it congratulations again this is pretty solid.

Thank you.

Thank you. Our next question comes on the line of Dan Donlan with Mizuho. Your line is now open.

Hi, guys. Thanks, so much for taking my question.

2 questions. The first 1 and then I have a follow up can you maybe elaborate a little bit on sort of the.

Puts and takes of what happened in the second quarter in terms of the.

The growth rates between SMB I know you called out E Commerce, but just if you think about those sub segments and then I would follow up thank you.

Yes, I can comment on the overall merchant growth in the second quarter was 45% if you break that down between the enterprise and SMB SMB grew 50% for us in the second quarter.

On the enterprise business grew a little over 40% combining.

Combining to the 45% if you remember global E. Com sits in the enterprise business growing at 31%. So that's a little bit of the breakdown between them. We did see some sharp increases in verticals, both North America restaurant net international restaurant of about 70% around reopening so as we.

We expected the volumes to come back and they did and then we got the yield benefit.

Through those some of those higher yielding verticals is the reopening of happened. It rebounded. So that's a little color around the SMB and enterprise there Dan.

I would just add that the team is just performing at a very high level.

The execution with the merchant team, bringing product to market execution driving sales the banking team on the capital markets team all of them, just really kind of embracing of what we're trying to do and executing at a very very high level.

Yes, it sounds really strong and then my follow up is more macro there is a lot of anxiety here in the U S that were kind of a few months behind the U K I know you have like a huge UK exposure can you give us some some understanding of how things are trending there given the decision that they made to reopen.

Everything I mean.

The are you seeing things sort of reopen as as it peaks and it comes down like it is just I think theres a lot of excited of here that we're going to see the same thing.

In a couple of months given the surge in the Delta. Thank you.

Yeah as we highlighted we continue to see July results, improving debt is improving better or trending better internationally than in the U S right now.

Certainly saw some benefit in the back half of July with some of the UK reopening as we assume the volumes increasing there.

Certainly continue to monitor everything as things go along.

Feel good about what we're seeing right now in terms of volumes outside of the U S. Continuing to improve they are lagging the U S. A little bit as we've talked about we certainly saw the U S outpace.

International growth in the second quarter, but we anticipate the international areas to continue to drive into the back half of the year.

Really appreciate it thank you.

Thank you.

Thank you. This concludes today's question and answer session I will now turn the call over to Gary Norcross for closing remarks.

Thank you again for joining us this morning, and thank you to our dedicated colleagues who continue to show their commitment to providing world class technology solutions for our clients. So that they can stay ahead of the curve. This commitment will lay the foundation for our growth in 2021 and beyond if you have any further questions that were not addressed on this call. So please.

Reach out to our Investor Relations team, Thank you and goodbye.

Yeah.

Ladies and gentlemen, this concludes today's conference call. Thank you for participating you may now disconnect.

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