Q3 2022 Fidelity National Information Services Inc Earnings Call

The conference will begin shortly to raise your hand during Q1.

Good day.

And welcome to the F. I S third quarter 2022 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 one on your telephone you will then hear an automated message advising that your hand is rate. Please.

Please be advised that today's conference is being recorded I would now like to hand, the conference over to your speaker, Mr. George Miele, our head of Investor Relations. Please go ahead.

Great. Thank you operator, good morning, everyone and thank you for joining us today for the Fas third quarter 2002 earnings Conference call. This call is being webcast. Today's news release corresponding presentation and webcast are all available on our website at <unk> global Dot com.

Gary Norcross, our chairman and CEO will provide a business overview Stephan.

Stephanie Ferris, our president will provide an operational update.

Finally, Erik Hoak, our Deputy CFO will then review our financial results.

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 financial information is presented in our earnings release with that I will turn the call over to Gary.

Thanks, George and thank you all for joining us this morning.

Let me begin by saying this will be what are you what all his last official day as Chief Financial Officer. His contributions over the past 14 years have been tremendous and he has established a firm foundation for Eric <unk> as our new CFO to build upon in the future I'm also very excited Stephanie Ferris will become president and CEO on January one.

2023, Stephanie's 28 years of industry experience various executive roles in our understanding of the Fas business and industry positions her well for this promotion I'm confident in her ability to lead this company going forward and excited to continue working with her as I assumed the role of executive Chairman of the board.

Gratulation Stephanie on this well earned promotion.

I'll begin on slide five FERC.

Overview of results in the quarter, we delivered revenue and adjusted EPS in line with our expectations a testament to the fundamental resiliency of our business organic revenue growth for the quarter was 5% banking solutions grew 6% merchant solutions grew 5% in capital markets grew 6% all on an organic basis.

Our profit margins in the banking and merchant solutions businesses saw continued pressure in the quarter.

This resulted in an overall adjusted EBITDA margin contracting by 150 basis points year on year, primarily a function of inflationary cost pressures such as wage inflation and downstream supplier increases as well as incremental macro headwinds such as consumer weakness in the UK.

We are not pleased with the profitability performance of the business and are taking actions to address them.

We did want to provide you some insight on the underlying performance of the businesses because given the backdrop, we operate in and the continued economic slowdown we are seeing in certain geographies around the world on the slide you will see we provided some key growth trends with minor adjustments to help investors see the underlying performance of these businesses as you can see the.

The underlying growth trends of the businesses are good in this backdrop.

We adjust for pandemic services, our banking revenue grew 8% during the quarter merchant solutions grew 6% adjusting for Russia, Ukraine with our E com business growing 22% capital markets at an impressive 9% growth adjusting for the volatility of license fees, which we have discussed on numerous calls.

We also executed on our commitment of returning capital to shareholders through a $1 billion of share repurchase. In addition to the almost $300 million of dividends paid while maintaining leverage at two nine times in support of our investment grade credit ratings.

Turning to slide six we.

We are seeing indications of a broader economic slowdown in banking as we discussed last quarter, we continue to see deals greater than $50 million, taking more time to close than we saw over the last several years smaller transactions and banking continued to show good momentum, which allowed us to close more new contract value this quarter.

Compared to the same quarter last year and merchant across the United Kingdom, we saw even greater pull back than we expected last quarter. We continue to see stability in U S payment volumes through the first nine months of the year, but are beginning to see a shift in non discretionary spending towards the big box merchants.

Should there be economic pressure in the U S. <unk> is well positioned to capture volume shifts given our size and scale and market leading distinction in the grocery and pharmaceutical verticals as well as our strength in the enterprise card presence and e-commerce capabilities.

Capital markets continues to exceed our expectations as our pivot to a SaaS based go to market strategy has strengthened the resiliency of that segment. This strategy is also supported the profitability of this revenue as we benefit from a one to many operating model, allowing these clients to leverage our scale and expertise to simplify their complex.

Needs.

Their repurchase with excess trash, returning incremental capital to our shareholders above and beyond our dividend.

We're also announcing an enterprise transformation program to significantly enhanced cash flows through the business with a focus on both operational excellence and prioritizing capital expenditures as we have completed significant investment programs over the last several years, including our data center consolidation and several banking capital markets and merchant moderns.

Nation programs, we are now able to reduce or capital requirements in the future. We are reaffirming our commitment to 20 per cent plus annual dividend growth in a 35% payout target a true differentiator of F. I S compared to others in the industry and a testament to our cash flow generation, what that I'll now turn the call over to <unk>.

<unk> for the operational update.

Thank you Gary and thanks to all of you for joining US. This morning, let me start by saying what an honor it is to be assuming the role of fee.

On January 1st Gary. Thank you for your leadership and mentoring.

And I look forward to working closely with you and your new owners executives hear me.

I also look forward to working with our 65000 colleagues and our thousands of clients and partners around the world and finally, thank you to <unk>, our Altcoin Tfl brings many years of service and congratulations and welcome to Eric has <unk>.

Let me Echo Gary comments that the third quarter was challenging we are not satisfied with our results given the changing macro environment and persistence of an inflationary cost pressures and the resulting impact to margin and free cash. While we are taking immediate action to permanently reduce the cost structure of the company B R. B R enterprise transformation.

Program.

Turning to slide nine.

This program will focus on.

King of our business, what the goal of maximizing revenue growth, while simplifying our operating model. This will enable us to deliver significant reductions in both operating costs and capital expenditures through very targeted accent, while always ensuring that our client remains at the center of everything we did.

Our goal is to deliver longterm margin expansion, while re allocating capital spend to the highest value creating activities for our clients, thus driving improved cash flow conversion.

This enterprise transformation program has two key pillars designed to restructure and reinvigorate our operating model.

First we're focused on permanently reshaping our cost structure through both cost reduction in containment initiatives. These include action surrounding the optimization and reduction of vendors bend, the outsourcing of non value added activities and reviewing and right sizing the current workforce.

We are focused on increasing the revenue of the company by unlucky value through our targeted enterprise Cross sell program called amplify.

Which will take advantage of the significant white space opportunity to sell our existing products across our current segments.

We will also be focused on reviewing aligning and simplifying both our pricing an incentive structures as well as various other commercial excellent initiative.

We have begun to take immediate actions towards this transformation program detailed planning is underway in our early expectations are to deliver at least $500 million of cash savings with additional upside to be determined as we go through the planning process.

Given the economic backdrop, we are pressing to deliver as many of these savings in 2023 as possible.

I plan to update you with a more complete sizing and framework for the program on our fourth quarter earnings call.

Moving on to the third quarter or segment results were mixed revenue came and largely is expected with the exception of further deterioration in macroeconomic conditions, primarily in the UK adjusted EBITDA margins were challenged.

I'll begin on slide 10, with a brief brief overview of our banking and capital market segments, including highlighting several exciting new wins.

Demand for F. I S. As mission critical solutions across both segments continues to be strong with solid positive sales growth and even in this more uncertain macro environment, our sales pipeline remains robust.

And our banking solutions segment organic revenue grew 6% or 8% adjusting for the pandemic rollover Strang.

Strength was driven by continued demand for our next generation platform solutions across core issuer digital and wealth management.

Payments one our next generation card management platform had a strong sales showing.

<unk> include a leading global card network provider that selected payments one for its cross border prepaid consumer and corporate solutions business that serves nearly 20 countries might.

Migrating from its in-house solution to our API based platform will enable the company to realize and to end deficiency benefits at scale.

Additionally, a leading Philippine financial institution selected payments one for processing of it's a credit card and unsecured loans portfolio, helping them to drive innovation and market expansion.

And finally, one of the world's largest retailers went lie with that by us premium payback across the U S locations. We see this as a tremendous proof point of cross selling across our segments.

A challenging economic factors like inflation play into consumer shopping decisions premium pay docked offers significant discount shoppers benefiting both merchants and card issuing banks. So we're looking to offer more innovative and friction with waves for cardholders to monetize their rewards currency.

Turning to capital markets, we had another strong quarter, even with the slowing sales backdrop.

Revenue increased 6% organically are 9% excluding license revenue capital markets has been on a multiyear strategy to ship. The SaaS based solutions from license solutions. We are very pleased to see the success of this strategy.

We had several impressive client wins within the capital market segment, this quarter, including multiple wins for our across asset and trading platform with several leading <unk> across Europe and Asia.

No not only with our solutions provide these financial institutions with a single cross asset platform to support their front middle and back office operations the platform caters to changing regulatory environments, making local regulatory approval easier for the banks.

We also deepened our relationship with a leading data analytics company as they expand their use of our receivables and payables solution for the purpose of empowering their corporate customers to drive automation cost savings and more effective cash flow management.

Turning to slide 11, I'll touch on the performance of the merchant solution segment, given past interest in our merchants strategy and its evolution in recent years I'd like to take a few minutes to update you on the competitive position of the world pay business as well as the strategic pivot that is currently underway.

We will provide a much more comprehensive deep dive into our differentiated merchant solution strategy and it's complimentary nature to our other segments in early 2023.

<unk> solutions revenue increased 5% on an organic basis with growth negatively impacted by further deterioration in the UK, while U S consumers consumer spend remain consistent throughout the quarter.

While I'm Richard business is not immune from an economic slowdown we believe the business is well positioned to grow through a recession approximately 55 per cent of the segment revenue source from the E Commerce and enterprise Subsegments, excluding the UK. We would expect these subjects segments of the business to be more resilient in an economic downturn relative relative to S. M B.

Furthermore, North American enterprise Subsegment increased 7% in the quarter.

This channel indexes towards non discretionary spend categories, including big box retail grocery and pharmacy.

Well some of its growth as a result of strong year over year comparisons coming out of the pandemic. We continue to see and expect strong growth in this key segment of merchants solutions.

We had several notable wins this quarter, especially in R. e-commerce business hiring the strength that our global scale and reach offers to our clients.

First of all it's still early days, we're very pleased with the momentum we are seeing bar recently launched global solution guaranteed payments, which we introduced to you last quarter, a large global consumer electronics giant chose this end to end ecommerce solution to help them maximize order conversion rates and reduced order fulfillment times, all while eliminating the financial liability of fraud on.

Unapproved orders.

We have also expanded our relationship with a large U S discount retailer by expanding processing volumes and adding new services like the F. I F premium payback solution encryption and Tokenization services.

I'm excited to announce that we officially Brandon and launched our world paper platforms offering leveraging the capabilities provided by the pay Rex acquisition.

While still early days I'm pleased with the momentum we are seeing.

We're all paper platforms as our innovative approach to addressing the SMB market by power empowering SAS platforms with the unparalleled tools and capabilities across F. I S as merchant and banking offerings.

We believe we are at the forefront of the new Arab payments that will drive the next evolution of services to Snb's via software and platforms with payments and financial services, leading the way.

This quarter, we close several notable wins and vertical such as mass media in veterinary.

In response to your questions regarding the performance of the business Postpay endemic and in an effort to improve transparency, we are providing some additional detail on this call.

First despite a fair amount of noise around disruption in market share shifts merchant solutions revenue in volume growth in aggregate an index of 2019 levels has remained stable showing steady revenue growth and high single digit volume growth.

Further revenue in volume growth rates and yields have remained consistent by subsegment, albeit their vary depending on the merchandise and vertical any each category.

To be clear, while our SMB subsegment, which indexes to card president acquiring has been adversely impacted by changing market dynamics. The strengthen our e-commerce business, where we continue to grow above market in art and in our enterprise business has allowed us to deliver consistent topline results.

Going forward with continued market share growth and e-commerce as well as our strategic shift too embedded payments and embedded finance, we expect ecommerce to ultimately account for 50% plus a total segment revenue.

I will end, where I started I couldn't be more excited about the opportunity in front of us it up my <expletive> and with that I'll now turn the call over to Eric for further discussion of our third quarter results in a revised outlook for 2022, Eric.

Thanks, Stephanie and thank you for joining us today.

Morning, I would like to dive deeper into the third quarter results.

<unk> around EBITDA margins touch on our balance sheet and cash flow metrics, and then moved to capital allocation and forward looking commentary.

I will begin with our third quarter financial results on slide 13.

As Gary mentioned revenue increased 5% on an organic basis and adjusted EPS was $1.74 in line with our expectations for the quarter.

On a consolidated basis, adjusted EBITDA margin contracted 150 basis points to 43.7% a margin expansion capital markets and a reduction in corporate expenses was more than offset by contraction and banking emotion, reflecting a mix of inflationary costs far margin pandemic Rovers and incremental macro headwinds.

Geography's such as the UK.

Turning to our segment results banking revenue increased 6% organically with adjusted EBITDA margin contraction of 320 basis points to 42.9%.

Margin contraction was primarily driven as high variable costs associated with inflationary pressure a reduction pandemic related revenue and ramping as a service deals which are currently dilutive to segment margins.

While these as a service deals are currently dilutive they have aided in our strong banking growth over the past several quarters and will continue to expand margins over time.

As expected termination fees were down compared to the prior year period.

But a pull forward on license revenue, mostly offset this impact resulting in growth and nonrecurring revenue.

We have also seen some elongation and sales cycles, particularly for larger deals, where we remain a market leader versus others in the industry. This.

This is negatively impacting both revenue growth and margin in the quarter and we expect this headwind to persist for the remainder of the year.

Turning to merchant solutions revenue increased 5% on an organic basis with margin contraction of 430 basis points to 47, 4%.

Margin contraction was primarily driven by incremental investment in emerging channels as well as macro impacts associated with the UK and Europe wage inflation and effects.

Capital markets organic growth was 6% demonstrating the consistency and resiliency of the segment over the last several quarters <unk>.

Margin expanded by 90 basis points to 49.3%, primarily driven by strong cost discipline and operating leverage within the segment.

Turning to slide 14 in.

In the quarter, we returned approximately $1.3 billion of capital to shareholders maintained leverage of 2.9 times and had a weighted average interest rate of 2%.

We generated $684 million, a free cash flow, including in approximately $250 million headwind associated with a taxable beam from our cross currency swaps in the quarter.

This resulted in free cash flow conversion of 65%.

Excluding the impact free cash flow conversion would have been approximately 84%.

Reflecting our year to date conversion outlook for the fourth quarter, we know anticipate free cash flow conversion of approximately 80% for the year.

And excluding the tax impact in the third quarter, we would anticipating more normalized 88% conversion for the year.

We anticipate share buyback of approximately $500 million in the fourth quarter as we utilize excess free cash flow to buy back stock.

Were highly focused on improving our free cash flow conversion moving forward driven by a targeted reduction in capital expenditures aligned with the priorities outlined in the enterprise transformation program.

Turning to slide 15 for commentary around capital allocation philosophy.

As Gary mentioned.

We're putting a heightened focus on the balance sheet, given the macroeconomic environment et.

<unk> said plainly, we no longer anticipate taking out incremental debt in 2023 to fund share repurchase.

This will modestly delever, our enterprise in conjunction with EBIT growth further supporting the strength of our balance sheet as a competitive differentiator.

We remain committed to our annual dividend growth of 20, plus percent and continue to believe that a 35% payout ratios inappropriate target.

Beyond our dividend and capital expenditures share repurchase will be our default use of excess free cash flow consistent with our historical capital allocation strategy.

Turning to slide 16.

Reflecting several incremental and persistent headwinds that Gary Stephanie and I have discussed throughout the presentation, where adjusting our full year of 2022 guidance.

There are three primary vectors driving the reduction in our outlook for the year <unk>.

First we've seen incremental macro factors impacting various portions of our revenue streams.

Most notable of these macro factors as the recessionary trends within the UK and broader Europe , putting pressure on our merchant volumes within the region.

Given the slowing level of bank consolidation due to deteriorating credit markets, we've reduced our assumption for termination fees in the quarter.

While this is ultimately a benefit to the health of Fas over the longer term, it's driving a material reduction to 2022 expectations.

The second vector would be inflation and cost pressures impacting the expense space.

This is inclusive of incremental wage infrastructure and vendor costs. Additionally.

Additionally, while inflation has been an incremental benefit to some revenue streams via price escalators. It has also resulted in higher pass through revenues, which carry low to zero margin.

This is negatively impacted revenue mix and margins.

The last vectors associated with sales timing and execution due to continued elongation in our larger transactions, resulting in a push on certain previously forecasted revenues we.

We also incorporated our third quarter results into this revised outlook compared to original expectations.

While the backdrop is challenging the size of our backlog in concentration of a recurring revenue has allowed us to offset most revenue challenges, however, with a different mix of businesses and margin profiles.

We're looking to address these cost pressures through our announced enterprise transformation program that Stephanie discussed earlier, and we believe that long longer term margin expansion remains a staple within our operating model.

A key priority of mine and the finance teams will be managing the things inside our control very closely.

While we cannot control the macro will look to manage the micro across both operating and capital expenditures to drive profitability and incremental cash through the enterprise.

Turning to slide 17 for a summary of <unk> of a revised guidance.

For the year, we know anticipate consolidated revenue of $14 $407 billion to $14 five $2 billion, resulting in organic revenue growth of 6% to 7% ajar.

Just that EBITDA of six $107 billion to $6 to $1 billion or margins of 42.6% to 42.8% and.

And adjusted EPS of $6 60 to $6.66.

We are proactively derisking, our fourth quarter and full year 2022 guidance to incorporate additional macro deterioration from what our business is currently experiencing to be clear our current forecasts is above our fourth quarter guide.

For banking and capital markets were lowering our assumptions associated with high margin nonrecurring revenue given decreased visibility.

With respect to merchant, we're incorporating further consumer challenges across both the UK and to a lesser extent the U S.

As the incoming CFO .

Given the more uncertain backdrop, I think it prudent to err on the side of caution as it relates to setting forward expectations as.

As investors you should expect this to be my guidance philosophy going forward.

Turning to slide 18.

Given the uncertainty in the macro backdrop were we are reassessing, our midterm guidance, which we will re readdress early next year.

While it's premature at this juncture to provide a form of 2023 outlook as it relates to operational performance.

I do want to offer some colors on several below the line assumptions for the purposes of updating your models.

Beginning with depreciation and amortization our current projection is a range of $1.28 billion to 132.

$128 billion to $132 billion for the full year of 2023.

Moving to net interest expense, assuming the refinancing of maturity maturing debt or net interest expense would be in the range of 650% to $700 million for the full year 2023 at current interest rate projections.

As economic continues to progress through 2023 of debt reduction becomes a more optimal use of capital over share repurchase will execute accordingly.

Presently we would expect share repurchase to be your back end loaded in 2023.

I expect are effective tax rate to be slightly higher around 15% to 16% in our period in 2022 share count should be approximately $595 million.

At this time, we believe are below the line assumptions are in a reasonable range to communicate externally for the upcoming year to assist in modeling our financials.

As a wrap up my prepared remarks I'd be remiss. If it was if I did not acknowledge the contributions of my predecessor, Woody would all to the company and his mentor and Mentorship as I now assumed leadership of the finance organization.

I'll finish by saying I'm excited for the next chapter of Fas and commit to being a prudent allocator of capital a.

Disciplined expense manager across the enterprise and a transparent and conservative communicator to the investment community.

<unk> continues to differentiate through expertise with enterprise merchant and financial institutions. We continue to provide mission critical capabilities with highly recurring revenue streams and we benefit from a one to many operating model to drive underlying margin expansion.

All of which we believe will deliver consistent and sustainable results through challenging macroeconomic conditions driving value to our clients and shareholders for years to come.

Thank you again for your time. This morning, operator, we please open the line for Q&A.

Thank you as a reminder to ask a question.

<unk> one on your telephone.

James We ask that you. Please limit yourself to one question and one follow up question. Please stand by while we compile the Q&A order.

And today's first question will come from the line of Dave County.

Go ahead.

Yeah, Hey, guys and thanks for all the time over the years, it's been great working with you.

And I guess my first question just when we think of of merchant you know it seems like most of the competitive data points. We've gotten have been around around 10% may be a little over you guys were mid single digits you explain some of the moving parts of the UK, but maybe what do you think.

Again between you and the industry and what does it take to get back and maybe how soon do you think you can grow in line with with industry again.

Yeah. Thank you. This is Stephanie I'll take that so I think like I think Marquette. If you look at 2022 over 2019 spent a mid single digit grauer consistently.

It's been pretty consistent quarter over quarter.

Let's breakdown within here in terms of thinking about.

What strategic for US and then what we strategically are deprioritizing. So if you think about the business broadly as you know what we are one of the largest global E. Commerce providers that is by far and away. Our most strategic piece of the business along with being a large scale enterprise car president provider in the U S, which provides the scale we need to.

Continue to really drive a lotta market share gains.

Given the post the pandemic given the structure of shifts in the industry.

We are seeing significant.

Changes in our SMB portfolio and are strategically deprioritizing, it and moving all of those partners that we've historically had their over to our embedded payment strategy with where I'll pay for our platforms. So the way we see the world as we go forward as we have been and will continue to be a mid single digit grower, you'll see us continue to add.

And drive growth in R. E Commerce segment, which has you know has a higher growth.

Of the portfolio, we're pivoting our strategy from card present SNB the card not present SME and over time that next shift will take the E. Commerce piece of this business upwards of 45% to 50% of the total portfolio and then shed pivot the business back to a higher growth rate.

Great. Thank you and then just on on margins.

I guess, if we look first at merchant as close to 100% incremental margin in about 2000 2002 thousand 21.

And now this year, it's closer to zero and I think.

Are feeling some of that pressure.

Are we in a position where maybe that really started I don't know if the 810 months ago, we're not that far away from anniversary the big pressure from costs just not inflation.

When we when we anniversary that can we start to see normal incremental margins again, plus this cost savings program like is that kind of expectation.

David pay it's Eric Yes, I think that's a fair way to think about it as I think about the third quarter margins.

Really too predominant drivers here one it's continued investment in emerging channels, which would be geographies and pay risks as well as.

Broad based macro impacts, where we're seeing revenue come down at very high incremental margins, which would include the UK.

Russia Ukraine.

Okay, great. Thanks, guys.

Thank you one moment for our next question.

And that will come from the line of Jason Cup February with Bank of America. Please go ahead.

Thanks, guys. Good morning. Appreciate you taking the question. So I know you mentioned that there'll be an update on the medium term guidance coming next quarter I mean, Eric I know when we met with you in September certainly sounded like cost is a pretty high priority for you even relative to revenues you seem to underscoring some of that today, so is that kind of.

The right mental model, we should have as we think about how the multiyear financial outlook may evolve and I think Stephanie may have just said in response to the last question.

Trend and kind of mid single digits for some period of time at least are those some of the piece parts, we should be considering just as we try and get our models properly adjusted in the out years.

Jason that is that is a fair way to think about it as I mentioned in my prepared remarks, we're not going to get deep into the operational performance in for 2023 and beyond but.

Referencing back to the sell side Lynch I believe that there were four things that we before key points that we talked about during that.

During that session I think are still very very relevant macro continues to be.

A challenge for US we're focused on spending across both operating expense capital expenditures as well as one time items as well we wanted to ensure that we've got some visibility into 2023 for interest expense and then lastly.

We've got the ongoing commitment to associated with.

Access free cash excess free cash flow going to share repurchase.

Right right, Yeah, I know that color was helpful and slide 16 was actually really helpful to just doing that that guidance walk there I'm just just as a follow up on the $500 million plus in cash savings you talked about it sounds like you're trying to get at most of that in 2023.

What's at this point your sense of the rough mix of of the Opex versus the Capex component and how much would you expect to drop to the bottom line versus reinvest.

Yeah. Good morning, I'll I'll answer that don't know yet so we are aggressively going after I talked about both operating expenses as Gary mentioned, we're at the end of our investment cycle. As you guys know, we've made significant investments and modernization in our products across capital markets banking and merchant.

Those investments yielded very very significant and positive momentum in terms of products hitting market at the rate demand, but as a natural cycle.

It makes sense now for us to take the capital investment in those down. So we are going very active around you know the reduction of reallocation of capital.

After operating expenses as as Eric mentioned on the call. We are experiencing some significant increase in inflationary and then and then non-recurring overall, we're really looking at driving as much of the $500 million in cash flow and improving on Castro margins in 2023, but I just don't yet have how much that's going to impact.

Twenty-three versus coming into 2024, we're pushing into 2023 and I don't have a feel for yet on opex capex et cetera will come back to you in the fourth quarter. Because we are just detailed planning and actions happening now.

Okay, we'll stay tune thank you.

Thank you one moment for our next question.

And that will come from the line of Darren.

Research. Please go ahead.

Thanks, guys my questions. It really around historically <unk> has always been a good manager portfolio manager look at a different assets throughout the business and so.

Just looking at for America that are obviously, continuing to grow well, whether it's kind of markets or banking.

Versus parts of the merchant business makes me wonder again, if it makes sense to reconsider that whether there's assets that could be better off just being with another another company while.

While you can reinvest in areas that really do want to be your focus you could use cash from those sales.

Any further consideration of portfolio matters with whether it is divestitures or maybe.

Maybe just a real real quick revisit on whether there is given some of the broken assets out there if there's acquisitions that makes sense into the emergency line as well.

Darren Thanks for the question mm absolutely we have strength I would say here at F. I as in two things, one which is being very strong portfolio managers and making sure that we divest underperforming businesses.

Reallocate capital et cetera, as well as strategically.

I think we've been a really really good strategic.

Provider of M&A. So just looking at that as I come in air can I come into the business.

We're doing a full scale review top to bottom in terms of what we think.

We think we should be doing although that being said.

I believe strategically it's really important for the three segments to be together on one platform.

You're not going to look to see us do any big large transaction either buy or sell what we're really focused on right now is making sure. We focus on the underlying Connie structure of the company getting the capital allocation correct simplifying the operating model you might see I'd look at things like.

Getting out of certain countries are we don't think we're getting the right return selling certain small areas of our business that we think would be better suited with someone else, but strategically we believe and these assets being together and why we do it because of the ability for us to cross sell products across segment so that.

Being said, we are always prudent allocators of capital, we always focus on value creation and so we always will continue to look at that but while we're really focused on over the next few quarters is driving out the costs, we need to drive to.

To make sure that we can really return the operating leverage in the cash flow of the company.

Let me add just one thing there I mean, he did also ask about future M&A, we fundamentally do believe we're heading into a macro environment of softening.

The reality is historically you wouldn't do M&A going into that macro environment downturn, you would do M&A. When you see the trough and you are starting to come out that's when the valuations will be at their lowest level and that would be the opportunity. So one of the things. We're doing is we're talking about fortifying the balance sheet is just that.

Really puts us in a position to evaluate.

Is there is there going to be an economic recession or not how the how long.

It will give the payment opportunity given that balance sheet to take advantage of that based on if and when that occurs and when they see the.

<unk> and the recovery. So just one sure that that's a great point, yeah, no that makes a lotta sense just the the quick follow up as the information you gave on purchasing and the thoughts are for example makes sense. If we could just touch on capital markets and banking permitted it's been very strong and resilient and so when we think about that resilience now.

What are you seeing in the market around because the man as strong as it's been.

Either with some questions on the macro front into next year or two.

Yeah, No I I listen how about I give some color commentary and then air can add on if he thinks I didn't get enough there, but I would say demand continues to be really strong uh-huh, both in banking and capital markets. The investments we made a modernized the products also.

The financial institution market broadly is continues to be very significantly spending on digitization and omnichannel capability that they need and our solution to meet those needs at the perfect time. So the demand continues to be really high what we're seeing and we started seeing it in the second quarter and we <unk>.

<unk> that is just a long gating sales cycles and so that's why we're somewhat calling the macro here we're seeing.

Financial institutions, taking longer to make decisions and we're not seeing that they don't like the products. They certainly like the products, but we are seeing decisions slow and as we saw decision slow in second quarter, and then third quarter. We have great visibility we have a great pipeline is very strong, but we're becoming a law.

I'll bet challenge in terms in terms of the transparency of when those are going to close and I think that's just the financial institution market being a little prudent with what they're seeing across the economy. So I would say the demand there continues to be strong what we're calling out for you as a bit of the macro in terms of how we are seeing people behave let me add a little bit of that era and I was I.

I was on with.

Three different Ceos yesterday alone talking through what they are seeing in the market, what's going on with our relationship et cetera, It's interesting I've never really seen the banking industry stronger.

You are seeing massive interest rate increases so their names expanding so profitabilities going way up you are seeing their credit quality very strong.

I actually had on all three separate occasions the comment.

What is everybody else seeing that we are not and it's causing them to Paul's because they're just the reality is there concern that well maybe there is something we don't know and so we've seen this in the past it's not a demand issue, but that's what's a long waiting the sales cycle, so something that.

Might've taken.

90 days to close might take 180 days, because they're just cautious rightfully so even though there.

Having a very very strong.

Strong profitability and strong growth.

They are just concerned with the rhetoric in the market and you saw the equity market just stay how it responded to the latest.

Interest rates right. We continue to say, it's baked in and then there is messaging that occurs and you say the decline all of that makes very prudent business leaders.

Just take a little more time in decisions.

And that is.

So what we're saying that the demand is for the <unk>.

Band is very strong and very good and our products are very well timed.

Alright, Thanks care Thanks Beverly.

You bet. Thank you one moment for our next question.

That will come from the line of David was Evercore ISI. Please go ahead.

Thank you good morning, since Herridge Worldpay is largely UK based.

What steps are you taking to mitigate the earnings pressure in the UK in other words as a specific part of the enterprise transformation plan really aimed at heritage Worldpay in the U K.

Yeah, So I'll I'll take them in the UK is 15% of world pay so I don't consider it <unk> actually I would consider the the world pay business broadly North American based.

If you think about it there's really there's a north American portfolio, which is primarily large card present enterprise and then a lot of our global E. Commerce is also in North America as you would expect given the size of the market. So the UK piece of it is 15% you are right. It is a very challenging economic time, there I mean, we gave up.

Guide and second quarter 90 days ago, we thought we felt pretty good about considering what was what was happening in a recession. There and then they changed prime ministers at least once maybe twice and said the economic conditions in the UK are pretty challenging and as we look out even over the next 60 days, it's tough to call. It they are in a recession there can.

<unk> are struggling and we're tied to consumer spend so add that goes up and down. It is a it is a high margin business just like payment processing. So in terms of cost $500 million of course program is broad based of course, we're looking at the UK, but it is really so small we really couldn't make.

The margin expand us on the UK, but we're very conscious of the business there and what won't.

You'll never see US do is make cut such that will impair the ability for the business to grow her and then it will impact our customers. So I would say that enterprise transformation program is just that it's enterprise wide.

And we will be focusing on everything.

Across our entire global portfolio.

Appreciate that I was thinking of heritage Worldpay before the vantage merger.

A quick follow up.

Stephanie your comments on SMB weakness and merchant solutions in Q3 revenue down 1%, how much of that is market based versus.

F I S specific.

I mean, I think the so that's our card present portfolio to think about that being primarily terminal based ISO book I Sve book I would say for us, it's probably largely us sign up from a market perspective in terms of we are strategically pivoting that business to our platforms business. So an omni card not <unk>.

Present capabilities, so that piece of our business, whether it's our ISO business or <unk> business.

We are strategically pivoting away from that it's just not a high growth business for us.

And we want to be in SMB via via platforms and more focused on E. Commerce. So I would say the number is probably more us then.

Then the broad market.

Thank you congratulations Gary and Stephanie.

Thank you.

But.

One moment for our next question.

That will come from the line of 10 cents with J P. Morgan. Please go ahead.

Okay. Thank you so much good morning, I wanted to.

Build on I think somebody answers you've given already just thinking about Gary we talked about the supervisor I think you've really able to this project amplify is definitely you mentioned cross selling is still important but I'm I'm just curious.

If the intensity of that has changed because the market.

Focus on Super apps, and providing equity in merchant services and banking it feels like it's changing a little bit. So just wanted to test again, the the importance of the of the project amplify do have targets of mine has that changed in any way.

Yeah.

I'll go ahead go ahead, Sir so <unk> I I would say we are even more bullish about it. So I think we've evolved as a bet you are right. We have super users I mean, if you look at our top 200 clients.

Across the enterprise the majority of them have some sort of product sat across all three segments, which is really encouraging and when we go out and talk to for example, whether it's a large technology provider and our global ecommerce book over talking to the largest grocery realtors.

Retailer in this in the CEO all of them are really looking at us and talking to us about not just about the payments piece, but about financial services and if you think about what's happening in the world broadly, we're seeing financial services continue the evolution to the almost to the point of transaction and embedding in every transaction that we're doing.

<unk> and so our broad breadth of capabilities resonate across all of our.

Segments in large customers and so we're formalizing it into what we're calling our amplify opportunity will be back on it more in the fourth quarter getting a lot more view towards size ankle and absolutely we're going it and we're seeing some initial success.

It's one of the reasons why I'm very excited about the opportunity we have a very significant opportunity to drive incremental revenue growth.

By doing more of it and so I don't know that it's evolving other than we continue to be very excited about it yeah. I would just add one will add one thing too.

I mean do you use the concept superadd, so I want to be real careful we would be the super user different than a super App Super App would dictate that we're gonna do a large development. This is simply taking the success that we had with the Worldpay integration.

Of cross sales and amplifying that up to the next level. So starting to think about are really large customers across all of that by us not within the traditional segments. They housed in Stephanie is absolutely all over driving the sales team and and sending that behavior to drive cross.

Sales in a more fundamental way.

Our large enterprise customers. The reality is most of them need the capabilities in all three segments not just the one segment there in so there's not a large development effort here, there's not a large spend effort here, there's there's a focus incentive stephanie's driving.

Perfect. Thanks for clearing fine but.

I can think of a lot of merchants I know that I want to thank their users and and <unk> and there's some overlap there. So I'm glad you clarified that for me. If you don't mind just my my quick quick my follow up just on the SMB side, and then we're going to learn more but it sounds like.

F. I S is willing to be the wholesale provider in face to face within SMB, and then pivoting more to doing.

I think you just said it platform and omni, which makes sense I think because SMB is moving more towards platform type services does this mean you need to invest in new areas to service that platform piece, either organically mechanically I know pay and pay out for example is really important there a lot of S. N b as a moving onto larger platforms and you can do that.

Enterprise, but it feels like it's a different.

Need there within E. Com platform do you have what you need to be successful there. Thank you yeah. Great question, we are absolutely.

Shifting to B R embedded payments strategy to deliver capabilities, both payments in financial services through our platform structure that was the significant reason behind buying the pay Rex asset so that asset enables us to not not only embed payments, but also embed financial sorry.

Services to think embedded finance, so that the strategic pivot that we are embarking upon.

And changing your point exactly right. So we have embedded payments today, we have the three biggest capabilities people want into those snb's through the platforms wishes, which is issuing as a service deposit taking as a service and lending as a service because we have the connect we have the technology already that were important we are integrating.

Into the World paved platform and then we have the <unk> that's it behind it that will deploy their balance sheet.

So if you think about it from our standpoint, we've been historically the infrastructure of the service provider.

The affectively, where we've kind of sat in the ecosystem to be that with respect to smbs.

Whether it's embedded in software or and platforms you have to have three things you have to have the global ecommerce capability.

Have to have a platform that will enable it and then you automatically have to be able to provide the financial service capability. What we're not going to do is use our own balance sheet, but because of the connectivity we have to the financial institutions. We think we are uniquely positioned because we had the technology can tap into their balance sheet. So you're exactly right. We are embarking on a platform.

<unk> strategy here, we believe we have the component.

And the components were already organically buildings. So it's not a huge billed for us the big strategic piece with getting the platform.

That we bought to pay rent and now it's enabling all the capabilities. We already have yeah that was the only add I was going to have an stepping just hated and gentlemen, Eric reference them at some of the margin pressure, we're seeing in merchandise related to investment in the platform, so, let's not but but it's all organic internally on a well established base so that.

Products and very very well, we're seeing very very strong growth. It's early days.

But but it is certainly a key component to the future of the of the overall merchant business, but it will be organically funded.

Okay. Thank you and forgive me for that alone when this question no.

Oh good.

Thank you one moment for our next question.

And that will come from the line of Lisa L S with Mossad Nathan.

Go ahead.

Hi, Good morning, Thanks for taking my question Stephanie This one's for you we've covered a lot of ground today you have a lot of good initiative underway here just.

Time it altogether when you are thinking about your vision and priorities four F. I S H.

How should investors be thinking that as high as will look differently 12 to 24 months from now.

Well thanks for the question Lisa So.

Thinking about from my standpoint, first we're going to continue to do what <unk> has it strengthened which is deliver best in class products and services.

Cross our customer base, but.

But in terms of thinking about how to do that differently, possibly over the next 12 to 24 months.

Continuing to pivot to a platform strategy to drive incremental cross sell in revenue growth either through amplify which is taking our existing products and selling them across our existing segments or as I. Just described pivoting too and the world pays face or in the payments space not only embedded payments, but also <unk>.

Added finance.

But probably most importantly over the next six to 12 months, you're going to see is really focused on the operating model and the underlying cost structure of the company really focused on value creation and how we make sure that that operating model and cash flow conversion continues to be best in class like Empire has been.

And once we get the operating expenses and capital expenditures and keep free cash flow back where we want it to be I think then you will see us start to think about where do we want to return capital answer to Gary's point really go back to looking at M&A, which is a strategic strength of ours and given our balance sheet, given our strength, given where we think will be in the <unk>.

Get place after we've made some really really significant improvements on the cost structure. I think you would <unk> start to look at redeploying cash for M&A. So that's how I think about where I'm focused and arrogant Eric is focused over the next 18 to 24 months.

Mhm mhm okay.

Okay. Good. Thank you and then just a follow up cause you just mentioned that Capex side, and then called out and the presentation today, it's running at about 9% of revenue excluding the new corporate headquarters.

What are what are some of the biggest areas. It's I know it's on the list for the.

The enterprise transformation program. So what are some of the areas, where you think you can bring down Capex and then I'm just thinking about how you kind of balance that would be the investments you were just calling out after Simpsons question that you know in the in the platform said personnel.

Yeah. So it is literally just that though as Gary mentioned in his prepared remarks, we've made significant investments over the last five years in data center consolidations modern banking platform D. One P. One new acquiring platform access worldpay cleared derivatives products I mean, so we have made investments and all of the segments.

And their products.

Now in market demand is high we're seeing big great uptake in them. So it's just at the end of a natural cycle.

For us to start bringing a lot of that investment down to more normalised levels. So that's the first thing we're doing and honestly as much as I would say, it's not that hard because it is at the end of a normal investment cycle. So we're pulling those down now you are exactly right, we are investing and making sure that we're focused on value creation and invest.

<unk> some of it definitely not all of it.

Some of it back into making sure that we have all the capital we need to strategically grow our platforms business et cetera, but it is not nearly the heavy investment that we've been making and so you will see us bring down to normal levels, and then reallocate into where we see growth.

In the businesses over the next 12 to 24 months, but we wouldn't expect to need 9% of revenue capital expenditures going forward not yet ready to call, where we think it will end up but we would see it significantly coming down over time.

Thank you terrific. Thank you.

Thank you and one moment for our next question.

And that will come from the line of Ramsey L. S.

Barclays. Please go ahead.

Hi, Thanks, so much for taking my of my question. This morning, and this is sort of a follow up to Lisa's question and you you may have sort of started to touch on the answer just now but it's a question on free cash flow conversion and just wanted a business has become more capital intensive over time, whether the.

There's more of a heightened requirement for capital investments, perhaps because of you know.

Competition in larger tech requirements.

Should we or should we think about the free cash flow conversion profile of the businesses having changed over time. It sounds like you are seeing it as much more of a.

Sort of a non-recurring impacts and it'll return to a more normalised levels as we go forward the.

Hey, Ramsey I think you're thinking about it right. There is nothing structural in our model that would that would.

That would lead us to believe that the that it's anything other than one time in nature.

Okay, and I had a follow up question I think it was Jason's question from earlier around the enterprise transformation program.

Where do you see this sort of lowest hanging fruit there I know you called out some sort of larger buckets.

Are there any particular areas in terms of expense reduction that seemed to be kind of.

The lowest hanging fruit as it were.

Sure happy happy to give some color on that I think that's what I just spoke about which is just the natural evolution of the capital expenditure coming down.

Is fairly low hanging fruit for us in terms of thinking about bringing that down to normalize levels. The second is around vendor spend so as we've brought the company together as you as you can expect and we have great prudent capabilities around vendors, but given the inflationary pressures that we have coming through us.

We can continue to be very proactive around our vendors.

And making sure that we are offsetting are inflated costs. There. So we see a lot of a lot of opportunity and vendor spent and then we're really looking hard at duplication of activities across operating segments.

Cost containment.

And then really looking at the workforce first broadly.

And then obviously we operate we are a global company, we will operate in a lot of countries around the world. So rationalising, if we need and want to be in all those countries, but those are some of the the high level of things we're looking at.

That's super helpful. Thanks, so much.

Thank you.

Today's question and answer portion of today's call I would now like to turn the call over to Mister Gary Clark crossed for any closing remarks.

Thank you in closing I'd like to share that it has been a privilege to serve this company for more than 34 years, including serving as CEO since 2015 <unk>.

Company. We've built is made to withstand an uncertain economic backdrop, and we will continue to build upon our leading position across the market's we serve I'll look forward to staying actively engaged as executive chairman as we embark on the next chapter of Fas. Thank you. Dr 65000 colleagues for your dedication to our clients and <unk> we will.

Opinion to advance the wait for joining.

Thank you for joining the call today.

This concludes today's conference call. Thank you for participating you may now disconnect.

The conference will begin to.

To raise your hand during Q&A you can dial 911.

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