Q3 2024 Fidelity National Information Services Inc Earnings Call
Okay.
Speaker Change: Good day and welcome to the F. I S third quarter 2024 earnings call. At this time all participants are in a listen only mode. After the speaker presentation. There will be a question and answer session to ask a question. During the session you will need to press star one on your telephone you will then hear an automated message advising.
Your hand is race to withdraw your question Press Star one again.
Please be advised that today's conference is being recorded I would now like to hand, the conference over to your speaker, Mr. George Meatless head of Investor Relations. Please go ahead Sir.
George Meatless: Thank you Sheri.
Good morning, everyone. Thank you for joining us today for the third quarter of 2024 earnings Conference call.
<unk> is being webcast at <unk>.
Today's news release corresponding presentation and webcast are all available on our website at FY as global Dot com.
Joining me on the call. This morning are Stephanie Ferris, our CEO and President and James kill our CFO.
Stephanie will lead the call with a strategic and operational update.
Followed by James who will 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.
George Meatless: 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.
Speaker Change: Please refer to the Safe Harbor language.
Speaker Change: Also throughout this conference call, we will be presenting non-GAAP information, including adjusted EBITDA adjusted net earnings adjusted.
Speaker Change: Net earnings per share and adjusted free cash flow.
Speaker Change: These are important financial performance measures for the company, but are not financial measures as defined by GAAP.
Speaker Change: Reconciliation of our non-GAAP information to the GAAP financial information as presented in our earnings release.
Speaker Change: And now I'll turn the call over to Stephanie.
Stephanie Ferris: Thank you George and thank you everyone for joining us this morning.
<unk> delivered another quarter of strong results with broad based outperformance against our financial targets.
Stephanie Ferris: Sales momentum across the enterprise and success, securing a number of strategic partnerships strengthening our leading position across the many lifecycle.
As our third quarter performance demonstrates we are executing on our strategy to drive greater shareholder value.
Stephanie Ferris: Let me share some key financial results and operational highlights with you.
Speaker Change: Adjusted revenue grew 4% in the third quarter.
Fuel by a strong acceleration in recurring revenue growth.
Speaker Change: Adjusted EBITDA margin of 41, 3% exceeded our outlook with both operating segments posting year over year margin expansion.
Speaker Change: We also continue to focus on driving high quality recurring sales with cross sell activity across the enterprise up over 20% year to date.
Speaker Change: Adjusted EPS of $1 40 increased 13% year over year on a normalized basis, and we returned a total of $700 million of capital to shareholders in the third quarter across both buybacks and dividends.
Speaker Change: We also recently closed a small acquisition in the digital space Dragonfly technologies.
Speaker Change: As we make progress against our M&A goals.
Our strong operational performance and disciplined capital allocation allow us to once again raise our outlook for 2024.
Speaker Change: Now turning to slide six.
The sales momentum we saw over the first half of the year continued through the third quarter with strong execution across the entire money lifecycle.
Within money at raft, we continue to see solid demand across core banking and digital solutions.
Speaker Change: And core banking, we've already signed more core engagements through the first three quarters of 2024 than we did in all of 2023.
Speaker Change: During the quarter, we signed new deals across all three of our core platforms.
Speaker Change: Ibs horizon, and modern banking platform and our pipeline of core opportunities continues to expand with.
Speaker Change: With strength in the community Bank space.
Speaker Change: Our digital business continues to see accelerating sales momentum with new sales nearly doubling year over year.
We look forward to further capitalizing on this momentum with our recent acquisition of dragonfly.
Speaker Change: Dragonfly complements our digital one portfolio expanding our digital offerings across large financial institutions.
Speaker Change: Including some of the largest regional banks for which we already have significant relationships.
Speaker Change: The company provides banks with a full suite of solutions to meet the needs of large complex commercial customers.
Speaker Change: Including managing liquidity combating fraud and handling payments.
Speaker Change: Dragging by also services a number of banks not currently using an F. I S core creating attractive cross sell opportunities for us.
Speaker Change: Within money in motion, our differentiated payment offerings, particularly our loyalty solutions had a strong sales quarter.
Speaker Change: As we signed several new marquee partners.
Speaker Change: We meaningfully expanded our premium payback ecosystem with key new partnerships across a number of sectors, including leading technology companies retailers and financial institutions.
Speaker Change: Our ability to partner with these market leading companies underscores <unk> unique ability to unlock financial technology to the world.
Speaker Change: We continue to execute across treasury and risk with solid sales and risk management and continued product innovation, including soon to launch next generation Treasury solutions in partnership with market, leading AI companies.
Speaker Change: Our cross money at work, we recently launched our digital trading storefront and we continue to see very strong double digit growth in commercial lending.
In summary, we're executing strongly across all growth vectors and are seeing continued new sales momentum across the enterprise.
Speaker Change: Now turning to slide seven.
Speaker Change: As discussed we signed a number of marquee client wins and secured several high profile new partnerships during the quarter.
Speaker Change: Beginning with money at rest, we continue to see traction with banks below $10 billion in assets with a competitive win of a leading mutual bank south shore, who will be migrating to our ibs core.
Speaker Change: Additionally, we signed a license agreement with a leading global commercial bank in the APAC region for modern banking platform.
Speaker Change: Digital had another strong sales quarter with a number of new engagements.
Speaker Change: One example is our expanded relationship with Everbank.
Speaker Change: A growing southeast based bank with nationwide deposit and lending capabilities.
Speaker Change: With over $35 billion in assets that opted for our digital one teller solution.
Speaker Change: Everbank as I will discuss shortly is a leading example of our cross sell flywheel at work.
Speaker Change: The bank has both a banking solutions and capital markets customer opting for new solutions across both segments this past quarter.
Speaker Change: Turning to money in motion, our premium payback loyalty offering had a standout quarter as we entered into new engagements with a number of leading companies across a wide spectrum of industries.
Speaker Change: Commerce Bank, a leading regional bank in the mid West has selected us to provide it with an end to end loyalty management platform <unk>.
Speaker Change: Including leveraging our premium payback loyalty offering.
Speaker Change: We're excited Commerce bank has selected us to help them differentiate their customer value proposition.
Speaker Change: We're also working with Apple to bring additional payment options to Apple pay users.
Speaker Change: And the future U S users checking out with Apple pay online and in App on iPhone and iPad, we'll be able to redeem rewards for purchases across eligible participating apple pay issuers without bias.
Speaker Change: In capital markets, our treasury and risk solutions continue to resonate globally.
Speaker Change: In the quarter, we renewed and expanded our relationship with one of South Africa's largest financial services provider that relies on <unk> enterprise risk suite to manage their risk exposure.
Within money at work, we continued to see strong demand for our commercial lending solutions.
Speaker Change: As I mentioned earlier Everbank, our banking solutions client.
Speaker Change: Selected us for their commercial loan origination needs expanding our relationship across the bank.
And similarly, Beal bank, a large U S based financial institution in banking solutions client.
Opted for capital markets commercial loan servicing and compliance solutions.
Speaker Change: This demonstrates the unique value proposition of one F I F C.
Speaker Change: Servicing the most complex clients across both our banking and capital market segment.
Okay.
Speaker Change: I'm also pleased to report that Fas has once again recognized as one of the world's best companies by time magazine.
Speaker Change: Also a number of our solutions received accolades from leading expert advisory firms and prestigious industry journals, including IDC naming modern banking platform as a leader in its recent North American digital core banking platforms report.
Speaker Change: Charter research, a leading risk technology research firm.
Speaker Change: Recognizing F I S. In its inaugural AI 50 report highlighting AI adoption in the financial industry.
These awards reaffirm our leadership position across the money lifecycle.
Speaker Change: And before I turn it over to James I want to thank all of our colleagues here at <unk> for all of their hard work and.
Speaker Change: And welcome our new dragging pie colleagues to the team.
Speaker Change: I also want to welcome our two newest board members.
Speaker Change: Nicole Anicetus, and Courtney Gibson to the board and with that James.
James: Thank you Stephanie and good morning.
James: We're very pleased with our performance in the third quarter as.
James: As we once again exceeded our financial outlook and raised our full year 2020 for projections.
Adjusted revenue growth was steady at 4% in the quarter driven by an acceleration in recurring revenue growth.
James: Adjusted EBITA margin exceeded our expectations at 41, 3%.
James: With margin expansion across both operating segments.
James: Offset by a tough year over year comparison corporate expenses.
James: Adjusted EPS was $1.40 in the quarter up 49% compared to the prior year funding.
James: The increasing 13% on a normalized basis.
James: As described in our earnings release, we made some noncash adjustments to our previously reported financial statements.
James: Primarily reflecting an increase in the cost of revenue and the output solutions business within our banking segment.
These revisions had an immaterial net impact.
James: Reducing 2022, adjusted EPS by <unk> <unk>.
James: On 2023, adjusted EPS by <unk> <unk>.
James: For 2024, our adjusted EPS decreased by a penny and each of the first two quarters.
James: Free cash flow was not impacted by these revisions.
James: We have provided a full set of revised financial statements in our earnings materials.
James: We are confident that the issue has been resolved and there was no impact on the business going forward.
James: In fact, we are raising our full year outlook.
James: Moving now to our balance sheet and cash flow metrics.
James: Total debt at the end of the quarter was $10 9 billion with.
James: With a leverage ratio of two six times.
James: We returned $700 million of capital to shareholders.
James: Including share repurchases of $500 million.
Year to date, we have repurchased $3 billion of shares.
James: We're well on track to deliver a $4 billion full year target.
Free cash flow was $530 million with a cash conversion rate of 85%.
James: Cash conversion was impacted by an increase in capital expenditures to 9% in the quarter.
James: We have increased our growth investments and now expect capex to be closer to 9% of revenue for the full year.
Given the higher growth investments, we now expect free cash flow conversion of approximately 85% for the year.
We remain confident on meeting all of our capital return commitments for 2024 and.
James: Over the medium term.
Turning now to our segment results on slide two.
Adjusted revenue growth was 4% with recurring revenue accelerating to 6%.
James: Banking revenue growth of 3% came in at the higher end of our outlook.
James: Recurring revenue accelerated to 6% in line with our expectations.
Other nonrecurring revenue declined 24%, reflecting a tough comparison related to pandemic relief revenue in the prior year.
James: Lastly, <unk>.
James: Professional services revenue increased 10% year over year in line with our prior commentary around stabilization on second half acceleration.
James: Adjusted EBITDA margin expanded 10 basis points, reflecting cost saving initiatives and operating leverage.
James: Turning now to capital markets.
James: Adjusted revenue growth was 7% led by recurring revenue growth of 6%.
Excluding acquisitions adjusted revenue grew 6% consistent with the second quarter.
Other nonrecurring revenue increased 20%, which threatened in license sales.
James: And professional services increased 4%.
James: Adjusted EBITDA margin expanded 90 basis points, reflecting operating leverage and favorable revenue mix.
James: Consistent with prior messaging, we continue to expect full year margin expansion across both segments.
James: Turning now to our full year outlook on slide 11.
Yes.
We are increasing the low end of our revenue range by $20 million on the low end of our EBITDA range by $10 million to reflect our year to date performance.
James: Confidence in the fourth quarter outlook.
This leads to an EBITDA margin of approximately 47%.
Reflecting year over year margin expansion of 50 basis points.
James: We are raising our full year EPS outlook by 9% to 12 cents to $5 15 to $5 20.
Reflecting normalized growth of 16% to 17%.
James: This increase is driven by operational outperformance.
Tenured favorable listening and below the line items.
James: Turning now to slide 12.
Our $20 million increase to the low end of the revenue range reflects confidence in our capital markets achieving the high end of our six 5% to 7% revenue growth target.
For banking, we anticipate coming in closer to the lower to mid point of the range after adjusting for the higher revenue base in 2023.
We are raising the low end of our adjusted EBITDA range, reflecting our outperformance in the third quarter.
And we remain confident in achieving our increased full year EBITDA range.
We are meaningfully increasing our EPS outlook, driven by our operational outperformance on improvements across interest expense and world pay EMI.
James: The interest expense favorability, primarily reflects lower levels of debt outstanding given the slower than anticipated level of M&A activity.
With that said.
Our acquisition pipeline remains robust and we expect to close additional deals in the near future.
We are once again, increasing our yeah my outlook by $35 million to.
$480 million to $495 million.
Primarily reflecting a delay in planned operating expense increases.
In summary.
We are raising our full year adjusted EPS to $5.15 to.
To $5 20.
A 10% increase from the outlook, we provided at the beginning of the year.
Let's now wrap up on slide 13.
We have delivered another strong quarter accelerating our recurring revenue growth and projecting 50 basis points of margin expansion for the year.
We are once again, raising our 2024 EPS outlook.
James: We returned $700 million to shareholders and are on track to meet our $4 billion of.
Dollars of share repurchase commitment for the year.
Lastly.
We are confident in delivering strong returns to our shareholders over the foreseeable future.
With that operator could you. Please open the line for questions.
Thank you as a reminder to ask a question. Please press star one on your telephone and wait for your name to be announced to withdraw your question Press Star one again due to time restraints. We ask that you. Please limit yourself to one question and one follow up question. Please standby, while we compile the Q&A roster.
James: And our first question will come from the line of Ramsey El <unk> with Barclays. Your line is open.
Ramsey El: Hi, Thank you very much for taking my question. This morning.
Ramsey El: Can you help us think through the puts and takes for capital markets growth in Q4, the implied expectations in Q4, the year over year comparison gets easier I'm just trying to back into how we get to your implied guide. Thank you.
Yes.
Speaker Change: As said on the prepared remarks.
Took a look at the business more recently.
Strong Q3.
And then looking out we recognize that our 6.5% to 7% full year guide was call. It a little on the conservative side. So that's why in the verbal commentary.
We expect to be.
Speaker Change: Basically on the high end of the six and a half to seven.
Speaker Change: And that will result in a pretty strong if you do the implied growth rate that will result in a strong both recurring and totaled.
Speaker Change: Total adjusted revenue growth in the quarter.
Speaker Change: As a reminder, it's kind of in the bag because youll recall in both businesses, we had a relatively weak adjusted revenue in the prior year quarter. The total company was close to zero and I think capital markets was up 1%. So we're very very confident on this capital markets number.
Touching 7% on the on the full year.
Speaker Change: Got it okay.
Speaker Change: And one more for me on the Dragonfly acquisition can you comment on the contribution you're expecting as we close out the year here in the fourth quarter from that deal.
Speaker Change: Yeah, it's really pretty small because the deal is basically closing as we speak.
Speaker Change: The number is less than $10 million of revenue in the quarter.
Speaker Change: On the acquisition just in general at least in the initial 12 months is probably it's dilutive to company margins.
Speaker Change: But we still see strong synergy opportunities.
Speaker Change: Opportunities, both revenue and on the cost side, but principally on revenue.
Speaker Change: This is a great acquisition and highly strategic.
Speaker Change: Thank you one moment our next question.
Speaker Change: And that will come from the line of Tien Tsin Huang with Jpmorgan. Your line is open.
Speaker Change: Hey, Thank you good morning, Happy Monday, I, just wanted to ask on visibility going into the fourth quarter in general.
Speaker Change: Any changes across recurring nonrecurring.
Speaker Change: And both the segments and it looks like just higher capex investments as really the only change and any other color on that specifically.
Speaker Change: Thank you maybe I'll start in terms of trends I mean, we continue to see very stable economic trends across.
Speaker Change: Banking and capital markets.
Speaker Change: As James talked about our confidence in.
Speaker Change: In the fourth quarter guide, but generally.
Speaker Change: See very consistent trend banks continue to span technology continues to be one of their largest spend areas.
Speaker Change: We're not overly exposed to consumer spend and that continues to be stable, so nothing causing us concern as we think about the fourth quarter.
Speaker Change: And then maybe I'll turn it over to James for the second half of your question yes.
Speaker Change: Yes.
Speaker Change: We don't see any particular concern I'll just add onto that on margins as well.
Speaker Change: We see a strong outlook for margins in the fourth quarter and as you saw from our prepared remarks.
Speaker Change: Total year margin expansion is now 50 basis points. So we're strength seen strong benefits from our cost programs and operating leverage.
Speaker Change: On capital Yes.
Speaker Change: Two two big drivers here as we were working through it over the last couple of months one as we took select decisions.
Speaker Change: To invest in the business to stimulate and continued to drive revenue growth.
Speaker Change: But then there is another factor that we have some technology suppliers, who have been dramatically ramping up their price list. These were pretty exorbitant increases 50 60, 70%.
Speaker Change: And.
Speaker Change: Essentially these companies are owned by <unk>.
Speaker Change: Equity in their place.
Speaker Change: Placing us in a position where were facing high levels of inflation across some of our capital programs.
Speaker Change: We're working through this and you can you can be sure we will take action against it.
Speaker Change: But it has put some pressure on our capital spend over the finish of the year.
Speaker Change: But I do want to emphasize this is all incredibly manageable within the free cash flow conversion.
Speaker Change: As we look forward into next year, we're fairly comfortable on cash conversion.
Speaker Change: Capital will probably remain at current levels, but we are very very confident on any guide we gave it in the past concerning return of capital to shareholders. I just wanted to emphasize that so think of this as temporary some suppliers of ratcheted up prices higher than we would think are acceptable and we just got.
Speaker Change: To manage through this over the coming months.
Speaker Change: Okay very clear. Thank you both for that just just quickly what's what's driving the prior period.
Speaker Change: Accounting revision again, and given the new baseline should we consider any adjustments to the longer term outlook as well. Thank you.
Speaker Change: Yes, good question.
Speaker Change: This was first of all I would say it's relatively immaterial.
Speaker Change: It gives you some of the numbers on the call.
Speaker Change: Think about it it was one penny in each of the first two quarters of this year. That's the first thing that was pretty immaterial to EPS to us it doesn't have an impact on cash. So it was basically a noncash adjustment and we've completely worked through this we've resolved the issue which was about <unk>.
Speaker Change: Small it was around a small output solutions business, which essentially is card production and print and mail, so I'm very very small business.
Speaker Change: Then final comment is it has no impact on future operations.
Speaker Change: You have seen from the quarter, we had a solid beat in the EBITDA.
Speaker Change: And what we're calling up the full year on EPS and we have good confidence in the future as well. So this is very much behind us.
Speaker Change: We're very encouraged by current business results.
Speaker Change: Thank you one moment for our next question.
Speaker Change: And that will come from the line of Dan <unk> with Mizuho. Your line is open.
Dan: Hey, guys.
Speaker Change: Great results again.
Dan: Quick question on banking looks like.
Dan: Growth is expected to accelerate organically in the fourth quarter can.
Dan: Can you maybe give us some color on how you're tracking versus different customer types.
Dan: We're hearing some chatter that youre doing really well in the down market versus incumbents.
Dan: Stephanie you can elaborate on that that'd be great.
Dan: Thank you.
Speaker Change: Yeah. Thanks, Dan.
Speaker Change: State your comments so as James mentioned, we feel confident on banking as you know we were coming off a fairly easy comp from last year, and we're driving some some higher growth than.
Dan: We are pleased with the progress we're making in terms of competitively around core and digital in particular.
Dan: As you know we span the large Fi market and then the community Bank, we don't really go below.
Dan: The $2 billion Mark So we've we're focusing where we think our sweet spot is we were pleased with selling our cores and all three of our strategic course, modern banking platform I B S and horizon, We've obviously made a big push them as I've come into the chair to ensure that.
Dan: We fortify our existing customer base and then go after the banks that we think we can win in and we've been really successful with that so continuing to keep our heads down and be very competitive there.
Dan: No. We think we have the best in class product suite.
Dan: Across the board and so so we leverage that as well as the scale.
Dan: Of the distribution channel and are feeling really good about where we're going to still have work to do and can will continue to focus but feel good about the progress we've made thus far.
Speaker Change: I appreciate it thanks again.
Speaker Change: Thank you one moment for our next question.
Speaker Change: And that will come from the line of Jason Kupferberg with Bank of America. Your line is open.
Jason Kupferberg: Good morning, guys. Thanks, I wanted to start on the banking segment. I think you said you expect to be in the lower to middle part of the full year guidance range. So I know last quarter, you had talked about doing at least 5% growth in the fourth quarter for banking so.
Jason Kupferberg: Maybe if you can clarify if you're down ticking a little bit there and just put a finer point on what you do now expect for Q4 in banking and maybe what changed around the margin in the last three months.
Speaker Change: And then maybe ask Stephanie to Williams.
Speaker Change: As we looked at the bank and just to be clear. We're we're confirming the total company guide.
Speaker Change: Very comfortable with that we called up capital markets. We were doing some cleanup of the forecast because capital markets was overly conservative for fourth quarter.
Speaker Change: Looking at the banking.
Speaker Change: We have two things and this is kind of unusual hard to explain when we did the accounting revision. It increased the revenue last year. There was a slight revenue impact. So late fourth quarter has an impact call. It you are lapping a higher number and then pull down our overall growth expectation by 15.
Speaker Change: Basis points 15 to 20 basis points. So as we looked at the full year guide, we said just to be conservative, let's pull that back.
Dan: Yeah.
Dan: It actually changed the base on us.
Dan: So that's call it a non comparability adjustment of 15 to 20 bps. The other piece was we signed a bunch of you have seen we're getting a lot of traction on new signings, we signed a lot of activity recently, we've just seen a couple of conversions just the physical conversion off the contract the physical conversion is.
Dan: Slipped into the first half of next year. So this is purely a shift.
Dan: No impact on business as usual the contracts are actually signed or in the bank that just getting the work programs out there. So I would think of this adjustment the banking. The guide is housekeeping one is correcting this accounting revision and the other one is just some housekeeping around timing of executions, yes, the only thing I would add.
Dan: That is the on the timing its client requested them. So we have the resources available and are ready to go it's it's more being client requested and when they're ready to go and as we get closer to the end of the year as.
Dan: As you know people do freezes and so they werent quite ready so pushing into the first half of next year.
Speaker Change: Okay. It's actually a good segue to my second question I know at the Investor Day earlier. This year, you talked about banking growing three five to four and a half next year and in 2026, and then seven five to eight and a half on cap.
Speaker Change: Cap markets. So just as we start to tune the models for 2025.
Speaker Change: Can we be considering in terms of factors that maybe land you more at the lower end versus the higher end I mean, both implies there will be a little bit of acceleration.
Speaker Change: Versus 2024, thank you.
Speaker Change: Yeah, So Jason I think what we would say is we haven't changed anything with respect to the commitments. We made at Investor day, but we're not quite ready to give a guide in 2025.
Speaker Change: But you can see that banking solutions is accelerating capital market is accelerating in the second half.
Speaker Change: So those are good those are good data points, but not yet ready to call 2025 will be back to yen and early first quarter, yes, Jason the only thing I would add is.
Speaker Change: After the call maybe taken a look at first half versus second half from banking and there was quite an acceleration Baltimore County.
Speaker Change: And then the adjusted revenue.
Speaker Change: And I think we would feel very comfortable with the second half growth.
Speaker Change: And then we'll get back to you guys in early February with the full year guide, but we're very comfortable as we look out in the the growth drivers on the banking business.
Speaker Change: Thank you one moment our next question.
Speaker Change: And that will come from the line of Darrin Peller with Wolfe Research. Your line is open.
Darrin Peller: Hey, Thanks, guys nice job just a.
Darrin Peller: Quickly touch on M&A Permian I think you had talked about doing about $1 billion for the year and if you didn't get stuff done you would be focused on returning capital to shareholders and so having done a relatively small amount so far.
Darrin Peller: Maybe just give us a quick update on thoughts around what you foresee doing maybe even the next couple of quarters that you'd save capital for versus buybacks or if it can be expected to be share repurchases.
Darrin Peller: And then really just remind us the strategy of what youre looking for to add onto the business.
Speaker Change: Yeah. Thanks, Darrin, so maybe I'll start with the strategy I think the strategy is consistent.
Speaker Change: We're looking at small tuck in acquisitions that can advance.
Speaker Change: Our growth verticals, so digital payment.
Speaker Change: Commercial lending.
Speaker Change: Treasury et cetera risk so the areas that <unk>.
Speaker Change: Higher growth higher margin for us so looking at tuck in activities across that universe. The universe continues to be fairly robust and we think valuations are are fair.
Speaker Change: We're really focused as we look at those in terms of returns and return on invested capital you're right. We've been fairly light as we've been looking I'm very excited about the dragonfly acquisition, that's about $300 million, we'll spend.
Speaker Change: This year.
Speaker Change: And excited about that in the digital space right in line with being accretive to revenue as James mentioned I do think these will be margin dilutive in the first year or two as we put the synergies into them, but we'll be back to you more on that obviously.
Speaker Change: Obviously, if we do not spend through the end of this year the $1 billion. We would look to return it to you in 2025 and in the form of share repurchase.
Darrin Peller: And we'll be happy to talk more about that as we come out in 2025, but we wouldn't be looking to keep the cash on our balance sheet and if we can't successfully find the M&A transaction that we like.
Jason Kupferberg: Alright, Thats really helpful. Stephanie Thanks, guys just to reiterate again, the acceleration and the recurring banking growth I know comps were easy, but the trends do sound like there is there is some strength being seen by the on the core side. So can you just remind us sort of rank order. The top three drivers that are really giving you confidence in the recurring revs.
Speaker Change: On the banking side.
Speaker Change: Accelerated in the second half and probably into the first half a little bit.
Speaker Change: Yeah on recurring I think as you think about it as we've talked about generally organic growth.
Speaker Change: In banking, it's driven by transactions across debit and all of our issuer capabilities as well as accounts and and we've talked to you about them in an investor day in terms of thinking about that in a 3% range and then as we look to.
Speaker Change: Add new cores and add new sales in that new sales.
Speaker Change: You would expect that to go up so you can see us having a better second half than first half.
Speaker Change: Has that equation starts to work out for us and as we put on a bit of more new sales than we had historically and we we grow over some of the nonrecurring I know you asked about recurring but we do have some of the nonrecurring to headwind trends.
Speaker Change: Thank you one moment for our next question.
Speaker Change: And that will come from the line of John Davis with Raymond James Your line is open.
John Davis: Hey, Good morning, guys just wanted to circle back to Capex.
John Davis: You said, 9% this year.
John Davis: Medium term guidance of seven to eight so that more near term or how should we think about capex for the next couple of years.
Speaker Change: Yes, I think I think our our if you think about it longer term we're still.
John Davis: Pretty confident that the run rate of the business is seven days probably.
John Davis: Closer to H, which is pretty much where the competitive set is sitting.
John Davis: There might be as I said this temporary we're getting a lot of pressure driven by.
John Davis: Some aggressive positions by technology providers, plus some scale up in investments and in our investments in general are very consistent with the strategy. It is we're spending probably entering the year, we're spending more on the digital business.
John Davis: Most of it was in the plan, where we're continued to spend there.
John Davis: And that's probably one of our most strategic category and then offer that you've got car.
John Davis: Cards and money management again, that's like.
John Davis: It's a significant increase versus the budgeted spend as we drive the growth sectors more aggressively. So it is were spending it in the right places that being said, we don't want to get into giving guidance now, but we expect that this 9% pressure is like a 12 month kind of thing as we work through.
John Davis: With 12 to 18 months.
John Davis: If you look out longer Theres no reason, why we should be trending higher than 8%. No reason. So we'll have to work through this as I said some of this came in the last six to eight weeks with the supplier pressure on.
John Davis: We just for an abundance of caution called up the short term capex outlook.
John Davis: Well, we give you a longer guidance the one thing I'm more comfortable on we have a lot of levers on cash conversion.
John Davis: Traditionally we haven't polled.
John Davis: That's one piece.
John Davis: I want to reaffirm what we were saying previously that.
John Davis: We have good line of sight to return of capital to shareholders, either through dividends or true share repurchase.
John Davis: We have ample capacity on the balance sheet.
John Davis: I'm sure you saw we were at two six times, that's because we're not doing acquisitions and our stated leverage target has to wait so we have large degrees of comfort here.
John Davis: So I hope that helps.
Speaker Change: Yeah. That's helpful. Thanks, James and then lots of chatter recently on international tax changes with pillar. Two you guys are obviously guiding to tax rate step down next year any impact for you guys anything to call out what.
Speaker Change: With the tax changes.
Speaker Change: No based on current legislation, we see absolutely no risk to the.
Speaker Change: Of the 12 to 13 guide that we gave for the next couple of years.
Speaker Change: We have all the elements in place or are actively working on them. So.
Speaker Change: The only potential risk we see on the horizon is something that would impact the entire and all industries in the U S, but our specific circumstances, so well under control and strong visibility.
Speaker Change: Thank you one moment for our next question.
Speaker Change: And that will come from the line of <unk> with <unk>. Your line is open.
Speaker Change: Hi, Thank you for taking my questions, maybe first one for Stephanie Yeah of course, signing seem to be picking up with banks below 10 billion and that's that's really great to see I was just curious what your discussions are looking like with larger banks and if there is a pipeline there and if theres any catalysts on the horizon, you would think that could drive more momentum with larger banks.
Stephanie Ferris: Yeah. Thanks, Matthew So I think there's two different things one is.
Speaker Change: We've been having a lot of success with our Ibs core which is really focused on banks, you know $20 billion in assets above it's a marquee corn, it's it's a winning core we talked about it with respect to a couple of wins.
Speaker Change: Today, because it has specialization for commercial customers. So if you you know as you become bigger you obviously have more than just a retail bank you have a commercial bank and it has those commercial banking capabilities.
John Davis: That's needed so that continues to be a very strategic core for us that we win with I think as you get above that and you get into the regional Super regional and above we of our modern banking platform.
John Davis: That continues to be you know a very large operating platform I am pretty sure. It has the largest amount of bank account transactions going across it we are very focused and in various stages of implementation.
John Davis: With several large super regionals.
John Davis: They're all end market with different.
John Davis: Parts of the offering and then as you heard US we signed a.
John Davis: Pretty large modern banking platform a customer in the Asia Pac region, we're seeing a lot of demand for MBP outside the U S and so we will continue to focus there and drive growth. There. So feeling good about where we are with core again a lot of work to do in these core conversions tend to take up.
John Davis: At a time in terms of getting them up and running but feel really good about our strategic our strategic cores in the pillars, there and as you know once you get the core you get all the surround so I'm feeling good about the progress we're making.
Speaker Change: Thank you for the color there and just a quick follow up on the World Bank. The equity income there is continuous to outperform just any color on what's driving that outperformance and then as we look at the base is much higher for 2020 for it but is the seven five to nine and a half growth outlook in our euro is still the right.
Speaker Change: And for us to think about.
Speaker Change: The first one and then I'll, let James talk about the out so I think that we'll pay you can see from our results is performing better under the direction of Charles Drucker and the G. TCR team in terms of revenue growth being stronger than we than we had it kind of underpinning them the thesis.
John Davis: As far as separating it.
John Davis: We continue to see positive outperformance of their forecast quite frankly, as they have better revenue growth, but also as theyre looking to stand up their operations going a bit slower than they expected not because there's any problems, but theres just realistic and reality as to how many how many people you can hire and any particular.
John Davis: And time, so a lot of the benefits we've seen throughout the year around that as well as they successfully refinanced our debt, which is also delivering some nice EMI savings for them. So it's been a what I would say some of the benefit or a large portion of the benefit is just them.
John Davis: Not necessarily hiring and standing up everything they need to stand up as far as coming into next year and thinking about the growth rate I'll turn it over to James.
John Davis: Okay.
Speaker Change: I think it's far too early to start developing hypothesis on this.
Speaker Change: As Stephanie said, if you look back to the beginning of the year. They had large beats across EBITDA some of it from revenue some of it from Opex.
John Davis: Some of this opex walls coming off.
John Davis: Setting up a standalone structure may have benefits across on large benefits across interest expense. So.
John Davis: For me a bunch of this will carry forward into the future.
John Davis: Might be some timing differences on opex. So we see no reason to the.
John Davis: Massively concerned about the settling on the half the nine in the house, but we got to we got to work through this with our whoopee compatriot and.
John Davis: As you know we have to agree the long term forecast with them. So they basically committed to these 759.5%.
John Davis: Targets.
Speaker Change: Thank you one moment for our next question.
Speaker Change: And that will come from the line of will Nance with Goldman Sachs. Your line is open.
Will Nance: Hey, Thanks for taking the question this morning, and nice job today, maybe just dovetailing off that last question a little bit I was wondering if you had any thoughts on just margin cadence next year.
John Davis: And particularly as it relates to the TSA with World pay just how are you thinking about kind of the cadence of that rolling off as well as any associated cost efficiency actions that you might take to offset that I know you've kind of spoken about feeling good about finding the offsets to that but is there anything we should be considering from a cadence perspective next year.
Speaker Change: No I think.
Speaker Change: Pretty much.
Speaker Change: And the direction of travel of the margin guide we gave for the medium term that was 40 to 60 bps.
Speaker Change: I think at the time, we said that we would be at the lower end because of TSA roll offs.
Speaker Change: So we're not seeing anything the places they suddenly risk and as you've seen from our.
Speaker Change: Full year guide for this year, we're delivering 50 bps. So yes, we got to work through a headwind which is the call. It the TSA dis synergy.
John Davis: Remember in Investor Day, we said that was 95 bps a year.
John Davis: Conversely, we also said that savings or 165 to 175 bps. So a large number.
John Davis: The good news on that is we have a lot of activity ongoing we're probably well within well I would say a head to well on track on the cost program. So we have no. We have good very good visibility on cost programs.
Speaker Change: The TSA are not within our control. It is we'll pay that ultimately needs to take the decision. There is a strong working relationship between the two parties. The good news is here, we won't get surprised by anything because we talk regularly and everybody is aligned so this will be a manageable and orderly transition.
John Davis: And with no surprises for the market.
John Davis: On the overhead side.
Speaker Change: Got it that's super helpful and just maybe a little bit more strategically.
Speaker Change: You had the MBP win in APAC and also the South African.
Speaker Change: Sale that you mentioned that in my prepared remarks.
Speaker Change: We've heard some chatter that you guys have just been very active recently in International's I would love to hear about kind of where what you're most excited about and what are you seeing the most momentum across the business in international markets.
Speaker Change: Yeah. So.
Speaker Change: From an international standpoint, you're right, we're seeing a lot of success across the capital markets business and banking in terms of capital markets.
Speaker Change: A lot of our products resonate across Europe, and Asia Pac.
Speaker Change: With respect that the Treasury RASK security, even the training and processing so.
Speaker Change: Really really strong demand outside the U S for those products.
Speaker Change: Then with respect to banking, we did announce the M. B P win we also see strong demand from international payments.
Speaker Change: So continue to see that as a very healthy growth area for us outside the U S and.
Speaker Change: And they're going to continue you'll see us continue to push there.
Speaker Change: Especially as we look at you know again M&A whereby.
Speaker Change: We can look at verticals, possibly better outside the U S that we could bring inside of the U S or vice versa. So feel very positive about the momentum we're seeing there in the capital markets team, leading the way for us.
Speaker Change: Yeah.
Speaker Change: Thank you one moment our next question.
Speaker Change: And that will come from the line of Timothy Chiodo with UBS. Your line is open.
Timothy Chiodo: Great. Thank you I wanted to talk a little bit about bank M&A. Both recent what you've been seeing and also expectations ahead really in highlighting that mean benefit that you get a lot around the.
Speaker Change: Basically the acquisition of more accounts on file more transaction to support your growth with the larger bank customers that you serve and then it's a minor benefit.
Speaker Change: Maybe it would be less impactful to you guys, but the term fees that you receive when some of your smaller customers are also acquired so I was hoping you could touch round bank M&A in general and the impact to your P&L.
Speaker Change: Okay.
Speaker Change: Happy to so I think that the bank M&A market I would say, it's still fairly suppressed.
Speaker Change: It's been more active in the smaller environment I think from a regulatory standpoint, it's still a challenge in the larger space I mean other than you know.
Speaker Change: Some of the activity, we saw last year with respect to some of the large banks getting put together with other banks.
Speaker Change: So and we're not seeing a ton in the larger space to be honest, we continue to see activity in the smaller space. We win there and lose there. We're very focused in terms of where we win is around win again, it's a bank that has a commercial set of customers.
Speaker Change: That's combining with a smaller bank and that's where we have a much better value prop in terms of being able to serve both the commercial bank in the retail bank.
Speaker Change: But generally seeing a lot of the M&A activity being much further down market, they're not market yeah.
Speaker Change: We welcome them.
Speaker Change: We are a net beneficiary because of our market position market share and larger sized banks tend to be the acquirer, we get more of the consolidation benefit overtime and Thats generally a positive so we welcome that.
Speaker Change: Great. Thank you.
Speaker Change: Thank you one moment for our next question.
Speaker Change: And that will come from the line of Dave Koning with Baird. Your line is open.
Dave Koning: Yeah, Hey, guys nice job and maybe first of all I know you answered a lot of questions about banking recurring revenue, but one other way to look at it sequentially. It was up $50 million. This Q3 of the last couple of years was pretty flat.
Dave Koning: Sequentially was that was there macro or pricing or maybe just new revenues coming on from new signings like what what was so different this year and then into Q will Q4 be different was there anything in Q3 that was a little elevated because of this that comes out in Q4, maybe you can just go through the sequential.
Speaker Change: I think I'll take the broad based and then see if James feels like he's add on I think Dave if you look across the years, we have we haven't our transaction processing business that has some seasonality to it if you look at last year recurring revenue was high in the fourth quarter, that's when a lot of them.
Speaker Change: Transaction processing went through this year, it's higher in the third quarter again, Thats, where that transaction processing is going through so it's more a notion of win that transaction.
Speaker Change: Auction processing is having its big push.
Speaker Change: It generally is pretty consistent and a full year basis, but it does have seasonality.
Speaker Change: Driven by the end client in terms of when Theyre going to put out the cards in the transaction processing. So I think it's just it's more of a seasonality thing last year. It was in the fourth quarter of this year, it's in the third quarter.
Speaker Change: But overall it really normalizes itself out.
Speaker Change: We did guide to this win on previous calls we did say, we would expect a strong recurring.
Speaker Change: In the third quarter and then we pointed out to the fact that Q4 of last year was up I think 7% in banking. So it will be lower this year year on year, because you were lapping a strong number but.
Speaker Change: But we will have much stronger nonrecurring unprofessional services. This year, because you are lapping a weak number I know I'm confusing you probably but.
Speaker Change: It's all literally shifts between the two.
Speaker Change: Quarters in terms of seasonality the one thing I would point out, though if you think first half versus second half Theres, a strong roughly 100 basis point deceleration between first half recurring growth and second half recurring growth. Similarly.
Speaker Change: Similarly on total adjusted in banking.
Speaker Change: First half is about 100 bps lower than the second. So this is essentially the commitment we took entering the year that we would see accelerating growth as we went through the year.
Speaker Change: Next year.
Speaker Change: That's the job at hand, we need to accelerate off the after 2024 guys.
Speaker Change: Gotcha, Yeah, no. Thanks for that and just quick follow up on interest expense I think net interest expense Q4 implied is about $100 million is that about how to think about the quarters of 2025 as well just about 100 a quarter.
Speaker Change: I'm not sure we'll have to wait till the guide on this.
Speaker Change: It's starting to normalize in the fourth quarter, because you know.
Speaker Change: We are making some assumption on M&A. So this is a little bit tricky because most of the beats that came out of interest expense over the first nine months was we plan conservatively that we would buy acquisitions every every quarter and probably too conservative. So it's not that so it's essentially every saved.
Speaker Change: And year to date is just coming from the fact, we didn't do an acquisition for quarter. We are assuming a step up in acquisitions, but were already in the fourth quarter right. So I don't think its a true run rate. So it would be I would mislead you. If I told you to use it as a run rate, we'll give a guide for this in and when we get into February of next year.
Speaker Change: Sure.
Speaker Change: Thank you and we do have time for one final question and that will come from the line of Andrew Schmidt with Citigroup. Your line is open.
Andrew Schmidt: Hey, Stephanie Hey, James Thanks for taking my questions go back to just the core banking.
Andrew Schmidt: Pipeline could you just talk about the implementation pipeline for next year it sounds like that's a.
Speaker Change: Better tailwind that we've seen in prior years and then.
Speaker Change: On the sales pipeline separately could you talk about I know you mentioned expansion of the pipeline what youre seeing there whether that supports a higher bookings number for 2025. Thanks so much.
Speaker Change: Sure I think we are filling up our core banking pipeline Thats our goal I can't really comment yet in terms of how that all lays out in 'twenty, five and 26 and as you might expect the core banking conversions, we tend to take time on those and we don't typically do those.
Speaker Change: In a fourth quarter or first quarter big window, because we are all frozen for that period of time. So as you think about this set of core banking wins I would expect for them to come online primarily in the back half of next year in 2025, but those are all in the process of being populated now.
Speaker Change: In terms of the sales pipeline continue to feel very good there and particularly as I mentioned in the prepared remarks around our loyalty our premium payback product.
Speaker Change: Our digital products that continue to take Ah theres.
Speaker Change: There's a lot of demand for in the marketplace.
Speaker Change: And then you know in addition to that our core so.
Speaker Change: Those pipelines fill up.
Speaker Change: We obviously are very focused on those high growth verticals.
Speaker Change: In the payments digital on the on the capital market side.
Speaker Change: In treasury and risk in commercial lending so.
Speaker Change: Get very excited when we see those sales pipeline fill up they are deferring close rates and deferring implementation cycles. So we'll be back to you more in terms of as we think about laying those N as 2025, but feel very good about where the pipeline is.
Speaker Change: Thank you that does conclude today's program. Thank you all for participating you may now disconnect.
Speaker Change: Okay.
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