Release Date: August 06, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Fidelity National Information Services Inc (FIS, Financial) reported its sixth straight quarter of outperformance, demonstrating strong execution across multiple growth vectors.
- Revenue growth in the second quarter was 4%, with acceleration across both banking and capital markets segments.
- Adjusted EBITDA margin expanded by 110 basis points year-over-year, driven by continued cost savings and favorable revenue mix.
- The company raised its full-year financial outlook for the second consecutive quarter, reflecting strong performance and visibility into future growth.
- Cross-sell activity across the enterprise grew by 15% in the first half of 2024, highlighting successful sales transformation efforts.
Negative Points
- Professional services revenue declined by 13% year-over-year, although it is expected to stabilize and reaccelerate in the second half of the year.
- Recurring revenue growth slowed slightly due to the deconversion of a large West Coast bank sold out of receivership.
- The company faces significant non-recurring revenue headwinds, particularly in the banking segment, which could impact overall revenue growth.
- The separation of Worldpay has introduced some lumpiness in the EMI contribution, making it challenging to predict a normalized number.
- Despite strong performance, the company remains exposed to macroeconomic pressures and regulatory risks, which could impact future growth and profitability.
Q & A Highlights
Q: You called out strong visibility to banking growth in both Q3 and Q4. Can you comment on your confidence level about hitting the full year guide, especially given the tough comp in Q3? Are there any levers or events that are coming up to meet your target?
A: Stephanie Ferris, CEO: We are very pleased with the strong performance in the first and second quarters. For the third and fourth quarters, we have a high level of confidence due to strong sales execution in the back half of last year. James Kehoe, CFO: We have very good visibility into Q3 and all the drivers to achieve at least 5% growth in Q4, considering the banking business was flat in the fourth quarter of the prior year.
Q: It looks like recurring revenue growth slowed a bit versus last quarter. Can you help us think about the algorithm and what we should expect going forward in terms of recurring versus non-recurring in Q3 and Q4?
A: Stephanie Ferris, CEO: We are focused on driving strong recurring profitable revenue. The slight dip in Q2 was due to a large West Coast Bank deconverting off our platform. We expect non-recurring revenue to be flat year-over-year. James Kehoe, CFO: The strong new sales in the second half of last year will benefit Q3 and Q4, and recurring sales are very strong in banking.
Q: Can you elaborate on what's been resonating with the community banking market and how you're thinking about the contribution of that segment to growth overall going forward?
A: Stephanie Ferris, CEO: The strength of our cores, especially for banks with commercial banking customers, is resonating well. Our digital investments are also paying off. The combination of core, digital, and payments offerings is compelling in the marketplace.
Q: Can you give us a quick update on the commercial relationship with Worldpay and how that's been trending?
A: Stephanie Ferris, CEO: The separation of Worldpay is going well, and the commercial relationships remain strong. We continue to identify and fund new opportunities, and the partnership is very beneficial.
Q: Can you give us a little bit of the puts and takes of headwinds and tailwinds that went into EBITDA margin this quarter?
A: James Kehoe, CFO: The first half was especially strong due to synergies with Worldpay and cost savings initiatives. Revenue mix was also favorable. We remain confident in our long-term goal of 40 to 60 basis points margin enhancement.
Q: Can you give us a quick update on the M&A pipeline and were there any acquisitions made in Q2?
A: Stephanie Ferris, CEO: No acquisitions were closed in Q2. The pipeline is very good, and the current economic environment is favorable for M&A. We are focused on inorganic acquisitions that are accretive to revenue and margin.
Q: Can you talk a bit about implementation efficiency and whether those timelines are now optimized?
A: Stephanie Ferris, CEO: We have a robust pipeline of implementations and are focused on adding capacity without increasing costs. We feel good about getting new sales onto the books in the back half of this year and the first half of next year.
Q: Can you elaborate on the 15% increase in cross-sell activity and which specific initiatives are getting the most traction?
A: Stephanie Ferris, CEO: The 15% increase in cross-sell is in ACV. We are seeing significant wins in banking, particularly in digital and payments. Commercial lending and treasury products are also being cross-sold into the banking business.
Q: Can you help us understand what's driving the expected acceleration in professional services in the second half and fourth quarter?
A: Stephanie Ferris, CEO: Professional services revenue is tied to new wins and implementations. The number has stabilized and is driven by new sales and implementations in core, digital, and payments.
Q: Can you talk about your appetite to continue the pace of buyback that we saw in Q2 and whether you might end up above the $4 billion target for the full year?
A: James Kehoe, CFO: We expect to repurchase at least $1.5 billion in the remainder of the year, skewed towards the fourth quarter due to cash repatriation. We are confident in hitting our $4 billion target.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
