Q3 2024 Earnings Summary
- FIS is experiencing strong growth and acceleration in its Banking segment, with confidence in better second-half results driven by successful sales in all three strategic core platforms—Modern Banking Platform, IBS, and Horizon—and increased demand for their best-in-class product suite.
- The company is seeing significant international success, particularly in Capital Markets and Banking, with strong demand for their products in Europe and Asia Pacific, including a major Modern Banking Platform win in the Asia-Pacific region, positioning FIS well for continued growth in these markets.
- FIS is raising its full-year EPS guidance and has strong financial confidence, evidenced by solid EBITDA performance and current business results, indicating a positive outlook for future operations.
- The Dragonfly acquisition is expected to be dilutive to company margins during the initial 12 months, potentially impacting profitability.
- There was a prior period accounting revision, which, despite being labeled as immaterial by management, might raise concerns about financial reporting controls.
- Core banking conversions are time-consuming, and with "a lot of work to do," there may be delays in realizing benefits from new core banking clients.
| Metric | YoY Change | Reason |
|---|---|---|
Total Revenue | +3% (from $2,489M to $2,570M) | The increase was driven by strong recurring revenue in Banking and Capital Market Solutions, offset slightly by currency headwinds. Company cost-saving initiatives also supported revenue growth, and continued SaaS adoption is expected to boost future recurring revenue streams. |
Capital Market Solutions | +8% (from $677M to $730M) | The rise stemmed from strong new sales momentum and a shift to SaaS-based recurring revenue, with higher license sales contributing to non-recurring revenue. Stable professional services and operating leverage further bolstered segment performance. |
Transaction Processing | +30% (from $1,334M to $1,733M) | Growth was fueled by increased transactional volumes from digital solutions and the secular shift toward electronic payments, as well as demand for cloud-native offerings. Higher deposit competition and regulatory factors also contributed to more institutions outsourcing processing. |
All Other (Geography) | +7% (from $533M to $571M) | The improvement is attributed to new client wins and expansion in international markets, which previously remained flat. While fewer details are provided, broader market demand for payment and banking technologies appears to support continued geographic expansion. |
Operating Income (EBIT) | −93% (from $7,114M to $476M) | The steep decline reflects the lapse of prior-period one-time gains (including discontinued operations impacts) and goodwill impairments recorded earlier that shifted the comparative baseline. Improved gross margins and cost-saving measures in the current period helped offset SG&A expenses. |
Net Income | $202M (up from −$447M) | This turn to profitability was driven by minimal impairments in the current period and no large discontinued operations losses as seen previously. The strengthening of core businesses and cost rationalization also supported bottom-line improvement. |
EPS (Diluted) | $0.37 (up from −$0.75) | The significant rebound in EPS is mainly due to higher net income and lower impairment charges, along with revenue growth in Banking and Capital Markets. Continued focus on operational efficiency and a favorable revenue mix are expected to sustain earnings momentum. |
| Metric | Period | Previous Guidance | Current Guidance | Change |
|---|---|---|---|---|
Adjusted EPS | FY 2024 | $5.03 to $5.11 | $5.15 to $5.20 | raised |
Free Cash Flow Conversion | FY 2024 | 85% to 90% | ~85% | lowered |
Banking Solutions Growth | FY 2024 | 3% to 3.5% | Closer to lower-to-midpoint of 3%-3.5% | lowered |
Capital Markets Growth | FY 2024 | 6.5% to 7% | High end of 6.5%-7% | no change |
Revenue | FY 2024 | no prior guidance | Low end raised by $20M | no prior guidance |
Adjusted EBITDA Margin | FY 2024 | no prior guidance | ~40.7% | no prior guidance |
CapEx | FY 2024 | no prior guidance | 9% of revenue | no prior guidance |
EMI (Worldpay) | FY 2024 | no prior guidance | $480M to $495M | no prior guidance |
Interest Expense | Q4 2024 | no prior guidance | ~$100M | no prior guidance |
| Metric | Period | Guidance | Actual | Performance |
|---|---|---|---|---|
Adjusted Revenue Growth | Q3 2024 | 4% to 4.5% | 3.25% YoY, from 2,489To 2,570 | Missed |
Banking Solutions Growth | Q3 2024 | 2.5% to 3% | 1.31% YoY, from 1,756To 1,779 | Missed |
Capital Markets Growth | Q3 2024 | 7.5% to 8% | 7.82% YoY, from 677To 730 | Met |
| Topic | Previous Mentions | Current Period | Trend |
|---|---|---|---|
Core Banking Growth and Momentum | Consistent momentum in earlier quarters, with Q2 on track for a record year of core signings ; Q1 showing 2% banking revenue growth ; and Q4 2023 indicating a 2% full-year increase. | FIS reported strong core signings across IBS, Horizon, and MBP, with recurring revenue accelerating to 6%. The pipeline expanded, especially in community banking, and conversions are expected to go live primarily in late 2025. | Continued positive trajectory, with an expanding pipeline and wins across multiple core platforms. |
Capital Markets Performance and Growth | Q2 revenue also grew 7%, buoyed by 7% recurring and strong license sales ; Q1 showed 6% growth, while Q4 2023’s recurring revenue grew by 9% for the full year. | Adjusted revenue grew 7%, recurring revenue rose 6%, and nonrecurring revenue was up 20%. Margin expanded 90 bps, supported by international demand for treasury and risk solutions. | Stable growth with recurring revenue strength and continued international momentum. |
Margin Expansion and Margin Pressure | Margins expanded in Q2 by 110 bps ( ), and by 200 bps in Q1 due to cost optimizations. In Q4 2023, the Future Forward program also drove margin expansion. | Overall adjusted EBITDA margin at 41.3%, up year-over-year. Drivers included cost initiatives and favorable revenue mix. There is supplier-driven cost pressure (some prices up 50%+), but management views it as short term. | Ongoing expansion, offset by some supplier cost headwinds and TSA roll-offs, which FIS aims to manage. |
Elevated Capital Expenditures | Not mentioned in Q2 or Q1. In Q4 2023, FIS expected CapEx to reach 7%-8% in 2024, down from prior levels. | CapEx is currently about 9% of revenue, higher than the 7%-8% target, driven by supplier price increases and growth investments. Management sees this as a temporary 12- to 18-month issue. | Newly discussed as elevated in Q3, but viewed as transitory before returning to target levels. |
Dragonfly Acquisition | No mention in Q2, Q1, or Q4 2023. | Closed around Q3, adding < $10M in Q4 revenue. Seen as highly strategic for digital expansion but initially margins are dilutive. | New acquisition, explicitly discussed in Q3 as expanding digital offerings and cross-sell potential. |
Accounting Revisions and Internal Controls | No references to accounting revisions or internal controls in Q2, Q1, or Q4 2023 [no mention]. | Revisions to output solutions costs reduced adjusted EPS minimally across prior periods but had no cash flow impact. The matter is resolved; there was no broader discussion of internal control issues. | New topic in Q3; considered resolved with immaterial EPS impact. |
EPS Guidance and Growth | In Q2, EPS increased to $5.03–$5.11 ; in Q1, raised to $4.88–$4.98 ; in Q4 2023, guided at $4.66–$4.76 including Worldpay EMI. | Full-year adjusted EPS raised to $5.15–$5.20, implying 16%-17% normalized growth, aided by operational outperformance and lower interest expense. | Upward guidance each quarter, reflecting better performance and cost management. |
Cost Savings Initiatives | Q2 reemphasized ongoing cost reductions over a 24-month runway ; Q1 saw 200 bps margin expansion in part due to cost optimization ; Q4 2023 discussed the Future Forward program with $280M in incremental savings for 2024. | Cited as a key driver of 50 bps margin expansion for the year. FIS is offsetting dissynergies and supplier inflation through these programs. | Consistent focus, continuing to yield margin benefits and offset external pressures. |
Share Repurchases and Return of Capital | Q2 saw $2.5B repurchased year-to-date ; Q1 raised share repurchase target to $4B ; Q4 2023 aimed for at least $3.5B in 2024. | Returned $700M to shareholders, including $500M in buybacks. On track to meet $4B annual repurchase target. Possibly deploy unused M&A funds for repurchases in 2025. | Ongoing large capital returns, with repurchases potentially exceeding original goals. |
Worldpay Separation, TSAs, and Costs | Q2 mentioned margin pressure from TSAs over 24 months ; Q1 saw TSA reimbursements affecting cash flow ; Q4 2023 flagged a $250M negative impact from dissynergies in 2024, partially offset by Future Forward. | TSA roll-off is a 95 bps headwind, offset by 165-175 bps in cost savings. Collaboration with Worldpay is proceeding well, with slower-than-expected stand-up leading to better equity income. | Smooth transition so far, with TSA headwinds mitigated by cost initiatives. |
Free Cash Flow Conversion | Q2 conversion was 85%, targeting 85%-90% for the full year ; Q1 was 18% but impacted by timing, reiterated 85%-90% goal ; Q4 2023 saw 95% for the year and guided 85%-90% for 2024. | FCF was $530M at ~85% conversion. Full-year also expected at ~85%, slightly affected by higher CapEx. | Remains on track despite elevated CapEx, with management reiterating 85% target. |
Professional Services and License Revenue | Q2 professional services declined but expected to rebound ; Q1 professional services saw a 14% drop, but license revenue grew ; Q4 2023 noted significant fluctuations and lower license fees in Capital Markets. | Professional services up 10%, license revenue up 20% in Capital Markets. Company sees stabilization and second-half acceleration, especially in nonrecurring license sales. | Improving in Q3 after prior volatility, indicating stabilization in services and strong license sales. |
Increasing Demand for Digital Banking/Payments | Q2 highlighted over 30% digital growth ; Q1 saw strong new digital banking sales ; Q4 2023 emphasized money movement and FedNow adoption. | Accelerating sales in digital, acquisition of Dragonfly to expand offerings, and strong loyalty solutions demand with new marquee partners. | Sustained growth, with Q3 driving further digital expansion through acquisition and new deals. |
Recurring Revenue Growth in Banking | Q2 recurring revenue grew 3% ; Q1 recurring revenue up 4% ; Q4 2023 saw 7% in Q4 but 4% for the full year. | Banking recurring revenue up 6%, with strong debit and issuer transactions. Noted some seasonal shifts between quarters. | Accelerating from earlier quarters, sustaining momentum for future periods. |
International Expansion in Treasury/Risk | Q2 saw continued wins and global recognition in treasury/risk solutions ; no mention in Q1; Q4 2023 indicated growth in treasury solutions across multiple sectors. | Strong demand in Europe and APAC for treasury, risk, and training solutions. Renewed a major South African financial services provider. | Continued global uptake, with notable client expansions outside the U.S. |
ESG and Sustainability Solutions | Q2 introduced the Climate Risk Financial Modeler SaaS solution ; no mention in Q1 or Q4 2023. | No mention in Q3. | No updates in Q3 after a product launch in Q2. |
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Capital Markets Growth Guidance
Q: How will Capital Markets growth look in Q4?
A: We expect to reach the high end of our 6.5% to 7% full-year guidance for Capital Markets growth. This implies strong recurring and total adjusted revenue growth in Q4, especially since we're lapping a weak prior-year quarter where Capital Markets was up only 1%. We're very confident about hitting 7% growth for the full year. -
CapEx Increase and Impact
Q: Why is CapEx higher, and what's the outlook?
A: We're seeing temporary pressure on CapEx due to aggressive price hikes by technology suppliers, with increases of 50%, 60%, even 70%. This, along with select investments to drive revenue growth, has pushed our CapEx to about 9% of revenue this year. We expect this pressure to last 12 to 18 months but remain confident that over the longer term, CapEx will return to 7% to 8% of revenue. Despite this, our cash flow conversion is strong, and we have good visibility on returning capital to shareholders. -
Banking Growth Acceleration
Q: What's driving the acceleration in Banking growth?
A: We're confident in Banking, expecting growth to accelerate in Q4 due to easy comps from last year and success in selling our strategic cores: Modern Banking Platform, IBS, and Horizon. Organic growth is driven by transactions across debit, issuer capabilities, and accounts, typically in the 3% range. Adding new core sales and accounts is boosting recurring revenue, leading to a better second half compared to the first. -
Dragonfly Acquisition Impact
Q: What's the expected contribution from Dragonfly acquisition?
A: The Dragonfly deal is closing now, contributing less than $10 million in revenue for Q4. It's dilutive to margins in the initial 12 months, but we see strong synergy opportunities, especially on revenue. It's a highly strategic acquisition that will benefit us in the long term. -
Margin Outlook and TSA Roll-Off
Q: How will margins be affected by TSA roll-offs next year?
A: We're on track with our margin guidance of 40 to 60 basis points expansion. We expect to be at the lower end due to TSA dis-synergies from Worldpay separation, estimated at 95 bps per year. However, we're ahead on cost-saving programs, aiming for savings of 165 to 175 bps, which will offset these headwinds. The transition will be manageable, with no surprises. -
Worldpay Performance and Outlook
Q: How is Worldpay's outperformance affecting growth outlook?
A: Worldpay is performing better under Charles Drucker and GTCR, with stronger revenue growth than anticipated. Benefits from slower stand-up of operations and debt refinancing are contributing to outperformance. We see no reason to adjust the 7.5% to 9.5% growth outlook for future years but will work with our Worldpay partners on the long-term forecast. -
Accounting Revision Impact
Q: Does the prior period accounting revision affect outlook?
A: The accounting revision is immaterial, impacting EPS by $0.01 in each of the first two quarters. It was a non-cash adjustment related to a small card production business. There's no impact on future operations, cash flow, or our confidence in the business. -
Tax Rate Guidance and Pillar 2 Impact
Q: Will international tax changes affect tax rate guidance?
A: Based on current legislation, we see no risk to our tax rate guidance of 12% to 13% for the next few years. Our circumstances are well under control, and we have strong visibility. -
International Growth and MBP Win
Q: What's driving international growth and MBP success?
A: We're seeing strong demand internationally, especially in Capital Markets products like treasury, risk, and processing in Europe and Asia Pacific. We announced a Modern Banking Platform (MBP) win in Asia Pacific and see robust demand for international payments. We're optimistic about continued momentum, including potential M&A to enhance our offerings. -
Bank M&A Impact
Q: How does bank M&A affect your business?
A: The bank M&A market is fairly suppressed, mostly active among smaller banks. While we win some and lose some in that space, we benefit when larger banks—our clients—acquire smaller ones, as we gain from consolidation over time. Overall, we're a net beneficiary due to our market position.