Fidelity National Information Services, Inc. Q2 FY2025 earnings call

Stephanie highlighted a strong second quarter with 5% revenue growth led by Banking momentum. Strategic execution is translating to marketplace success across the money life cycle with new engagements in various money stages. Product innovation through build, buy, partner strategy: Issuer acquisition and Worldpay sale cleared, Everlink acquired, Money Movement Hub expanded with digital assets partnership, and AI innovation like Banker Assist is on track. Second quarter adjusted EBITDA exceeded the outlook with margins improving 200 basis points sequentially, adjusted EPS was $1.36 meeting expectations, and $460 million was returned to shareholders.

Adjusted revenue grew 5% driven by recurring revenue growth of 6% with recurring revenue at 81% of total revenue. Banking grew 6% in the quarter, coming in above the high end of the outlook range, with recurring revenue growth outpacing adjusted revenue at 7% and nonrecurring revenue up 5%. Capital Markets adjusted revenue growth was 5%, slightly below expectations, with recurring revenue growth 5% negatively impacted by a temporary slowdown in the Lending business due to macroeconomic uncertainty, but a rebound in July was observed.

The full year outlook ranges for revenue, adjusted EBITDA, and adjusted EPS were raised. Revenue target was increased by $75 million to $85 million, resulting in adjusted revenue growth of 4.8% to 5.3%. Banking revenue growth is anticipated to be 4% to 4.5% and Capital Markets' outlook is reaffirmed at 6.5% to 7%. The low end of the full year EBITDA outlook was raised by $10 million, and the EPS range low end was increased by $0.02, leading to double-digit EPS growth of 10% to 11%. For the third quarter, revenue growth is anticipated to be 3.8% to 4.4% with Banking at 3% to 3.5% and Capital Markets at 5.5% to 6.5%, and adjusted EBITDA margin expansion of 45 to 80 basis points is projected with adjusted EPS of $1.46 to $1.50.

Macro economic uncertainty poses a risk to the Lending business in Capital Markets, regulatory risks are associated with acquisitions, and currency fluctuations create a margin headwind of 25 basis points.

Q: Nice results. Putting aside just the slight pull-forward dynamic, Banking trends on the recurring side continue to look pretty strong. So maybe help us understand, number one, what the key drivers are. And if you really -- if you feel good about the core platforms right now showing sustainability, what's driving the growth and what's driving -- what's going to be an acceleration exiting the year beyond just comps? And then maybe add on to that, a little bit more around the tuck-in, I think you mentioned just -- I don't know if there's anything you could help us with sizing and what it did for guidance. That would be helpful to understand as well. But really looking for the key drivers of what you're seeing underneath the business in the Banking segment.

A: Stephanie attributed recurring growth in Banking to focus on commercial excellence, net new sales of higher-margin products (digital, payments, recurring software), and strong client retention. Tuck-in from acquisitions like Everlink contributes ~$20 million full year, with commercial excellence contributing 150 basis points year-on-year, split between new sales and retention.

Q: Stephanie, I was curious if you're -- in your client conversations, if you're hearing any potential change in client decision-making given whether it be the macro or all this talk about stablecoin and AI. Are you seeing any shift in spending behavior developing at all?

A: Stephanie said clients are very interested, demand for capabilities like digital currency and AI is higher, but TBD on which use cases take effect, and no bank wants to be left behind in offerings.

Q: Great results as always. I have a quick question and then a quick follow-up. So we noticed the slight -- or big acceleration in the Worldpay growth. So I just want to make sure before we get over our skis here. Obviously, great execution by you guys to make sure you have some comments on how much of it is organic.

A: Stephanie said Worldpay had 2% growth, with seasonality and boarding big e-com clients driving growth, and the organic part was involved in that.

Q: Trevor Williams asked on Capital Markets. So just a little bit slower growth in the quarter, but you mentioned, I think, it was slower lending syndication and a recovery, I guess, in July. Just how much visibility do you have to the acceleration in the second half? Just talk about conviction in that re-accel, what might preclude a recurrence in slower lending syndication? I'm just trying to get a sense of the confidence there as you're forecasting the second half.

A: Stephanie said Capital Markets had a strong first half, second quarter had a temporary slowdown in Lending due to macro uncertainty, but rebound in July and August, with strong new sales activity, confident in second half acceleration.

Q: Vasu Govil asked on bank M&A activity. Just on the bank M&A activity that's obviously considered to be a positive for FIS and we're starting to see some of that play out already with recent bank mergers, just curious if this pace of M&A activity continues, should we think of that as incremental to your medium-term guide for the Banking segment? Or was that already contemplated.

A: Stephanie said M&A activity is not incremental in the current guide but will be updated as things unfold.

Q: Vasu Govil asked on pricing backdrop. Just the pricing backdrop in the industry. I know some of your peers have called out headwinds on the pricing front in core processing. Are you seeing the change in trend lines? Or any color around that would be helpful.

A: Stephanie said FIS pricing is consistent, not impacting revenue, winning more new business, and peers' issues are likely due to product quality and pricing, while FIS, being large and scaled, can be price-competitive.

Q: James Faucette asked on pipeline and bank road map. Wondering if we're seeing banks kind of evolve their road map or what they're looking for from FIS. I think one of the things that's always striking about the banking industry is that, for a variety of reasons, we haven't seen the move to cloud and public cloud-type solutions. Is that something your customers are beginning to talk to你 about? And what are the hurdles that we could see or you think we can clear to start to evolve some of the product portfolio even faster on a go-forward rate, especially given all the changes and new technologies that people are bringing to market and talking about.

A: Stephanie said bank road maps are evolving, large institutions want a componentized approach, and FIS' core strategy is driving the product road map with clients moving to cloud and componentization.

Q: Ken Suchoski asked on Capital Markets. Maybe just one on, I guess, Capital Markets. I mean, I heard the lower loan syndication activity, but it looks like the organic growth slowed, I think it was like 3 to 4 percentage points. So I was just curious like how much of the slowdown was due to the lower loan activity versus other factors? It just seems like a pretty big driver there, big business overall, if it was 3 to 4 points of slowdown.

A: Stephanie said the slowdown in Capital Markets recurring revenue was due to lower loan activity, but recurring growth is expected to accelerate in the second half, with revenue drivers including net new sales, recurring revenue, net pricing, and low attrition, and no AUM related.

Q: Cris Kennedy asked on Everlink acquisition and international strategy. Can you just give us an update on the international strategy?

A: Stephanie said the Everlink acquisition and Issuer acquisition advance the international strategy, broadening payments capabilities internationally.

Q: Matt Coad asked on Capital Markets revenue drivers. I just wanted to go back to the Capital Markets question a bit just in light of the weaker loan syndication activity impacting recurring revenue growth. Could you guys remind us, right, of the revenue drivers there whether it's based on loan activity, whether it's SaaS related and whether it's based on, say, the level of AUM? Just a reminder of what's driving revenue growth would be helpful.

A: Stephanie said Capital Markets revenue growth is driven by net new sales, recurring revenue, net pricing, low attrition, and no AUM related, with loan activity impacting temporarily but rebounding.