Fidelity National Information Services Inc (FIS) 2015 Q1 法說會逐字稿

Ladies and gentlemen, thank you for standing by. Welcome to the FIS first quarter 2015 earnings call.

(Operator Instructions)

As a reminder, this conference is being recorded.

I would now like to turn the conference over to our host, Mr. Peter Gunnlaugsson. Please go ahead.

Thank you, Christy. Good morning, everyone, and welcome to FIS's first quarter 2015 earnings conference call. Turning to slide 2, Gary Norcross, President and Chief Executive Officer, will begin with a summary of our financial performance followed by a market review. Woody Woodall, Chief Financial Officer, will continue with the financial results for the quarter. Today's news release and the supplemental slide presentation are available on our website at FISglobal.com.

Please turn to slide 3. 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.

Today's remarks will also include references to non-GAAP financial measures in order to provide more meaningful comparisons between the periods presented. These non-GAAP measures are outlined on slide 3 as well. Reconciliations between the GAAP and on non-GAAP results are provided in the attachments to the press release and the appendix of the supplemental slide presentation.

With that, I will turn the call over to Gary to discuss first quarter financial highlights, on slide 5. Gary?

Thank you, Pete, and good morning, everyone. Thank you for joining us on today's call.

Starting on slide 5. We finished the quarter with an increase in revenue of $1.6 billion, reflecting a 2% reported revenue growth, while adjusted earnings per share was down 4% from the prior year quarter. Fundamentally, our Integrated Financial Solutions segment had a solid quarter, while our Global Financial Solutions segment was presented with a number of challenges that will continue into Q2. In the quarter, we were negatively impacted in our global segment by changes in foreign exchange rates, continued slow higher margin product sales, a project delay on a previously announced large-scale transformational project, and a large non-bank contract that did not meet our profitability metrics.

We also experienced the lowest level of termination fees due to bank consolidation we have seen in the last 11 quarters. While this initially creates some challenges in our IFS segment first-half comparisons, overall it translates into a lower client churn and replacement cost. Adjusted for these one-time fees, reported revenue growth would have resulted in 5% topline and 7% bottom-line growth in the IFS segment. The combination of all of these factors impacted our Q1 results and prompted the changing guidance for the quarter and the full year, which we announced on April 9.

Consistent with our growth strategy and in-line with me becoming CEO, we have re-segmented the Company to give greater transparency around the drivers for FIS, as well as highlight the potential value for expansion due to the two diverse businesses that we currently operate. These two segments are the Integrated Financial Solutions segment, which focuses primarily on regional and community-based financial institutions in the United States, and Global Financial Solutions segment, which serves global and international financial institutions.

We will continue to leverage our technology investment and scale across both market segments while we capitalize on growth opportunities created by the fundamentally different needs and buying patterns of each of these respective markets. This segmentation will also enable more accurate comparison of these segments against the unique competitors in their respective markets to drive overall, long-term shareholder value.

Next, I will define the business conditions and strategy for each segment, as well as provide business insight on their performance in the quarter. Woody will provide some additional insight into the financial performance of these segments for the quarter, as well as additional metrics we are now reporting.

Turning to slide 6, served by our new Integrated Financial Solutions segment, US-based regional and community institutions traditionally buy end-to-end integrated and outsourced solutions. These institutions value partners that offer a total solution package, and on an outsourced basis, invest in new ways that allow them to more effectively complete with the largest global money center banks. Due to continued bank consolidations, this is a slower growing but solid market segment, where FIS can leverage its scale and solution integration to generate attractive margins and to drive a significant highly reocurring revenue base.

The fundamentals of the IFS segment are strong. They had a good first quarter when looking beyond the lower term fees that will continue into Q2, but improve in the back half of the year. As banks continue to move beyond the increased burden of regulatory environment and economic recovery, we should see continued increase in investment decisions, which should also increase reported revenue growth in the back half of the year.

From a sales standpoint for IFS, we closed a number of long-term outsourcing deals, including a large multi-billion-dollar bank that is utilizing our core digital banking and item-processing abilities, demonstrating our continued ability to deliver a comprehensive outsource solution. Wealth management also continues to perform well for the Company. As an example, we signed a new long-term government with Argent Financial. This win combines our trust platform solution with a full suite outsourced back-office services. This agreement was just one of our wealth wins this quarter, and a solid proof point of how last year's acquisition of Reliance Trust is creating new wealth management opportunities. These types of successes, coupled with others within our Integrated Financial Solutions segment, have allowed a year-over-year increase in new contract value sales for five consecutive quarters.

Additionally, we just completed one of our largest client conferences, hosting record client and prospect attendance. Feedback and client engagement was extremely positive, with strong opportunities being generated as a result.

Turning to the Global Financial Solutions segment, these clients have a greater demand for outcome-based intellectual property led services, and an increased willingness to outsource solutions and services to drive cost reductions and transformation. They have a strong desire to innovate, particularly in the consumer oriented channels, and value partners that have the agility to develop and bring solutions to market at scale and across geographic boundaries.

This is a higher growth market, where we generate lower margins due to the high mix of professional services including consulting, IT integration and business process outsourcing. Over the last four quarters, our higher margin product sales in our GFI market have not met our expectations. Meanwhile, our consulting business and our intellectual property led reocurring services continued to accelerate, causing us a mix problem with regards to revenue and profits.

Based on these results, and as Woody and I have discussed on prior calls, we are restructuring our two former divisions of Global Financial Institutions and International Financial Institutions. As part of this restructuring, we also have moved all appropriate products and product sales that serve global requirements into our GFS segment. In making these adjustments, we expect margin expansion to occur over time in this segment, as we gain scale and continue to rationalize our operations. The restructuring of these two significant divisions will continue in Q2. These adjustments, as well as a resolution to a number of the prior mentioned headwinds for this segment will accelerate our revenue and profit growth in the back half of the year.

Despite these challenges, we did see a number of very nice wins in the quarter. We saw significant increases in our consulting business in Europe and North America and are in final negotiations on a number of key outsourcing transactions.

Asia continues to be a strong market, with rapid growth. We extended that success with a recently signed engagement with Karnataka Bank to deliver an entirely new e-lobby self-service channel. In addition, we continue our success in the auto finance market, signing a significant outsourcing agreement with the financial subsidiary of a top automobile manufacturer in North America.

Turning to slide 7. I would like to summarize the quarter before I turn it over to Woody for the financial report, by saying Q1 was clearly a more challenging quarter than expected for FIS. We continued to grow revenue and return cash to shareholders, demonstrating the consistency of our business model, but we did not achieve the results we had expected.

The restructuring and re-segmentation of our business enables us to achieve operational efficiencies, and better combat timing and revenue mix changes that occur with large complex deals, such as in our GFS segment. Our new segmentation model better aligns our service and solution sets to clients' varying requirements, and enables us to leverage FIS's scale to more effectively propel our clients business forward. We're confident that our business model, proven execution, and deep client relationships will continue to enable us to drive profitable growth, maintain the strength of our balance sheet, and return value to our shareholders.

Woody will now provide details around our Q1 performance. Woody?

Thanks, Gary.

I will begin on slide 9 with a summary of our consolidated results for the quarter. The first quarter consolidated revenue increased 2% on a reported basis, and 5% on a constant currency basis to $1.6 billion. EBITDA was $425 million, a decline of 5% from the prior year period, with EBITDA margin declining 190 basis points to 27.4%, compared to 29.3% in the prior year.

Non-GAAP adjusted net earnings from continuing operations decreased to $186 million from $199 million, and adjusted earnings per share was $0.65 per share, compared to $0.68 per share in the prior year period. Our results for the quarter reflect the negative impacts from lower termination fees, increased investment in our European capabilities, and a scope modification and delay of a significant project, which adversely impacted the quarter. In addition, the quarter was negatively impacted by changes in foreign currency exchange rates.

Non-GAAP results for the quarter are adjusted to exclude $0.12 per share for acquisition-related purchase price amortization, $0.10 per share related to global restructuring activities, and $0.03 per share related to acquisition, integration, and severance costs. The global restructuring charge is a result of our re-segmentation and alignment of resources in our Global Financial Solutions segment. The activities relate primarily to Europe and are a combination optimizing onshore and offshore resources, as well as the removal of overlapping management resources.

As Gary mentioned, we re-segmented the business into two new reportable segments. The Integrated Financial Solutions segment and the Global Financial Solutions segment. We are also providing additional financial and operating metrics, which we believe provide greater visibility and transparency into each segment, and the key drivers we monitor to operate the business. This re-segmentation provides flexibility and more clearly differentiates the market dynamics, and gives better comparisons of our results to our competitors.

I will now continue on slide 10 for the first quarter segment results. In the first quarter, Integrated Financial Solutions revenue grew 2% on a reported basis to $969 million. Termination fees were $28 million lower, compared to prior year period. Integrated Financial Solutions EBITDA for the quarter decreased 1% to $379 million. EBITDA margin was 39.1%, down from 40.2% in the prior year period, primarily reflecting lower termination fees.

Turning to slide 11, you will see new details on revenue contribution and growth from banking, business, and payment solutions, and revenue composition for the period. We're also providing metrics regarding outsourced accounts processed and transaction volumes, both of which are key metrics underlying the recurring revenue of the business.

For the first quarter, this segment had 89% recurring revenue. Banking solutions grew 12%, driven by our acquisition of Reliance Trust, and cross-selling and up-selling new products into our existing clients. Business solutions grew 4%, primarily driven by card production. Our payment solutions revenue was down 4%, primary driven by a termination fee headwind from the prior year period.

Turning to slide 12. In the first quarter, Global Financial Solutions revenue increased 1% on a reported basis to $587 million. The reported results for GFS reflect a negative foreign currency translation revenue impact of $45 million for the quarter, and the previously announced non-renewal of a non-bank contract. On a constant currency basis, global revenue grew 8%.

Global Financial Solutions EBITDA decreased 14% to $90 million. EBITDA margins were 15.4%. These results are adversely impacted by foreign currency exchange rates, the project delay, investment in expanding capabilities in the UK, lower than expected product sales, and a heavier mix of services revenue, which was partially offset by cost actions and lower incentives for the quarter.

Moving to slide 13, you will see our reporting metrics for Global Financial Solutions. We are including revenue growth by region and constant currency. For the quarter, Asia-Pacific had strong growth of 45%, driven primarily by the India ATM deal and our expanding core banking presence in India. Europe grew 16%, driven primarily by Clear2Pay and Capco Consulting. In North America, product sales and information technology outsourcing was slower than anticipated. As expected, Latin America revenue growth remained slower, due to macroeconomic conditions.

We're also disclosing the revenue composition for the segment. 73% of GFS's revenue is recurring in nature. The bottom half of the slide provides revenue by currency, and our consulting and services headcount.

The largest global and international banks, the target market of the GFS segment, continue to focus their spending on services and consulting. This drives strong revenue growth, but creates margin headwind with the change in revenue mix.

As disclosed in the 8-K filed a few weeks ago, corporate expenses directly related to supporting the segments such as sales, finance, and human resources, are now reflected in the segment results. For the quarter, corporate expenses not attributable directly to the segments were $44 million. Please refer to the Appendix material in the presentation for more information on the businesses and products for both segments.

Moving to slide 14. We continue to reinvest in our business. Adjusted cash flow from operations totaled $315 million for first quarter of 2015. Capital expenditures in the quarter totaled $101 million. We delivered free cash flow of $214 million for the quarter. These results are consistent with our previous guidance of free cash flow conversion to approximate adjusted net earnings.

For the quarter, we returned $223 million to shareholders, $150 million was returned to shareholders through the repurchase of 2.2 million shares in the open market, at an average cost of about $68 per share. The share repurchase program drove a 2% decrease in our weighted-average diluted share count to 286.8 million. We returned $73 million to shareholders through dividends. As of March 31, debt outstanding was $5.2 billion, resulting in a leverage ratio of 2.7 times debt to EBITDA. The weighted average interest rate was 3% at the end of the quarter.

Moving on to slide 15. On April 9, we adjusted our outlook for the full year. There were a number of moving parts to that change, and I want to walk you through each one. First, M&A activity creates a tailwind to reported growth of approximately 2%. This is comprised of the 3% tailwind from acquisitions, primarily Clear2Pay and Reliance Trust, and a 1% headwind from divestitures, primarily the Certegy Gaming business.

Second, we announced a nonrenewal of a contract, which created a 1% headwind to reported growth. This contract was not with a financial institution and had minimal profitability. Third, we had a project delay in Europe and high margin global product sales are not materializing as we had anticipated, creating another 1% of headwind.

Since providing our initial guidance on February 5, we have continued to see pressure from changes in foreign currency exchange rates. This further decline of non-dollar currencies is expected to impact our full-year reported growth by 4%, or an additional 2% adverse change from our February guidance. We now expect reported revenue growth of 1% to 3%.

Moving to slide 16. In an effort to help with quarterly modeling of our full-year outlook, I will add some color on the second quarter and full year. The second quarter of 2015 will continue to see headwinds and difficult comparisons. The prior year quarter included benefits of approximately $0.09 from termination fees and a discrete tax benefit. We do not expect to see similar benefits again in the second quarter of 2015.

Foreign currency exchange rate headwinds and the project delay will also adversely impact the second quarter. Our restructuring efforts to address the shift in GFS sales mix will benefit the third and fourth quarters more heavily. Based on these factors, we are now expecting second quarter adjusted earnings per share to be in the range of $0.67 to $0.73 per diluted share.

As discussed, the first half of the year is challenging. The second half of 2015 will drive more earnings per share as we anniversary difficult comparisons and see the impacts of cost actions taken. Further, we expect the project delay issued to be behind us.

For the remainder of 2015, we expect reported revenue growth in the range of 1% to 3%. We expect margin expansion to continue into 2015, and will now be about 50 basis points. We expect 2015 adjusted earnings per share in a range of $3.27 to $3.37, which is a 6% to 9% increase over 2014. This will be more heavily weighted in the second half of the year based on the items described above. We expect free cash flow to approximate adjusted net earnings.

That concludes our prepared remarks. Operator, you may now open the line for questions.

(Operator Instructions)

We'll go directly to the line of Dave Koning with Baird.

Thanks for all the new disclosures. That's great.

Thank you.

I noticed a couple of things in there. It looked like core accounts, so core banking accounts have been trending a bit lower the last few quarters, and also ITO BPO headcount has been trending down a bit. Those are new disclosures. Maybe you could just talk to them?

Yes. Let me give you a little color on that. It's kind of two things going on.

As we talked about in the integrated financial solutions segment, we continue to see a lot of consolidation and acquisition in that space, as you are very aware, in the US that continues to be a consistent trend. The sales team is doing a very nice job of selling through that and maintaining kind of consistent account volumes. That is attributing to our slower growth in that segment.

You do see one big drop, which is really an interesting anomaly. We had a very large bank that actually had an in-house developed system, one of the only ones I can think of that's happened like this in the last three or four years, and they actually migrated in-house on their in-house developed system. It was a simple product offering.

We extended real robust services engagement from them. That's the anomaly you see in the drop there.

When you go on to the IPO and BPO resources, frankly, that's all Brazil. As Woody mentioned, we have got some serious macroeconomic issues in Brazil. It's really growing slow and as transactions volumes come down. You'd expect your call center agents to come down as well. That's what's going on in that grouping.

The other area you are seeing in the first quarter around the ITO BPO headcount would be associated with the nonrenewal of the contract.

Yes. Got you. That makes sense. And then, historically, there has quite a bit of seasonality kind of, in the second half of the year always better than the first, but this year obviously it's a lot more than usual. It requires almost $1 of EPS in each of the final two quarters.

Is some of that going to be a new -- a new type of phenomenon? How do you get there, and is there anything one-off in the second half this year? I know last year, there was some one-off stuff in the first half. This year, is there going to be some one-time benefits in the second half?

I think you have a combination of items, Dave. To the first point, you definitely see more growth in the second half of our business than we do the first half. That has been a normal growing occurrence over the past several years, and you can model something around that.

The second would be really around getting out from under the difficult comparisons, where we have had term fees as a giant headwind in the first half of the year, we're actually seeing a little bit of tailwind in the back half of the year in terms of term fees, year-over-year. Second would be getting the benefit of the cost actions we are taking more in the third quarter and fourth quarter, and getting the project delay behind us.

A combination of those items will see a definite swing in the back half of the year, compared to the first half of the year.

Okay, and then finally a quick one. Your share count the last two quarters has been pretty stable. I know you have bought quite a bit of stock, just wondering why we haven't seen the share count go down much?

I think you've seen a couple of things. One, you've seen us buying back shares, but you have seen the growth in the stock price over the past several quarters that is taking the diluted share count up a little bit, associated with it.

You've got a combination of the two of those areas as well. Stock compensation is up slightly, year-over-year, so we're seeing a little bit of that, but that's the big change, Dave, more than anything else.

Okay, great. Thank you.

Thank you.

Are next question is from David Togut with Evercore ISI. Please go ahead.

Thank you. Good morning, Gary and Woody.

Good morning, David.

Gary, what gives you the conviction action to of taken in the first quarter are sufficient to put FIS back on a more consistent growth track? I am sort of asking the question looking beyond the second half. I recognize second half you have some easier comparisons, but obviously, major restructuring actions. Maybe fleshing out your thinking, and what's behind your getting back on a growth trajectory?

That is a great question. One of the things we've looked at in the global market very consistently as we have gone to that, and we disclosed to the market as well, is we felt there was an opportunity to pull more higher margin products sales into that business. As you see and what we disclosed this quarter, I think it was 2% was software license.

What we continued to see over the last four quarters is, we continue to see some of our licensed engagements slide from quarter-to-quarter. We're not seeing other people win those, but we're also seeing them getting converted to complex services engagements, where we leverage our software, but frankly, it goes into either our outsourcing, which you are actually seeing a ramp-up in Europe around our banking utility we're building out.

After four quarters of this consistently, we decided to actually take our former product division, which was IFI, and we took our former services division, GFI, and we're putting those together. We're getting a lot of opportunity of moving some resources from very expensive countries to offshore.

As you know, that's been a consistent strategy for us for years. We've gotten some synergies in management. We've also done some synergies in go-to-market. You can tell by the severance costs, granted, they are skewed because some of the countries that we had the resources in, but we had a lot of synergies between those two divisions. That has continued through Q2 as we build out the go-to-market.

We also, as I mentioned in my script, there is a number of large outsourcing engagements we are in final negotiation stage of, as well. The makes us feel confident that the services concept, so if you see in what we've disclosed, you will see our intellectual property-led services consistently grow in quarter over quarter. You will see our software sales is a very small amount.

These two trends over the last year has allowed us to bring these things together. We think we have made the necessary actions. We feel confident with the pipeline. And all of these services led opportunities that we have in the pipeline, and we are in final negotiations on a number of them.

Understood. Shifting over to GFI business, you are announced a large investment in GFI, about $30 million at the beginning of last year. It sounds like that hasn't gotten the traction that you were expecting. Where do you standing -- where you stand right now with a large GFI initiative and the build out of those sales teams?

Yes, and actually has gotten traction. It has just gotten traction in more complex services and transformation. It really can be attributed to, as you are seeing that growth occur. They continue to drag and penetrate very nicely in those global institutions with some large transformational outsourcing deals.

One of the things that is also interesting is a lot of that is leading into long-term contracts, so it is not a classic services business where you're having to book and build on a very short time frame. We're getting a lot of long-term. That actually is gaining very nice traction. The issue for us is just the elimination of the software license as a material component of that business.

That was something that we saw transitioning after 2008, but frankly, for whatever reason, as the market continues to evolve, that type of business is not coming back, and now those clients are really looking for ways that we can leverage our talent, drive their costs down, and use our intellectual property to drive a different outcome for them. Really, that GFI investment has done well.

We did, as I just mentioned though -- as we went through the restructuring, we put these two groups together, we were able to get some efficiencies in some of our go-to-market overlap as well. Long-term, it's going to be a good outcome for this group.

Are you seeing the traction with the EMV card manufacturing that you expected at this point in the year?

We actually are. If you turn to the IFS section, one of the things you are going to see is a line item that shows 4% growth, if memory serves. That's primarily our card production EMV.

We are seeing a nice ramp-up over that. We disclosed a number of big wins. That volume continues to grow. While it is still small-volume relative to our overall volume of cards we produced, we produce millions of EMV cards this past quarter.

Just a quick final question on FX, Woody. It looks like you had a 3 percentage point FX headwind to revenue in the first quarter.

You are calling out a four-point headwind for the year, but a number of your international currencies, particularly the pound have strengthened significantly versus the dollar in the last month. Is that four-point headwind including some element of conservatism? Or do you really think four points is the right number, given current spot rates?

I think, you know, it's difficult with the volatility going on in the currencies that we are in right now, as you know. When we updated our guidance on April 9th, and I think you have seen some level of improvement in the currencies since April 9th, even, David, to your point.

I would tell you that we think 4% is close to where we think we will be for the full-year. If the dollar weakens a little bit against these currencies, obviously, it wouldn't have as big of an impact. Very difficult, right now, to try to figure out exactly where currencies may land.

If you look at the Euro and the Real, for example, I think they are down or have depreciated about 18% compared to this time last year. But, you are right. If we see some improvement in currencies compared to the US dollar, that 4% headwind may not be as big, but that's where we got it to at the time and updated, and that's where we are at for the moment.

Understood. Thank you very much.

Thank you.

Next George Mihalos, Credit Suisse.

Good morning. This is Alison in for George. I have a question on the IFS segment.

The 2% growth that you saw this quarter, how do you think about the longer-term revenue target there? How long do you think it takes good to get back there?

Well Allison, we're going to go into a lot of that on Monday on our investor update, but clearly, the biggest headwind this group has is just consolidation in the industry, right?

We continue to see acquisitions occur through the various different asset ranges within the space. Depending on what the continues to do, that will actually turn into a nice tailwind for IFS. But certainly, we think long-term, given our position, given our dominance in outsourcing in a number of the key markets, it certainly is a mid single-digit grower for us. You see the margins that we generate out of that.

Frankly, when you start really breaking out that group and comparing it to some of its competitors, you're going to see that the margin contribution, given the outsourced nature of the business, is going to be superior to a lot of the competitors. It's a very strong fundamental business. We would expect that growth over the long term would accelerate back into the mid-single digits, which is, frankly, as I said on adjusted basis, if term fees didn't exist, that grow over, that is exactly where we would have been this quarter, which is right about 5%, 7% on the EBIT line.

We would've gotten margin expansion and good mid-single digit growth. It's really the nature of how the acquisitions hit at any given point in time in that business. Fundamentally, it's a strong business, and should continue to operate in that mid-single-digit range.

Great. Thanks for that color. Shifting gears a bit, on the M&A front, how are you thinking about opportunities domestically versus internationally?

Yes, I think there are some opportunities. Certainly, you see the last big one we did was Clear2Pay. That's going exceptionally well for us in Europe and other areas. We are always going to look for the right opportunity.

We want to find something that gives our markets or our businesses an opportunity to accelerate growth and return value to our shareholders. Frankly, there's still probably too much supply in some of the markets that we are operating in. If we can find a transaction that would make sense, we would certainly evaluate it. But, like always, we've got to make sure that it makes sense for our shareholders.

I can tell you, Allison, that the international opportunities definitely look a little more robust right now, given the strength of the dollar. The strength of the dollar, coupled with we've got a lot of offshore cash right now.

Great, thanks for the color, guys.

Thank you.

We will go to Brett Huff, Stephens Inc.

Good morning Gary, Woody, and Pete.

Good morning, Brett.

On the project delay, could you give us more detail on that? I ask that in the context of your commentary that the GFI business has more of these big complex services deals.

What comfort can we get that that delay is unique? Was there something that we had to fix in our project approach? Can you give us some thoughts on that?

Yes, Brett, we're looking now about a three month, two and a half, three month total delay. Frankly, it was impacted by two things. One, it is a very large transformational project, and we're bringing this financial institution out of a very old legacy environment. They have some issues on their side as well that would actually -- that actually added to the delay.

We also kind of had a perfect storm there. We had a lot of success in that region with the challenger bank. That ended up having us build out scope to build out a much larger banking utility, given some of that success. I think it is the combination of those two things.

As you know, I have been with the Company 27 years, and we have had project delays before. Any company that will tell you they have not had a project delay is not being accurate. The reality is, this one caught us from those couple of angles.

We definitely have made some changes in our program management function, obviously, as we build out these capabilities in Europe, we have to make sure we have the talent that's applied to these projects to make sure they have high success. But am I overly concerned about the project delay? I am not. I think the team is very focused.

When I look at not only the sales success we have had to date, we have announced some of those, but when I look at the contracts that we are actively negotiating, I feel very confident that the whole banking utility is going to be a very successful business for FIS going forward.

Brett, if you think of the financial impact in terms of what it is to the total contract, to the total contract this delay is insignificant. To a several hundred million dollar contract, but it did impact our quarter.

Okay. My second question is, Woody, you mentioned that you think there's 50 basis points of margin expansion this year, even with some of the changes. I know there is some of the cost overruns, but I also know you are taking some costs out of the business.

As we look further out, one of the key questions that I think a lot of folks were wondering about last year, as the GFI business grows faster and it's lower margin, can we still expect a 50 basis point type expansion over the medium or long-term, given what looks to be a fairly permanent mix shift?

Yes, I think we are going to talk more about that on Monday, in terms of the details behind it, Brett. You are exactly right. You've got very good margin expansion capabilities in the IFS segment and it will continue as we consolidate data centers, as we sell into leverage platforms, as we continue to drive that business as we always have.

The GFS business, it does create some challenges in the short run, and potentially longer-term. But we do expect margins to expand as you get more of those services growing and you get more of scale in the areas that we are serving associated with that. It is a challenge we're going to continue to monitor and work through.

Okay, that's what I needed. Thank you.

Our next question Darrin Peller with Barclays.

Thanks, guys. It looks like you've shifted over the past couple of years to a company that's now adding contracts that three, four, even five times the size of your average contacts in the past. I think some of these transitions we are seeing or delays on a big contract may be understandable given what kind of a transition comes with these adjustments.

But when we consider constant currency growth guidance, you are still starting the year for [five to seven], or even if you start with low end of that, Is the pipeline you talked about earlier have contracts that are big enough, kind of like the [Sanesbarries and the Credit Agricola] to enable potential acceleration in revenue growth in 2016? I know we're not guiding yet, but I just wonder if the pipeline is big enough now, are the sales times on these things going to be much longer?

Yes, Darrin, it's a great question. You are exactly right.

We really have, in our global business, seen a massive expansion in the size of our contracts. We've highlighted those on a number of our calls, and as you said, as you are dealing with these larger and larger agreements, you are going to run into some of these things.

Let's get to your question about pipeline. The quick answer is yes, the pipeline is very supported, and we have a number of large transformational opportunities that we are actively negotiating. We see good line-of-sight that we can continue that growth in these large transformational engagements.

CapCo, has been an unbelievable acquisition for us. It has been over five years, but if you look at the growth in the consulting engagement and you look at how that is augmented into our IP led services, when we give that transparency, you can also see we have good pipeline supporting that, and we'll see that continue.

Okay. Maybe we can talk about more at the Investor Day. Is there any fundamental reason why 2016 wouldn't be able to be at or above this year's constant currency of 5% to 7% kind of range?

Again, not going to guide on 2016 yet after first quarter of 2015, but we're going to give some outlook and multi-year outlook on Monday, Darrin, as to what the drivers are in these businesses, and what the growth characteristics should look like in both of these businesses.

Lastly, you had a couple of moving parts, you mentioned, around the deals and the add-backs, and pay count. The term fees, just so we understand, that was what? About a 50 basis point headwind on this year's growth rate versus last year? Is that right, in terms of my math?

I think it was a little bigger than that. It was $28 million, associated.

Absent that, in terms of normalized, your growth rate would've been a little over that, higher? That's helpful. I'll leave the rest for the investor day, thanks a lot guys.

Think, Darrin.

Our next question is from Jim Schneider, Goldman Sachs.

Good morning. Thanks for taking my question.

I was wondering if you could maybe address pricing environment for a moment, and give us a little bit of detail around what led to the nonrenewal of that client contract, and whether you have seen that for other customers in the non-financial segment or even in the international segment, in the financial part?

Jim, two parts to that question. Let's get to the first one on the non-renewal. Frankly, this was an IT data center engagement, and it was a very low margin contract. The client wanted to have a reduction that was even lower that would make the agreement non-profitable.

It's just not a strategic business for us. We just chose not to renew it. As I said, it wasn't in the financial services industry, whatsoever. We're just not going to provide a service at those kind of margins for our Company and our shareholders.

If you start getting into financial institutions, as I mentioned in an earlier question, we do continue to see a lot of competition, or perhaps even an oversupply, in what I would say the traditional US business, right? What we're now calling the integrated financial solutions segment. Pricing is always going to be an issue, especially when you've got what I would call a monoline player. You have a single product offering in the market, or in that customer, some of the pricing characteristics of that can be disproportionate.

You can also see opportunities where larger scale competitors of ours that will have a broader solution as they try to move up market. You can also see some aggressiveness around price.

When we get over in the global marketplace, it's a little different. You're really, in those large transformational projects there's always going to be an element of cost saves involved in those.

That will be one of the reasons why a large global institution would not only outsource because on some intellectual property and the capability that we have, but they are looking for ways that, through our best practices, we can drive those costs down. But we don't see as much aggression from some of the other profit providers, because it's more of a long-term project based type of approach on those.

Thanks. That's helpful. As a follow-up, if you look ahead to the EMB liability shift in October of this year and you consider your nice network, do you see any potential for share gains or any market share shifts at all? Because of the German compliance changes that some retailers might decide to implement?

Our nice business continues to perform very well. We have been pleased with it's performance, so far.

Is the team modeling a big increase for the back half of the year in that? No, I think it has been fairly consistent. It has performed very well, and they continue to grow their share.

Thank you.

Our next question comes from Tien-tsin Huang, JPMorgan.

Thanks, good morning. A couple of questions. First on Brazil and [Bradesco] and know that (Inaudible) with this network deal, and MasterCard and GDP slowing some regulation changes. Any update on the Bradesco JV in it's current state? And any opportunity to add more partners, there?

We have actually added some partners over the last several years. Bradesco, as you know, just continues to be the dominant client in that JV.

We have a number of years left on that contract. Bradesco is very pleased with the service we are providing. We wish the macroeconomic issues were a little more favorable in Brazil, but we are still very committed to the JV, and things are going well there.

Okay. On Jim's prior question, the non-bank outsourcing book itself, how big is that today, for FIS?

It's less than 5% revenue, sort of those IT outsourcing or IT infrastructure outsourcing, less than 5%, Tien-tsin, and even smaller on the EBITDA side.

I know there has been consolidation in the banking space, surprised we haven't seen more, actually. Any announced deals have implications for FIS, and should we expect more term fees from a higher level standpoint? It seems maybe that's a fair assumption to include?

It's interesting, for the last three years, we have actually seen a steady decline in our term fees for three consecutive years. We would actually tell you the number, the percentage of acquisitions increased to the highest we have seen last year. A lot of those acquisitions are occurring in lower asset sized institutions, where we don't have as much penetration. Of course, when one of our large guys is acquired, it overdrives our dollar amounts. Our term fees can be quite large.

There are a number of large combinations that haven't been announced. We go back to the Umpqua-Sterling, that has been a very successful situation, where Sterling was on FIS, Umpqua was on a competitor. They chose to stay with FIS, and we have successfully converted that client onto all the FIS systems.

That's a very successful conversion, and there is going to be some other announcements coming, where we have had a couple of combinations in a similar vein of Umpqua-Sterling that FIS also was selected. We're pleased as we get in the large bank market, given our size and scope and scale in those markets, we continue to have a lot of success growing that business.

Great. Thanks for the update.

Thanks, Tien-tsin.

And now we'll go to the line of Glenn Greene, with Oppenheimer.

Good morning. The first one, maybe if you could help us quantify the cost-savings from the restructuring? So if you get a little bit more comfortable with the implied margin parameters, going into the back half. I think David Koning referenced the $1 EPS per quarter in the back half, and our math is kind of similar. Wanted to get more comfortable on the margin implications?

You've got a couple of things, there. One, you have got a charge associated with about $44 million. A good bit of that is in Europe, where you got a higher level of severance, if you will, associated with removing headcount.

The vast majority of that will be in the 3rd and the 4th quarter, Glenn. We are looking in the range of probably 70% of our savings in the 3rd and 4th quarter this year, compared to the charge. You definitely will see benefits there.

Some of those benefits will flow through and anniversary into 2016 as well. Most of it is going to hit the third quarter and the fourth quarter in terms of benefit. As we transition and onshore, offshore some of those resources, obviously the pure management overlaps will take place a little faster than that.

Could you put a dollar amount on the savings, now?

We haven't put a exact dollar amount on it, but I'm thinking $25 million, third quarter and fourth quarter combined, is probably what you're looking at.

And I have not done the math precisely, but it almost implies like a 33% or so EBITDA margin, exiting the year? Maybe the silver lining here is 1Q and 2Q don't look great, but you exit the year at a really nice profitability level. Is that a good baseline? First of all, am I right on that math, and is that a good baseline going into FY16?

Well, I think you will see some benefits from the cost actions, specifically. I think you will see some benefits from term fees in the second half versus first half.

I'm not sure that's the proper baseline, because you are getting some benefit out of the term fees in the second half, just like you are getting detriment in the first half. We do anticipate contingencies, some level of margin expansion through 2015 and then further into 2016.

And then the product sales weakness, are you talking about licensed deals? Is this related to the project delay?

No, no.

Is it just a question of timing on this?

Glenn, it's definitely more license fee in nature. We only had 2% license fees in the quarter. This business used to be a heavy license business, and certainly, we thought that would recover, given our engagements, but we continue to see our license fees, our license fees slide from quarter-to-quarter. Just a lot of softness, whereas our services stuff consistently ramps up.

We're not sure that this market is ever going to return to a really big license model again, and we thought it would. It used to be a heavy licensed model, historically, which is good for as long term. It builds our reoccurring revenue base, and allows it to be much more predictable in the long term. With that scale, you will see steady margin recovery.

Thanks.

Thank you.

We'll now go to Ashwin Shirvaikar with Citi.

Thank you. Good morning, guys.

Good morning, Ashwin.

The first question is, obviously, you have a presence in all these different parts of the market, but you've done better in the mid-sized, regional, and larger contracts. Now with the new breakout with IFS, should we look for -- when you look at the market like that, and who competes in that market, should we look for more of a push towards the lower-end? Credit Unions, community banks, or is that not appropriate?

I don't think so, Ashwin. If you look at where we do very well on that market, we don't do a lot in credit unions. We do in payment space, but most of our focus in that market would be larger community banks. I'd draw you in the greater than $1 billion, we might go down to greater than $500 million. When you get in the small end, a lot of our competitors, they have very nice share down in the smaller end of that market.

Frankly, a lot of the consolidation, at least number of units is occurring down in that low end. We will talk a lot about that on Monday. Basically, what you are seeing is the actually the mid-tier is actually growing, that greater than $1 billion, because we have clients that are trying to get the scale to deal with the regulatory change, and, frankly the complexity of all of the technology that is being rolled out.

That is playing to FIS's strength, long-term. We definitely will have some lumpiness due to term fees, because when we have a large multi-billion dollar bank get acquired, typically the term fees can be a very large number. As you see by evidenced by this quarter, but when you look at that greater $1 billion space, we continue to gain share in that market.

We continue to see evidence when really two large institutions combine together, that they look to FIS to outsource to. All of that will be positive trends for IFS, long-term. You won't hear on Monday that part of our strategy is to push deeper in the lower-end of the community banks market, or frankly in the low-end of the credit union market.

We'll certainly continue to be opportunistic there. We've got a number of customers there. We're going to serve them just as well as we serve any of them. That's what most of the churn is occurring, as we see it.

Okay. Thank you for that. Moving to the GFS side.

Clearly more traction there, you have been talking of larger deals for a year and a half, two years now, at least, if not slightly longer. The question is, do you have the ability to support the higher growth that's coming down the funnel, both in terms of people and in terms of IP? Do you need to continue making further investments, whether they are organic or through M&A? If you could comment on that?

I think one of the things you're going to see with the new transparency, and hopefully you guys are going to enjoy this level of detail, but you are certainly seeing, as we grow these complex projects, we've got to hire people, right? Competition for talent's going to always be something that we're going to have to deal with.

I think we have proven that, over the last two years, we have really signed some very nice agreements, and we have been able to deliver on those. We have seen the revenue and profit growth associated with those services. When you get to investments, to Woody's point, there are some good opportunities outside the US for acquisition, the Clear2Pay acquisition has been a good one for us. That's a great example, where they had some great IP capabilities around payment hub technology already in the money center banks, but once again, heavily services oriented around the deployment of that.

We will continue to look at those opportunities we also are continuing to invest in intellectual property for that market. We've seen a lot of engagements with some of our largest clients, where we will come in and do a specific build, leveraging some of our components but then customizing it to their benefit. Once again, through a services engagement.

You are right, as we grow that business, the recruitment of talent is going to continue to be an important issue for us to monitor. I will tell you, our consulting group, Capco, is really a desirable place if you want to be in the consulting field and financial services to join. We are able to recruit very well on that space from a lot of the larger providers.

Traditionally, as you see, we've been able to ramp-up our IP lead services as well, but we're going to continue to monitor that.

Okay. One last question, if I may. The higher sales costs, which, I guess -- clearly, you have to go after an opportunity when you see it, but there is also what opportunities do you go after versus you say no to?

Last year, you guys made a pretty big investment in going after larger relationships. Can you provide an update, and maybe, Monday's the right place to do this, as opposed to right now, but could you provide us an update with regards to when do you say yes, versus when do you say no? What are the criteria that you are using?

We will certainly go into a lot more of that detail on Monday, but it is a good question. Our strategy has not changed. We are materially focused on a very small number of global countries, right?

We are very focused on the type of capabilities that we have; existing capabilities that we can leverage, right? We are focused heavily on the retail banking side in certain sectors, and also from the consulting side, on the capital markets side. Where we truly aren't building out capabilities, we have capabilities that exist today that we can leverage.

When you are outside of that space, we say no often, right? We are not really looking at country expansion as a growth opportunity for us. We are also not looking at getting into product deployments that there are capabilities that don't exist within FIS. We will go into that detail for you on Monday to give you a better sense of that.

Okay, great. See you guys next week.

Alright, thanks.

Our next question is from Ramsey El-Assal with Jefferies.

About in the GFS segment, how does the margin profile in that segment vary by geography? Trying to get a better idea of how scale efficiencies is operative in your business across these different geographies?

Our GFS's in Europe more profitable than Brazil, versus the US, versus here, versus there? Just wondering if you could give me any color, there?

No, Ramsey, It's a good question. I think you will find is the margins are directly related to the type of IP engagement we have in that.

As you would expect, on highest end would be where we truly have a product solution that's outsourced to us and our data center. That would be on the higher-end of those margins, and then it moves down to where we're doing just traditional back-office. BPO would be on the low end of that spectrum.

When you start getting into each country based on that dynamic, you start getting into the scale growth components of that. Overall, we do believe that the margins on this business are going to be able to accelerate, especially, as our services components grow. We are seeing that occur in our large-scale services engagements. It really is based on how much product is truly engaged -- in the engagement.

Thanks. That makes a lot of sense. Changing channels here.

In the Asia-Pacific segment, that was pretty remarkable growth, now that you break it out. Is most of that coming from India? Or is growth in Asia-Pac pretty broad-based?

You know, the team is doing very well. India is definitely the leader, here, in this growth. We highlighted the India ATM deal several years ago.

You see the ramp that's provided, but we can't lose sight of the job the team has done there in building out a true core franchise as well. [Mahila bank, Bandhan Bank], we talked about Karnataka on the call, today. India is by far the lead.

We are seeing some nice growth in some other regions as well. Thailand is a very strong market for us, and we obviously are doing well in other regions like the Philippines and Australia. But by far, India is the majority of the revenue in that sector.

If you look at the calls over the last several quarters, almost every call has had some mention of a win in India. As we've talked about, it was growing very well, but not a giant needle mover. I think this kind of gives you some clarity and visibility into what growing very well really means, and it is becoming a larger component of the overall GFS group.

Alright, guys. Thanks a lot, that's very helpful.

Thank you.

Our final question is from Mr. Andrew Jeffrey with SunTrust.

Good morning.

Good morning, Andrew.

We've covered a lot of ground today. I want to understand a little bit, as you realigned your go-to-market strategy and realigned the segments, what specifically do you feel like has changed, in terms of how you are actually going to address your customer opportunities?

In other words, is it personnel, is it technology? Is it other assets? What about the realignment, practically on a day-to-day basis, do you think will work better and gives you the confidence in the outlook for a better second half?

No, that's a great question, Andrew. First, what we have done is we now have truly two pure play companies, here, that exist.

We moved all the product, all the accountability, all of ownership in both unique segments. You have the IFS segment, which is really just the dominant outsourcer in community banking. It's got the broadest product suite in the industry.

The team is very focused, whereas in the past we used to have that team being distracted to help focus things going on in the global markets even the revenue didn't flow there. A lot of the R&D was going on in that group. Just because, historically, historically, that's where it was.

We now have got two groups that truly own, end to end all of their capabilities. They have the products that they need in both markets. When you get over to global, it's just that we've really moved now global from a sales engine to truly an end-to-end business. Now, they've got the capability to invest in their products or de-invest in solutions that aren't working in that market.

In the simplest form, it's one of accountability and focus that we think are going to drive much better results. We've been moving in this direction for a number of years. When we announced our strategy shift back in 2012, this was the direction we have been taking the Company. As you would expect, these are a lot of people to reorganize.

Fundamentally, this was a last step in the strategy. We're going to get people that have a lot more focus and accountability, right products, we are going to be able to make investments more effectively in those segments, and then convey them to our investors on the returns we expect. We think all of that will help accelerate the execution.

So, would you characterize the way you've repositioned the businesses? This is kind of perhaps an acceleration of the final step in the plan that was already contemplated, and already was kind of a work in progress?

Yes, we have been working -- exactly. We have been working on the re-segmentation for last year as we started transitioning me from Chief Operating Officer into the CEO role. Before, when I was Chief Operating Officer, we ran the business in a very different manner, but we had always had the strategy to move towards this more market focus.

If you look back on our calls, we talked a lot about our markets and the unique buying characteristics of our markets? If you look, the services piece from a professional services consulting piece, is very small in IFS. We don't have a lot of that type of revenue-driven. It's all outsourcing and highly leveraged products.

So we take a product, and we launch it many times. You know our traditional competitors in that space very well.

You move over into the global business; very different, right? Heavy headcount. A lot of advanced, professional services, consulting, with IP built into that process. It really is gotten us to the ultimate disposition of where we are taking the Company.

Now you will have the ability to really look at both of these groups against their true pure-play competitors, and see how they are performing against those. We are excited about the transparency this is going to drive, and the ability for these two market leaders to focus and invest and drive their businesses.

Okay. Thanks a lot. Appreciate it.

Thank you.

We will now turn the call over to Gary Norcross. Please go ahead.

Thank you for your questions today, and for your interest in FIS. We continue deliver revenue growth, fueled by significant reoccuring revenue streams and strong sales results. We are confident that the re-segmentation of our business will enable us to better leverage our technology, consulting, and managed services portfolio, to realize cost efficiencies within our own organization, as well as deliver true value to our clients within the unique markets we serve.

Together, with over 14,000 clients across the globe, FIS and our more than 42,000 employees are empowering the financial world. In closing, we are pleased to share more detail with you around our strategy and re-segmented operating model at our upcoming investor conference, scheduled for May 4th, in New York. We hope that you will be able to join us for this exciting event.