Fidelity National Information Services Inc (FIS) 2015 Q3 法說會逐字稿

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

(Operator Instructions)

As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Pete Gunnlaugsson. Please go ahead.

Thank you, Greg. Good morning, everyone, and welcome to our third quarter 2015 earnings conference call. Turning to slide 2, Gary Norcross, President and Chief Executive Officer will begin with a business summary. 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 at our website at FISGlobal.com.

Turning 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 non-GAAP results are provided in the attachments to the press release, and in the appendix of the supplemental slide presentation.

With that, I will turn the call over to Gary to discuss the third quarter business highlights on slide 4. Gary?

Thanks, Pete. Good morning, everyone, and thank you for joining us on today's call. I would like to start by giving you a strategic update on our business, starting with our pending acquisition of SunGard, which is a significant achievement and long-term value creator for FIS. We are excited about this acquisition because it drives immediate client and shareholder value and aligns with our long-term growth and performance goals. This combination allows us to address a wider array of client business needs with the broader set of expertise and intellectual property-based offerings in an adjacent and complementary financial services market. The combined company will be positioned as the clear leader in retail and wholesale financial technology globally.

We are also very excited about the shared opportunities it creates in our customer base, having independently received very positive feedback from our clients about this combination and the benefits it will provide to their organizations. It will bring new talent and leadership, which when combined with FIS drives us value as a much larger Company.

Ultimately, this combination will drive extended demand through the following ways, by capitalizing on a much broader capability set for our existing clients. In many instances, the two companies combined will be considered a very large existing provider to many global financial institutions. Second, by exposing FIS to a much broader market set such as asset managers and private equity firms, which will allow us to sell many of FIS existing products to those new prospects over time.

Currently, we have received all regulatory approvals, and are targeting closing the week of November 30. The teams of both companies have been working together since the announcement on integration planning. These efforts are producing solid line-of-sight to our long-term synergy targets, which we previously shared. We are pleased with the results to date. We are confident that our proven track record of integrating acquired assets, combined with our global delivery scale and financial strength will enable us to deliver on this value creation strategy.

Turning now to the quarter results on slide 5. Consolidated revenue was $1.6 billion, an increase of 3% on a constant currency basis which is below our expectations. We continue to see macroeconomic demand softening in our large and global financial institution clients, primarily in our people-based services.

Overall EBITDA was strong, at $530 million representing a 12% increase on a constant currency basis versus prior year. This earnest earnings growth, in a softer than expected revenue quarter, highlights the strength of our business model, and sound execution on managing and reducing our cost structure.

Our results continue to derive shareholder value, delivering adjusted earnings per share of $0.90, an increase of 15% on a constant currency basis. Our long-term client relationships, together with our global scale and operating leverage continue to drive highly recurring revenue and consistent profitable growth.

Our business model and execution generates strong free cash flow. In this quarter, we delivered $223 million of free cash flow, and returned $73 million to shareholders through dividends. Our integrated financial solutions segment continues to drive very strong reoccurring revenue, largely driven by our established community and regional bank business, and continues to produce industry-leading margins.

The long-term growth profile of this segment was enhanced this quarter by the addition of numerous new community banking clients who selected FIS as their new core banking provider. These core wins represent a 15% increase compared to the prior-year period. Each of these wins also included digital banking and/or payment capabilities, underscoring our solid position within the bank market as a leading strategic partner for end-to-end banking and payments solutions.

During the quarter, our digital solutions saw double-digit growth. Sales momentum has been strong year to date, but was partially offset by continued bank consolidation and price compression in this segment. The underlying fundamentals of the business are very strong.

Turning next to our global financial solutions business, we saw double-digit growth in Europe as our Clear2Pay solutions continue to perform, as well as our sales teams delivered high margin products sales in core banking and payments solutions. Deal closure in Asia-Pacific was robust. Our Asia-Pacific business continued its recent successes, driving double- digit growth. Our leadership team in the region has consistently delivered strong results over the last several years.

Through that leadership, we continue to expand relationships with existing clients through the same cross-sell and up-sell model that we established in our US domestic business. Deals within this region continue to be focused on our core banking and payments solutions.

Latin America continues to experience an overall tough macro-economic environment. Despite this, the underlying business drove low double-digit constant currency growth. In North America, results were impacted by the large nonrenewal of a nonstrategic contract disclosed earlier this year, coupled with the demand softness in our people-based professional services.

Turning next to slide 6. Before I turn the call over to Woody for the financial summary, I would like to reinforce that FIS is a Company that delivers consistent, long-term profit growth, and a solid track record of performance. Our four-point strategy reviewed in this year's Investor Day material centers around driving shareholder value.

First, we are expanding client relationships across through cross-sell up-sell actions evidenced by our double-digit product sales in digital and wealth solutions, and expanded client relationships through our new core wins. Second, we are expanding our solutions and client value propositions through our Build by Partner model, as evidenced by our strategic SunGard acquisition. Third, we are driving continued operating leverage and margin expansion through our highly recurring revenue model, leveraging our scale and broad product scope. And fourth, our capital allocation discipline is allowing us to invest for growth, maintain a flexible but solid balance sheet, and return capital to shareholders.

We are confident that the strategic direction to drive growth in global markets is the right strategy for long-term earnings growth and shareholder value. With that, I'd like to turn it over to Woody for additional detail on the financial results of the quarter. Woody?

Thanks, Gary. I will begin on slide 8, with a summary of our consolidated results for the quarter. In the third quarter, consolidated revenue was $1.6 billion, increasing 3% on a constant currency basis. EBITDA was $530 million, increasing 9% as reported, and 12% on a constant currency basis. EBITDA margin expanded 320 basis points to 33.6%.

In the quarter, foreign currency translation negatively impacted revenue by $71 million, and EBITDA by $15 million. Year-to-date foreign currency negatively impacted revenue by $180 million, EBITDA by $33 million, and earnings per share by $0.06. As Gary indicated, we are experiencing macro-economic headwinds in our business. These headwinds impact our clients, and affect the amount they spend with us for our people-based services. Therefore, we have proactively taken cost out of the business, pulling additional variable cost levers where performance did not meet expectations. We will continue to monitor the global environment, and adjust our cost structure accordingly.

Non-GAAP adjusted net earnings from continuing operations were $255 million for the quarter, and $652 million for the first nine months of 2015. Adjusted earnings per share were $0.90 for the third quarter, an increase of 12.5%, or 15% on a constant currency basis. We suspended share repurchase beginning in May, based on our discussions with SunGard which resulted in a negative impact on EPS of $0.01 per share for the quarter. Non-GAAP results for the quarter are adjusted to exclude acquisition-related purchase price amortization of $0.12 per share, merger acquisition, integration and severance cost of $0.12 segment per share, and the tax impact from the divesture of our gaming assets of $0.03 per share.

I will continue on slide 9 for the third-quarter segment results. In the third quarter, integrated financial solutions revenue was $971 million, which was up 1% compared to the prior year. The underlying IF business fundamentals remain sound. Revenue grew 4% after normalizing for divestitures, and the change with the loyalty vendor we previously discussed.

EBITDA increased 6% to $408 million. EBITDA margins increased 200 basis points to 42% for the quarter, and 40% for the first nine months of 2015. This margin expansion speaks to our ability to manage and adjust our variable cost structure in reaction to top line growth trends and performance. IFS margins also benefited from $20 million in term fees, which was in line with our guidance earlier this year.

Turning to slide 10. Our payment solutions revenue was $403 million, down 1% for the quarter. This was negatively impacted by the change with a loyalty vendor, and a divesture in the second quarter. Absent these changes, payment solutions grew 3% for the quarter.

Business solutions revenue was $280 million, and grew 2% compared to the prior year. Business solutions grew 9% for the quarter, after eliminating the effect of the divestiture of our gaming business. For the first nine months of the year, business solutions revenue was $845 million, up 4% compared to prior year.

Banking solutions revenue was $287 million, and grew 2% compared to the prior year. For the first nine months of the year, banking solutions revenue was $843 million, up 5% compared to the prior year.

Turning to slide 11. In the third quarter, global financial solutions revenue reported $609 million, representing a 5% decline over the prior year. On a constant currency basis, GFS revenue grew 6% for the quarter, and 7% for the first nine months of the year. Global financial solutions EBITDA was $157 million on a reported basis or $174 million, a 23% increase on a constant currency basis. EBITDA margins were 25.8%, compared to 22% in the prior-year period. This expansion is primarily driven by restructuring and resegmentation cost actions disclosed earlier in the year, and also higher margin product sales in our international regions.

Moving to slide 12. For the third quarter, North America produced revenues of $268 million, compared to $289 million in the prior-year period. Europe grew 17% on a constant currency basis to $220 million, driven primarily by growth in our Clear2Pay business. Without Clear2Pay, Europe grew 5% in the quarter, and 7% year to date on a constant currency basis.

Latin America revenue grew 11% on a constant currency basis to $120 million for the quarter, and reflects an easy comparison to the prior year. We anticipate growth in Latin America to continue to be muted over the coming quarters, based primarily on economic conditions in Brazil. Asia-Pacific continued its strong performance at 27% on a constant currency basis.

Corporate expenses were $35 million for the quarter, driven by diligent cost management. The effective tax rate was 32.8% for the quarter, compared to 31.2% in the prior-year period. The prior-year period included a discrete tax benefit of approximately $9 million. As of September 30, our weighted average interest rate on our existing debt was 3%. Our debt to adjusted EBITDA leverage was 2.6 times.

Moving to slide 13. On October 13, we announced and completed the issuance of $4.5 billion in senior notes, and have received commitments for $1.5 billion in new term loans. This was done in anticipation of closing the SunGard transaction in the fourth quarter. The remainder of the cash proceeds necessary to facilitate closing the transaction and retiring the existing SunGard debt will come in the form of borrowings under our existing revolver. We anticipate retiring existing SunGard debt at, or shortly following the transaction closing date.

We continue to reinvest in the business. Adjusted cash flow from operations totaled $310 million in the third quarter of 2015. Capital expenditures in the quarter totaled $87 million, resulting in free cash flow of $223 million for the quarter. For the year, we expect CapEx to be slightly higher than our normal 6%. We still anticipate full-year free cash flow to roughly approximate net earnings.

We returned $73 million to shareholders through dividends. We suspended our share repurchase program due to the pending SunGard transaction. Post-closing, we will be highly focused on paying down debt, and delevering the balance sheet.

Moving on to slide 14 for my concluding remarks. For the year, we expect our reported revenue growth to be flat, as we continue to see significant negative foreign currency translation headwinds. Revenue growth in constant currency is expected to be approximately 3%. An overall slowdown in global market spending is resulting in softer demand for people-based services, particularly in our GFS segment.

As noted in the quarter, we continue to adjust our variable cost structure, in reaction to revenue softness, to drive earnings growth in difficult market conditions. Our EPS guidance for the year will be below the low end of our previous guidance due to the following, the suspension of the share repurchases since May related to our discussion activities with SunGard, and the carrying cost of the incremental $4.5 billion in debt issued in October 20 in anticipation of the SunGard transaction. We are looking forward to closing the SunGard deal, and excited about the prospects it brings.

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

(Operator Instructions)

Your first question comes from the line of Dave Koning. Please go ahead.

Yes, hey, guys. I guess, first of all --

Hi, David.

Yes, thanks. I guess, first of all, on the GFS segment, was any of the weakness -- it sounds like of most of it's in the people-based business -- was any of it due to any contracts getting pushed out anymore? Is mean, is everything on pace now? And then secondly, into next year now, do you expect that to resume better growth, as we look into next year, back to more normalized levels?

Dave, we will give you guidance next year after the fourth quarter call. But we continue to see softness, as you mentioned in the people-based businesses. Our projects are back on track, the one we mentioned earlier. And so in fact, I met with the team, with the Board of that institution a couple of months ago, so things are going much better there. But we are seeing, just our large global banks tighten down their spend, on various professional services and various engagements.

So while our consulting business is still growing, we're seeing some slowness in our consulting business in a couple of areas, and then even in our application professional services business. But it's primarily geared in the global banks. IFS, you continue to see good strong growth there, once you adjust it for the divestitures. Obviously, that group has been impacted heavily through the acquisition consolidation, but the team has done a nice job of selling through that.

Okay. In the professional service is a little lower margin anyway, so I mean, you hate to lose it, but at the same time, the mix shift probably helps margins a little bit.

That's true, Dave. I think the mix shift actually helps margin. You don't want to lose the revenue and the ultimate EBITDA contribution. Conversely though, you are able to proactively react on your variable costs, as it is a people-based business. So to the extent you've got some softness, you can protect profitability.

Okay. And then finally, you said reported revenue is flat. That did not include SunGard -- I would imagine if you have SunGard in the last month of the year, maybe $250 million of revs, or something like that I think in addition, right?

Yes, I mean, it does not include anything associated with SunGard. We'll address that, when we actually close the transaction. What it does include, not only revenue side, but the EPS side, it does include the activities we have taken in anticipation of the SunGard transaction. Again, halting share repurchases since May, and carrying the $4.5 billion of debt that we anticipate needing to close the transaction. But the revenue growth you outlined, or I outlined does not include anything associated with SunGard.

Okay. Great. Thank you.

Thank you.

You're next question comes from the line of David Togut. Please go ahead.

Thank you. Good morning, Woody and Gary.

Good morning, David.

Gary, you mentioned that you're very excited about the progress on the SunGard transaction. Can you give us a progress update? Since you announced this a few months ago, specifically you called out at that time $100 million target cost savings run rate by year-end 2016, $200 [million] by year end 2017. Where do you stand on those targets, based on incremental three months of work on SunGard?

Yes, Dave, it's a great question. As you would imagine when you go through due diligence, you do a lot of your analysis on synergy take-outs, for more of a top-down approach in due diligence. Since the signing, we have been able to get our teams together, especially on a lot of corporate sides on the non-client facing areas, and really been doing a much more thorough bottoms-up. We've formed a dedicated integration team. There's been tremendous progress, as the leadership's from both companies have come together and worked through the various integration strategies.

As you remember back when we did the large Metavante deal, it's all about for us hitting the ground running. So for us, we feel very good about our guidance that we have given on cost take-out, line of sight of that. We've got time frames of deployment. We feel comfortable on our $100 million commitment for next year. And certainly, we're in the process of implementing those plans, and we continue to do more bottoms up analysis. So very early days, we haven't even closed yet. But I would say, we are in extremely good shape at this point in the transaction, with regards to how we are going to integrate the companies, what the synergies opportunities are, and where they are, and then we've got to go execute on them.

Do you intend to make any changes to the sales force? In other words, structurally, are there any changes required to generate significant cross-selling, or do you just leave the existing teams in place?

I think it's early on that page. That's usually the last step that we go through, because we need to get through our regulatory approvals, and get the transaction closed. But right now, there will be no plans to make any changes. We think there are some opportunities outside the US to leverage our go-to-market strategies and leadership with their to go-to-market strategies and leadership. We don't want to have redundant country managers, for example.

So we want to make sure that we have direct line of sight to be able to call on those clients in a very cohesive way. But when we look at where the product solutions fall, what's very nice is how SunGard really breaks us into a lot of adjacent markets. And frankly, we're actually seeing product sales in some of those markets SunGard is in, growing a little faster in some of the markets we are in. So we think there's a real opportunity for the sales forces to come together on a complementary fashion, and we would expect to see some nice traction of that post close.

Understood. And just finally, you called out strength in product sales in GFS, which is a reversal from what we saw earlier in the year. Can you provide a little more detail on what's driving that strength, and to what extent it's sustainable into 4Q and beyond?

Yes, this year has been a really interesting year for us, with regards to product sales in our global markets. We've seen delays in deals. And obviously, Woody talked about all the currency headwinds that I think are driving the impact in the macro-economic issues that are driving some of those decisions. But in Europe, for example, we saw a really good traction run of Clear2Pay solutions this quarter. We also saw another new signing of a new challenger bank that we've talked about, so that's exciting to get that on contract and moving forward. So the team continues to do a nice job of selling against the challenger banks that are going on in the UK.

In Asia, we saw great traction around, not only core banking, but also around payments as well, with some expansion in some instances, but many new instances, new logos coming up. Frankly, the growth what we saw in Brazil was not product-related, it was more of an easy comp. But we did see some traction around our cards process and transaction process in that country.

Got it. Thank you very much.

Thank you, David.

Your next question comes from the line of Georgios Mihalos. Please go ahead.

Great. Thanks for taking my questions. Maybe just sort of start off on a housekeeping item. Can you break out what the inorganic growth was in the quarter? And then as we think about some of the weakness that you called out, on the consulting side that really seems to be, I guess, looking at the charts you have here focused on the large global banks. It seems like in Europe, that business continues to do well. Is that the case?

The biggest component, George, on inorganic would be the delta in Europe, from our Clear2Pay primarily where we talked about 17% versus 5%. Reliance Trust we've anniversaryed. We picked that one up in early third quarter last year, so really anniversaryed that. You can see that in the delta in the banking solutions growth of 5% for the year, versus 2% for the quarter. So your really -- the biggest component would be the Clear2Pay acquisition, and from an organic anniversarying standpoint.

Okay. And then, as it relates to the weakness that you're seeing in consulting, is that translating over in Europe as well? Or is it really more sort of the global US banks here?

Yes. No, we are seeing, on the consulting side, our consulting group is still growing. It's just not growing as fast as it's traditionally been. So the team's doing a nice job. As you said, we continue to see strength in Europe. It's more on the large global institutions in North America where we're seeing some softening. But overall, our consulting business just to be very clear, is still growing quite nicely. It's just not at the rate that it has been in the past.

Okay. I appreciate that color, Gary. And then, just two quick follow-ons. You talked about consolidation in the banking space having an impact. Obviously, we've got the announcement of New York Community Bank and Astoria Financial, coming together. Maybe if you could comment as to what that might mean for FIS And then sort of as a follow on to that, are you seeing more of an opportunity for the NYCE network, with pinless debit and the like going forward?

Yes, the New York Community Bank Astoria deal, as you would imagine now in the US, it's hard to find a financial institution that's not a client of FIS at this point in time. So we've got good relationships with both those institutions. It's still very early to know what that's going to mean for FIS.

I'm sure we'll get heavily involved in the combination at some point in time. So more to come on that, as they work through their regulatory filings and come to closure. That's where that one falls.

Your next question comes --

Oh, and I'm sorry -- you also asked about the NYCE opportunity. I didn't write that one down. NYCE opportunity, we do see good opportunity growth in NYCE. Is pinless debit payment playing a role in that? We would say there is some evidence of that occurring, but we continue to see good solid growth in their network.

Your next questions comes from the line of Brett Huff Please go ahead.

Good morning, guys.

Good morning, Brett.

Two questions. One is, can you give us an update -- I think there were some large GFS outsourcing deals kind of rolling around in the pipeline. Can you give us an update on those, and where they are in terms of closing? And did any delays in those contribute to some of the revenue guidance changes that you announced today?

No, we continue to make good progress on a number of the large transactions you mentioned, Brett, but we wouldn't attribute that to the delays. Frankly, it just continues to be more macro-economic in nature. I would say in general, we've seen deals push and some get pulled into the quarters, which is a little more erratic than obviously what we've seen in past years. But we're -- it's really more in our short-term professional services engagements, where people can reduce that spend very quickly, due to an impact on their side for whatever reason where they're tightening their belt. So we're seeing more of that occur, and that's really where we're seeing the softening.

Okay. And then just a quick follow up on that softening. You mentioned that mostly North American global banks are the source of that. Is there a specific general driver for some of these banks, or is it companies -- or bank by bank specific, that's kind of making these banks change their tune a little bit on the short-term projects?

Yes, I wouldn't tell you that I would see anything that -- I think it's more bank by bank. I think everybody is under differing expense control initiatives. And as they are evaluating long-term projects, they are just coming in and out of those long-term projects, based on what's going on in their particular bank.

Great. All right. Thank you.

Your next question comes from the line of Darrin Peller. Please go ahead.

Thanks guys. Look, I mean, overall looking at your broad metrics, it looks like your businesses generally did pretty well outside of this one area. And so, I mean, this area seems like -- if it's enough to drive a decline in your guidance by a couple hundred basis points of growth, I think it's pretty -- it would be helpful for us if you could size it, right? I mean, in terms of -- I understand you said 17% of your GFS is people-based services or whatnot. But more specific to what actually is the area that you're seeing having pressure, maybe it's the banks in North America or what? But if you can give us a little color on how big that specific part of it is, and if we should expect this to be a headwind for a while or not? And if not, I mean -- either way, just help us quantify what kind of impact this could be in the next few quarters?

Yes, if you look at GFS, professional service is about 30% of the number. So for the quarter that would be around a 100 -- about $200 million. If you look at that, that seems to be where we're seeing most of the softness there. It's both in North America, at the big banks, but also outside the US in a big banks as well. So if you look at that, we are seeing -- that is the area where we are seeing the softness in the demand.

We've seen it probably through the first quarter. You saw us take some cost action. You've seen some of the second quarter, and much more really in the third quarter. So we do see that as sort of the global sluggishness for professional services consulting demand. And for the moment, we're seeing that carry into 2016 right now. We're not giving full 2016 guidance right now, but we are definitely seeing that the global sluggishness in the economy impacting those demand drivers for people-based services.

So what was (multiple speakers)

(multiple speakers) will have an impact.

Is there a way to quantify the actual growth rate of that 30%?

Yes, I mean, I would tell you the growth rate around the 30% was more in the low single-digits this quarter, where we had seen the growing strong double-digits for a while. So definitely had an impact in terms of the overall growth rate, and we are seeing that flow into at least the fourth-quarter outlook, driving the delta in the guidance around the constant currency revenue growth.

Yes. And I have to ask, just because again, it looks like the rest of your business is doing pretty well. So there's demand among these -- some of these same clients, and there is also demand among some of your competitors in the IP services space for financial, given the -- some of the trends we see from Accenture and Cognizant and others. I guess, I just wonder if this is a market share question, or is it anything specific to your -- a few specific clients, or something on your services that need investing or what?

No, Darrin, I don't think we're seeing anything -- that as Woody mentioned in the prepared remarks, we continue to invest efficiently on our capital, and invest in our businesses and products to help them grow. We have seen some combination impact, but I agree with you, the underlying businesses are running well. When you're dealing with short-term professional services businesses, you're going to see some headwinds that can come from time to time due to macro-economic issues, because that's typically one of the first things that our clients slow their spending on.

We've seen this before in these businesses. As I've said, it's highlighted a little bit because we've had some consolidation issues around acquisitions, and so we've had to grow through those. But we don't see any glaring issues in the product suite today. We continue to see our consulting business grow. It's just not growing as fast, as it has in the past. And as Woody said, even our PES business is growing. It's just not growing as fast as it has in the past, and therefore costing us a headwind. But to Woody's point, we do see it progressing into Q4, and it looks like it's going to progress into 2016.

Okay. And then, just on the margin side, I mean, you actually had pretty strong margins on the quarter, year-over-year expansion, and some of it is despite some of the lower trends on the revenue side. And so, just give us some color. I know you made some, you said you took some actions to keep the margin where you want it to be, and therefore met, your earnings ended up being more or less in line. In terms of sustainability into these new margin levels, is this something we can count going forward?

Yes, I think you got some impact again from term fees in the quarter, as we been talking about a lot this year, in terms of the lumpiness around that. We did see what we anticipated in term fees in the third quarter, which had some positive impact on the margin side. The cost-actions themselves were probably another 50 basis points on top of the term fees. So we will anticipate seeing some of that benefit flowing through, as well when we capture some of the synergy costs associated with SunGard, we'll see some net benefit on the margin profile. But at this level, we don't anticipate this level of increase on a recurring basis there.

Okay. All right. And then, just as an update, again I know you mentioned SunGard timing-wise, is still expected for the year. I know that's pretty transformational as well, right? There's nothing in that -- or in your current trends organically that you should have any impact on your business and integration with SunGard, just to be clear?

No. We don't have anything there. Again, the delta would be just specific items we have had -- actions associated with to date in anticipation of the transaction, but nothing beyond that.

Yes, both parties as you would imagine, have been gearing up to align the Company, so that we can come together on integrated fashion on the week of November 30, when we close.

Okay. Very good. Thanks, guys.

Thanks.

Your next question come from the line of Tien-Tsin Huang. Please go ahead.

Great. Thanks. Good morning. I just want to stay with Darrin's lines of questions on professional services. Just to be clear, did you see a lot of projects this year simply wind down and sort of reach end of life, and you're looking to replenish the pipeline, and has the demand sort of shifted from maybe security and compliance -- some of your other areas of strength, and are they simply changing now? And you need to again, replenish and build new solutions? Just curious what the plan of attack is there?

Yes, I think it's a little bit of all of the above, Tien-tsin. I mean, what we saw, we definitely saw a couple of projects wind down in risk and security. We had a very large one last year that wound down. We've had another one that's ramped up, but there's been a lag period in that.

We've also seen a fairly significant combination of two financial institutions. And then, that ongoing professional service work has wound down because of that combination, and they're going through their cost-cutting initiatives. So it's really a little bit of all of the above.

We're also seeing strength though in replenishing those. We've seen a -- as I've mentioned on the risk and security side, we had a very large one last year that ran through the course. We've now replenished it, with one that's larger. But it's in the process of ramping up both over that -- over the next 12 months. And so, it's a little bit of all of it going on.

Okay. No, that's good to know. So just last one on this one. Just the cost actions you're taking, is that just a compensation sort of play, or a change in hiring plans, or actually looking to reduce headcount?

Well, as we look here, look, we built all of our plans to be shareholder relevant, right? So we focus on shareholder value, and what we are realizing is the nice thing about our business is, we do have cost levers that we can pull. So as Woody's has pointed out earlier, as we see some softness in PS, we're going to reduce that headcount down in alignment of it. We're also gearing up, as I mentioned just earlier to Darrin, we want to make sure that our two companies are aligned, so that when we close on SunGard, the week of November 30, right, we are able to put those together pretty cleanly as well. So it's a combination of both. But what you've seen at FIS over the years is, as we are monitoring what's going on in our revenue stream, as we are monitoring what's going on in our pipeline and closing, we're adjusting those cost levers to most effectively drive shareholder value.

Yes. No, I am sure that is the case. Just two more quick ones, if you don't mind. Just IFS, just I want to clarify the pricing compression. How broad based, or was that comment more related to the consolidated clients?

I think we continue to see price compression in the market. We've talked about it for years. In some instances, I would say it's accelerating a little bit. We're also seeing a lot of consolidation. But in the IFS market, it's a very competitive market. I think fundamentals of that business, and the team executing that business continued to perform very well, giving those economic issues. But it's very competitive in that market.

Tien-tsin, just to add on that. I think we have seen some pretty heavy price compression from the monoline employers coming in against the payment products set, as they've competed against us on price heavily there.

Great color. Last one, if you don't mind just, thanks for taking my questions. Just on MCX, any update there? I know the pilot is out, and you have the news with Chase paying whatnot? So any update? Thank you.

Well, it's still too early to say what that's going to mean for us. We were glad to see the announcement, and we think it bring some traction to MCX. As you said, they've appeared to make good progress through the pilot. As we mentioned earlier, we are in our minimums period now. That started in October. And so at this point, we're going to continue to monitor MCX and see what happens. But we do think the announcement -- we were glad to see that MCX is back in the news. And hopefully, it drives some significant transaction growth over the years.

Thanks as always.

Thank you.

Your next question comes from the line of Ramsey El-Assal. Please go ahead.

Hi guys. A quick follow-up on Tien-tsin question. So just to be clear on the Chase pay announcement, those transactions ride on a completely separate set of rails. They don't -- they are not transported across your network in any way? Or you don't play a role on the backend there for the Chase pay system?

Yes. At this point, we don't know exactly how it's all going to work, but yes, we are assuming that's true.

To be specific, Ramsey, we don't anticipate Chase pay, right now based on preliminary information to be a significant tailwind for revenue. Correct.

Okay. I had a question about your non-US exposure, and how that changes and evolves with SunGard. Could you remind us of the total percentage of non-US revenue pro forma for SunGard? And then also, just provide a little color about whether your mix of currency exposures or markets have that kind of changes? Is the incremental exposure in places like Latin America or Asia that could be better or worse for the macro, when looking at your business in the context of macro headwinds?

I will try to add some color. We spent a little bit of time with that, at the announcement day deck, and I think there are some slides that might be helpful. SunGard is about 36% of their revenue is outside the US. For us, for FIS it's about 22% combined, based on the scale of the two models. It'll be about 25% outside the US.

In terms of where it is, they have a more significant presence in Europe, which is complementary to where we are from a size perspective. They have a small Latin America presence, where we have a pretty large Latin America presence. And to be clear, that's probably one of the most significant macro-economic headwinds that we've got, where currency for Brazil was down 17% since July, since we announced previously. So we've got pretty good exposure there, from terms of revenue growth. They do have a significant presence in Asia-Pacific, but it's blended across a number of different countries. So hopefully that will add -- give you some color as to where it's at. Net-net, it should increase our international exposure around 4% to 5%.

Okay, great. That's very helpful. And just quickly and lastly for me, I saw the announcement, with the clearinghouse using your real-time payment system to provide a real-time capability that they can market effectively. Can you walk us through sort of the impact of that announcement? Do you anticipate that being -- it seems like clearinghouse as a private ACH switch, would touch a lot of banks, and push a lot of volume. Is that a business opportunity, you think has some -- will make an impact on your numbers going forward? Or just a little color there would be appreciated?

Well, we are excited about the clearinghouse relationship, as we are with any sale. I think it's early to talk about the tailwind that it might provide on our revenue stream. But certainly, we are going to be working very closely with them, to move real-time payments into their environment, and we'll bring more to bear on that as the project moves along.

All right. Fair enough. Thanks a lot, guys.

All right. Thank you.

And your final question comes from the line of Andrew Jeffrey. Please go ahead.

Thanks for taking the question. Again, on the services side of your business, just trying to understand a little bit also whether or not from a demand challenges you are seeing perhaps are more structural from a regulatory perspective, as opposed to cyclical? And as a corollary, when you look at SunGard and SunGard (inaudible) [in terms of its go-to-market], does that alter your thinking at all from a strategic perspective?

Andrew, your second question came through very garbled on the second half of the question. I think your first part of the question was, services related to macro-economic trends or more around regulatory influence, I think was the first part of your question. But your (multiple speakers).

Right. As a follow up, right, does -- to the extent there is a regulatory, more structural component to challenges within services demand, does that affect your thinking on SunGard at all, and maybe change the strategic go-to-market in any way?

Yes, so let me address the first. I think obviously, we continue to see increased regulatory demand across the globe. And that's not only in large financial institutions, that's even in community and regional institutions. So certainly regulatory is a top-of-the -mind conversation in any engagement we have today, and we're obviously seeing that influence demand across the board. Do I think regulatory is specifically related to some of the professional service slowness that we're seeing?

I don't, at this point in time. I think it's much more just a macro-economic an issue. And I think some of our larger institutions, you see them announcing all the time, big cost-cutting initiatives et cetera. And I think they are looking for ways to do that.

When you look at SunGard, I don't think it changes the way we think about our go-to-market. SunGard is much more IP-centric, very much like traditionally FIS. But they don't have as large of a PS business as what we're seeing in the global. So it's going to be complementary, so it might dilute some of our professional services percentages in the aggregate. But we're going to be very focused on bringing world-class wholesale products to market. And so, combining that with our go-to-market sales force, we think the combination will be very beneficial.

Okay. And with regard to a fourth-quarter budget flush, and there's lots of moving parts in your numbers. I know that something that's historically been something to anticipate or think about. Is your guidance suggesting that there isn't a technology spend flush at some of your bigger banks in the fourth quarter this year?

No. I don't think that's the case. I think the typical trends that we've seen in terms of fourth-quarter will continue, however, the softness in the PS will mute that down. That coupled with currency, are going to keep us at that sort of flat level. We will be below what we anticipated in terms of constant currency. But again, I think that's primarily PS related, and not associated with capital budget spending, or ultimately flush in capital budgets. So the product business, the underlying business, as you kind have heard most of us, still continues to be relatively robust, or operating effectively, just seeing some softness in the professional services side.

Okay, thanks.

Thank you for your questions today, and for your continued interest in FIS. I would like summarize by saying that we believe in our business strategy. It's a long-term strategy that has consistently driven year-over-year performance results over the last several years. Our deep focus in investment and financial services is allowing us to lead change in the industry.

We offer the solutions and services that are making our clients businesses run efficiently, while at the same time providing them the opportunity to grow and differentiate themselves in an ever more competitive and strenuous regulatory environment. I would like to thank our clients for their loyalty, and the more than 42,000 employees around the world who are committed to serving and empowering those clients each and every day. And I look forward to welcoming the employees of SunGard to our combined company in a few weeks.