Fidelity National Information Services Inc (FIS) 2015 Q4 法說會逐字稿

Ladies and gentlemen, thank you for standing by. Welcome to the FIS fourth-quarter year-end 2015 earnings conference call.

(Operator Instructions)

As a reminder, today's conference is being recorded. I would now like turn the conference over to our host, Mr. Pete Gunnlaugsson. Please go ahead.

Thank you, Brad. Good morning, everyone, and welcome to our fourth-quarter and full year 2015 earnings 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 and the full-year. Today's news release and the supplemental slide presentation are available on 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.

Turning to slide 4, I will turn the call over to Gary to discuss the business highlights. Gary?

Thank you, Pete. Good morning, everyone, and thank you for joining us on today's call. I am pleased to report that we exited 2015 with solid momentum, as the teams focused on execution and driving further improvements in our cost structure and overall performance, delivering continued earnings growth. We are in the right markets, empowering our clients of all sizes, whether here in the US with community and regional banks or globally. Our long-term strategy has consistently driven year-over-year performance results, and we remain committed to our strategy.

Turning to slide 5. We continued to build global scale in 2015, finalizing our acquisition of SunGard, and finishing the year with revenue increasing 7% on a constant currency basis to $6.6 billion, growing adjusted EBITDA 8% on a constant currency basis to $2 billion, and producing adjusted earnings per share of 6% on a constant currency basis to $3.22. We generated $921 million in free cash flow, and returned $605 million to shareholders. Strategically, we are investing in the business to deliver long-term growth and superior shareholder returns.

We are entering 2016 focused on three growth drivers. First, the acquisition of SunGard broadens our solution portfolio, allowing us to expand into new and adjacent markets and provide deeper value to our clients. Second, we will continue to capitalize on our expanded scale, operating leverage, and our disciplined integration to drive earnings growth. Third, our strong cash flow generation allows us to invest for growth and return capital to shareholders.

Turning to slide 6. Our SunGard acquisition which closed on November 30, is a meaningful value creator for FIS. As we have discussed in the past, the industry is continuing to move towards fewer providers, due to the complexity of solutions and regulatory oversight. As a result, our strategy has been to continue to expand our broad array of IP-led products built for the financial services industry, augmented with the right transformation services components needed to bridge the gap between these complex systems and the new digital age.

The SunGard acquisition is another key component in implementing this overall strategy. In addition to opening complementary new markets, this combination positively impacts our revenue mix, creating a more profitable, product-centric revenue base, and the ability to accelerate margin expansion by implementing our leading go-to-market delivery approach, as well as significant cost savings around administration and technology expenses. This acquisition expands us beyond our traditional retail banking and payments footprint into the institutional and wholesale side of financial institutions, as well as other buy side organizations.

On a combined basis, our share of wallet with our common global clients increased dramatically due to this combination, allowing us to become a more strategic solution provider. This comment has been substantiated multiple times over the last 60 days, as we have engaged with many of our global clients regarding the combination.

The benefits of the transaction do not stop with our global banks. It also significantly expand our existing solutions and client base in wealth management, treasury, and corporate payments. These are in high demand among our regional and community institutions, and has been a significant focus area for FIS, as our clients look for ways to replace their fee revenue due to continuing regulatory change and increased oversight.

As we look at the December results for SunGard, we are pleased with the momentum the sales organization maintained throughout the month, and are also pleased with the health of the overall pipeline that we acquired. While still early, we are also excited about how the sales teams are collaborating and building further opportunities within our robust client set, which further substantiates the strategy on why we put these two companies together.

Finally, this transaction brings a very strong talent and increased leadership to FIS with market specific expertise. This further positions FIS as the clear leader in financial technology globally, strengthening our ability to deliver for our clients, and help them grow their business.

Turning to slide 7. Based on the significant strategic rationale discussed, the cultural alignment has been equally strong, given both Company's DNA is centered on developed products for financial services. This cultural alignment has allowed us to accelerate our integration efforts, and we are very pleased with our initial progress integrating these two great companies. For example, we have already rolled out a streamlined organizational structure, transitioned our North American payroll and benefits plans, and completed the rollout of the rebranding of SunGard.

Given our current pace and results to date, we are ahead of schedule to exit 2016 at our synergy run rate goal of $100 million, and are confident in our ability to exit 2017 with a synergy run rate of $200 million. FIS has a proven track record of meeting or exceeding our synergy targets, and based on progress to date, this record will continue.

While that wraps up my comments regarding the strategy and integration of SunGard, the Company had other notable successes in support of our growth. I would like to spend a few minutes discussing some of these key results.

Turn to slide 8 to review the segment highlights. Our integrated financial solutions business continued to cross-sell and up-sell additional products and services to our North American client base, leveraging the strength of our [full] portfolio. And particular, we saw continued demand for our digital solutions, wealth and card production in institutions of all sizes. In addition, we expanded our relationship with large online retailer in the fourth quarter, resulting in double-digit growth in our high-margin network services business.

Our mobile business continues its industry-leading position, growing its number of registered users by 19% year-over-year, and delivering 27% year-over-year growth in our hosted service model. Overall, our digital finance suite grew to greater than $250 million in revenues, at margins greater than 40%.

Card production increased 12% to 112 million cards inclusive of mag stripe and the EMV. The EMV grew sequentially 15% from Q3 to Q4 in 2015, resulting in a full-year production of 12.5 million EMV cards.

We continued to build traction among mid tier and community institutions, signing several new long-term core processing partnerships in the quarter and full year. The success we saw in core processing signings for the year was almost double the number of deals in 2014. These wins in 2015 create positive benefits for 2016 and beyond.

Also in the quarter, we signed a bank with assets greater than $200 billion to consolidate its debit processing and associated fraud-related services. The decision was driven by the bank's desire to improve operating efficiencies and increase service flexibility, with a common solution across its expansive retail and direct bank business. This significant multi-year agreement demonstrates FIS strength in serving the payment needs of institutions of all sizes around the world.

2015 was a transition year for global financial solutions business. We responded to the challenges presented to us in the year, whether they were due to global economic issues, overall softness in market demand for people-based services or execution. We made leadership changes to address execution issues, and refocus the impacted businesses.

Regarding our consulting business, Capco, we are seeing progress in building our pipeline for consultative deals, but continue to expect a slow recovery in the first half of 2016, with increased performance in the back half of the year. As we discussed in the strategic rationale for SunGard, our non-product led businesses now make up less than 10% of our total revenue. Globally, our Clear2Pay business showed very strong momentum, growing over 20% for the full year, fueled by solid demand for real-time payments, and our clear competitive differentiation in this space. We acquired Clear2Pay in 2014, with the strategic view of the market's direction, and it is another illustration of how disciplined acquisitions and careful integration can enhance our client value proposition and earnings growth profile.

During the quarter, our GFS segment signed a bank in North America with assets greater than $100 billion to a new multi-year agreement for a new direct bank, providing an end-to-end integrated solution for core banking, fraud solutions, back office and call center services. This key win underscores our ability to deliver innovative technology solutions that empower our clients to better serve their customers in today's digital age.

In Brazil, we were encouraged to see one of our key clients pursue the purchase of a large card portfolio, expanding their franchise for future growth, even in the difficult macroeconomic environment. This acquisition expands our ongoing business in Brazil, and we are already seeing the benefit in our revenue stream, as we provide professional services expertise to onboard these accounts in the back half of the year.

In Europe, we continued to show positive sales momentum especially in the UK and Germany, where we saw important wins across the year that will fuel continued growth in 2016. Our strategy within the region is building momentum around our expanding relationships, by leveraging existing strengths within the FIS and SunGard portfolios.

We are making strong progress on the Sainsbury engagement. We have recently delivered the new bank platform which is a key milestone in the project. Testing is underway, and we now plan to start to migrate customers onto the new platform later this year. We are proud of our partnership with this client, and we look forward to empowering them as our strategic technology partner over the next decade.

We also signed the first all-digital bank in the UK, as we help this client prepare for their upcoming launch in 2016. Asia continued to have strong growth throughout 2015, and we are pleased that the SunGard acquisition more than doubles our sales force in the region, which allows us to continue to address the demand for FIS products and services throughout the high-growth region.

Turning next to slide 9. Before I turn the call over to Woody for the financial review, I would like to summarize by emphasizing that our competitive positioning is strong, and our long-term earnings growth story remains intact. To meet our 2016 growth and financial performance goals, we will continue to focus on driving profitable growth, maintaining a strong balance sheet, returning cash to shareholders, and continued acceleration of our integration efforts.

With that, and I would like to turn it over to Woody for additional detail on how the financial results for the quarter and full year. Woody?

Thanks, Gary. I will begin on slide 11, with a summary of our consolidated results for the quarter, and then for the full year of 2015. The fourth-quarter and full-year results include the impact of the SunGard transaction which closed on November 30. Those results are reported in the GFS segment.

Today, unless otherwise specified, I will be referencing percentage changes in our metrics on a constant currency basis. Also reconciliations of non-GAAP measures can be found in our press release and in our earnings deck, which is posted on the Investor Relations page of our website.

In the fourth quarter, revenue increased to $1.9 billion or 18%, and adjusted EBITDA increased 21% to $624 million. Adjusted net earnings from continuing operations increased 13% to $278 million, and adjusted earnings per share was $0.93. In the quarter, foreign currency translation negatively impacted revenue by $63 million, EBITDA by $12 million, and earnings per share by $0.02.

For the year, revenue increased 7% to $6.6 billion, and adjusted EBITDA increased 8% to $2 billion. Adjusted net earnings from continuing operations increased to $930 million, a 6% increase, and adjusted earnings per share was $3.22. For the year, foreign currency translation negatively impacted revenue by $243 million, EBITDA by $45 million, and earnings per share by $0.07.

I will now continue on slide 12 for segment results. In the fourth quarter, integrated financial solutions revenue grew 4.4% on a normalized basis to $1 billion. EBITDA was 3% -- EBITDA increased 3% to $405 million, compared to the prior-year period. We are pleased with the results of this segment, and the underlying business continues perform well. For the year, IFS revenue on a normalized basis increased 3% to $3.9 billion, and EBITDA increased 2% to $1.6 billion.

Turning to slide 13. Our IFS growth was driven by our digital and risk solutions, and by an increase in EMV card production volumes. Recurring revenue composition remains very high in IFS.

Turning to slide 14. In the fourth quarter global financial solutions revenue increased 38% to $902 million. SunGard contributed approximately $300 million of revenue, and approximately $100 million of EBITDA.

Excluding SunGard on a normalized basis, GFS revenue decreased 3%. This decrease was driven primarily by softness in professional services demand, and a difficult comp to the prior-year period. GFS adjusted EBITDA increased to $259 million, representing a 58% increase.

EBITDA growth in the quarter was driven by restructuring cost actions taken in the first half of the year, and the inclusion of SunGard for one month. For the year, GFS revenue increased 16% to $2.7 billion. Excluding SunGard on a normalized basis, revenue grew 3%. EBITDA increased 25% to $629 million.

Moving to slide 15. We are presenting the results in the regions including SunGard, to give some clarity into their regional impacts, although we note that Sun Guard's impact is only for one month.

Given that, my following commentary on the regions excludes SunGard, and focuses on the GFS segment standalone performance. For the fourth quarter, North America declined approximately $50 million to $252 million. Almost half of this decline is the result of the previously discussed contract nonrenewal, followed by a continued softness in professional service demand, and a difficult license sell comparable in the prior-year period.

For the year, North America revenues were $1.1 billion. [As to] nonrenewal of the contract, full-year revenue decreased 1%, reflecting professional services softness in the second half of the year.

In the quarter, Europe grew 1% to $198 million. For the year, Europe revenues increased 14% to $757 million. The fourth-quarter results include the anniversary of our Clear2Pay acquisition, and the impact of softness for people-based services in Europe.

We are pleased by the results in Latin America, and the contract expansion in Brazil was a nice win in the quarter, and should help Latin America in 2016, in spite of a difficult macro economic backdrop. As Gary indicated earlier, we remain bullish on the long-term impact of the Asia-Pacific region. The teams have done a nice job of growing the business in this region. The addition of SunGard creates greater contribution from IP-led solutions, which we believe improves the visibility and predictability of results for this segment.

Moving to slide 16. For the quarter, free cash flow increased 12% to $399 million or 143% conversion of net earnings. And for the year, free cash flow increased 7% to $921 million or 99% conversion of net earnings. We are highly focused on paying down debt, and deleveraging the balance sheet.

The effective tax rate increased to 33.4% for the quarter, compared to 32.6% in the prior-year period, driven by acquisition-related items. For the full year, the effective tax rate was 33.1%.

Moving to slide 17. In 2016 and going forward, we will report revenue growth on an organic basis. Organic revenue will exclude the impact of acquisitions, divestitures, and foreign currency translation. We believe this will give better visibility into the underlying operating results of the business.

For 2016, we expect organic revenue growth of 3% to 4%, adjusted EBITDA of $2.84 billion to $2.9 billion, adjusted earnings per share of $3.70 to $3.80 representing growth of 15% to 18%, free cash flow to approximate adjusted net earnings. As we think about the quarter to quarter flow of the operating plan, we generally expect 15% to 18% EPS growth each quarter, and expect the impact of synergies and interest savings to increase over the course of the year.

There is more information regarding our planning assumptions in the appendix material, but I will highlight a handful of them here. We assume net interest expense of approximately $370 million, a 2016 effective tax rate of approximately 35%. We believe that by implementing tax planning strategies over the next 24 months, we can drive the effective tax rate down by 200 basis points or more, capital expenditures of approximately 6% of revenue reaffirming our goal of exiting 2016 with $100 million or more in run rate cost synergies.

Moving to slide 18. In conclusion, I am highly confident in our operating plan, and our ability to deliver double-digit earnings growth in 2016 and 2017. We remain focused on multi-year earnings growth and cash generation, and believe our business model will create long-term shareholder value, and we continue to invest for growth, and strive for leadership in the markets that we serve.

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

(Operator Instructions)

David Togut, Evercore ISI.

Thank you. Good morning, Gary and Woody.

Good morning, David.

Glad to hear that the SunGard integration is running ahead of plan. Can you provide details around your cost take-out assumptions for SunGard for calendar 2016? In other words, what's embedded in the guidance for the full year? And then, to the extent, you have a target for calendar 2017, that would also be helpful?

David, again, we're targeting exiting at $100 million or more. I will tell you for planning purposes, I would use the $100 million exit run rate. If you think about the flow of the operating plan, we tried to give some color around 15% to 18% each quarter. If you think about how the synergies will flow, I would lean towards the 15%, moving towards 18% over the course of the year as the synergies come through, and interest costs are reduced as we pay down debt.

Understood.

For 2017, David, we're still targeting a $200 million exit run rate, and we would have that at least ratable at this point in time.

Yes, David, this is Gary. Obviously, at this point we're highly confident in achieving that. As I said in my prepared remarks, when you compare to the really last big transaction we did, which was [Metavante] back in 2009, we're ahead of where we were at this point in that process.

So we've gone through a number of already very significant milestones, with the restructuring, the conversion of payroll and benefits, and the other things we've mentioned. And now we've just got line of sight into implementing the plans over the course of the year. So we are in really good shape on the integration. It's gone very smoothly at this point.

Any color on the demand environment for SunGard? They have a very strong capital market focus.

Yes.

And clearly, seeing a lot of volatility now in capital markets. Is demand holding up in this environment?

That was my point, I was trying to make in my prepared remarks. I was real pleased with the month of December, and our SunGard execution. When I looked, they had every opportunity to really take their foot off the gas, and that they could've got distracted with the combination. We had a lot going on that time, and the team stayed very focused through year-end, and executed very well. So that was positive.

When I look at the pipeline, going into this year, the same thing exists. The pipelines are growing. The teams are executing. They are very excited about being a part of FIS, and I think that's translating into the client base.

I can't tell you how many comments I've gotten over the last 60 days from clients, just talking about being up under FIS, our ability to invest, and focus for the long-term. And so, the customers are receiving it well. Our sales teams are receiving it well, and that's projecting into the results. So we feel really good about it.

The secret is going to be, as now since November 30, as we started to put our sales teams together, and they've started to have some conversations about joint selling into the account, we are also seeing some good traction there. Not only in the global financial institutions, but as I said, when you looked at treasury and wealth, and many of the products that SunGard had that are applicable for regional and community banks, we are starting to see strong traction there as well. And then, of course, as you know, our consulting groups started in the capital markets area of the industry. And so, be able to wrap that kind of consultative engagements around products is going to be differentiating for us going forward.

Good to hear. And then, if you could give a little more color on Capco, you had mentioned I think that toward the end of year, Lance Levy, taking over the business, repositioning it to focus more on high-end transformational consulting, what the current growth for Capco, and what do you think it could be exiting 2016?

We [saw] a mid single-digit growth on Capco for the full year last year, which was obviously substantially less than what it's been -- done in the prior years. As you mentioned, Lance has taking over the helm of the consulting group. We have really rallied the partners around engaging more into the transformational consulting side which drives a higher margin, and also is more complementary, to help differentiate some of our product IP. The back half of the year was slow, as we retooled it. We've actually seen, growing into the first half of this year a nice ramp in the pipeline, and we're starting to see some results of that early on.

I do think, the first half of 2016 is going to be slower from a growth standpoint. But then when we get into the back half of the event, as that continues to ramp, we will see Capco to return -- start returning back to a more normalized double-digit growth rate for us.

To be clear David, that in the organic 3% to 4% for the consolidated Company, we've got Capco for the full year in a mid single-digit zone.

Yes.

Got it. And then, just two quick final housekeeping questions. What FX impact do you have built into the 2016 guidance, and then what is your forecast for termination fees?

Yes, if you looked at the assumption package, there is some details on slide 20, that's further in there. Right now, we baked about a $150 million headwind. That's really driven primarily out of Brazilian real, but still having some headwind in the euro right now. With regard to term fees, we exited 2015 with about $40 million. We've got less than that in 2016. I would tell you, probably 20% less.

Understood. Thank you very much.

Thank you, David.

Brett Huff, Stephens Inc.

Good morning, guys.

Good morning, Brett.

Just a little bit more detail on the guidance. I think that we've been trying to figure out, and I think others have been trying to make sure we understand it, in the guide. Can you give us a little bit more detail or ballpark on what you are SunGard assumption is for revenue and maybe even profitability? And I know going forward, there is probably not going to be as much detail. But I think we and others, are just trying to make sure we are modeling this right, here on the first year out. So any help on that would be helpful?

Yes, if you think about the revenue growth profile, Brett, I would tell you that we are probably in the [3%] to [5%] zone on the SunGard, from a revenue growth standpoint.

Okay.

In terms of margin contribution, our GFS margins without SunGard were about 22% or so. With the synergies, we think the GFS margins grow to 26%-plus in 2016. That will continue to grow into 2017, as we get full run rate synergies out of it, but that's what we're looking at in 2016, in terms of profitability contribution.

Okay. So the 22% for the fourth quarter was GFS ex SunGard, but the 26%-plus is with SunGard and the synergies?

To be clear, GFS around 22% would be sort of a full-year GFS without SunGard.

Okay.

Adding SunGard and the synergies into 2016, we think the GFS segment growth profile or EBITDA margin profile will be 26%-plus.

Got you. So both of those numbers were for 2016. Okay, thank you. And then, you mentioned specifically, Gary, and I just want to make sure I heard you right -- that the slower growth in the Capco portions of consulting -- and I am assuming that's probably the low single-digit range that we have been seeing the last couple of quarters. And then you said -- I think you even said, maybe double-digit growth in the back half. Can you give us a sense of the drivers? First of all, is that correct? And second of all, give us a sense of the drivers? There was some question about whether or not there was a systemic sort of industry-wide big bank slow down in uptake of professional services? Or whether it was some specific things that were just your business? Can you give us more color on that?

Yes, just to be real clear -- you hit the nail on the head in the first half of the year. You're going to see flat growth in Capco, maybe even a little declining over prior-year periods, and then you'll see it ramping up to Woody's point for the full year, getting to that mid single-digit. And then going into 2017, we do expect Capco to recover to more of that double-digit growth rate. But as you know in the consulting business, that's all about building your pipeline and filling it -- and that's -- and fulfilling it.

That's one of the things that we've changed significantly. What we had done in Capco historically, we've gotten a very large transformational engagements, and we took our eye off the ball -- off of the base business of consulting in my opinion. And so, we've retooled the leadership there, got them refocused on executing more of the thought leadership consulting engagements. We've seen nice uptick of pipeline. We've actually seen strength coming into Q1 with deliveries.

So we've got to continue that, obviously, and continue that growth. But it's going to be much more back to what we picked up in the original Capco acquisition, which is more transformational consulting, where we're doing engagements, more short-term in nature around thought leadership, and how to transform various functions of the financial institution. And then allow us to pull in more product IP, instead of some of the large lower margin [bodyshop] type deployments that we had gotten into.

Lance has excellent experience on that from his prior life with his former company. He's bring a great discipline to that process, and we're seeing a lot of improvement early on under his leadership.

Great. Thanks again.

David Koning, Baird

Yes, hey guys. Nice job.

Thanks, David.

Yes. And I guess, first of all, on the IFS segment, it looks like that might have accelerated to around 5% growth, if we exclude the gaming business from the prior-year, and the strongest growth of the year it looks like -- I guess, I'm wondering, first off, if that's right? Secondly, if there were term fees in the quarter, and how much those were? And then, finally if that higher level of growth is sustainable through 2016?

Yes, it's a good comment. I think if you normalized out the gaming and the other pieces, we got about 4.4% growth in the quarter, which we did see as an acceleration. I think the level of noise in 2015 was high, compared to 2016. 2016 should be clean, and we see very good line of sight around it.

We did have about $8 million of term fees in the quarter that flowed into the IFS group. So you saw it exactly right. We did see some level of acceleration, and it's a relatively clean number.

But you are thinking about it right, David. I mean, the team has done an excellent job of cross-selling and filling in, frankly as we've described in the past, some of these holes that are created from these clients that are leaving due to being acquired, right? So we saw a nice acceleration of growth, and we're confident about where that's going to come in 2016.

Okay. And then, I guess, just turning to GFS, you made a lot of comments around SunGard and Capco, but you declined about 3% normalized in Q4. Are we going to turn to growth again in Q1? And maybe if we kind of look through the year, is a low single-digit growth in the first couple of quarters, and mid or maybe even a little better in the back half? I just want to know, I guess, if we're going to grow throughout the year, or if Q1 is still a down quarter?

Yes, Q1 will not be a down quarter. We will see growth. What you've got is a complement of SunGard continuing to grow the base product, or solution set business continuing to grow, with Capco having some headwinds still in the first quarter. But yes, we will see growth in -- anticipate growth in each quarter.

Yes, SunGard brings an increase in our product-led or product-focused IP sales in that group as well. And so, those are more sticky in nature. They are also more recurring in nature. And so, we think that's going to help with the growth throughout 2016.

Okay. And finally, just a quick one on a definition. With organic growth through the year, are you going to include SunGard in the prior-year quarter, or are you just going to exclude SunGard from the current quarter, as we look through the rest of the year?

We would include in the prior-year quarter, similar to how we have done organic growth in the past. I would exclude acquisitions, divestitures and FX, very similar to how we did in 2014 and prior.

Got you. Thanks. Good job.

Thanks, David.

Tien-tsin Huang, JPMorgan.

Thank you. Good morning. Just want to follow up on David's question on GSF. Just first half, second-half, I guess, there's a lot of moving pieces. I caught the Capco piece. What are the other big puts and takes that we need to consider? It sounds like the [Bradesco] conversion is a big one. Anything else?

Yes, I think the win from [Bradesco] was definitely nice win for us. We will do some services around that conversion in the first half, with the actual conversion taking place mid year on that portfolio. Excited there. We do anticipate good growth in Asia Pacific again. Clear2Pay is going to grow well. And then we've got some softness in Capco in the first half. SunGard growing relatively ratably over the course of the year.

Right.

Yes. And also, Tien-tsin, keep in mind, as we talked about in the period of March, you've got Sainsbury coming on. You've got -- Woody mentioned Bradesco. You've got the digital bank that is being been launched in both the USA and also the UK. That's two separate contracts, but both of them will be driving revenue as well throughout the year.

Okay. So summer is a pretty important conversion period then?

That's right. But we don't have the same front half back, half growth curve that we had, it's much more ratable over the course of the year.

Right, because you got some implementation work too. And then, just my follow-up, just the SunGard retention. I know that had gotten better towards the latter part of 2015. What have you -- have you seen any changes -- it sounds like it's doing well, but how are the conversation's been going around retention? What are you assuming for 2016?

Yes, we are continuing to see an improvement in retention throughout 2016. We're -- they've had, as you point out, they've had a very nice slope of improving that over the last several years, and we think that will continue. Frankly, the conversations with the clients have been extremely positive. And I've had an opportunity to have a lot of those over the last several months, and what we're finding is they're very pleased that FIS was the acquiring Company.

They are very pleased with our overall size of relationship has grown through the combination, because we would have already a strategic relationship with those clients. So it makes us that much more scaled, and so it's all positive. But we are planning for a continued improvement in retention, and we see no evidence that won't occur.

All right. That's great. Good to hear. Thanks, Gary. Thanks, Woody.

Thank you.

Darrin Peller, Barclays.

Thanks, guys. Nice job. I just wanted to touch on, starting off with guidance once again, just as a follow up. I mean, you came off a year where obviously there was some unforeseen things that had occurred. And so, I know that the intention, hopefully was to come into this year with more of a conservative guidance assumption. And so, here we are with 3% to 4%. Fourth-quarter run rate was decent on the IFS segment, but obviously, like you mentioned for a lot of different reasons slower on the GFS.

So when we look going forward, I mean, can you just give us some confidence on what would -- if there's anything that would lead to that guidance being either below that, or what are those variables? And potentially, is that already conservative? Is this sort of a low end of the range inherently what you are giving, with upside to that from other variables? I guess, just some context on the conservatism, and the nature of how you really thought about guidance here this time?

Yes, as you might imagine, coming out of 2015 and looking at the macro backdrop, we definitely took a more conservative approach, particularly on the revenue growth lines, and specifically on the revenue growth lines that are more in discretionary in nature. Across the board, we think we've got lower sales execution risk in the various plans. And then, we've got a larger component of the earnings per share growth, that are what I call more controllable things. Synergies for example, things that we go and execute on, regardless of macro backdrop. So yes, we think we've got a conservative plan here, both in top line and in earnings per share growth into 2016.

Okay. That's good to hear. Thanks. And then, just on the cross-selling side. I'm curious to know -- I mean, is there anything included in your outlook around SunGard, and what that -- are you seeing any evidence so far of cross-selling in terms of revenue synergy opportunities, whether it's the wealth business you've talked about in the past, or it's Capco or others?

Yes, Darrin, I mean, we were very conservative when we looked at cross-selling. But we are -- as I've shared in my prepared remarks, we are very excited about what we're seeing in the conversations that are occurring. There are a lot of opportunities as we're looking at the wealth. We took the wealth business, and combined it with our existing wealth business. And it gives us a substantial scale in that space, and allows us to push into the regional community banks, and seeing good progress there.

We're seeing great uptick in some of our regions around the world, Europe, Asia specifically, where we're able to bring our sales resources and SunGard sales resources, augmenting with Capco and seeing some nice early engagement. So we do think is going to be some upside, but to Woody's point, we were conservative in our modeling of that.

Okay. And just as last question for me. When we looked at -- when what we heard your prepared remarks, you did list off a number of -- what sounded like pretty decent sized deals. I know [Bradesco] was one, but also I think you mentioned $100 billion bank for direct banking and some others. I just -- it seems like there was a lot that was announced, and still sort of slowly but surely rolling on through this year, whether it's Sainsbury -- you mentioned testing, or I guess Credit Agricole or others that are still to come?

Can you give us a little more color on the timing of some of the larger implementations. I mean, Sainsbury seems like it's in testing mode now, and it's going to ramp through the year, I imagine. Anything else we can just sort of hold on to, in terms of some of the larger deals?

No, I think you're right. I mean, we got a lot of large transactions that were signed. The sales team executed well throughout last year. Frankly, and to your point, it does onboard over time because these are big projects, and it takes time to get them onboard.

But when you think about Sainsbury, it's going to be kind of a mid summer deployment, for what we're calling phase 2 in that project. The final phase will launch in early 2017, so very good progress there. We have high confidence in that, and the relationship can't be better, and the teams are working very well.

We also mentioned a UK digital bank that will launch in Q2 as well. And then the digital bank that you mentioned, [greater than] $100 billion, that will drive a lot of services work, but that will be onboarding throughout 2016 and into 2017. So that's a little later, because we didn't sign that till Q4, and those tend to run about anywhere from 12 to 18 months of deployment time. The Bradesco, talk about -- the large card portfolio, that will also come on in mid summer so.

Okay. And those are the -- and would you say those are the top four that are sort of yet to be implemented that you have in the pipeline right now that's already signed?

Yes, those are some of the key ones that we've highlighted. Of course, obviously in the Company our size, we've always got a lot of large implementations going on. And so, the team does a nice job of deploying those. And typically they come on without any excitement, which is always the thing we're looking for. So we've got to continue to, not only execute on a delivery pipeline, but also our sales pipeline. We have to keep filling those delivery buckets, and the team has done a nice job of doing that.

All right. That's great color. Thanks, guys.

Thanks.

Ashwin Shirvaikar, Citi.

Hey, guys. Good morning.

Hi, Ashwin. Good morning.

Good morning. I just want to start with IFS. When I look at the low level term fees in 2015, and you signed several new core processing clients, shouldn't that resulted in a higher normalized top line growth? And if look at overall IFS, I guess payments, maybe that's the offset. But how much of an offset is that going to be? Any type of prognosis on IFS by the way of [pieces]?

Yes, if you look at it, I think Ashwin, a couple of things. One, conservative in our revenue growth guidance for 2016, first of all. Secondly, as we've talked, we do have a broad set of payment solutions business. Some of them are growing faster. Some of them are growing slower, which is a headwind to overall growth into the IFS group.

What we did see was good growth in the banking group, and good growth in the business solutions group, in the EMV card production. So we've got some good growers, but we definitely still have some level of headwinds. Again, the [macro] backdrop here is conservative overall guidance as well.

Can you comment on the nature of some of those headwinds, the timing aspect of it?

Well, if you think about our check business, for example, check volumes continue to decline. That's an item that continues to be a headwind overall for us. We see some price compression in the payments group that we've talked about before. So that's a bit of a headwind in terms of overall growth. Some of these wins are obviously coming on, and they are implementing growth -- or improving growth as we go forward. But you've got a combination of headwinds and tailwinds in that business, that we think are still driving that 3% to 4% range in 2016. (multiple speakers)

Yes, Ashwin, if you think about, and we keep mentioning it on the calls. But it's been a significant grow over with all these acquisitions. And so, that's just a natural headwind that propels into 2016. While the term fees are coming down and I always point to, that's a great indicator to watch for, they are continuing -- they are still not down to zero. RIght? So we still got to deal with acquisitions. To Woody's point, we still have to -- it's a very competitive market. We continue to see price compression as an issue, but the team continues to sell through it. They had a great year last year in sales, and I would tell you in 2016, we see no indication that's not going to continue.

Got it. None of those factors sound like -- I mean, check processing, payment related [type] compression, nothing is new there. So okay, that's good. As you look at the overall portfolio business that you now run, are there pieces, either within SunGard or within I guess, FIS [Oldco] that does not make sense, that does not belong?

Yes, there's always going to be -- we always are going to evaluate, what are the right assets for us going forward, and also what meets and fits with our strategy. As you've seen historically at FIS, we've divested of assets that don't fit our strategy, but are very good companies. I mean, I will point to healthcare. I will point to the gaming business, and we will continue to look and evaluate that. If we can -- if we have assets that don't fit our overall strategy, but would be better served under a different ownership structure, we would certainly pursue that.

Yes, got it. Last question. Investors obviously care a lot about leverage here. I am hoping you can comment on cash use? Might you lean little bit more towards debt paydown as opposed to buyback? Any thoughts there?

Yes, we would lean very heavily to debt repayment. In fact, we don't anticipate any share buybacks in 2016. We closed year out at about 4 times leverage. We are targeting to get back down to 2.5 times by the end of 2017. But all of our excess free cash flow will generally be used toward our debt paydown, Ashwin, over the course of 2016 and through 2017, until we delever back to the target, the targeted level.

Got it. Okay. Thank you, guys.

Thank you.

Bryan Keane, Deutsche Bank.

Yes, hi, guys. What did SunGard grow on a constant currency basis in 2015?

2015 through the third quarter which they reported was about a 5% growth rate. We only picked up the December, the month of December, which was a $300 million contribution. Their full-year growth rate was just under that number.

Okay. So more kind of in line then, the [3%] to [5%] I think you guys are thinking of SunGard going forward?

That's correct. Probably more in the [3% to 4.5%] to [3% to 5%] zone.

Okay. And then, just a clarification on GFS. Just trying to think about the pieces on the minus 3% constant currency organic growth in the fourth quarter. It sounded like there was tough comps, and then you mentioned also, of course, professional services. Any details you can give us on those numbers, on how to think about the drop there of minus 3%. Maybe what Capco grew in the fourth quarter exactly on a constant currency basis?

Yes, Capco on a constant currency basis was down approximately 10%, that equated to a full-year growth of 5%. We would anticipate seeing Capco having slow growth in Q1, and returning some growth in Q2, Q3, Q4, but a mid single-digit for most of 2016. So that's how we saw that piece of the business laying out.

No, that's helpful. Anything else to quantify inside of GFS that was negative or caused the drop of 3%?

Those were the big items. The other one, on the license comp that we had in 2014, I want to say was about a $7 million or $8 million of license in 2014, that drove a difficult sales comp into 2015.

Okay. That's really helpful. And then, going forward in GFS, ex SunGard is that still supposed to mean that positive 3% to 4%? And then just what drives that, just in the first, second quarter in the first half? I assume it's supposedly -- are supposed to be lower, or is there anything that helps the growth right away, to come off that minus 3% ex-SunGard?

Yes, I think the Latin America win definitely helps support some of the growth ex-SunGard, that would offset some of the PS business that we talked about. Clear2Pay still growing very well for us in Europe, and then Asia-Pacific has been growing pretty well. So the combination of those kind of lands on we believe a [3% to 4%] zone, without SunGard in the front half of the year as well.

Okay. Helpful. Thanks so much.

Thanks, Bryan.

Georgios Mihalos, Cowen.

Great. Thanks for taking my questions, guys. Just wanted to ask, is there any cadence we should be aware of in the IFS segment as we model through 2016? Or should the growth there be fairly uniform quarter to quarter, unlike the GFS segment?

We think it will be fairly uniform.

Exactly.

That business is highly recurring, very predictable, and has performed well in our anticipation. That coupled with very little expectations around term fees this year, we think it's going to be a pretty ratable growth.

Yes, I mean, I think George, when you think about it, it will return to a more normalized quarter on quarter that we've seen historically in that business, given it's 90% recurring revenues. So it's a pretty -- that's what we love about that business, very predictable.

Okay, great. And then, just to follow up on Bryan's question, it sounds like for the first quarter at least of 2016, Capco again will be under some pressure. It sounds like maybe -- on a constant currency basis, that could be negative, and then start to turn positive in Q2, and accelerate over the back half of the year? Is that the right way to be thinking about it?

That's a fair way to think about it.

Exactly.

Yes.

We've got -- as we've said, the back half of last year, we started filling the pipeline. We started getting out, and selling the type of consulting we were looking for. We've had some engagements. We are starting to fill that. So there's -- all indicators are nice progress. But this will take some time to get it back to a more normalized basis.

Okay, great. And just last question from me, just as we think about the tax rate, the 35% for 2016. Woody, how comfortable are you that, that comes down to 2017 maybe to something closer to 33% or a range like that?

I feel really comfortable. If you look at -- what SunGard was doing, they had repatriated most of their cash back to cash pay down debt. It produced a standalone rate that was pretty high, about 38% standalone when you take out discrete items in their history. So we feel very confident in our ability to drive that rate down over the course of 2017 and forward, as we implement tax planning strategies similar to what we have done at FIS, utilizing the foreign rate differential in some of the structures that we have. Very comfortable.

Great. Thanks, guys.

Glenn Greene, Oppenheimer.

Thank you. Good morning. Most of my questions have been asked, but a couple.

Good morning, Glenn.

The first one, you were asked a question on the bank spending, discretionary spending as it related to SunGard. And it sounds like you, obviously with the fourth quarter, you had a lot of deal wins and whatnot. But just broadly, the bank spending, the discretionary spending environment for the core business ex-SunGard, both across both GFS and IFS?

Well, yes, I mean, just -- what we can say is what we're seeing in our product-focused sales teams, we are continuing to see good pipeline, good closure. Keep in mind, even on SunGard, most of their license fees are term-based, so you have to renew them in order to continue to process. There is also large maintenance streams and processing streams associated with that, so you are really talking about mission-critical applications. And as I said, we saw a great -- got great response out of SunGard team in December.

We see a good pipeline into Q1, and good line of sight to our Q1. We are also seeing across our [additional] FIS business and our IP sales, we've highlighted number of key wins last year. So we think that gives us confidence going into 2016.

So basically broadly, you haven't really seen any fall off in activity levels, given the uncertain environment we are all seeing and the volatility?

Other than our people-based services business, we haven't. We continue -- we've seen some softness there. We've highlighted that, starting midway through the last year. But really in our product-led sales, we continue to see good strong momentum.

Okay. And Woody, just to be clear, there was a lot of commentary around the guidance, for the segments. Just to be clear, as it relates to the [3% to 4%] organic growth, it sounds like you are thinking [3% to 4%] for both IFS and GFS? And I think I heard the 26% margin comment for GFS including SunGard, but just to be clear on the margin and growth expectations by segment?

Yes, it's -- we typically haven't given, segment, segment guidance, but I am going to give you some color around it. We do think IFS in that 3% to 4% zone on the top line, we would anticipate IFS margins in a 10 to 20 basis point expansion range. We would look for GFS revenue in the 3% to 4% zone as well. And that GFS margin profile to increase from 22% or so percent to 26%-plus.

Okay. And then, just one last question, a very high level commentary on the GFS from a geographic perspective? Sounds like Latin America is probably going to improve with the Bradesco win, but just a little bit more color broadly, kind of full-year basis, by the four geographic (inaudible).

Yes, I think when you look at that, Glenn, Latin America is going to -- we think have a nice year, given the win that we had in Q4. Moving over into Europe, we are seeing strong product-led sales especially in the UK, in Germany specifically, and we think that's going to continue. We had some good sales success last year in that region. A lot of that is going to be onboarding this year, but we also see good pipeline and good integration.

Asia has been strong for us consistently. And frankly, as I mentioned, we now doubled the size of that sales force in Asia, which is something that we needed for the increasing demand that we are seeing. And so, we were in the process of broadening our sales force there anyway. So that's going to be a good outcome. We are bullish that team is going to continue to execute, and Asia is going to be a strong grower for us.

Great. Thanks a lot.

Thank you.

For closing remarks, we will turn the conference back over to the CEO, Gary Norcross. Please go ahead.

Thank you for your questions today, and for your continued interest in FIS. I would like to summarize by saying our long-term strategy has consistently driven year-over-year performance results. Our deep focus in investment and financial services is allowing us to lead change in the industry. We are excited about our future.

I would like to thank our leaders, and our more than 55,000 employees for their hard work and dedication in serving our clients. As important, I would like to thank our loyal clients, who depend on us in trust us to keep their businesses running every day. It is because of our clients and employees that FIS continues to empower the financial world. Thank you for joining us today.

And ladies and gentlemen, today's conference will be available for replay after 10:30 AM today through February 23. You may access the AT&T teleconference replay system at any time by dialing 1-800-475-6701, and entering the access code 383548. International participants may dial 320-365-3844. And those numbers again are 1-800-475-6701 and 320-365-3844, again entering the access code 383548.

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