Fidelity National Information Services Inc (FIS) 2016 Q4 法說會逐字稿

Ladies and gentlemen, thank you for standing by. Welcome to the FIS fourth-quarter 2016 earnings call.

(Operator Instructions)

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

Thank you, Shawn. Good morning, everyone, and welcome to FIS's fourth-quarter and full-year 2016 earnings conference call. Turning to slide 2, Gary Norcross, President and Chief Executive Officer, will begin with performance highlights or the Company. Woody Woodall, Chief Financial Officer, will continue with the financial results for the fourth quarter and full year. As always, today's news release and corresponding 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 on the slide.

The materials presented today will also include references to Non-GAAP financial measures in order to provide more meaningful comparisons between the periods presented. 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, it is now my pleasure to turn the call over to Gary to discuss the business highlights for the quarter and full year. Gary?

Thank you, Pete. Good morning and thank you for joining us today. I am very pleased to hope this morning's call affirming another strong quarter for FIS, concluding a very good year of performance and earnings growth.

Turning to slide 5, in the year we exceeded our financial goals, delivering total shareholder returns of 27% and more than doubling the returns provided by the S&P 500. This was accomplished by delivering full-year financial results encompassing 11% EBITDA growth, 19% adjusted earnings-per-share growth, $1.5 billion in free cash flow and $341 million returned to shareholders in dividends. We significantly improved the revenue and margin profile of our global financial solutions segment, with the full year of SunGard results through consistent growth of high-margin IP-led solutions and cost synergies.

We exceeded our integration commitments, putting FIS ahead of schedule, allowing us to increase our synergy targets twice in 2016. As part of this call, we're increasing them again with the current overall target to now exceed $275 million exiting 2017. This continues our track record of delivering on and exceeding our synergy targets on large transformational acquisitions.

We also successfully divested the public sector and education businesses, freeing up capital to pay down debt, as well as to reinvest into our long-term core businesses within IFS and GFS.

Turning to Q4, our results were underpinned by the strongest sales quarter of the year. And despite ongoing financial institution consolidation, we built on the positive momentum established in the prior three quarters, allowing us to exit the year with solid sales performance. Strategically, we are investing in the business to drive innovation into our different markets to deliver long-term growth and superior shareholder terms.

Our SunGard acquisition one year later has been a meaningful value creator for our shareholders. Our strategy has been to continue to expand our broad array of IP-led solutions built for the financial services industry. In 2017, we will continue driving this strategy focused on our three growth levers.

First, we will continue to execute on our investment strategy to deliver new, differentiating capabilities leveraging digital technology and advanced analytics to help our clients progress their competitive position. This multi-pronged investment strategy encompasses reinvestment back into our existing solutions, as well as increasing investments in new innovative solutions to meet the growing demands of the markets we serve.

A proof point of this strategy is our continued execution of our data center consolidation strategy, as previously discussed at our May Investor Day. A key component of this strategy is the accelerated deployment of our FIS private cloud. Our cloud strategy is focused on replatforming the legacy server-based technology to new cloud technologies to gain the benefits of speed, efficiency and scale, which allows us to maintain and grow our margins. In 2016, we concluded the year with over 20% of our server-based client systems running in our private cloud, and we anticipate this percentage to nearly double by the end of 2017.

Second, we will continue to capitalize on our expanded scale, operating leverage and our disciplined integration to fuel growth. We have captured a steady stream of new wins and expanded business through cross sell and upsell of our new portfolio assets from the SunGard acquisition. This further allows us to meet pressing industry needs for efficiency and growth with FIS integrated solutions suites.

Third, our strong cash flow generation enables us to invest for growth, continue to pay down debt and return capital to shareholders. This strategic focus allows us to compete effectively to meet client and market demand.

Turning to slide 6 to review segment highlights, our integrated financial solutions segment drove strong top-line organic revenue growth of 5% for the year. We are very pleased with these results as they are at the high end of our three-year outlook. In the quarter, our IFS segment signed several new competitive takeaways, encompassing our core banking, digital and payment solution offerings.

For example, Northeast Community Bank, with more than $2 billion in assets, selected FIS to provide a complete suite of banking and payment solutions spanning our digital payments, item processing and commercial treasury offerings and to help drive its growth through next-generation technologies. Additionally, a fast growing Texas bank serving 25 communities will be implementing FIS core banking, bill pay, digital banking and item processing to support its growth and efficiency goals.

Our digital and corporate liquidity business had an exceptional quarter, growing by double digits. Demand for our corporate liquidity solutions by both banks and non-FI organizations continues and is highlighted by a significant new fourth-quarter win with a $40 billion-plus global business. In addition, consumer demand for mobile innovation continues to drive strong growth, resulting in double-digit growth in digital, primarily driven by new client wins and continued user adoption in the market.

Within our payments business, we renewed our largest outsourced bill pay client, a bank with more than $140 billion in assets, for another multi-year term, continuing a strong relationship that began in 2011. As we discussed in previous quarters, while our EMV deployment continues, we will experience grow-over challenges throughout 2017 from the initial adoption period, but we are confident in the underlying fundamentals of our payments business and continue to see increased demand and adoption for our new payment innovations.

In October, we announced a significant new agreement with oil and gas giant BP. This realtime loyalty program enables consumers to redeem points for discounts at BP stations nationwide in the US.

Next, our GFS business recorded top-line organic growth of 5% for the full year and significantly expanded margins through strong, high-margin product sales. This positive trend is reflective of the material improvement to the structure of this operating segment, largely attributable to the SunGard acquisition and the successful integration work to date.

As expected, our institutional and wholesale business delivered its strongest sales quarter of the year, primarily driven by robust sales for our buy side, risk and compliance solutions, with growth contribution from all major business lines. I&W's year-end gross surpassed our expectations and validated our acquisition diligence findings.

Refocusing the I&W business on solution-focused sales is beginning to show true benefits. During the quarter, we signed a new strategic agreement with one of Asia's largest independent financial services groups. This new win integrates more than a dozen offerings into a solution that can be replicated with other clients.

For the quarter, we realized exceptional license growth from both the timing of large renewals, as well as new and add-on sales. We also signed a significant multi-year agreement with a large US insurance company for a managed services solution that allows them to efficiently operate their mission-critical back-office platform utilizing our software.

The FIS derivatives utility continues to see positive gains anchored by two significant global financial institutions, Credit Suisse and Barclays, running live in the utility for a full quarter. As expected, our consulting business delivered strong double-digit growth in Q4 due to an easier comparable, as we have discussed. We are pleased with the new leadership team and their execution to refocus on strategic management consulting engagements.

Turning to slide 7, before I turn the call over to Woody for the financial review, I would like to summarize today by reemphasizing that we're very pleased with our fourth-quarter and full-year results. Our outlook for 2017 is positive despite increased disruption from new market entrants and uncertainties posed by potential governmental policy changes, including potential changes to regulations, interest rates or corporate taxes.

To meet our 2017 goals, we will continue to focus on our SunGard integration efforts with high intensity, driving profitable growth through new sales, maintaining a strong balance sheet and returning cash to shareholders. Woody will now provide additional detail on the financial results for the quarter. Woody?

Thanks, Gary. I'll begin on Slide 9 with a summary of our consolidated results for the quarter and for the full year of 2016. Today, consistent with our prior 2016 earnings announcements, all adjusted numbers and calculations are on an adjusted combined basis as if SunGard was owned in both periods.

In the fourth quarter, revenue increased 4.8% on an organic basis and EBITDA grew to $846 million, a 15.2% increase compared to the prior year. Adjusted net earnings from continuing operations was $377 million and adjusted earnings per share increased 22.6% to $1.14 per share.

For the year, revenue increased 4.6% on an organic basis and EBITDA grew to $2.9 billion, an 11.1% increase compared to the prior-year period. EBITDA margin expanded 220 basis points to 31.2% and adjusted earnings per share grew 18.6% to $3.82 per share. We finished the year marginally exceeding our run-rate synergy goal of $200 million for 2016.

Moving to slide 10, in the fourth quarter, IFS revenue grew on an organic basis by 2.5% while EBITDA grew 5%, primarily driven by a favorable shift in revenue mix coupled with executing ongoing cost management initiatives. For full-year 2016, IFS revenue increased 5% on an organic basis and EBITDA increased 4.2% compared to the prior-year period. Adjusting for the absence of incentive accruals discussed in the prior quarter, EBITDA would have increased 5.7% for the year, reflecting margin expansion of 20 basis points on an apples-to-apples basis.

Turning to slide 11, banking and wealth was relatively flat for the quarter. This was primarily driven by the full quarter impact of the completion of a previously disclosed professional service product. Absent this, the IP-led product business grew approximately 3%.

Payments grew 1.1% for the quarter. As we've discussed previously, EMV growth comparables will become more difficult in the second half of the year. We issued 7 million EMV cards in the quarter. When combined with the previous quarter's EMV results, approximately 50% of our clients are EMV-enabled. As we've discussed previously, we expect the remainder of cards to be EMV-enabled in a natural re-issuance cycle as they expire.

Corporate and digital produced growth of 12.5% for the quarter. This growth was driven primarily by strong sales for corporate liquidity and continued double-digit revenue growth in digital solutions. In addition to the long contract Gary mentioned, our corporate liquidity solutions had strong license revenue contributing to the growth.

As discussed in prior quarters, we did not expect IFS results in the second half of the year to replicate the exceptional growth in the first half of the year. We are pleased with the organic growth of 5% and profitability results for the year.

Turning to slide 12, in the fourth quarter GFS revenue grew 7.7% organically, while EBITDA grew 31.3%. For the quarter, this represents 700 basis points of margin expansion to 36%. For full-year 2016, revenue increased 5% organically. EBITDA grew 17.2% compared to the prior year, reflecting 380 basis points of margin expansion to 30.4%. This was driven by higher margin product sales and cost synergies.

2016 margin results exceeded our expectations and marked an important milestone for the SunGard transaction. As we outlined in previous calls, we expected to exceed 30% margins over time in this segment. We're very pleased to complete 2016 at just over 30%, which was faster than anticipated.

As discussed earlier this year, the GFS segment has shown significant structural improvement as a result of the SunGard acquisition, which improved the revenue quality, increasing the amount of revenue tied to recurring IP-led solutions. This improved revenue mix and the execution of our integration plan contributed to significant margin expansion in this segment. As discussed in May, we continue to expect margin expanse of 100 to 150 basis points annually for this segment.

Moving to slide 13, our institution and wholesale business grew 8.7% for the quarter driven by buy side risk and compliance solutions. This result aligns with our previous commentary related to quarterly seasonality for this business, which has heavier sales activity in the fourth quarter.

Banking and payments grew 2.5% organically. Growth in the quarter was primarily driven by increased card processing volumes in Brazil and payment strength in Australia resulting from completion of a client conversion in the quarter.

Consulting results for the quarter were in line with our expectations of double-digit growth, primarily driven by easy comparables to the prior-year quarter. As we discussed throughout 2016, we continue to see softness in discretionary spending going into 2017. Macro economic events during 2016, such as Brexit and the US elections, have not altered our expectations of continuing softness and demand for people-based services at this time.

Moving to slide 14, corporate and other revenue for the fourth quarter was $159 million with an EBITDA loss of $44 million. The corporate and other segment results include $88 million of corporate expenses for the quarter compared to $77 million in the prior-year period. The increase was driven primarily by higher incentive accruals in the quarter.

Moving to slide 15, our business model continues to generate significant cash flow. Free cash flow was $435 million for the quarter and $1.5 billion for the year. In the fourth quarter, our free cash flow conversion to adjusted net earnings was 115%.

We reduced our debt by approximately $1 billion in 2016 and had approximately $10.5 billion of debt outstanding as of December 31. In 2016, we returned $341 millions in dividend and ended the year with weighted average shares outstanding of 330 million on a fully diluted basis. In line with our previous guidance, the effective tax rate was 35% for the quarter and full year.

Turning to slide 16, in the fourth quarter of 2016, we signed a definitive agreement to sell our public sector and education businesses. As we recently announced, the transaction closed on February 1, 2017. Based on the timing of the close, this transaction created a $0.13 adjusted EPS headwind for 2017 net of interest expense savings. For the purposes of modeling, full-year 2016 EBITDA for PS&E was approximately $80 million. The transaction produced approximately $500 million of net cash proceeds, which was used to pay down debt.

We also announced we will redeem our $700 million, 5% interest senior notes due 2022. The redemption of these notes reduces accelerates our deleveraging efforts and our reduces our interest expense. We anticipate using free cash flow in 2017 to eliminate all our remaining prepayable debt, reducing our outstanding debt below $9 billion by the end of the year. Finally, due to our 2016 performance, we recently announced a 12% increase to our quarterly dividend to $0.29 per share.

Looking forward to 2017, due to the strategic nature and scale of the IFS and GFS segments, I would like to provide some additional color on segment drivers which guided our planning process for the year. We're also providing guidance on IFS and GFS revenue growth in 2017.

IFS will continue to serve our US market consolidating at the higher end of its historical trends. We also continue to see aggressive competition across all our solutions. These factors are driving us to the lower end of IFS long-term organic revenue guidance.

GFS will continue to see strong growth in institutional and wholesale and improvement in our banking and payment solutions. We expect single-digit growth for our consulting services for the full year. Specific to the first quarter of 2017, both IFS and GFS faced difficult comparisons, primarily driven by previously a discussed people-based project and the anniversary of accelerated EMV card production in IFS and a large license renewal in GFS.

For the full year, corporate and other segment, which houses our non-strategic assets, created approximately 1% top-line headwind to consolidated organic revenue growth. This decline is primarily driven by the loss of a client who was acquired in late 2016, continuing decline in check volumes at the point of sale, and a loss attributed to the planned divestiture of the public sector and education revenue growth. To be clear, organic growth is adjusted for the divestiture of PS&E, but the loss of higher growth from this business will be a headwind during the year.

Finally, in addition to our debt payments and dividends, we expect to generate excess cash in 2017. This will create flexibility for other cash uses beginning in late 2017 and into 2018, including but not limited to share buybacks.

Turning to slide 17, for 2017 we expect consolidated organic revenue growth of 2% to 3%, IFS organic revenue growth of 3% to 4%, GFS organic revenue growth of 4% to 5%; Consolidated adjusted EBITDA of $3.04 billion to $3.12 billion, implying reported growth of 3% to 6%, or 6% to 9% adjusting for the impact of the PS&E divestiture; Adjusted earnings per share of $4.15 to $4.30 per share, representing growth of 9% to 13%, or 12% to 16% adjusted for the impact of the PS&E divestiture, and does not include any share buybacks; and, finally, exiting the year with a cost synergy run-rate in excess of $275 million, an increase from our previous target of $250 million.

Similar to last year, we've also provided additional assumptions to better assist your modeling efforts for the year. These are found in the appendix of today's presentation.

Of note, I would like to call out our effective tax rate assumption for the year, which is 32%. This 300-basis point reduction from the prior-year period is driven by efficient tax planning strategies, growth in lower tax geographies, and the impact from changes in accounting treatment of stock-based compensation.

Current consensus estimates do not fully reflect the impact of the public sector and education divestiture. Further to help with modeling the quarterly spread for our expectations of 2017, we expect first-quarter adjusted EPS in the range of $0.81 to $0.83. For the fourth quarter of 2017, our expectations are up to $0.05 per share above current consensus estimates. This reflects the full-year impact of the divestiture of PS&E, the previously discussed growers in IFS and GFS in the first quarter, as well as higher seasonality in the fourth quarter and timing of synergies.

Similar to last year, we have a conservative view on overall macro conditions and have not assumed any improvements in conditions in the markets we serve. We are confident in our guidance for the year and our ability to continue to drive value to our shareholders through a compelling business model and strong cash flow generation. That concludes our prepared remarks. Operator, you may now open the line for questions.

(Operator Instructions)

Our first question will come from the line of David Togut with Evercore ISI. Please go ahead.

Thank you. Good morning. Can you help us gauge the impact of President Trump's executive order last week to repeal elements of Dodd Frank? In particular I'm wondering about the possible impact on regulatory and compliance related spending, which has been a nice growth tailwind for you over the last couple of years. And, secondarily, whether this generally reorders bank IT spending priorities.

Dave, it's a good question, and, frankly, we don't know what the outcome is going to be and what the impact is going to be overall for FIS. As Woody talked about, we've been very conservative and assume that there will be no impact. We do believe that if some regulatory reform did occur that you can see some improvement in IP spending in financial institutions.

But also, keep in mind, the nature of our sales cycles, the nature of our implementation windows, you really wouldn't start seeing any of that impact really until 2018. But we're going to continue to monitor it. But at this point in time, we haven't seen any impact.

Understood. And as a quick follow-up, net interest margin has expanded nicely for banks since President Trump was elected. Can you talk about CEO confidence and whether that is going to impact IT spending at all over the next 12 to 18 months?

I've met with a number of CEOs over the last quarter and actually already into this year. I will say there is a genuine sense that the CEOs are getting more confident in the execution of their business and the profitability of their businesses. Obviously with that, you do hope that would turn to increasing spend towards IP-led type solutions, deployment. You still have the same need, though, that they still have to continue to lower their cost, improve their overall efficiencies, even in and expanded net interest margin environments.

Once again, all these things would be good things that would indicate and push towards not only the end of 2017 but into 2018 if we start seeing the results of that. Q4 was our largest sales quarter of the year. We talked about that. We have good pipeline coming into this year. So, a number of these things will be attributable. But, as I said, those things, even after you book them, you start seeing the revenue after implementation which is typically a 12-month, give or take, period.

Got it. Just a quick final question for me. Woody, I think you called out a late 2016 client loss tied to an acquisition. Can you bracket for us the impact that will have on 2017 revenue growth? And is that all IFS? And then is there a contract term fee associated with that, as well?

That sits in the corporate and other segment. It was a commercial services customer, David. The impact to consolidated organic growth is about 1 point, with a combination of that loss and declining check volumes in that segment.

The IFS and GFS segments were not affected by this, again their growth being in line with what we talked about back in May. And there was a relatively small term fee associated with the transaction.

Understood. Thank you very much.

Thank you. Our next question then will come from the line of Dan (sic -- Dave) Koning from Baird. Please go ahead.

Hi, guys. Thanks. My first question is if that other segment is $400 million of revs, is it actually going to be down the $90 million, 100 million, or something like that? That's the dollar figure to think that little segment is down to create a 1% headwind to the total Company?

That's correct, Dave. It overall is a drag on total Company organic growth in that zone.

Got you. Okay. And then the tax rate, you guys have done really a nice job there. Is there anything one-off in the 32% this year? And then a corollary to that, is this a tax rate that can keep coming down in future years from the 30% to be lower?

A couple of things. One, I tried to highlight the components of what's driving it. Of the 300 basis point reduction, about 1 point or 100 basis points is really driven by the accounting change in stock comp where everybody should get some level of benefit there. 200 points is really driven off of tax planning strategies and lower rate geographies. It can continue to go down in the current environment as we continue to work through tax planning strategies and as our international revenue base continues to grow.

Got you. And then finally just a real quick one, the way to start thinking about the base of 2016 revs to grow from is basically something right around $9.2 billion, I believe, right? That's what your guidance is predicated off of, the reported number less the divestiture.

You've got three moving parts around reported to organic. You've got that $9.2 billion base you're talking about. If you remember, we had a revenue acquisition adjustment around SunGard of about $200 million. We've got expectations of around $75 million of currency impact being a negative. And then the PS&E sale being about 3 points. That would drive you from reported of 1 to 2 to organic of 2 to 3.

Okay. Got you. Great. Thank you.

Thank you. Our next question will come from the line of Ashwin Shirvaikar from Citigroup. Please go ahead.

Thanks, guys. My first question was -- and you might have mentioned this, I hopped in a little bit late on the call -- the FY18 range that you talked about previously, are we still on track to what part of that range, if you can clarify?

As we talked about in May, we really gave 3% to 7% organic revenue guide over the horizon, with 13% to 18% earnings-per-share growth. I would not anticipate changing that guide. We do have an adjustment associated with PS&E. But the individual earnings-per-share growth per year we think is very close to that. If you adjust out PS&E this year, you're at 12% to 16% underlying growth in the business.

What I meant was the $4.70 to $5.10 EPS.

If you remember specifically, we tried to give you an implied number associated, but we're trying to give percentage growth over that horizon. It will be difficult to get to that full $4.70 number, Ashwin, with the sale of PS&E. But we do anticipate in that 13% to 18% EPS growth.

Just to clarify, it will be difficult to get to the range or the lower part of the range?

It will be get difficult to get to a $4.70 number with the sale of PS&E. The growth, we believe, will be in the 13% to 18% range for 2018.

Yes. Our percentage guide on EPS, Ashwin, we feel very comfortable with. But obviously, now that we've sold or divested that business, that number wouldn't participate in that growth percentage. But we're very comfortable with the ranges we gave in May and, frankly, very comfortable with the underlying business now it's operating. When you look at the sales pipeline, you look at the sales closures, you look at the concentration now and the increase of the percentage of revenue that's highly recurring, it just gives us a lot of confidence not only going into this year but in our long-term guidance we provided.

Great. And last quick question, the divestiture that you had in December of PS&E business, can you explain the difference between the $500 million of net cash proceeds versus the gross amount. That $350 million GAAP seems rather large. We get a number of questions about that. And also your debt pay down does not seem to include anything further beyond the proceeds of that divestiture. Is that roughly right? Because the net expense, I can't get that.

The $850 million was a gross number on the proceeds. We ended up with a net number of around $500 million. What that read through is, is that you had very little tax basis in the PS&E assets through SunGard and our tax-free acquisition of SunGard. So, you ended up having a tax bill associate with that. Beyond that, we're prepaying all our prepayable debt in 2017, combination of PS&E proceeds as well as free cash flow, and then anticipate continuing to have additional cash to be able to use for other purposes later in 2017.

Got it. Thank you.

Thank you. Our next question will come from the line of Tien-tsin Huang from JPMorgan. Please go ahead.

Thank you. Good morning. I just wanted to follow up on the comments around new market entrants and aggressive competition and whatnot. Is this a global comment? Is it more IFS specific? And I'm curious if you can maybe quantify what that might mean to the growth outlook for 2017.

We talked a little bit about it, Tien-tsin. It's a very competitive environment. We're seeing record levels of money flowing in to new startups, new disrupters, and, frankly, we're competing very effectively with them. If you look through 2016, we had a very strong year, we've got a very strong pipeline. We were just trying to point out the fact that you are dealing with a very competitive market, frankly across IFS and GFS. There is a lot of technology innovation going on.

Certainly we talked about what we're doing with our private cloud to address some of that, not only our cost structures, which allows us to compete effectively and grow, but in IFS you've got a further issue with consolidation. So, we want to give a balanced view of what the market is, and the balanced view is you have consolidation in IFS, you've got strong competition across both segments. But when you look at our guide, our long-term guide, we're very comfortable with it. When you look at our earnings-per-share percentages, as Woody talked about, we're very comfortable.

So, we've got the portfolio necessary to compete in the market. But we're going to have continue to drive our innovation in a similar manner. And one of the things Woody highlighted in the deck is our 6% to 7% of revenue back investment into the products and to new innovations and that's going to continue.

Okay. That's fair. That's helpful to hear. Just as a quick follow-up, I've been curious about India and the demonetization and what impact that might have on the ATM work that you're doing there.

We're fortunate how we structured a lot of our ATMs. A lot of our ATMs are tied to more of a flat fee approach on deployment, so we don't have as much transaction exposure on it. So, it really had very minimal impact to us. We have now converted to well over 90% of all of our ATMs for new currency. So, frankly, it's been business as usual for us in the quarter so we really didn't see much exposure at all on that.

All right. That's great to hear. Thank you.

Thank you. Our next question comes from the line of Brett Huff from Stephens. Please go ahead.

Good morning, guys. Thank you for taking my questions. I have one question on Brexit and any update on that. It seems like the consulting business came in as we expected. I know that's a little bit of the canary in the coal mine on that. But any further commentary on that. I know you said single digits or maybe high single digits for consulting this year. So, sounds good, but just wanted commentary on that.

And then I have a second question on the tax rate. I think 300 basis points is worth about $0.15. So, that means that you guys are getting a $0.15 tailwind, which is included in your guidance, and that just makes that revenue growth guidance seem a little more conservative than maybe I thought it was. So, if you guys could address those, that would be great. Thank you.

On the Brexit front, certainly I wouldn't say we're seeing a massive tailwind on our consulting business related to Brexit. I will say that our European consulting group has performed very well and we continue to see growth there. The opportunity for that to be a tailwind certainly exists, but I wouldn't tell you that we're attributing Brexit as a major growth engine for us in 2017.

If you go into the tax rate, Brett, if you go back to May, we look at the bridge of earnings growth over the next couple of years, the tax rate was a component of that. We're just getting it a little faster than we anticipate. And to your comment with regard to revenue growth, we wanted to make sure we put together another conservative guide that we felt very comfortable being able to meet or exceed.

Great. That's what I needed. Thanks, guys.

Thank you. Our next question comes from the line of Joseph Foresi from Cantor Fitzgerald. Please go ahead.

Hi. On the SunGard acquisition, maybe you could give us some color on what phase of the synergies you're in at this point and where your key focus is.

Joe, we started on this journey, as we've talked about a number of times, FIS has a very clear playbook that we like to execute on these large transformational acquisitions. That takes us about two years. At the end of two years what we would tell you is by then the companies are so integrated it's really hard to determine what is truly based on synergies and what are just operating efficiencies that our teams continue to drive in. So, we're really halfway through the process at this point in time.

2016 was an outstanding year from an integration standpoint. We raised guidance on our synergies twice in 2016. Frankly, at the time we started this, we thought there were $200 million of synergies over two years. We got that in year one on an exit rate, as Woody talked about. We just raised it again now to we think we'll exit 2017 with $275 million. we've got roughly 11 months to go here left on where we're really focused on what I would say executing our plans and playbook and then it will just become part of the operating unit.

But we're very focused on it. We think there's a lot of opportunity. I think I've shared on prior calls this has been the best combination we've been through as a Company. The teams have come together very well. The cultures have come together very well. The clients have been very receptive.

We're actually starting to see some nice cross sell and upsell across the existing SunGard base, frankly. We've talked about where they have not pooled their products up under common salesforces to get cross sell and upsell of their own solution suite. I highlighted a couple of those on the call today. 11 months ago, but I would tell you we're very confident and continuing to integrate this company. And the teams are very focused to continue to discover opportunities to get cost out and operate more efficiently and drive value back to our shareholders and also to our clients.

Okay. And my second question here, can you talk about where you're seeing the most strength in that 4Q sales quarter and provide just a little bit more color on the IMW business for 2017? Thanks.

We're trying to help everybody understand the new norm in our product portfolio mix. When you really look at the institutional wholesale side, it's always going to have a strong quarter in Q4. And that's very traditional with licensed businesses. You've got people wrapping up their budget years, they're wanting to sign on in license products and get projects kicked off so they can then get deployed throughout the next year. So, you'll always see Q4 being a heavier weight on institutional wholesale.

Frankly, we saw it across the board in that group. Very strong production out of the asset management group, out of a lot of our risk and compliance solutions. So, we're just very pleased with where that revenue flowed in and, frankly, the results of the team.

I think some of it is we are starting to get cross sell and upsell across the SunGard portfolio, which would push that growth rate a little higher. The leadership team has done excellent, the sales team, consolidating that. We've got a fantastic sales leader over that group and really driving the team appropriately. It really came in as expected from that standpoint with regards to the quarter, but it was across all of the major business lines.

Thank you.

Thank you. Our next question will come from the line of Jim Schneider from Goldman Sachs. Please go ahead.

Good morning. Thanks for taking my question. I was wondering if you could maybe talk -- and I apologize if I missed this before -- a little bit about the impact the customer consolidation is going to have on your results in IFS, please.

We don't have a specific one. What we talked about in May, if you look back to the guide we talked about in May, what would drive it to the lower end to the 3% to 6% and what would drive it to the higher end of the 3% to 6%, continued higher levels of consolidation would drive you towards the lower end and that's where we're at. We're still at a high level of consolidation, and there's very little de novo activity in the marketplace.

Fair enough. And then can you maybe just remind us about, in terms of the outlook for the capital markets focus business in GFS, whether you're basically assuming the same level of capital market activity as you saw in Q4 or are you assuming that maybe it's at a lower normalized clip maybe as you saw back in the first quarter of 2016. Just trying to get a handle on that piece.

The business, as I talked about earlier, Jim, the business really does run -- it's got a seasonality effect to it. So, you'll see the quarters of IMW behave very much like they did last year. We did have a very large license fee on a renewal in Q1 last year. You won't see that repeat. That's just due to timing of the renewal.

Frankly, the business, the pipelines are very strong. But expect the seasonality in this business to follow very similar to what you saw in 2016. Once again, this year we'll have a very large Q4 heavily weighted around licensees, which is very traditional of the business, but the other quarters will follow pretty much in alignment with last year's.

Thank you.

Thank you. Our next question will come from the line of Dan Perlin from RBC Capital Markets. Please go ahead.

Thanks. I want to follow up on that a little bit. So, IFS running at the low end of the guidance range, Woody, you're just saying that's a function of consolidation that pushed you down to that. And then how do you reconcile that with the commentary around increased competition coming in? If you're talking about new startups and syn tech money, these are not huge companies. Are they pressuring your pricing or are they actually winning business? I'm just trying to reconcile why that would be the case.

I think the broader commentary is really going to be around continued consolidation. You've seen IFS running in the lower end of that for a few years. We've got some tailwinds specifically this year in EMV and the people-based project. But we think that lower end, that 3% to 4% zone is where you're at, really, given consolidation being the broader driver there.

Yes, Dan, just to build on that, you're really seeing consolidation run 5% to 6% per year. No de novo activity. We've only had two de novos since 2010. So, you really have no additional customers coming in.

The new disrupters, I want to be careful about that. We're not seeing an increased level of competition in 2017 that we didn't see in 2016. So, the reality is we do, as we've talked about for years, see pricing compression in this segment. But I would tell you, when you look at our guide for 2017, there really is no material changes in expectations, from our standpoint. We're not materially seeing increased competition over 2016 or increased pricing compression.

We're also not seeing a decline. We haven't modeled a decline in compression. And, as we talked about in May, that just naturally pushes IFS to the lower end of that range we gave. We think the guide, as Woody says, is conservative for the year because, frankly, we want to make sure that we have something we're very comfortable in meeting. We haven't seen any material shift in it, but it is a fact. That's just what is going on in the industry right now.

Okay. And can you just outline again for me this one quarter, first quarter 2017 drawdown relative to consensus numbers? What are the main drivers of that again? Obviously we have some stuff with PSF. Our model reflected that, so it was still a little bit lower than that. So, can you hit me with the top three major drivers to that difficult comp again, please?

Yes. You had a people-based services project in IFS that was completed in the third quarter that won't recur in the first quarter. You've got accelerated EMV growth in the first quarter of 2016 that will be a difficult grow over in 2017. And we had a large license renewal in the IMW, the institutional and wholesale group, in global trading that will not recur in the first quarter. Those are the three biggies that are headwinds for Q1.

Okay. That's super helpful. And then the last question for me, to the extent that banks do pivot a bit away from their regulatory mentality and framework -- and I understand they've got to still spend on that -- they're going to pivot more towards growth at some point. The question I have is, do you think your product portfolio from a competitive position is well suited for that pivot? Or are you thinking about using some of that capital, now that you've divested this asset, to look for some tuck-ins to maybe satisfy what the Bank's growths are going to be? Thanks.

In 2017, certainly -- let's answer your first question -- we believe we've got the strongest solutions suite in the industry in both retail banking payments and institutional wholesale. So, we're very confident in the capability. Frankly, the sale of public sector, we disclosed that as we were pulling together the SunGard acquisition. We said we're going to look at our non-strategic assets and see if we can find a more strategic home for those assets because they don't fit in the Company. So, that's just us following a very focused strategy in deployment.

When we look around, are there going to be some tuck-ins that need to be occur? Frankly, we don't have those on the white board at this point. We see some investment that we're making in our products. I highlighted the stuff we're doing around our private cloud deployment. That's going very well.

We also have very strong growth in our digital capabilities. Some of our next generation payment capabilities, as highlighted, with PB are doing very well. But even in our traditional businesses, we continue to sign and take shares. So, we're very comfortable with our product suite. We're very comfortable where we compete. So, 2017 we're going to look to repeat what we did in 2016 with that and sell very aggressively in the market.

Thank you.

Thank you. The next question comes from the line of George Mihalos from Cowen. Please go ahead.

Great. Thanks for taking my question, guys. Woody, just wanted to go back, I think it was to Ashwin's question. If you could just maybe clarify what your outlook is now, not to jump the gun but for 2018 given the divestiture in 2017 and your outlook for continued double-digit growth in EPS.

I am glad you asked the question because I think I actually misspoke on Ashwin's and I want to make sure we've got it clear. This year we have $4.15 to $4.30 range I just outlined. We believe we can grow that 13% to 18% in 2018, which I still think that collected will imply $4.65, $4.68 to almost $5. That guidance has stayed intact.

What I was trying to isolate was PS&E around the original guide will be difficult. But our range of $4.15 to $4.30 should grow 13% to 18% in 2018, to be clear. I think I misspoke earlier. I'm glad you asked the question to clarify.

Great. Thanks for that. That's very helpful. And just two quick ones, if I can sneak in. Firstly, just, again, to be clear, the organic revenue outlook, the 2% to 3% for 2017, that's off a $9.2 billion number adjusted for the sale. And then the consulting business, should that grow in line to the 4% to 5% you're looking for, for overall GFS growth? Thank you.

The reported number, $9.2 billion -- $9.241 billion -- is the base to grow off of. Again, you've got three moving parts. You've got the sale of PS&E, about 3 points negative. You've got our deferred revenue acquisition adjustment from SunGard acquisition. And then we've got about a $75 million expected headwind from FX. So, you definitely got that right in terms of your base there.

To add, as far as the consulting business, as we talked about, George, in prior remarks, very comfortable with the leadership team, very comfortable of the refocus back towards transformational consulting engagements, going very well. Certainly, as we've talked about on prior calls, that business will continue to grow in alignment with IFS's numbers going forward. So, very complementary to our solution set, engaging them in opportunities where we also have product penetration, and that's working very well.

Our final question comes from the line of Ramsey El-Assal from Jefferies. Please go ahead.

Thanks for taking my question. I wanted to get your perspective on how to think about the future of your non-strategic assets to check on the commercial business. Granted, the growth profile there is probably not as attractive as the PS&G business. But are you attempting to divest them? Is that something that we should think about as more permanent or something that may go away at some point?

Ramsey, it's a good question. We've talked about it a lot. Certainly we wanted to isolate our non-strategic businesses for our investors so they could get some transparency around it. What remains in that business is our former -- our Certegy check business, which we all know what is going on with the declines around checks, especially at the point of sale. You've also got a global commercial services business which is really just IT infrastructure sales. Both of them are non-strategic for us at this time.

In a perfect world, if there was a valid divestiture to be had, certainly we would do that. But we're also, at IFS, we're not going to make a bad business decision. Frankly, we have good leadership over both of those groups, very focused on serving the clients. So, they'll deal with the macro issues that they're facing very effectively. But if there was an opportunity that presented itself and it made financial sense, we absolutely would consider it.

Okay. I noticed that the retail check processing organic growth rate in the quarter was positive. Is there a path there? Is that something that we should expect to continue or is there some driver there that bounced it positive just this quarter?

Pure play, holiday play. You always see a bump in Q4 around the holidays because you see volumes come in and nothing more than that.

We still expect that to be a decliner over time.

Yes. Absolutely.

Got it, okay. Then last quick one for me, when should we contemplate you guys potentially getting back in the market with buy backs? Is that something we could see towards the end of this year, or is that more of a future looking thing?

We tried to add some color around the commentary. We believe we'll be able to prepay all of our prepayable debt in 2017 and still generate excess cash flow in late 2017 and into 2018 and we could be buying back share.

All right. That's all for me. Thank you.

Thank you. And please go ahead.

Thank you for joining us today, for your questions and your continued interest in IFS. We are very pleased with our results, concluding a very strong year of performance and earnings growth. We have a solid pipeline heading into 2017 and we are confident in our strategy and our business model. This provides us continued belief in our ability to consistently execute and deliver tangible value to both our clients and shareholders.

Thank you to our loyal clients who depend on and trust us to keep their businesses competitive every day. Thank you also to our FIS leaders and our more than 55,000 employees around the globe for their hard work and commitment. It is because of them that FIS continues to empower the financial world. Thank you for joining us today.

Thank you. Ladies and gentlemen, this conference will be available for replay after 11.00 AM today through February 21, 2017. You may access the AT&T teleconference replay system at any time by dialing 1-800-475-6701 and entering the access code of 414535. International participants please dial 320--365-3844. Those numbers against are 1-800-475-6701 and 320-365-3844, with an access code of 414535. That does conclude our conference today. Thanks for using AT&T teleconference. You may now disconnect.