Fidelity National Information Services Inc (FIS) 2018 Q2 法說會逐字稿

Ladies and gentlemen, thank you for standing by, and welcome to the FIS Second Quarter 2018 Earnings Call. (Operator Instructions) And as a reminder, this conference is being recorded.

I'd now like to turn the call over to our host, Mr. Pete Gunnlaugsson. Please go ahead, sir.

Thank you, Brad. Good morning everyone, and welcome to FIS' Second Quarter 2018 Earnings Conference Call.

Turning to Slide 2. Gary Norcross, Chairman, President and Chief Executive Officer will begin today's call with company highlights for the quarter; Woody Woodall, Chief Financial Officer, will continue with the financial results. This conference call is also being webcast with today's news release and corresponding presentation 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. I refer you 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. Gary?

Thank you, Pete. Good morning, and thank you for joining us. I'm pleased to announce today that FIS delivered another solid quarter with results in line with our expectations. We continue to see strong client engagement around investing for the future, signaling increasing demand for our solutions. Sales momentum continues to be strong with a solid pipeline and growth in our revenue backlog. Our strong first half results combined with our visibility into the second half of the year and accelerated growth in our Integrated Financial Solutions segment allows us to raise our EPS guidance for the second quarter in a row and push our EBITDA margin to the high end of the range for the full year. Woody will provide more financial details in his remarks.

We continue to make solid progress towards our data center consolidation, solution modernization and other operating efficiency initiatives. These programs will drive long-term operating results, scalability, growth and resiliency.

Turning to Slide 5. Key themes in the quarter focus on improving sales, strengthening pipeline and continued trends towards outsourcing. Turning to our segment results. Our Integrated Financial Solutions segments saw another strong quarter of organic growth with accelerated growth sequentially. As expected, we saw a nice rebound in our payments business, while demand remained strong for our retail banking, wealth and digital solutions. Processing volumes also accelerated across the segment.

As an example of key wins in the quarter, in a competitive core takeaway deal, a mid-tier commercial bank based in the Midwest chose FIS for our advanced core banking solution to support its long-term growth. This is significant because our client was being acquired and the acquiring bank chose to convert to FIS solutions given the strength of the overall solution suite. This example continues to underscore FIS' strength in the large complex banking sector. Additionally, we won an exciting contract to significantly expand our work with the leading provider of tax-preparation solutions, making us the company's exclusive ROS payment provider for taxpayers.

Finally, in showcasing the strength of our solution scale, a $20 billion financial institution expanded their existing relationship with us by converting to our new FIS core banking platform, which includes new digital channels, a full data conversion and numerous back-office solutions including item processing, electronic funds transfer and output solutions. This deployment occurred over a single weekend with flawless execution and seamless onboarding.

As we discussed on our last call, the IFS spend environment remains robust. We continue to build on the positive sales results established over the last several quarters, creating momentum into the back half of 2018 and into 2019. In our Global Financial Solutions segment, these results reflect a large grow over in license fees in 2017. They also reflect a continued swing towards a long-term processing agreements instead of on-premise licenses. This swing to outsourcing is a very good outcome for the business, driving much higher revenue predictability in the future. We continue to be pleased with the transformation of this business, which over time will evolve to operate more like our IFS segment. Based on the quality and breadth of our solutions, coupled with continued strong demand, we believe we are well positioned to take advantage of this trend. For example, a large regional bank expanded its relationship with FIS by signing a new agreement for a hosted solution to help the bank real-time payments and connect to the clearinghouse real-time payments network.

As announced earlier this quarter, we now provide certification services for all financial institutions that want to participate in these real-time services. A second North American institution is leveraging the power of FIS to launch its new direct bank. This FIS hosted offering is leveraging end-to-end solutions from our entire portfolio including digital banking and component-based core processing. This new direct bank continues our leadership role in launching direct banks across North America.

We also expanded our relationship with a global investment bank by providing outsourced risk and compliance solutions for its listed and cleared over-the-counter business. As a final example, in the U.K., a financial services company recently became our first client to go live on our cloud-based payments-as-a-service offering. This innovative API solution enables the market to digitally offer any payment type to their customers including new faster payments as well as traditional payment such as wires and ACH. Given the current pipeline and sales success in the first half of the year, we expect GFS to drive stronger growth during the back half of 2018.

Turning to Slide 6. Overall, we continue to drive solid momentum and are making very good progress on executing our strategy that will drive long-term transformational results for us and our clients. We outlined a number of these actions for you at our Investor Day in May, including focusing our investments and accelerating our initiatives to provide the most modern solution set in the industry, remaining on track to operate more than 50% of our technology solutions within our private cloud by the end of the year and continuing driving increased efficiencies within our operations. We just completed 4 large events hosting thousands of clients from North America, Europe and Asia Pacific. Our continuous focus on modernization and value-added solution integration aligns with client demand and has been at the forefront of our sales success in growing pipeline throughout the year. We are pleased that our clients are enthusiastic about our strategic focus areas and the benefits they will bring to their organizations.

We also just completed our third annual FinTech accelerator program, which was again focused on sponsoring and shaping high-potential FinTech startups. This program, which has been extended for another year, is solid proof of our innovation strategy in action. Client feedback across all of these events, coupled with our first half results, underscores confidence in our strategy and investment decisions, and gives us clear line of sight into our ability to deliver on our goals, which are to drive long-term growth through innovation, increase sales through solution differentiation and continue to build our global scale. We remain very confident in the value we are delivering for our clients and believe that the value will continue to translate into consistent and profitable results and strong returns for our shareholders.

Woody will now provide additional detail on the financial results for the quarter.

Thanks, Gary. I'll begin on Slide 8 with a summary of our consolidated results for the quarter. In the second quarter, revenue increased 1% to $2.1 billion on an organic basis and adjusted EBITDA increased 1% to $757 million. Adjusted EBITDA margin expanded 260 basis points to 35.9% for the quarter. Excluding divestitures, EBITDA would've grown 2.5% and margins would've expanded approximately 60 basis points. Adjusted net earnings was $408 million and adjusted earnings per share increased 18.3% to $1.23 per share compared to $1.04 per share in the prior year quarter.

For the first half of the year, revenue increased 2% on an organic basis to $4.2 billion and adjusted EBITDA grew 3.5% to $1.5 billion. Adjusted EBITDA margin expanded 300 basis points to 35%. Excluding divestitures, EBITDA would've grown 5.6% and margins would've expanded approximately 100 basis points. Adjusted earnings per share grew 24.2% to $2.31 per share.

Moving to Slide 9. In the second quarter, IFS revenue grew a healthy 4.3% on an organic basis. EBITDA grew 5.6% to $492 million versus $466 million in the prior year quarter. EBITDA margins expanded 90 basis points to 43.8%, driven primarily by operating leverage on revenue growth and cost efficiencies. For the first half of the year, revenue increased 3.7% on an organic basis and adjusted EBITDA grew to 4 -- to $943 million, a 4.2% increase compared to the prior year period.

Turning to Slide 10. Banking and wealth grew 5.1% for the quarter. This strong performance was driven primarily by wealth and output solutions as well as an overall increase in processing volumes. As expected, payments rebounded in the quarter and grew 2%. As we discussed on our last call, we're seeing increasing transaction volumes in our data and fraud solutions. This growth was also driven by growing demand in our market-differentiating loyalty solutions. Corporate and digital grew 6.5% in the quarter, with strong growth in both groups.

Term fees were $19 million in the quarter versus $11 million in the prior year period. We still anticipate full year term fees to be relatively flat compared to the prior year. As Gary expressed, we're very pleased with the IFS performance for the first half of the year.

Turning to Slide 11. In the second quarter, GFS revenue declined 3% on an organic basis. EBITDA declined 7.5% to $314 million, primarily as a result of divestitures. These divestitures enabled margin expansion of 370 basis points to 34.9%. For the first half of the year, revenue increased 1.1% organically, adjusted EBITDA grew to $618 million, a 2.5% increase compared to the prior year period. This represents 500 basis points of margin expansion to 33.9%. As previously discussed, in February and May, GFS growth for the first half of the year was impacted by the known timing of natural license removals due to the adoption of ASC 606. Consistent with this messaging, we still anticipate second half acceleration for the segment.

Moving to Slide 12. For the quarter, our institutional and wholesale business declined 5.1%, primarily driven by lower license revenue recognition. Banking and payments was flat, with increased transaction growth in our payments group, offset by lower license revenue in our banking solutions. We are seeing an acceleration in demand for our outsourced processing arrangements versus upfront license sales. While this trend creates a short-term top line headwind, it improves the long-term recurring revenue base, and is a positive from a business perspective as our GFS segment continues to operate more like our IFS segment. We are pleased with this market trend which creates higher predictability for our GFS segment. As a proof point of this positive trend, for the first 6 months of the year, recurring revenue increased to about 75% from approximately 70% in the prior year.

Moving to Slide 13. Corporate and Other revenue in the second quarter was $84 million with an EBITDA loss of $49 million. The Corporate and Other segment results include $62 million of corporate expenses for the quarter compared to $75 million in the prior year period. This represents a 17% reduction in corporate expenses, primarily driven by results from our data center consolidation program and ongoing cost management efforts.

Moving to Slide 14. Free cash flow for the quarter was about $350 million, and we still expect free cash flow conversion of approximately 110% for the year. Debt outstanding as of June 30 was approximately $8.9 billion, with a weighted average interest rate of 3.5%. 95% of our outstanding debt is at fixed interest rates.

During the second quarter, we returned $305 million to our shareholders in the form of dividends and share buybacks. We paid $105 million in dividend and repurchased 2.1 million shares. Through the end of July, we have repurchased 8.1 million shares for approximately $800 million year-to-date at a weighted average price of $99.45 per share. We have approximately $3.1 billion remaining of our existing share repurchase authorization. Our weighted average diluted share count was 333 million at the end of the quarter and our basic share count was 329 million.

Last quarter, we began to disclose our backlog in our public filings and will continue to do so. For the last few quarters, we have discussed strong sales results. These have contributed to an increase of approximately $500 million to our backlog compared to the prior year.

Before I move to the review of our guidance, I wanted to give an update on FX. Since our last call, the dollar has strengthened, especially against the Brazilian real, which created an $18 million top line headwind in the second quarter compared to our expectations in May. Through the end of July, this trend has continued. For the last 6 months of the year, we currently anticipate a negative revenue impact of about $40 million due to FX. To help with modeling, we expect the third quarter to be impacted slightly more by this headwind in the fourth quarter. We still believe the impact to earnings per share is immaterial.

Moving to Slide 15. This morning, we reiterated our full year consolidated revenue growth guidance of 2.5% to 3.5%, with a 1 point shift from GFS to IFS. We now expect both IFS and GFS to grow 3% to 4% organically. This 1 point shift from GFS to IFS was driven primarily by the previously discussed increase in volumes and demand in our IFS segment, and an acceleration in market trends from up-front licenses to outsourcing agreements in our GFS segment, both of which we believe are positive backdrop for each segment. We're also guiding EBITDA margins to the high end of our prior range or approximately 37%. And finally, primarily driven by the increased margin profile of our business, we are increasing the bottom end of the EPS range by $0.04.

For the full year, we now expect adjusted EPS to be $5.18 to $5.34 per share, representing 21% to 25% growth.

Before I conclude my remarks, I'd like to provide a little color on EPS for the remainder of the year. Compared to our expectations, consensus estimates are too high in the third quarter by roughly $0.05 and too low in the fourth quarter.

Moving to Slide 16. We will continue to leverage our market leadership to produce predictable top-line growth, exceptional margin expansion, double-digit EPS growth and strong cash flows. These strengths allow us to invest for the future growth and return value to our shareholders.

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

(Operator Instructions) And we'll go to the line of Dave Koning with Baird.

So first of all, just on the -- on GFS, obviously slowed in Q2 and that was as you expected, I think, due to timing, but the shift to more outsourced long-term high-margin relationships, that's more -- that takes a little time to go through. So I guess, I'm just wondering, the back half, you're expecting 4% to 6% growth, I think in the back half. Is there anything different in Q3 and Q4? And why such a quick kind of return from Q2?

Yes. I think we're trying to outline on both in February and May, the impact in quarter for Q2 and really first half for GFS around the recognition of renewals under ASC 606, impacted us. That trend reverses, particularly in Q4 of this year, so we get a net tailwind in Q4. If you go back and look at the commentary from February, we try to outline that and let you know this was coming. We're certainly seeing that in terms of the recognition of renewals just from adopting 606. To Gary's point, we did see some shift in upfront license through outsourcing. I think that trend will continue. I think it's probably accelerating a bit from our original expectation. But again, that's a good long-term outlook.

Yes. Now, I mean to build on that, Dave. You saw it in Woody's comments around the reoccurring revenue, you've seen GFS accelerate from 70% to 75% in reoccurring in a year, and this is just that trend that we've been signaling. But we've got a lot of our clients now, not only looking to take advantage of our software, but how do we take advantage of FIS' processing ability and really lower their overall total cost. So it's a great outcome for the business because over time, you'll see GFS move more like an IFS number. Those margins will continue to accelerate as we get the economies out of delivering that out of our data center environment. So it's a good long-term outcome for the segment.

Yes. It seems great for margins over time.

Yes, probably.

Yes. And I guess the second -- just a follow-up, just -- so it sounds like, if the back half in GFS, I think to get to guidance, it has to be 4% to 6%, we should assume the lower part of that for Q3 and the higher part for Q4, based on what, you just said, is that fair?

That's exactly right. Said a different way, when we start October 1, we're looking at some growth, just from re-recognition under 606. So that's exactly how we would think about it is Q4 being a little higher and Q3 being a little lower.

But if you always look at the historical context of that business, Q4 has always been a big quarter in sales.

Yes.

And it's very traditional that our clients enter into agreements, so they can kick off the new year with a big project or a big program. So Q4 has always been a big quarter in that business, specifically.

And the next question will come from David Togut with Evercore ISI.

Gary, you were -- you called for return in IT spending growth for banks in Q1 and it looks like, this is the third consecutive quarter of strong bookings growth. Can you drill down a little bit into the

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of specific strength you're seeing in IFS? You called out digital, is that sort of online in mobile banking, payments? What are the key spending priorities?

Yes, no, it really is, we're really feeling good about the IFS segment. Frankly, about, in general, IT spend across the entire sector, both IFS and GFS, we've seen 3 quarters in a row of strong sales across both segments to your point. And specifically, within IFS, we're seeing good sales really across several areas. Frankly, payments has been strong, but it's been more in adoption. So we're seeing accelerated volumes, we're seeing our sale success come across. Frankly, next-generation core banking, we highlighted a number of those wins in the prepared remarks. We're also seeing strong embracement of digital channels, so mobile -- and frankly, omnichannel as we roll out our DIGITAL ONE capabilities, which is really an omnichannel deployment across both the segments, we're seeing our clients clamor to that to try to take out cost out of back-office and actually also drive a better interaction with their customers. So it's really, Dave, across multiple product lines. I think it does show the strength of FIS' overall product portfolio and that's also resonating. So we highlighted another big digital bank signing on with us. We've become pretty much the standard in digital bank deployment in North America. And once again, that speed to market, that ability to drive a more open core componentized architecture with open APIs, allows people to get quick to market. So we're pleased with the trends we're seeing across our sales channels.

Understood. Just as a quick follow-up, on GFS, particularly for the institutional wholesale business, if we strip out ASC 606 impacts, strip out the shift to outsourcing from software license, are there any underlying trends in terms of demand in I&W to call out after making those adjustments?

Well, it's interesting. We've had -- we had a very strong sales quarter in I&W, specifically. In fact, we've had 3 strong quarters in that. And from a sales standpoint, from a true new total contract value of our sales engine bringing it into to the firm, we were ahead of where we were last year. And so we're feeling really good about the demand that we're finding for our products. When you really boil it down, we talked a lot about this in the SunGard acquisition, so if you back up, you remember, we saw an opportunity to actually put these products together and form more end to end solutions, and we're seeing a lot of success with that. I think that is also some of the things that's driving people wanting to take this software, this solution now as a service. Because they're now entering into contracts with this, where we'll take multiple products and really give an end-to-end total solution and therefore drive it through our data centers. But the sales engine is operating very well in GFS and has consistently for the last year. And so we're pleased at the sales results for the first 2 quarters.

Your next question will come from the line of Brett Huff with Stephens.

Two questions, number one, Woody, you mentioned, I think in your comments that part of the margin expansion in IFS was from cost efficiencies. I think we're used to hearing that more in the GFS side. But wondered if, is that a -- is there a change that's going on or is that just sort of normal matter of course and it's finally just hitting the numbers or can you give us a little insight on that?

Yes. If you go back to the dialogue we had in the Investor Day around the data center consolidation and the early results around that, you heard some of that in my prepared remarks in corporate, we're certainly seeing that flow through IFS and GFS. The margin profile was definitely strong in IFS this quarter and it was really clean. So I think you're seeing early results of that as we anticipated, and we'll continue to see our ability to drive margins in that area. The other thing that we've talked about a number of times is just operating leverage within that business, as you see organic growth accelerating like we have the last couple of quarters, the operating leverage really pushes to the bottom line in the profitability.

Yes. I'm going to build on that, a minute, Brett. As we talked about it on Investor Day, by the end of this year, we'll have $100 million in run rate out of operating savings just through data center consolidation. And by the time we're complete with that program in early 2021, we'll have $250 million of run rate. So you're going to see -- that's why we had so much confidence in Investor Day about the margin projections of this business going forward. We're really getting the benefits of this leverage, the teams working together very well. We've seen the operating leverage for years in the IFS. So by nature, as the business grows faster, you'll naturally see a higher contribution margin that will also pull those margins up.

That's helpful. And then just one more detail question on GFS. I get that the 606 thing is, I think, going to impact folks maybe more than everybody thought. Was there a handful of deals that kind of swung that for the quarter or was it kind of a gradual thing? Or can you -- is there any -- was there any sort of trigger point that really made the difference in terms of changing your view on that guide?

No. It's really around timing of renewals there. That was what we saw and we anticipated and tried to articulate to the market in February and May, that we were going to see a low watermark in GFS in Q2, that's certainly come to fruition. We anticipate that to have the opposite effect in Q4, as we see the natural re-recognition of those renewals under 606. So said very clearly, we anticipated roughly 1.5% to 2% decline in GFS in Q2. We saw about 3%. The other point was roughly the change in a move towards outsourcing versus up-front license, which really helps drive that backlog increase that we talked about and gives us some confidence going forward. But that -- those are the 2 shifts. The shift between outsourcing and license is really the primary change in lowering the GFS guide, in terms of its 3% to 4% now.

Brett, as we've been through this process before, multiple years ago with IFS and IFS used to be a heavy oriented license business. And as you're going through the sales process, you first sell the prospect on the product itself or on the solution itself. But to Woody's point, I think the surprise for us was more of those customers that would have traditionally licensed the product, really have pushed more towards outsourcing in somewhat dramatic way and that 70% reoccurring to 75% is a big bump in a single year. If you look at the back half of the year, we're continuing to model that license fees will continue to be there, but we also recognize this outsourcing trend, which is a good thing, will continue.

Yes, as we build the backlog, I'll tell you, just gives us more confidence in the outlook that we gave you back in May. Because we'll see that backlog grow and had more reoccurring revenue to build on.

Okay. One last question for me just to slip it in. You guys have been working on modularity of your core processing system, so try and kind of migrate folks in a less difficult big bang switchover way. Can you give us any update on that? Were some of the wins that you announced earlier in your comments, Gary, a function of that new or that updated strategy of modernization?

Yes. It was, Brett, we're having a lot of success. As we talked about on Investor Day, this is a journey. We're multiple years into that investment now and now you're seeing the results of that and actually starting to see some wins that will be launching our fully new componentized solutions and will continue to bring more and more of those to bear. But we're also taking advantage of that investment in modernizing our existing platforms as well over time. And so our clients will get the benefit of that as part of doing business with FIS as we take them through the natural upgrade cycle. So we're excited where the teams are on that development effort and we're also excited to start seeing this actually come into market now.

And our next question will come from Darrin Peller with Wolfe Research.

Look, just to be clear, I mean, without the impacts of 606 this specific quarter timing wise and the shift to outsourcing, maybe you could just give us exactly what you think the GFS growth rate would have been now? And then just higher level, I mean, Gary, you talked about 4% to 5% growth for this business longer-term, GFS in particular, I mean, is there anything you're seeing now that might have changed that view? Or when do you expect we'd get back to that profile?

Yes. If you look at -- stripping all the other things out, I would tell you, it looks very close to in line with what we've talked about in our long-term guide, which is about 4% to 5%. That's what we outlined in May, that's what we've been seeing over a number of quarters and feel good about it, in terms of outlook. We do have some lumpiness, as we tried to outline a couple of times this year to let you guys know, we're going to see that with the adoption of 606 and we can't do much about that. The underlying health of the business is solid in GFS.

Absolutely. And so as you think about that, the lumpiness comes in the form of license fees. Now that we've got 606, historically, we were able to renew clients early, right? And pull in those license fees. So that gets normalized through 606. To Woody's point, in the back half of the year, you'll see that re-recognition. Honestly, Darrin, as you look at the percentage of reoccurring revenue increase, it actually gives us more confidence in the guide, not less. And you're going to see that accelerate not only in the back half of the year, but into 2019 and beyond. So we're very comfortable with the business. The sales performance has been very strong. And as we on-board this and on-board these large processing agreements, it's going to accelerate the growth.

All right. That's good to hear. And I guess just as a follow-up on that, the conversion to revenue, I think someone asked this before, but that should play out over the next, probably what, 12 to 18 months. I guess you had some last year, booking strength that would be generating revenue in the second half this year is what's giving you confidence?

Absolutely. It's a very consistent model as people come into the SaaS offering, just like IFS, you've got a 12 to 18 month on-boarding cycle and then you've got high reoccurring revenue, a good solid contribution margins throughout the life cycle of that contract.

Very good. Just very quickly, IFS showed strength, obviously, it was very good in the quarter. Just want to be clear, there was nothing, sort of, onetime about that? This is the sustainable trend right now?

No. That's the reason we actually increased IFS on the guide too. Spent a lot of time talking about GFS and the decrease there, but IFS was very strong. A sequential increase of 90 basis points and we see good growth outlook for the back half of the year and going forward as we continue to see strong sales conversions, processing volumes, all those things that we really like it's...

And to your point, Darrin, we saw good solid sales in Q4 last year, Q1 and now Q2, all in IFS. So that stuff is all going to be on boarding in the back half and early part of next year. So we think it's a real good news story and the quarter was really just about as straight down the fairway as you can get.

And our next question comes from Tien-tsin Huang with JPMorgan.

I was just following up on that, just -- what inning would you say you're in, in converting to processing from licensing? I heard the 75% from 70%, how high could that go and how quickly?

Well, if you look at IFS now, it's roughly about 90%, right? So you'll continue to see -- it really depends on how quickly people quit taking on-premise license, of software. I can tell you historically that was kind of a 10-year transition over [at] IFS, so it was long term as the market moves. But there's very clearly larger and larger institutions are looking to get more leverage out of their purchasing power with their suppliers. And one way of driving that is into the -- is getting the benefits of our data center investment. You hear how much we're investing in cloud-based technologies as an example. There really is no sense for our clients to replicate that spend. They should come with us. And as we move more and more of these technologies into our private cloud, we can just do it at a much more cost-effective rate than they can. So you'll continue to see this movement over the future quarters.

So is it -- would it be fair to say that this is opening up the pipeline overall and expanding your TAM as banks are looking to transition off of on-prem and looking for -- as a solution providers?

Yes. No, I think it's fair that you'll see larger and larger contracts being signed out of GFS with a much higher reoccurring revenue, especially as our clients starting embracing the solutions that we're putting together for more end-to-end capabilities across our I&W landscape. So I do think you'll continue to see that revenue backlog grow. Woody highlighted significant growth in it this quarter-over-quarter, and you see it in the reoccurring as well.

So my last follow-up, just the $500 million the backlog being up versus the prior year. Is that primarily within that GFS trend you're talking about or is it more broad-based than that?

It's in both segments. But I would tell you GFS was a little heavier in terms of backlog build than IFS, but it was in both.

And our next question here will come from Chris Shutler with William Blair.

On the sales activity, good again this quarter. Can you just give us some sense, how much stronger sales have been over the last few quarters and compared to some prior period? I know we have the backlog number, but I think that reflects multiple years of revenue. So just any more color on the magnitude of the improvement would be great?

Chris, we haven't got into disclosures quarter-on-quarter, but it was definitely very strong. I mean, we saw the sales success definitely double-digits growth, and so we're very pleased, where it is at this point in the year.

Okay. Then on the flip side, Gary, the -- can you talk about trends in client and the revenue attrition and what you have a line of sight into compared to prior periods?

Yes. The big metric that we look at there is really our term fees. It's very hard to predict, when acquisitions are going to occur. Right now, we're still modeling our term fees to be flat year-over-year. So we're not seeing -- we haven't seen the exposure -- an increased exposure to that, at least based on our forecast over the last year. But it's certainly something that we continue to watch.

And our next question comes from the line of Dan Perlin with RBC Capital.

I just wanted to circle back on this accelerating shift to outsourcing. I know you hit on it a lot. But I'm wondering, is there something about the way you're able to structure these outsourcing deals relative to your legacy license, that's enabling you to do more cross-selling? Like, are the ways in which you're able to kind of promote that cross-selling opportunity, do they tilt more towards these outsourcing type of transactions?

I think there are several things driving it, Dan. If you think about it -- let's back up, one of the things that we did was, we pulled the sales organization out of the individual product lines as we went through the SunGard integration. We got a lot of benefit of that, we got a lot of leverage out of the sales force. By doing that, we also then started putting products together, especially across the I&W landscape to form more end-to-end solutions, which historically, that market had bought more front, middle or back-office in very discrete buying decisions. We're now seeing more end-to-end capabilities, and we've highlighted a number of those wins over the quarters. So then, when you add the fact that FIS, given our scale in data-center operation, we've talked a lot about that, almost all of the IFS business is now taken in a SaaS model, there's a couple of minor exceptions. But in general, the IFS, entire IFS segment is a SaaS model. So now we've given not only a solution ability but also access to world-class data centers, which we've talked a lot about. And when you go to our clients and we're looking at prospects and working with them, it really is not only the capability of the product or solution, but how can they drive their total cost of ownership lower. And what we're seeing, and we've highlighted this for quite some time, we're seeing more and more of our clients push themselves to look at alternative ways to lower their overall cost and just by leveraging our scale in the processing environment. And frankly, we drive a lot of best practices around that. So not only can we drive to a lower cost, when we do it, we can do it very well. We're just seeing more and more of our customers open themselves up, our larger customers open themselves up to that kind of capability. So part of it is just more arrows in the quiver for our sales force, that prior SunGard [organization] really didn't have this capability at the level we do. Part of it is getting the sales force out of the product line, so now they realize, they can sell an entire solution. It aligns our compensation models more effectively. And then the third is really a trend in the market, where people are just looking, [where] their overall total cost of ownership. So I think all 3 of those things combined, is really driving some of the outcome we're seeing.

Okay. That's great. And then just my quick follow-up. Are there any call outs specifically as you think about different geographies around GFS? Just commentary around certain areas of strength, certain areas of weakness, given kind of different geopolitical risks and currency movements?

Yes. Nothing particular to call out this quarter, one versus another. As you think about currencies, right, the Brazilian real is certainly weakened against the dollar. That's probably the biggest change we've had from an FX perspective. We also saw some offsetting benefit in the U.K. pound on the cost side and the rupee in the cost side, giving us kind of an immaterial point of view around earnings impact. But those would be the major areas.

And our next question comes from Jeff Cantwell with Guggenheim investments.

You've touched on this, but wanted to see, if you can give us a little more color on the outlook in IFS for the back half of the year? It looks like the front half of the year, the contribution of revenue growth is driven by banking and wealth, which also drove some modest margin expansions. So I guess, what I'm wondering, is if the mix shifts in IFS in the back half, would we see a greater degree of margin expansion in this segment than we saw in the first half? Can you just comment on that or any additional color you have on, how we should think about contribution to revenue, and segment EBITDA margins. As we contemplate the back half of the year?

Yes, I think one of the things you see, we talked about it earlier, we saw an improvement in payments on our revenue growth. We were down in Q1, we expected that, we were up 2% in Q2. Talking about a rebound, we do anticipate continuing to see payments increase as we get through some easier comps in the back half of the year on card production. But overall, I will continue to expect to see good growth across both (inaudible) segments, beyond that, both corporate, digital and banking and wealth. I'm very pleased where IFS is right now. It's -- the sales are converting and things are going very well in IFS right now.

Appreciate that. And then, I have a high level one. I wanted to ask you about what you're seeing in international and Europe in particular? One of the things we've heard pretty consistently is that Brexit is creating a lot of unknowns for FIs, which is constraining their technology spend. So just wanted to hear your thoughts on that? Is this perhaps something that we should be aware for you over the medium term? Which is, as we move past Brexit eventually, we could start to see your backlog over there growing, as FIs start to shift more towards the front foot posture with their budgets, and where we could potentially see that coming through as revenue -- new revenue for you guys?

Yes. No. It's a good question. Honestly, we have had -- and we've talked about it on a number of calls, we've had the whole European market return slower than we would like. Over the last several years, we've continued -- we have seen good momentum recently in our sales and our backlog. We highlighted a very nice win of launching a new client on our payments as a service offering in the U.K., which is all cloud-based and API ready. We've had a lot of success rolling out our new API Gateway to meet some of the regulatory changes. So I do think you'll continue to see Europe strengthen for us over the coming quarters and coming years. So I do think the environment's improving.

And our next question here will come from the line of Arvind Ramnani with KeyBanc.

You talked a lot about your progress on digital. Can you maybe kind of outline some of the factors that your digital solution is winning competitively versus some of the other solutions available? And also if you can maybe kind of highlight 3 or 4 kind of features that's certainly, kind of, driving sales in your (inaudible) offering.

Yes. No, it's a great question. We actually highlighted in a number of our conferences. So, if you think about the evolution of digital, we would argue we're heading into the third major generation of digital deployment. We've been in digital dating all the way back to just mobile banking or internet banking, which was well over 10 years ago, we're on the forefront of that. Over the years, we've taken a number of steps through our digital architectures. And today, we're very, very competitive across mobile, Internet, also small business et cetera. What we see the next wave is really what we talked about with our clients and we're getting a lot of traction around this, is really an omni-channel deployment. So how do you take all of the both assisted and unassisted channels and bring them through a common architecture. It's really a way for our clients that -- to start not only leveraging the digital channels, but how do you leverage that into the branch environment as well and frankly, where the consumer gets a seamless experience. So that's resonated very well with our clients. And as we invest in that new capability and that new technology, you see a lot of our clients getting on that journey with us to take advantage of that.

Great. And if I can -- just quick follow-up on that, are you signing new logos as a result or a lot of it is taking existing clients and essentially, kind of, selling into them for these new offerings.

It's all of the above. I mean, given our client base and given how large our client base in the U.S., a lot of our sales come in the form of cross sales to existing customers. But we've also been taking new logos in market. So it's really a combination of both -- across both of our segments, both IFS and GFS.

Last question this morning will come from the line of George Mihalos with Cowen.

Gary and Woody, just wanted to ask, when you look at the strong sales pipeline and I guess maybe specific to IFS, it sounds like, obviously, there are macro tailwinds, but just curious, competitively, are you seeing more -- any sort of change competitively in the market with your ability to win more business? And then Gary at the Investor Day, you talked optimistically about maybe servicing larger FIs from a core processing standpoint, just curious as to any progress on that front?

Yes, no George, we really are seeing a modernization focus resonate with our clients. And frankly, as you look at financial institutions, as they get larger and larger in the space, especially banks, specifically, North America -- I'm addressing IFS specifically now. As those banks get larger and larger, our market share becomes greater. And if you look at the capabilities of our existing solutions, I would argue they are best-in-class in the large bank market, if you then layer on our next generation capabilities that we've been investing in for a number of years, you are just starting to see us take -- not only take share, you're just seeing our customers get on that roadmap to move to a more modern capability. We highlight an example in the prepared remarks, where very unusual for one of our client -- not unusual for one of our clients to get bought, we all know consolidation occurs in the industry. But it is unusual for the buying entity to actually convert to the acquired bank's solution, and we highlighted an example, that in core banking this quarter. That several times that now has occurred over the last couple of years. So as these banks grow, to $5 billion, $10 billion, $20 billion, you're seeing more and more of a need to really take advantage of the FIS strength in functionality and capability. And we're seeing that in our pipeline signings, we're seeing that in not only our sale signing but also in our pipeline. So we feel great about the banking market in the U.S. We feel really good about the investments we're making. We think it plays for a solid outcome for FIS in the future.

Great. And if I could just end on -- Woody, in a more sort of grab accounting question. It looks like there was a bit more of an add back, I guess tied to Capco, call it about $0.02 or so, in terms of the adjustments that were added back. It doesn't look like you've changed the outlook though, the 2 10 to 1 95 add backs for the full year. So just to be very clear, the increase in your EPS guide that is tied to fundamental improvement? There's nothing sort of below the line from an adjustment standpoint that's different than what you were thinking about, right?

No. Fundamental. Fundamental improvement in the business. Higher margins, higher revenue growth and good fundamentals.

Thank you for joining us today and for your ongoing interest in FIS. We're pleased with our operating performance of the first half of the year, which allows us to raise our earnings per share guidance for 2 quarters in a row. Importantly, our robust pipeline positioned us for strong results for the back half of the year and into 2019. In closing, I'd like to reinforce our core fundamentals. We have a proven market leadership position, driving continues innovation for modernization and improving your capabilities. We're serving healthy and improving market segments and have a very strong financial fundamental with a proven track record of generating shareholder returns. And we believe our business continues to have a compelling investment thesis and we look forward to delivering on our commitments. I'd like to thank our loyal clients, who depend on us to keep their business running and growing every day. The successful partnership between our clients, the leaders and employees enables FIS to continue to empower the financial world. Thank you for joining us today.

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