Fidelity National Information Services Inc
NYSE:FIS

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Fidelity National Information Services Inc
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Earnings Call Analysis

Q4-2023 Analysis
Fidelity National Information Services Inc

FIS Exceeds Outlook, Projects Growth

FIS outperformed its EBITDA guidance for the year, with results above the anticipated $5.9 to $6.1 billion, driven by Banking and Capital Markets growth and the sale of Worldpay. Post-sale, revenue growth is expected to rise from 3% in 2023 to 4-4.5% in 2024. Adjusted EBITDA margin will likely grow by 20-40 basis points, and adjusted EPS is set to increase 38-41% from continuing operations, or 5-7% on a normalized basis considering the impacts from dissynergies. The quarter saw a robust 70 basis points growth in adjusted EBITDA margin, yet adjusted EPS for continuing operations dipped slightly to $0.94. For 2024, adjusted EPS is projected at $4.66 to $4.76, including Worldpay's influence.

A Renewed Focus and Strategic Shift

In the backdrop of economic uncertainties and internal challenges, FIS has undergone a significant transformation under the leadership of CEO Stephanie Ferris. Over a year, Ferris has steered FIS away from missed financial commitments and dilatory product delivery to a more focused and streamlined organization. Central to this pivot has been the majority sale of the Worldpay business to GTCR, a strategic move that has led to two separate but collaborating market leaders with a keen eye on growth and margin opportunities.

Financial Milestones and Ambitious Targets

FIS has surpassed its financial outlook for the year 2023, with a noteworthy performance in the Banking and Capital Markets segments, contributing to a 4% recurring revenue growth. Adjusted EBITDA margins have expanded in the latter half of the year, thanks in part to the cost-saving initiatives of the Future Forward program. Equally significant has been the improvement in adjusted free cash flow conversion to 95%, up from 72% in 2022. With these solid results, FIS has committed to an increased shareholder return, targeting at least $3.5 billion in share repurchases for 2024, up from the initially planned $3 billion.

Reaping the Benefits of Operational Efficiency

The operational advancements seen in 2023 are setting the stage for further financial growth. Based on recurring revenue trends and deliberate expense management, FIS is projecting an acceleration in adjusted revenue growth from 3% in 2023 to over 4% in 2024. Banking is expected to improve from 2% to at least 3% revenue growth, while Capital Markets is forecasted to maintain growth exceeding 6%. The Future Forward strategy's success is manifesting in the form of EBITDA margin expansions, positioning the company for rising profitability in 2024 and beyond.

Strategic Capital Allocation and Shareholder Returns

The company has made headway in transforming its capital structure following the Worldpay transaction. FIS is committed to maintaining an investment-grade rating while also ensuring capital is returned to shareholders. This includes an expectation to buy back at least $3.5 billion of stock in 2024, further evidence of the company's confidence in its financial health and commitment to shareholder value. With balanced capital deployment, FIS anticipates delivering between 5% to 7% normalized EPS growth, inclusive of the negative impact from dissynergies related to the Worldpay separation.

Looking Ahead: 2024 and Beyond

FIS embarks on 2024 with a fortified balance sheet and strategic focus, planning for revenue between $10.1 billion to $10.15 billion. Adjusted revenue growth is expected to rise from 3% to between 4% and 4.5%. The Banking segment is forecasted to grow by 3% to 3.5%, while Capital Markets may see a 6.5% to 7% increase. The Future Forward program is expected to continue contributing to operational efficiency with a $280 million year-over-year benefit. Adjusted EPS projections fall between $4.66 and $4.76, signaling a robust growth rate on a continuing operations basis. Pro forma adjusted EPS, including a full year of Worldpay's contribution, could be between $4.72 and $4.82. As FIS strides into the first quarter of 2024, it remains focused on aligning revenue growth with recurring revenue and expects to see margin expansion consistent with prior performance.

Earnings Call Transcript

Earnings Call Transcript
2023-Q4

from 0
Operator

Good day, and welcome to the FIS Fourth Quarter 2023 Earnings Call. [Operator Instructions] Please be advised that today's conference is being recorded.

I would now like to hand the conference over to your speaker, Mr. George Mihalos, Head of Investor Relations. Please go ahead, sir.

G
Georgios Mihalos
executive

Thank you. Good morning, everyone, and thank you for joining us today for the FIS Fourth Quarter 2023 Earnings Conference Call. This call is being webcasted. Today's news release, corresponding presentation and webcast are all available on our website at fisglobal.com.

On the call with me this morning are Stephanie Ferris, our CEO and President; and James Kehoe, our CFO. Stephanie will lead the call with a strategic and operational update, followed by James, who will review our financial results.

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.

Also, throughout this conference call, we will be presenting non-GAAP information, including adjusted EBITDA, adjusted net earnings, adjusted net earnings per share and free cash flow. These are important financial performance measures for the company but are not financial measures as defined by GAAP. Reconciliation of our non-GAAP information to the GAAP financial information is presented in our earnings release.

And with that, I'll turn the call over to Stephanie.

Stephanie Ferris
executive

Thank you, George, and thank you, everyone, for joining us. 2023 was a year of significant positive momentum at FIS. When I stepped in as CEO, we were facing an uncertain economy, a banking crisis, inflation and a market where new capital was scarce. And while FIS was a statured company with over 50 years of market success, it had lost its focus in recent years. Simply put, the company was not meeting expectations. It was missing financial commitments and growth opportunities. It was slow in the delivery of products, too complex for clients to navigate and selling in areas that didn't contribute to the bottom line.

Fast forward a year later, and we are now a much different company with renewed focus, vision and measurable results. We took a decisive action and moved with urgency to put the company on a sustainable path for long-term success, unlocking value for shareholders and recommitting to our clients who are at the center of everything we do. In a short period of time, we successfully executed a number of significant operational commitments while consistently delivering financial outcomes ahead of expectations.

Earlier this month, we announced the successful completion of the majority sale of the Worldpay business to GTCR, a key milestone for our future. This landmark transaction creates 2 market-leading companies with greater strategic flexibility and operational focus to capitalize on their respective growth and margin opportunities in rapidly evolving markets.

FIS holds a meaningful 45% stake in Worldpay and the 2 companies will continue to work together closely in the future. The strategic go-to-market partnership we established with Worldpay through our commercial agreements preserves the key value propositions for clients of both companies, and it is a powerful continuation of what we started when our 2 organizations first came together. Worldpay will remain an important distribution channel for FIS while continuing to benefit from access to FIS's array of bank tech services, such as our embedded finance solutions. We are excited to partner with Charles Drucker, the Worldpay management team and GTCR, and we are confident the business is on the right trajectory to reinvigorate revenue and earnings growth.

The separation reinforces FIS's position as a global enterprise software leader, servicing the technology needs of the most complex global financial institutions, multinational corporates and governments. With a sharp focus on our marquee set of clients, we are well positioned to capitalize on favorable industry trends and quickly push into faster-growing verticals and segments of the market. This builds on our first-mover technology advantages, allowing us to accelerate revenue growth as our 2024 outlook demonstrates.

The Worldpay transaction also allows us to recapitalize our balance sheet, providing ample flexibility to reinvest in the business, while at the same time, accelerating capital returns to shareholders and lowering our leverage ratio. I'm pleased to announce that we are once again raising our share repurchase target. We are now committing to buying back at least $3.5 billion of stock in 2024, up from our previous $3 billion target. Including repurchases completed in the fourth quarter of 2023, this brings our total share repurchase commitment up to at least $4 billion. This increased buyback reflects our confidence in the business, a strong capital position and our view on the intrinsic value of FIS's shares.

Lastly, we continue to execute against our Future Forward strategy, exceeding our targets for 2023 and increasing our commitment for operational excellence in 2024. The program is changing the way FIS operates with a focus on driving greater efficiency, effectiveness and growth for our clients and for FIS.

Our successful efforts are underpinned by distinct and tangible proof points. For example, over the second half of 2023, we were able to return the company to year-over-year margin expansion, and we expect to drive further profitability improvements in 2024. We refocused our sales force to prioritize higher value, higher-margin technology sales, and we intensified our efforts to improve the customer experience, including accelerating implementations of our next-generation technology solutions. While there is still plenty of work to be done, I couldn't be prouder of the FIS team and what we've accomplished together in just a year's time.

Now let's turn to a discussion of our financial results. Turning to Slide 6. The significant actions we undertook in 2023 are already driving improved financial outcomes. We delivered full year 2023 financial results ahead of our outlook, including 4 consecutive quarters of outperformance on a total company basis. Adjusted revenue growth of 2% was driven by strong total company recurring revenue growth of 4%, including 5% recurring growth across our Banking and Capital Markets segments.

Profitability improvements were primarily driven by our Future Forward program. This resulted in adjusted EBITDA margin expanding over the second half of 2023, despite headwinds in high margin nonrecurring revenue such as license and termination fees. We meaningfully improved adjusted free cash flow conversion in 2023 to a normalized 95% as compared to 72% in 2022.

Capital expenditures declined to approximately 8% of total company revenue in 2023, down from 9% in 2022 as a result of continued execution against Future Forward initiatives. Lastly, we returned over $1.7 billion in capital to our shareholders through the combination of both dividends and share repurchases with over $800 million in the fourth quarter.

Turning to Slide 7. The trajectory of our recurring revenue growth trends exiting the year and continued expense management gives us confidence that both revenue growth and profitability are inflecting in 2024. We expect a sustainable acceleration in adjusted revenue growth from 3% in 2023 to more than 4% in 2024.

This acceleration is principally driven by a meaningful improvement in Banking's revenue growth from 2% in 2023 to at least 3% in 2024. We expect the momentum we've been experiencing in our Capital Markets segment over the past few years to continue with healthy growth in excess of 6%. The segment will continue to benefit from market share gains and expansion into newer verticals.

During the third quarter of 2023, fueled by the success of our Future Forward strategy, we returned the company to year-over-year adjusted EBITDA margin expansion for the first time in nearly 2 years. Building on the success of Future Forward and the underlying fundamentals of the business, we are confident that the company is positioned for sustainable margin expansion in 2024 and beyond.

The revenue acceleration and operational improvements just discussed, coupled with balanced capital deployment, will allow us to deliver 5% to 7% normalized EPS growth, which includes a high single-digit negative dissynergy impact. As a result of this improved financial outlook, we are committed to returning over $4 billion of capital to our shareholders across buybacks and dividends in 2024.

Looking forward, current favorable market trends as well as the operational efficiencies we continue to drive, leave us confident that we are positioned for further earnings acceleration beyond 2024.

Turning to Slide 8. We are seeing increased client demand and a growing sales pipeline as our products and services continue to resonate, especially with large financial institutions. Based on the current level of activity we are seeing across our pipeline, we expect an acceleration in new sales in 2024 as compared to 2023, aiding revenue growth beyond 2024.

During the fourth quarter, we signed multiple marquee wins across our businesses. Beginning with enterprise core platforms, we're seeing increased demand from the regional community bank market for our bundled offerings of core digital payments through strong new sales and implementation. Additionally, we signed several new and expanded core engagements with regional community and international financial institutions, including a key competitive takeaway, Bank of California, with approximately $40 billion in assets.

Also, demand for FIS's digital banking solutions remains strong. Our Digital One platform was selected by some of the most demanding banks and financial institutions, including a global asset manager with greater than $1 trillion in assets under management. Likewise, we've seen continued robust sales for our Digital One Studio with leading national regional and super regional banks, including Hancock Whitney, First Citizens Bank and Bank of Montreal. These banks have all deployed solutions from our digital suite, which offers deeper personalization capabilities in support of their deposit growth, product cross-sell and customer experience improvement objectives.

To underscore our progress in digital banking, our sales pipeline continues to expand with demand from large financial institutions increasing in the double digits. Our payments and network businesses continue to gain traction, and we are expanding our sales focus in these areas given the long growth runway they represent. The NICE debit network had another strong quarter of new sales. We signed multiple new engagements with premier financial institutions, retailers and global media companies. Additionally, FedNow continues to gain traction. We now have over 215 clients either in contract or in our pipeline and we're now certified to both send and receive payments.

Moving on to Capital Markets. Beginning with securities trading and processing, our market-leading clear derivative solution was selected by a global financial technology provider and a leading alternative asset manager. Additionally, our treasury solutions had another strong quarter of new sales. We signed new engagements with a leading financial technology company, several municipal governments, a multinational health care provider and an online consumer apparel provider.

Our Lending Solutions also had a number of impressive new or expanded wins in the quarter. This included a leading U.S. automaker, several European automakers, as well as several global financial institutions who were seeking a partner who could service and support their global client base.

I'm encouraged by the trends we experienced over the second half of 2023 and confident we are poised for a meaningful sales acceleration in 2024. 2023 was a year of significant positive momentum at FIS. I'm incredibly proud of the team for their commitment to our future forward strategy and the heightened focus on improving client centricity, accelerating product innovation and simplifying our go-to-market approach.

Our performance in 2023 and our strengthened position entering 2024 give me confidence that we are on the right path to further improve operational and financial outcomes going forward. With that in mind, FIS plans to host an Investor Day in New York City on Tuesday, May 7. We hope you can join us for a discussion on our go-forward corporate strategy post the Worldpay separation, our playbook for sustainable success in our Banking and Capital Markets segments and, of course, our multiyear financial targets and capital allocation framework.

With that, let me turn it over to James for a discussion of our fourth quarter financial results and 2024 outlook. James?

J
James Kehoe
executive

Thank you, Stephanie, and good morning. I'll begin on Slide 11 with some comments on our 2023 performance and the key drivers of earnings power for the upcoming year. As Stephanie noted, we are pleased with our results, having consistently exceeded the high-end of the outlook. The original EBITDA guidance was $5.9 billion to $6.1 billion and the actual results came in well above the high end of the range. The outperformance was driven by strong recurring revenue growth from both Banking and Capital Markets, profitability improvements fueled by our Future Forward program and better-than-expected performance from Worldpay, which is now reflected in discontinued operations.

On January 31, we completed the majority sale of the Worldpay business. The transaction positions both companies for future success, allowing them to focus on their respective end markets and to pursue appropriate capital allocation strategies. The transaction has also allowed FIS to transform its capital structure, paying down debt to ensure an investment-grade rating while accelerating return of capital to shareholders and allowing for appropriate levels of investment in the business. FIS is now well positioned to deliver accelerating revenue growth with a return to sustainable margin expansion.

Revenue growth will accelerate from 3% in 2023 to 4% to 4.5% in 2024 or 3.8% to 4.3%, excluding acquisitions and dissynergies. Adjusted EBITDA margin is projected to expand by 20 to 40 basis points. Adjusted EPS is projected to grow 38% to 41% year-over-year on a continuing operations basis, including a significant contribution from the deployment of Worldpay proceeds and the first-time inclusion of the Worldpay equity method investment contribution. On a normalized basis, we expect adjusted EPS to grow 5% to 7%, including a high single-digit negative impact from dissynergies. Strong core business performance and our Future Forward program have more than offset the negative impact from dissynergies.

Turning now to Slide 12 for a few considerations on our financial reporting going forward. Beginning in the first quarter of 2024, FIS's 45% financial interest in Worldpay will now be reported separately on the equity method investment line of the income statement. Our 2024 adjusted EPS outlook of $4.66 to $4.76 includes a $0.69 to $0.71 contribution from Worldpay. Please note that the $0.69 to $0.71 is for 11 months only.

Had the transaction closed at the end of last year, our 2024 adjusted EPS for continuing operations would have been $0.06 higher, resulting in a pro forma adjusted EPS of $4.72 to $4.82 on a full year basis. Consistent with our prior messaging, our go-forward adjusted EPS outlook will include the Worldpay EMI contribution and we will also be providing condensed quarterly financial results for Worldpay on a 100% basis, including revenue and EBITDA on both a GAAP and adjusted basis.

Lastly, going forward, FIS will be presenting revenue growth on an adjusted basis. This reflects year-over-year constant currency revenue growth for our Banking Solutions and Capital Markets operating segments.

With that, let's turn to our fourth quarter results on Slide 13. Overall, we are pleased with our performance in the fourth quarter and this is the fourth consecutive quarter of meeting or exceeding the high end of our outlook. Including Worldpay, total company revenue increased 1% to $3.7 billion, with an adjusted EBITDA margin of 43.2% and adjusted EPS of $1.67. Total company adjusted EBITDA margin was flat year-over-year, held back by a margin decline in discontinued operations.

On a continuing operations basis, revenue was flat at $2.5 billion, and this was in line with our expectations. Strong recurring revenue growth across both Banking and Capital Markets was offset by expected declines in nonrecurring revenue and professional services. Adjusted EBITDA margin expanded by a strong 70 basis points year-over-year, led by meaningful margin expansion in Banking Solutions. Adjusted EPS for continuing operations was $0.94 in the quarter, a decline of 4% compared to the prior year, reflecting higher interest expense with a negative impact of $0.07. For discontinued operations, revenue increased 2% to $1.2 billion, modestly ahead of our expectations. Adjusted EBITDA margin contracted 160 basis points reflecting a less favorable revenue mix and the timing of certain expenses.

Moving now to cash flow and balance sheet metrics where we continue to drive improvements. We generated strong free cash flow of $1.1 billion in the fourth quarter, resulting in a normalized free cash flow conversion of 100% with a full year conversion rate of 95%. This compares very favorably to our 2023 full year target of greater than 80% free cash flow conversion. We ended the year with total debt of $19.1 billion with a leverage ratio of 3x. As previously communicated, we repurchased $510 million of shares during the fourth quarter of '23, resulting in over $800 million of capital returned to shareholders in the quarter and $1.7 billion for the year as a whole.

Turning now to our segment results on Slide 14. For the quarter, adjusted revenue growth was flat year-over-year, in line with our expectations. As expected, backlog remained stable, up $23.5 billion. Continued strong recurring revenue growth of 7% was offset by anticipated nonrecurring headwinds.

Banking revenue was flat in the quarter while adjusted EBITDA margin expanded 270 basis points, primarily driven by Future Forward cost initiatives. Banking recurring revenue grew a healthy 7%, including stronger-than-expected consumer spend in our payments business and the benefit from our prior year grow-over.

Note that our calculation of Banking recurring revenue growth reflects 2 changes. First, in keeping with historical practice, we have transitioned certain nonstrategic businesses, which we expect to sell or wind down from Banking Solutions to the Corporate and Other segment. Second, with the expiration of federal funds related to pandemic relief programs, we have moved this revenue from recurring revenue to nonrecurring revenue with no change to total revenue. We have provided a detailed reconciliation table for these adjustments in the appendix.

As you will see, these adjustments have a de minimis impact on full year recurring revenue growth. Banking recurring revenue growth of 4% in 2023 is unchanged, while the changes increase our 2022 recurring revenue growth by a mere 40 basis points.

The recurring revenue growth of 7% was offset by expected declines in other nonrecurring revenue and professional services of 22% and 31%, respectively. The decline in other nonrecurring revenue includes an 11% headwind from the decline in pandemic relief revenues, while the decline in professional services reflects a difficult comparison.

Turning now to Capital Markets. Capital Markets adjusted revenue increased 1%, led by continued strong recurring revenue growth of 7%. As expected, nonrecurring revenue declined by 10%, primarily driven by a difficult year-over-year comparison related to license fees, which we have consistently messaged throughout the year. The decline in higher-margin nonrecurring license revenue was the primary driver of the 250 basis point margin contraction.

Looking forward, we will be facing lower headwinds from both professional services and other nonrecurring revenue, and we expect to see closer alignment between adjusted revenue growth and recurring revenue growth.

Turning now to our full year results by segment on Slide 15. Adjusted revenue growth increased 3%, led by strong recurring revenue growth of 5%. Banking revenue was up 2% as recurring revenue growth of 4% offset declines in nonrecurring revenue and lower professional services. Adjusted EBITDA margin was flat, but margins were strong in the second half of the year as Future Forward savings accelerated. Capital Markets revenue increased 5%, led by very strong recurring revenue growth of 9%. Adjusted EBITDA margin contracted 60 basis points to 50.3%, primarily due to lower margins over the second half of the year, reflecting a lower contribution from higher margin license fees.

Turning now to Slide 16 for an update on Future Forward. I am pleased to report that we have exceeded our 2023 target for Future Forward OpEx savings, and we see further upside in 2024. We delivered in-period EBITDA savings of $155 million, well above our original goal of $100 million. And we are raising our 2024 incremental savings target from $215 million to $280 million.

We are reiterating our total cash savings target of $1 billion for the Future Forward program. We are reaffirming our capital reduction target, increasing our OpEx savings goal and adopting a slightly more conservative view regarding the reduction in acquisition, integration and other expenses.

Turning now to our capital allocation priorities on Slide 17. Our capital allocation priorities remain unchanged from the prior quarter. We intend to use our strong financial position and balance sheet flexibility to prioritize a balanced set of capital allocation priorities. These priorities include maintaining an investment-grade rating while investing to accelerate growth and consistently returning ample capital to shareholders.

For 2024, we are assuming a year-end leverage ratio of approximately 2.8x, which allows us ample flexibility to invest in the business while increasing our share repurchase target for the year. We remain committed to paying an above-market dividend. And going forward, we will grow the dividend in line with adjusted net earnings.

Reflecting our confidence in the business and our strong free cash flow generation, we are once again raising our share repurchase commitment. We now expect to repurchase at least $3.5 billion of stock in 2024, up from our prior target of at least $3 billion. And through the first 2 months of this year, we have already repurchased approximately $490 million of the $3.5 billion target.

Lastly, we will selectively invest in complementary tuck-in M&A where we can leverage our scale and distribution to drive faster growth across strategic verticals. This balanced capital allocation framework provides a robust value proposition for long-term shareholder value creation. In total, we expect to return greater than $4 billion to shareholders in 2024, up from $1.7 billion in 2023.

Now let's move on to our 2024 outlook on Slide 18. Building on the operational and financial improvements of 2023, our '24 outlook confidently forecast accelerating revenue growth and expanding margins. We are projecting reported revenue of $10.1 billion to $10.15 billion and this includes an adverse currency impact of around $20 million. Adjusted revenue growth will accelerate from 3% in '23 to 4% to 4.5% in 2024. Our projections include 70 basis points from closed tuck-in acquisitions, but this is mostly offset by a negative impact of 50 basis points from dissynergies. Net of these impacts, adjusted revenue growth would be approximately 3.8% to 4.3%.

We expect the Banking segment to grow between 3% to 3.5% or 3.3% to 3.8% net of acquisitions and dissynergies, up from 2% in 2023. And we anticipate Capital Markets revenue growth of 6.5% to 7% or 5.1% to 5.6%, net of acquisitions as compared to 5% in 2023. We are forecasting year-over-year margin expansion of 20 to 40 basis points reflecting continued favorable impact from the Future Forward program and the inherent leverage in our business model. Included in this outlook is a $280 million year-over-year benefit from the Future Forward program, and this will more than offset dissynergies from the Worldpay transaction of $250 million.

We have provided our assumptions regarding the key below-the-line items with some additional details in the appendix. We are projecting D&A of $1.075 billion and we anticipate a tax rate of 17.2% to 17.5%. Interest expense is projected at around $350 million and we expect shares outstanding of 556 million shares, a reduction of 6% compared to 2023. Including an 11-month EMI contribution of $0.69 to $0.71, we expect to deliver adjusted EPS of between $4.66 and $4.76. This translates to a growth rate of 38% to 41% on a continuing operations basis. On a normalized basis, we expect adjusted EPS to grow 5% to 7%, including a high single-digit negative impact from dissynergies.

Lastly, on a pro forma basis, including 12 months of Worldpay EMI contribution, we anticipate adjusted EPS of $4.72 to $4.82. We are confident in our balanced outlook for 2024 and believe we are well positioned to accelerate long-term earnings growth.

Let's move now to Slide 19, where we provide a reconciliation for our 2023 results on a normalized basis. Last quarter, we provided an estimated normalized adjusted EPS range of $4.40 to $4.55. I am happy to report that both continuing ops EPS and normalized EPS came in within the guidance ranges we provided. Continuing operations EPS was $3.37 and was at the higher end of the range that we provided on the third quarter call. On a 12-month basis, normalized EPS was $4.50 and again, this was toward the higher end of the range. Adjusted for an 11-month EMI contribution, 2023 normalized EPS is $4.44.

Moving now to Slide 20 for an overview of our first quarter outlook. We are projecting revenue growth of 2.5% to 3.5%, with Banking Solutions at 1% to 2% and Capital Markets at 6% to 7%. We expect Banking revenue growth to accelerate over the course of the year, reflecting easier year-over-year revenue comparisons and the favorable impact from stronger new sales over the second half of 2023. We are anticipating adjusted EBITDA of $955 million to $970 million, which translates to year-over-year margin expansion of 180 to 200 basis points, reflecting Future Forward savings. Including an expected 2-month EMI contribution of $0.09 to $0.10, we expect adjusted EPS of $0.94 to $0.97. Continuing operations EPS is projected to increase 31% to 35% and we estimate high single-digit growth on a normalized basis.

In summary, we are expecting a good start to the year with revenue growth accelerating compared to the fourth quarter and improved alignment between adjusted revenue and recurring revenue growth. Margins will expand and this is consistent with the performance delivered in the second half of last year.

Let me now wrap up on Slide 21. In closing, we are encouraged by our 2023 results and believe we are on the right path as we reposition the enterprise for long-term success. The completion of the Worldpay transaction positions both companies for future success and meaningfully improves our capital structure. We are confident FIS will deliver accelerated business growth in 2024 with adjusted revenue growth of at least 4% and a return to consistent margin expansion. And given our confidence in how the business is performing, our improved financial flexibility and the attractive valuation of our stock, we have once again raised our total share repurchase target to at least $3.5 billion in 2024 and greater than $4 billion in total.

With that, operator, could you please open the line for questions?

Operator

[Operator Instructions] And our first question will come from the line of Tien-Tsin Huang with JPMorgan.

T
Tien-Tsin Huang
analyst

Just hoping to maybe have you comment a little further on the Banking side, just a formula for just the revenue acceleration there in the Banking segment. I know there's backlog conversion, new sales, you talked about a little bit, retention. Any call outs there as we sketch the outlook?

Stephanie Ferris
executive

Yes. Thanks, Tien-Tsin. Yes, we're very excited to be guiding to an accelerated total company revenue growth in 2024 as well as in Banking specifically. As we talked about last year, we came in from a recurring revenue standpoint pretty strong, but we're facing some nonrecurring headwinds as we disclosed all year.

As we come into 2024, feeling really good about lapping those headwinds. So thinking about recurring and total Banking Solutions revenue growth coming more in line together as well as the strength that we're seeing in the back half of 2023 and into 2024 from a sales standpoint, and as we think about those sales coming in and delivering on revenue in the back half of '24 and into '25. So both scenarios are helping us in terms of giving us confidence for Banking Solutions and the total company revenue growth to accelerate in 2024, which is why we feel good about what we've guided.

T
Tien-Tsin Huang
analyst

It's good. Just my quick follow-up then. Stephanie, anything to consider with respect to M&A in the bank sector? I know we've been, sector-wise, getting a lot of questions on the Cap One-Discover piece. Opportunities? Risks?

Stephanie Ferris
executive

Yes. No. Well, first of all, I'd say in terms of Capital One-Discover, I think it's another representation of why it's really important and how people strategically value having many different assets across the FinTech ecosystem, which, as you know, at FIS is critical for us in terms of thinking about issuing, payments network, et cetera. And then with the strategic relationship we struck with Worldpay going forward, we'll still have access to the acquiring piece. So I think it's a demonstration in terms of seeing why the value of having all those assets together is important.

With respect to Cap One and Discover, we have very strategic relationships with both. So we see it for us in terms of a net positive. Broadly across the ecosystem, TBD in terms of consolidation. We continue to see folks that would love to consolidate. We'll see what happens with the regulatory environment. But as you know, we tend to be beneficiaries of that consolidation because we tend to serve the larger financial institutions. But I'm waiting and seeing just like everybody else.

Operator

One moment for our next question. And that will come from the line of Ramsey El-Assal with Barclays.

R
Ramsey El-Assal
analyst

I was wondering if you could help us think through the sort of macro assumptions in your guidance. And maybe any thoughts about the general sort of bank IT spending environment, particularly as it relates to the backlog.

Stephanie Ferris
executive

Sure. Maybe I'll start, and if James thinks I miss anything, he'll add on. But I would say broadly, in terms of macro assumptions, we would say, as we come in on the payment side of our business within the Banking business, we kept consumer spend pretty consistent in 2024 over 2023. In terms of overall Banking spend, I think we see 2 different things happening.

I certainly think we see banks who have the opportunity to trend down on discretionary spend. They've been doing that quite frankly. It's not a new trend. Where we see the demand continuing and you heard me talk about it in my prepared remarks is spend around digital to continue to enhance their ability to deliver products and services and then really focused around making sure that they can gather deposits. So utilizing our money movement capabilities and our payment capabilities to help them become the primary depositor for a lot of their lenders. So I would say there's interest in spending around digital, around money movement capabilities.

And then as the regulatory environment continues to heat up, always a focus around our RegTech products. So I would say overall, IT spend in the Banking sector is pretty consistent. We just continue to see it move into those categories and spending less around anything that they would consider discretionary.

R
Ramsey El-Assal
analyst

Okay. And I wanted also to ask about the nonrecurring and professional services revenues in Banking. And I know there were some moving pieces there and some tough comps on the professional services side, I believe, you called out. How should we think about the sort of timing and magnitude of the reacceleration of those parts of the business on a normalized basis? Is that the type of thing where, over time, it should grow around where the rest of the segment is growing? Or how should we kind of think about that?

J
James Kehoe
executive

Yes. I'll just give you maybe a way to think about it. We're not providing explicit guidance for recurring revenue. What we did say in the prepared comments, in 2024, we would expect recurring revenue to at least be equal to the adjusted revenue and probably slightly better. So if the total company has gone up X, the recurring revenue is slightly positive compared to that. So that implies that still next year, there's a slight headwind coming from the total of professional services and other nonrecurring, but it's dramatically reduced compared to 2023.

So the key message for you is there's -- if you take the year as an average, and that's the only caution I would give you, on the average of the year, recurring will be better than nonrecurring, but the quarters could vary. So all over that, sometimes it's a little bit choppy in a particular quarter. But overall, we're very confident in the realignment between recurring and total revenue growth.

Operator

One moment for our next question. That will come from the line of David Koning with Baird.

D
David Koning
analyst

Guys, nice job. And I guess my first question, a little bit like Ramsey, on recurring. So in the first half of '23, I think you grew 3% recurring, second half about 7%, if I get that right. And now you're calling for it to come back down maybe a little better than the 3-ish percent. What was happening in the second half that was so strong in recurring? And then why does it decelerate in '24?

J
James Kehoe
executive

Yes. I think if you look out, Capital Markets is generally in line. We expect almost every quarter to be in line with the full year guidance. And the recurring is just -- it's basically in line with the adjusted revenue target we provided. And then if you look through the Banking, I think the -- you should look at the 7% that was in fourth quarter, and that's probably well above the trend rate, which is closer to the 3% to 4%. And you'll recall that during the course of all of 2023, Banking was in or around 3%, 3.5%. The 7% in Q4 did include an exceptionally strong payments business, where it was probably 3 points ahead of the average that we're planning for the first quarter. So that gives you 1 delta, call it, I don't know, 130 basis points.

And then we're lapping an item in the prior year period, which artificially depressed the prior period, call it another, I don't know, 130 basis points. So you take the 2 of those out, and we kind of get to a couple of other adjustments. We're getting to kind of like a real like a 4% if we were trying to equalize it into next year. And as I said in the prepared comments, Banking recurring will outperform the adjusted targets.

So it was a choppy kind of 7% in the fourth quarter, not fully representative. What I will say, though, the 7% does show that the business has substantial -- Banking business has substantial power to get the numbers into the territory where they need to be. We're very comfortable as we look forward to the goals on the full year.

D
David Koning
analyst

Great. And just maybe a quick follow-up on -- merger integration costs came down this year, which was nice to see, I think, $156 million in Q4. What do you expect that to be in 2024? And how soon are those integration costs just going to be closer to 0?

J
James Kehoe
executive

Yes. I think it's a little early to call. We've got a bunch of stuff in there. It's not -- the biggest single item is not integration costs. It's actually the Future Forward program. So remember, we've taken out a lot of costs in the base year of '23 and more coming out in '24. Worldpay has inflated the base year, and that will reduce next year. But we will still have Worldpay separation costs in '24. They will disappear in '25.

What we're looking at right now is what is the long-term TAI. And you've seen that we've had a fairly big dissynergy impact. As we look forward into '25 and '26, we're thinking through what kind of programs need to be implemented to gain -- regain the efficiency that was lost post Worldpay. I think the explicit cash flow number impact of TAI next year in '24 is around [ $450 million ].

Stephanie Ferris
executive

I might also add. So -- yes, we did a lot this year, as you know, it's showing up in the free cash flow conversion. The separation of Worldpay is pretty significant. So there's pretty significant costs that we expect in '24 and '25 to keep that elevated. Everything else, though, we keep pulling down to deliver a higher free cash flow conversion. But it's not nothing to get Worldpay separated. And as we've discussed before, we expect that to take up to 24 months. So we'll spend some pretty significant dollars to get those guys out.

Operator

One moment for our next question. And that will come from the line of Darrin Peller with Wolfe Research.

D
Darrin Peller
analyst

Congrats on the closing of the Worldpay.

Stephanie Ferris
executive

Thank you.

D
Darrin Peller
analyst

So i wanted to just start off with -- I wanted to start off with first, just the margin side for a minute. Look, it looks like you raised your Future Forward savings a bit and transaction dissynergies also were raised. And yet, I think your margin, you said is expecting 20 to 40 bps on a continuing operations basis. Maybe just talk a little bit about the underlying margin assumptions and the underlying trajectory of operating leverage that you see in this business going forward, if you don't mind, but really both segments in the company overall.

Stephanie Ferris
executive

Yes. I think we were -- I'll start and then maybe James can add in. I think we -- as you guys know, we've been really, really focused on driving and outperforming our Future Forward program. We're extraordinarily pleased with how that's been going. And we -- and really, we're pushing it in to be the culture of the company versus a program that ends. So really pushed on that hard, and we're able to deliver an increased expectation for that, both in '23 and '24, which, as we said, is going to offset any dissynergy.

I think as we think about go-forward margins, we would expect that there should be natural margin expansion in the business, especially as we shift the sales from less technology-enabled sales into the higher technology-enabled sales. And so as we do that specifically in the Banking Solutions business, you would expect to see Banking Solutions margins naturally expand with that mix expansion.

I think we've talked about Capital Markets in terms of being pretty consistent. We really want to drive organic growth there and I think squeezing any more margin out of them will ultimately, over time, hurt their overall organic growth. So I would expect that to be more flattish as we think about out in the -- out past '24. But I think we'd really probably punt on this question, Darrin, until Investor Day to give you a more clean view of how we think about margins going past 2024.

J
James Kehoe
executive

Yes. But we did say, Darrin, in the prepared comments that we -- this is the return to consistent margin expansion over time. So you can imply that some of the businesses will deliver with -- together with Future Forward, will give consistent improvement. And obviously, we'll spend a fair amount of time at Investor Day, bringing you through the growth algorithm, top line growth and margin expansion. You've seen as well that Banking is really -- we're really executing strongly against Future Forward, and the margins are very, very strong. And as Stephanie said, probably Capital Markets, but I want to emphasize both businesses, if you read through the comments, both businesses are growing margins in 2024.

D
Darrin Peller
analyst

And this is just a bit of a -- that's helpful guys. This is just a bit of a follow-up to Tien-Tsin's question. But maybe if you could provide any more KPIs really that's providing for the strength, what's supporting the strength of Capital Markets? And then even Banking, what can give us more confidence that this recurring revenue growth rate now is going to be sustainable? What are the driving forces of it? A little more detail would be great. And I'll turn it back to the queue.

J
James Kehoe
executive

It's actually coming from the total addressable market. And I think this is probably the #1 topic for Investor Day, which is we will present the breakup -- the makeup of each of the businesses and what's the relative growth in the TAM. And Capital Markets, for example, is right now, the TAM is in or about the ex-acquisition number at about 5%. So it's got -- you've got a favorable tailwind coming from, you're in very, very attractive verticals in the market. And they're actually, at the same time, expanding into new verticals. So we'll bring you on the journey on Capital Markets because we know people have a bunch of questions on it, but it's supported by TAM and -- total addressable market and expansion into new TAM and we have very, very good line of sight to support the guidance number we've provided for '24.

Operator

One moment for our next question. And that will come from the line of Jason Kupferberg with Bank of America.

J
Jason Kupferberg
analyst

I wanted to ask about free cash flow conversion and CapEx assumptions for 2024. And then if you can just make broader comments around the 2024 guidance. Obviously, after the outperformance in '23, are there any elements of conservatism in that overall '24 outlook either from a top or a bottom line standpoint?

J
James Kehoe
executive

I'll cover the free cash flow conversion. We had a tremendous year this year, but sometimes you're a victim of your own success. We drove massive benefits from Future Forward. And mostly with -- when you capture benefits on free cash flow, they're onetime in nature. So the question is, what can we achieve in Future Forward next year? We would probably say that if you take out all the noise, the continuing ops cash flow was in the high 80s to low 90s percent on -- in 2023. And we would forecast somewhere in the region of 85% to 90% free cash flow conversion.

So we're taking it up compared to the ingoing position in 2023 of 80%. Now we're looking at 85% to 90%. And depending on how we can manage our net working capital going forward, the long-term outlook could even be a little bit better than that. So we're just -- bear in mind, we just spun off part of the company. We're working through how much cash do we need in the business. We're working through working capital programs. So 85% and 90% for 2024 and it's probably closer to the 90% if you look into '25 and '26. And the second part of your question was?

Stephanie Ferris
executive

CapEx and Guidance. Yes. I think on the CapEx side -- yes. On the CapEx side, I think we feel really good. We brought it down, as you know, from a high at one point of 10%. Last year, I think we brought it down to 9%. We're expecting it to come down 1 point. Probably sits in the 7% to 8% range as we think about continuing to invest in the business.

With respect to guidance, I think what we would say, Jason, is we're thrilled with our ability to hit and become just much more consistent in terms of what we guide and meeting expectations. We thought it was really important, and we're thrilled to be able to talk about an acceleration of revenue from 2023 to 2024. And we're guiding consistently with how we have historically and continue to be transparent and credible.

Operator

One moment for our next question. And that will come from the line of Dan Dolev with Mizuho.

D
Dan Dolev
analyst

Great to see the guiding for acceleration in '24. Nice job. A quick question, like -- a question on backlog, like it was negative, flat, positive, negative. How do we connect it with the organic growth guide? Is there like a good sort of mapping that we can do to make sense out of it?

Stephanie Ferris
executive

Yes. Great question. So look, I think in terms of backlog, it came in about $23 billion in fourth quarter, accelerating out of September or the third quarter of $22.2 billion. So I felt really good about that. Flat with December of 2022, so $23 billion to $23 billion.

I think as we come into Investor Day, we're going to look to give you better KPIs than this backlog number. As you know, it's a fairly complicated accounting number. I think what we would say is it's consistent, it's large and it's durable and supportive of the adjusted growth rate revenues we've been giving you. But we would look to give you something a little bit more aligned and helping you understand how it compares specifically to the guide. We've been stuck with this backlog number, as you know, from historical pieces. And there's just a lot that goes into it as it's a technical accounting number.

But I would say broadly, again, thinking about it, came in around the $23 billion number accelerating off of September, the third quarter. And so feeling very good about it as it goes into 2024. But we'd love to give you something different and a little bit more meaningful as we come in at Investor Day.

D
Dan Dolev
analyst

That's super helpful. And maybe, Stephanie, quick follow-up for you. On FedNow, you mentioned that we're kind of maybe 6 months in, like have you seen any changes or beginning of changes and meaningful behavior changes in how FedNow is implemented?

Stephanie Ferris
executive

Yes. I think -- as I said, we're seeing a large amount of pipeline. There's a large demand from FIs and banks across the universe for it. I think the challenge for it is how it becomes adopted downmarket in the underlying customers of those banks. But the banks are definitely focused on enabling it and having it in their quiver in terms of things that they can offer in terms of money movement. TBD in terms of the underlying business moves and whether it becomes adopted faster than other ways to move money in the ecosystem. I think that remains to be played out.

Operator

One moment for our next question. And that will come from the line of Vasu Govil with KBW.

V
Vasundhara Govil
analyst

I guess as my first one, Stephanie, you talked a little bit about the new sales momentum. Maybe you could talk a little bit more about where you're seeing traction between the 2 segments and then within the segments, whether it's more core wins, more cross-sells. Just some more color there would be super helpful.

Stephanie Ferris
executive

Yes. No, happy to. So I think in the new sales momentum, we're -- as you know, we shifted specifically the team so that they would sell more of our technology-enabled solutions. So where I'm seeing momentum is really in the digital space and in the money movement space. So as you think about what banks are focused on doing, in order for them to deliver their products and solutions, the digital capabilities they have, whether it's mobile, online, teller, et cetera, all need to be in sync and refreshed and there's a lot of demand there.

So seeing a lot of demand for our Digital One Studio, our Digital One business capabilities as banks are really looking to gather deposits. So the digital capabilities are in high demand. And then as banks think about really want be the primary deposit account for those loans they've gathered over the last 10 years, they want -- they need to make sure that they have the right money movement capabilities to deliver to be that primary bank. And so we are seeing a lot of demand in digital and payments.

I would say in Capital Markets, and spent a little bit of time talking about this in the prepared remarks, I think we're seeing demand really across all 3 of our subsegments. Thinking about securities and processing, we've talked about our clear derivative solution. It continues to be a market-leading solution even outside the traditional broker dealers. So that's been in high demand.

Our commercial lending technology solutions really are getting adopted even outside the traditional financial institutions. So if you're a sophisticated financial services corporate, so we talked a lot about auto dealers and other large sophisticated financial services, they need a lot of capabilities. They are seeing high demand there. And then treasury. Our treasury solution is best-of-breed, and we see folks adopting that across the corporate landscape.

And then the other place that we're seeing a ton of demand is in overall ESG. We have a fantastic ESG product. Every company that's an SEC registrant company needs to have some sort of ESG reporting capability to see a lot of demand there.

V
Vasundhara Govil
analyst

That's super helpful. And then just a quick follow-up for James. I think normalized EPS, if you exclude dissynergies, is roughly low teens. Is that a good way to think about the future trend line, all else equal? And if you could also give us something on just the timing of how we should model these dissynergies to flow through the year.

J
James Kehoe
executive

Well, I think we said it's 5% to 7%, but it's absorbing a significant dissynergy impact. The reason why -- so I wouldn't necessarily add the 2 together to project forward because we've really ramped up Future Forward this year to help offset the dissynergies. And I think the level of -- obviously, next year, there's no year-on-year dissynergy, but the level of contribution from Future Forward will go down from current levels.

Let's just wait until the Investor Day. We want to bring you through a detailed walk on the earnings power of each business, the revenue growth, total addressable markets, the margin potential and we'll come up with the algorithms together in a short couple of months.

Operator

And we do have time for one final question, and that will come from the line of Ashwin Shirvaikar with Citi.

A
Ashwin Shirvaikar
analyst

Stephanie, James, good to hear from you. Stephanie, it was good to see you on stage with Charles Drucker...

Stephanie Ferris
executive

Thanks, Ashwin.

A
Ashwin Shirvaikar
analyst

Yes, sales conference. I guess speaking of sales conference, right, you've mentioned in your comments, the direction of the sales force towards higher-yielding products and such. Is it primarily redirection? Or are you adding to the sales force? Could you give us some flavor of what's going on with sales count, sales quarters and so on?

Stephanie Ferris
executive

Yes. No, so it's really all of the above. So we took a look at how we were compensating the sales force at the beginning of last year and all dollars at that point were considered equal. And so what we did was change the incentive comp sales so that the higher-margin products will be compensated higher and specifically with respect to recurring revenue. That took hold in the beginning of last year, and we're seeing the transition of those sales from the lower margin to the higher margin. In fact, I think over time, from '22 to '23, we saw an 80 basis point increase in the mix of low margin to high margin. So we're definitely seeing it.

I think the other thing that we did at the beginning of last year was really look at productivity across our sales teams and did a pretty significant look at how we wanted -- what the sales productivity metrics we were expecting. Again, in the back -- from the beginning, the first half of '23 to the back half of '23, saw some pretty significant increases in productivity.

In terms of overall number of salespeople, I think that in general, we would say they're the same number, but I think we are seeing better output because of productivity and then as well as a result of higher margins. So that's what giving us some confidence as we think about the back half of '24 and '25 as those sales start to come in and get delivered into the P&L.

A
Ashwin Shirvaikar
analyst

Got it. Got it. And then, James, just more granularity on cadence by segment. You provided obviously, on the Cap Market side, but on both Banking and how we should model out the equity line with regard to just sort of quarter-over-quarter as we think of the 4 quarters, that would be helpful from a modeling perspective.

J
James Kehoe
executive

Yes. As I said, the revenue on Capital Markets will be pretty consistent each of the quarters. And Banking is on an upward trend as the sales pick up in the second half based on second half '23 performance. As you look at the NCI contribution, bear in mind that the first quarter was the lowest quarter, and it's only got 2 months in there. And we actually called out that 1 month in the first quarter is equivalent to $0.06. So you could kind of work out the first quarter.

I think in terms of the build go forward, I think the only guidance I could give you is maybe to treat the other quarters pretty equally. I'm not really now prepared. We don't want to give guidance beyond the first quarter.

Operator

Thank you all for participating. This concludes today's program. You may now disconnect.