Ladies and gentlemen, thank you for standing by, and welcome to the FIS 4th Quarter 2019 Conference Call. At this time, all participants are in a listen only mode. Later, we will conduct a question and answer session. Instructions will be given at that time. As a reminder, this conference is being recorded.
I would now like to turn the conference over to our host, Mr. Nathan Rosoff. Please go ahead, sir.
Thank you. Good morning, and thanks to everyone for joining us today for the FIS 4th quarter and full year 2019 earnings conference call. This call is being webcasted and today's news release, corresponding presentation as well as the webcast link are all available on our website at fisglobal.com. Gary Norcross, our Chairman, President and CEO will discuss our recent business trends and describe our quarterly operating performance. Woody Woodall, our Chief Financial Officer will then review FIS' financial results and provide Q1 and full year 2020 guidance.
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 and adjusted net earnings per share.
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 are presented in our earnings release. With that, I'll turn the call over to Gary, who will begin his remarks on Slide 5.
Thanks, Nate. Good morning and thank you for joining us today. I'm very pleased to be able to announce our Q4 and full year results. 2019 was a transformational year for FIS. We successfully closed and are well down the path on integrating the largest financial technology transaction in our industry.
This, along with outstanding sales production, delivered strong organic revenue growth of 6% for the full year. All three segments performed exceptionally well for the year as well as the quarter. Our record sales and integration activities position us for an even stronger 2020. Later, I'll talk about our strategy of modernization and how that has led to some very large noble wins that exemplify how our strategy is working, as well as driving increasing demand for our solution suite. This includes signing 3 of the largest banks in the country this quarter on our core banking solutions.
In the 4th quarter, our organic growth rate accelerated to 7%, resulting in $3,300,000,000 in revenue. Our new sales results were the largest quarter year in our history, resulting in an increase of more than 20% in new sales for the year. Our installation backlog as well as pipeline continue to expand. Adjusted EBITDA margins expanded by 4.70 basis points, primarily driven by the high contribution margins resulting from the installation of our new sales, growing transaction volumes, as well as the outstanding execution of our team to overdrive performance of cost and revenue synergies. As we think about integration synergies, we exited the quarter generating $80,000,000 in revenue and $465,000,000 in cost synergies on an annualized run rate basis.
When including interest expense savings, we have already exceeded our initial cost synergy target. As a result of our strong performance, we are increasing our future expectations for both revenue and cost synergies, which we will detail later. With our impressive momentum heading into 2020, we expect continued acceleration in organic revenue growth and ramping earnings accretion. Turning to Slide 6, I want to talk about our strong sales results and client value propositions. Several years ago, we embarked on a transformational modernization journey.
We began an ambitious new software development cycle, re architected our solutions to be open, modular and cloud based. And we also began modernizing and consolidating our technology delivery platforms. We did this because we believe that the financial services industry was moving towards its own transformation, and we wanted to be able to empower our clients in the broader industry to change. Disruptive technologies and new business models are forcing the industry to evolve by embracing future ready innovations like automation, artificial intelligence and machine learning, cloud native technologies and digital omnichannel. Client demand, as evidenced by our new sales results, demonstrate that our thesis about the industry is correct.
The investments we've made over the past several years are yielding results for our clients as well as FIS. Our Banking segment, I'm very excited to announce that 3 of the largest banks in the country with combined total assets of more than $600,000,000,000 have embarked on the journey to transform their legacy core banking environment with FIS. This includes a top 10, a top 20 and a top 30 bank. MUFG Union Bank, a top 20 bank that we recently announced as well as a top 10 bank both selected our modern banking platform for their transformations. They selected us because of our ability to deliver an innovative, personalized and next generation solution as well as our ability to consistently execute large scale complex implementations.
The modern banking platform is entirely new and built from the ground up. It was developed with state of the art containers, digital first capability, open APIs and cloud based delivery through a SaaS model. This next generation, highly flexible platform enables innovative financial institutions to transform the future of banking and clearly represents a significant milestone for the industry. I'm also pleased to announce that we signed an agreement with First Republic, a top 30 bank to power its modernization program with our IBS core banking platform, including our industry leading open API framework, Code Connect. IBS continues to prove why it's the leading SaaS core banking platform for large regionals throughout the U.
S. First Republic is known for its strong growth and outstanding client experience. They chose FIS over the incumbent provider because of our open scalable platform, which will better serve the needs of the bank's existing client base as well as allow them to continue to expand and meet their growing consumer and business clients. These three pivotal wins are the start of what we believe will be a decade long global transition of core banking systems from legacy in house applications to cloud native open banking deployments. Turning to our merchant segment.
We are winning due to our superior client value proposition, strong integrated systems and continued flexibility on deployment. For example, one of our marquee clients, a top global search engine continues to shift share to us after developing a proprietary routing engine that evaluates their processors for authorization and fraud rates, as well as cost of acceptance. We consistently demonstrate exceptional results across these categories, leading the client to choose FIS for additional volumes across many of their U. S. Businesses.
In addition, a large global retailer who's number 1 in their category selected FIS to deploy omnichannel payment technology across Europe, covering both in store and online payments. The company was looking to consolidate multiple acquirers and turn to FIS because of our unique capabilities and global reach. In our Capital Markets segment, our ability to simplify clients' complex needs with our end to end solution suite is driving demand. Our modernization strategy has resulted in a very strong sales year and we saw exceptionally strong growth in the Q4. We continue to see increasing demand for SaaS deployments and the team is doing an outstanding job balancing that demand with our on premise license business.
For example, we entered into a SaaS agreement with 1 of the world's largest asset managers. In this instance, we will be providing investment solution with the next generation digital offering and data visualization tools. I'm also excited to announce that one of our premium payback clients, a large oil and gas company is expanding their relationship with us to include our cloud based solution for their corporate treasury, cash, liquidity and risk management needs. This further proves that our ability to cross sell and up sell large enterprise customers to help their business on numerous levels. Turning to Slide 7.
In addition to these new wins, we are also accelerating our achievement of revenue synergies. While initially expecting to reach $100,000,000 of annualized revenue synergies by the end of 2020, we have already achieved $80,000,000 in annual run rate synergies in the 1st 5 months after closing. As a result, we are increasing our revenue synergy targets to $200,000,000 exiting 2020 $550,000,000 exiting 2022. This reflects the faster than expected ramping of our multiple cross sell opportunities. During the Q4, we continue to see meaningful volumes ramp across our debit networks as well as ongoing traction for our premium payback solution.
We signed 2 very large premium payback clients during the Q4 as we are experiencing significant demand for this innovative solution. First, we will be partnering with PayPal to enable millions of online consumers to redeem earned rewards at checkout by allowing them to pay with points from thousands of US banks. 2nd, I'm excited to announce that we entered into an agreement with a top 3 U. S. Retailer to help innovate its customer loyalty program with our premium payback solution.
Together, we are enabling this client to deepen its relationships with millions of consumers across its 3,000 locations. We also signed another large merchant referral agreement during the quarter. We continue to be very pleased with our ability to take share from incumbent providers across our mid size and regional bank clients. We are well ahead of our expectations regarding merchant referral sales agreements. Our pipeline and sales activities continue to grow and we think this sales opportunity will continue to exceed our initial plans.
Now that we are well into our integration execution, we continue to discover new opportunities to cross sell and bundle offerings as we go to market, giving us strong confidence in our newly raised targets. For example, our joint prepaid solutions have emerged as a new cross selling opportunity into the Worldpay client base. We have already signed a partnership with the global solutions provider to develop reloadable fare cards for transit systems. Together, this partnership has already won our 1st large metro client and expect more to follow. With our very successful achievement of expense as well as revenue synergies, we are running a full 12 months ahead of our original integration schedule.
Due to this accelerated timeline, we are also taking earlier steps to further streamline our organization to drive a much more functional operating model. Some of the changes we have recently implemented will allow us to better leverage our go to market strategies between our banking and merchant segments. We believe this will not only further accelerate our revenue synergies, but also allow us to drive innovation into these markets. We have also consolidated technology development for our merchant and banking businesses within our combined Chief Operating Officer organization. This alignment will allow us to increase our speed of development and deployment in this highly dynamic industry, creating what we believe will be a best in class software engineering organization.
As you can see, we feel great about how the companies have come together and this momentum and success gives us great confidence for an even stronger 2020. Moving to Slide 8. We have a highly resilient business model that is differentiated by our market leading solutions across our segments. In Merchant Solutions, we are clearly a leader in global e commerce and integrated payments. As we continue to grow, these channels have expanded to approximately 45 percent of our merchant business mix, up from 37% of Worldpay in 2017.
Due to the high secular growth trends in these markets, we expect them to maintain their high rates of growth and continue increasing as a percentage of our revenue mix, reinforcing the durability of our organic growth profile. In banking solutions, we are differentiated by our comprehensive portfolio of next generation solutions. These uniquely position us to help large global financial institutions as well as community banks and credit unions to transform their business models and to provide seamless customer experiences. Therefore, as the financial services industry continues to evolve, we will be the primary beneficiary of the growing momentum towards outsourced cloud based capital markets, our investments in advanced technology and regtech are paying dividends. We developed bundled offerings to enable our clients to simplify their complex front, middle and back office processes with an end to end automated workflow that is helping us to win market share.
In addition, by using a SaaS delivery based model, we have an opportunity to further increase our revenue growth profile by driving an increasing mix of predictable reoccurring revenue streams. In order to reinforce our reporting segments and drive increasing rates of organic growth, our priorities for 2020 are as follows. First, we will continue to invest in sales, innovation and delivery to capitalize on our growing new sales pipelines. Clearly, our investments over the past 5 years are driving landmark new wins, and we're going to continue to lean into the strategy in 2020. 2nd, we will seamlessly execute the Worldpay integration in order to achieve our revenue and cost synergy goals.
We're already well ahead of schedule and we'll look to further accelerate our momentum in 2020. 3rd, we will continue to drive efficiency through our data center consolidation program. Last, we will continue to scale on our high growth secular markets in order to reinforce the durability of our revenue growth profile. As you can tell by our exciting wins and accelerated synergy realization, 2019 was a transformational year, and we have line of sight to achieving even more in 2020. I'll now turn the call over to Woody to round out the financial discussion before he opens the call to questions.
Woody?
Thank you, Gary. I would also like to welcome everyone to today's call. This morning, I'll cover our 2019 financial results and 2020 outlook. But before I take you through this, I would like to recap some of the financial highlights that we achieved in 2019, beginning with Slide 10. During 2019, we transformed our company and positioned it for continued acceleration in revenue growth and ongoing margin expansion with an eye toward creating superior shareholder returns both now and into the future.
First, we accelerated our organic growth profile by executing the most significant and transformational acquisition in our company's history. We also reinforced the durability of our growth profile with record and notable client wins like the ones Gary mentioned earlier. These reflect the outcome of our investments in innovation and technology that we made to benefit our clients. Given our success, we will continue to make these investments. 2nd, we expanded margins by aggressively driving cost synergies through our integration efforts as well as ongoing internal expense initiatives that were in place well before the Worldpay acquisition.
3rd, we enhanced these operating savings with disciplined management of our below the line items. For example, we generated $275,000,000 of annualized interest expense savings by strategically managing our capital structure. Finally, we generated $2,100,000,000 in free cash flow equating to 20% of revenue. We anticipate free cash flow generation to accelerate and expect approximately 24% to 26% conversion to revenue in 2020. We used our strong free cash flow generation to not only pay down $1,400,000,000 in debt since the transaction closed, but also to fund investments in innovation and integration as well as to continue to pay our dividend.
For example, we recently acquired a majority stake in Virtus Partners. Virtus is a small but strategic tuck in acquisition within our Capital Markets segment. It provides high value managed services and technology solutions focused on the credit and loan markets, which is an area of rapid growth. While it's too small to have a material impact on our consolidated results, it will further reinforce the Capital Markets segment accelerating growth profile. Looking forward, we will continue to prioritize debt repayment in order to reach our 2.7x leverage target by the end of 2020.
Our strong cash flow will allow us to continue investing in technology and innovation to drive new sales and to make strategic tuck in acquisitions even as we delever. As we move into 2021 and beyond, our capital allocation will shift towards reviewing strategic M and A opportunities that will increase our scale in secular high growth markets. Absent M and A opportunities, we will return capital to shareholders through ongoing dividends and resuming buybacks. As you can see, based on our accomplishments in 2019, we are doing what we said we would do and even more. First, we initially expected the Worldpay transaction to be modestly dilutive in 2020 before turning accretive in 2021.
Today, we announced our formal adjusted EPS guidance for 2020 and the entire range is now accretive. 2nd, our initial revenue synergy target was $500,000,000 Today, we increased our revenue synergy target by 10% to 550,000,000 dollars Further, we increased our 2020 revenue synergy target by 33% to $200,000,000 3rd, we initially expected cost synergies of $400,000,000 which we raised again today to $675,000,000 Finally, we continue to see accelerating revenue growth in 2020 and beyond. These accomplishments demonstrate the hard work of the team and further increase my confidence in our strong outlook for 2020. Turning to our results on Slide 11. We finished the year on a high note, exceeding our revenue and adjusted EPS guidance.
In the Q4, revenue increased 7% on an organic basis to $3,300,000,000 with strong top line performance across all three of our segments, which I will summarize in a moment. Adjusted EBITDA increased to $1,500,000 during the quarter and our margins expanded by 4 70 basis points to 45 percent. Reflecting our strong operating results, adjusted EPS was $1.57 per share. I'll now provide some color on our segment results on Slide 12. Merchant Solutions organic growth accelerated sequentially to 10% as expected, and e commerce and integrated payments saw continued strong growth in the mid to high teens.
The segment generated EBITDA of 5.84 $1,000,000 in the quarter, representing a 52% margin. As we look to 2020, we expect this segment to grow in the low double digits as underlying business trends remain robust and we expect revenue synergies to ramp throughout the year. Our Banking Solutions segment generated 5 percent organic growth for the quarter and 6% for the year, primarily driven by continued demand for our market leading solutions. This segment generated $682,000,000 in adjusted EBITDA for a 44% margin. We expect banking to continue to generate strong mid single digit growth in 2020 and our impressive new wins provide increased confidence in the recent trends.
Capital Markets organic revenue growth was very strong, accelerating to 6% when excluding a one time item that drove approximately 2 percentage points of growth during the 4th quarter. This segment generated $339,000,000 in adjusted EBITDA, representing a 51% margin. For 2020, we project capital markets to show modest acceleration over 2019 and improvement from our prior messaging as we continue to drive growth in recurring revenue. Turning to Slide 13. We have made significant progress on our cost synergies as our integration of Worldpay is running ahead of schedule.
We exited the Q4 generating $465,000,000 in annual run rate cost synergies, including $275,000,000 of interest expense savings $190,000,000 in reduced operating expenses. We are making substantial progress in reducing duplicative corporate cost as well as consolidating our merchant and issuer platforms to generate the operating expense savings, which are also running well ahead of plan. With all of the progress that we've achieved already, we are increasing our 2020 cost synergy target to $600,000,000 in annual run rate cost savings. We are pushing hard to accelerate cost synergy attainment and complete our integration plans as fast as possible. By completing these efforts, along with deleveraging our balance sheet in 2020, we will be able to focus even more of our energy on driving revenue growth and be ready to execute strategic M and A as we enter next year.
Before I provide the details of our 2020 guidance, I would like to set the stage on Slide 14. We have significantly accelerated our organic revenue growth profile and expanded our adjusted EBITDA margins over the past 3 years. Revenue topped $10,000,000,000 for the first time in our company's history in 2019, and we are highly confident in our ability to further accelerate organic revenue growth in 2020 and beyond. Over the past 3 years, organic revenue growth increased from 2% in 2017 to 3% in 2018 and now 6% in 2019. With the multiple revenue synergy opportunities and accelerating sales momentum that Gary described earlier, we have significant visibility into the year and are increasingly confident in our expectation for organic revenue growth to approach 7% in 2020 before moving higher in the out years.
Turning to margins. We have expanded adjusted EBITDA margins by more than 700 basis points over the past 3 years, and we project another 300 points of expansion in 2020. This consists of ongoing initiatives and synergy achievement to generate approximately 400 to 4.50 points of underlying margin expansion, which will be partially offset by 100 to 150 basis points of additional investments. We're investing we are reinvesting a portion of our below the line interest expense savings back into the business as increased investment in innovation, sales and delivery. The momentum that we are seeing in the market right now.
Our new sales pipeline is the largest I've ever seen, and I want to make sure we are positioned to win. In addition, we have the largest implementation backlog I've ever seen, as you would expect, following record new sales capped off with the big wins that we announced this quarter. Therefore, I also want to invest in delivery, so we can get our clients utilizing these new capabilities faster and start converting those big wins into revenue. Finally, I would like to provide details of our Q1 and full year guidance on Slide 15. Based on current business trends, we expect revenue of $13,550,000,000 to $13,675,000,000 and adjusted EPS of $6.17 to $6.35 per share for full year 2020.
This represents organic revenue growth 6% to 7% and adjusted EPS growth of 10% to 13%. We expect to increase our adjusted EBITDA margins to approximately 44 percent for the full year, and we will provide more planning assumptions on the bottom of the slide. Our new sales momentum, substantial backlog and multiple cross selling opportunities provide significant visibility, which gives me high confidence in achieving our guidance ranges. Turning to our Q1 guidance. We expect revenue of $3,180,000,000 to $3,210,000,000 and adjusted EPS of $1.30 to $1.34 per share.
This represents organic revenue growth of 5% to 6% and adjusted EPS growth of 12% to 16%. As a reminder, we faced a tough comp during the Q1 after receiving about a point of one time benefits during the Q1 of 2019, which we will have to grow over in 2020. After the Q1, we then expect revenue growth to ramp toward the upper end of our 6% to 7% range for the remainder of the year. Before we open the line up for questions, I'll wrap up our prepared remarks with the following. We are well positioned to continue delivering substantial shareholder value in 2020 and beyond as we continue to increase revenue momentum, expand margins and generate significant free cash flow.
2019 was a transformational year, and I'm looking forward to even stronger financial performance in 2020. This concludes our prepared remarks. Operator, you you may open the line for questions.
Thank you. And we do have something from the line of Jason Kupferberg with Bank of America. Please go ahead.
Hey, good morning guys. Really nice results here in the quarter. So I just wanted to probe the 2020 EPS guidance a little bit further. It looks like share count may be a little bit higher than the Street was estimating, which kind of is what it is. But on the margin front, you about that 100 to 150 bps of additional reinvestment.
Woody, I just wanted to see if you can elaborate a little bit further, maybe by segment where you're going to be concentrating some of those reinvestment dollars.
Yes. I thought it might be even helpful to walk you through the margin bridge we expect for 2020. We closed out 2019 with about a 41% margin. We are seeing synergies, both revenue and OpEx, driving a little greater than 200 basis points of improvement. We've got normal operating efficiency and scale in the business driving roughly 50 to 100 basis points of improvement.
The data center consolidation efforts are driving about 50 basis points of improvement. And then the impact of having Worldpay in the business for the full year is driving about 100 basis points of improvement. That aggregates to about 400 basis points to 4.50 basis points. Then we talked about the investments, roughly 100 to 150 basis points offsetting that to get you to about 300 basis points of expansion or an expectation of about 44% for 2020. When you specifically think about the investments, I think a lot of it's being driven towards delivery.
Those are those big wins Gary talked about are significant dollars of revenue sitting in the implementation backlog that we want to get those capabilities in there faster and get the wins turning into revenue. They would flow across both banking and merchant primarily in terms of the incremental investment with incremental sales flowing in banking and merchant as well as we see a very, very robust pipeline, particularly in some large opportunities in the marketplace right now.
Okay. Understood. And just as a follow-up, the $250,000,000 increase in the run rate of cost synergies for 2020, is that mostly all OpEx or is there a little bit more interest expense in there, too? I think you had that incremental refi in December.
We expect it to be almost every dollar OpEx related. Absolutely.
Perfect. Yes. Okay, great. Thanks guys.
Thank you. Thanks Jason.
Thank you. And next we will go to the line of Darrin Peller with Wolfe Research. Please go ahead.
Hey, thanks guys. Nice results. Look, we saw strong revenue trends in the quarter. We saw strong revenue trends of about 7%. I think it was really driven by merchant at 10% and capital markets really strong at 8%.
When we look at these synergies rolling on, notwithstanding the tough comp in Q1, can you just touch on the range, the 6% to 7% versus the 4th quarter run rate, notwithstanding the Q1 tough comp, just seems like there should be a trend towards the better end of that 7% if not higher. And then maybe if you could just give us some scenarios that would be at the high end and the low end that you could see playing out through the year?
Yes. I think I even called it out in my prepared remarks. After the Q1, we anticipate to be at the high end of our growth guidance for the remainder of the year. Again, consolidated, we're facing about 1 point of growth. That's where the 5% to 6% came from.
Beyond that, we would expect to be towards the high end of that range.
Okay. I guess what I'm wondering is if like what specific scenarios could bring you to the high end or potentially the low end beyond just the timing and the cadence, Timing on synergies perhaps? And maybe just some examples of how revenue synergies are going. What led you to raise the revenue synergy targets?
Yes. No, we raised the it's a great question, Darren. We raised the revenue synergy guidance just because of our actual cross sell wins. What propels us to the upper end of that will clearly be the timely onboarding of these large implementations that Woody discussed. And as you see, like we have in the past, we were accelerating some investment into this growth curve as the growth curve accelerates and our backlog builds.
Obviously, we want to make sure that we have the personnel necessary to install the solutions. But the response to our solution capabilities has just really been tremendous across both banking and merchant, we feel and capital markets for that nature. We highlighted a cross sell win in capital markets with a premium payback in prepared remarks. So really across all the segments, we're just seeing really good solid demand for our next generation solution suite. Our pipeline continues to grow and our sales more importantly, we continue to close the business and all of that pushed us to raise our revenue guide.
We exited the year with $80,000,000 in run rate. That's installed and producing revenue. So that's well ahead of our initial $100,000,000 target for the end of 2020. So when you just back into that, Laurie, at 80,000,000 through the 1st 5 months, when you look at the sales that we even just highlighted in Q4 and as those onboard in the first half or through the 1st three quarters of the year, plus with our pipeline, we feel really good about revenue synergies. And to Woody's point, feel very confident about the upper end of those guidance ranges.
Thanks, guys. If I could just squeeze in the 2 big banks you won, 1st Republican Union, those are really large wins that we don't see often. So can you just give a little quick color on that?
And then I'll go
back to the queue. Thanks. Yes. We talked a lot about on this call about, one, there was 3 significant wins. There was a top 10 that we didn't name, but there was also the top 20 and top 30 that you just mentioned.
We talked a lot about on this call is that there is a tremendous amount of pent up demand in the marketplace and this is a global statement of very large financial institutions that are tied to extremely old legacy platforms. And we talked a lot about when we'll see that market finally starting to transition to a much more modern, much more open architecture to allow them to continue to compete for the next several decades. And I think this quarter was a significant moment in the industry where we saw, as I said, a top 10 institution, a top 20 institution and a top 30 institution all make that decision to go through a transformation of their core banking. And in many instances, they're going off very multiple decades old type legacy capabilities a much more future modern architecture. So we're real excited about what we're seeing in the industry.
I can honestly tell you the pipeline is as full as I've ever seen for banking on a global basis for next generation capabilities. And we feel very good about the fact we started this investment cycle 3, 4 years ago. We've been investing heavily into these next generation capabilities and really feel like we're in a very good spot as far as timing the industry for when that transformation is going to begin.
That's great. Thanks guys.
Thank you. And next, we will go to the line of Tim Giro with Credit Suisse. Please go ahead.
Thanks a lot guys. So my question is on the Worldpay e commerce acquiring business, clearly a leader in global e commerce acquiring and then also Worldpay in many, many in store markets, sort of a good number of key markets globally. But there does seem to be an opportunity to expand in store acquiring into new international countries. I just wanted to see if you could talk a little bit about how we should think about that expansion, rough timing, what the opportunity is and just a confirmation that, that potential upside is not actually in the formal revenue synergies?
No, Tayon, that's a great question and you're exactly right, it's not in the revenue synergies upside and we're actively working through those strategies and we will be pushing into those other markets as you described. We're very excited about the merchant team and how it's come together under FIS. We're very excited about the combinations that we're seeing between our banking relationships and our broader merchant relationships. And so like everything we do, we participate on a global basis. We've already been teeing up the countries that we're focusing on building out those go to market strategies, aligning our development initiatives to correspond to that and so more will be coming on that, but that's absolutely upside to the future of the company.
Great. Thank you.
Thank you. And next, we will go to the line of Ashwin Shirvaikar with Citi. Please go ahead.
Thank you. Hi, Gary. Hi, Woody. Hey, good solid 4Q 2019 results here. I'm kind of I was hoping that since you stood by the future 8% to 9% growth, I'm hoping you could kind of bridge the 6% to 7% this year.
I'm thinking this is going to be closer to 7% like you mentioned in the earlier question. If you could bridge that gap with regards to how much of that flows from incremental synergies versus some of these larger wins, which seem like they are more they seem to be longer ramps because they're very large like a top 10 bank, for example, might take longer. Could you talk a little bit about that?
Yes. No, I think you're exactly right. Obviously, these larger programs do take a longer period of time to implement. We've talked about that multiple times on the call. So it's not uncommon to go through a 12 plus month sales cycle and then you've got a reciprocal 12 plus month implementation cycle.
What makes us excited about driving our growth rates beyond 7% and upper single digits is not only the demand that we're seeing on cross sell in revenue synergies, we talked a lot about that and we continue to not only raise the dollar amount of that, we also raised the timing of it being pulling it in earlier than what we thought. But we also and we talked about this now for multiple, multiple quarters, we're in well over a year now of really rapid sales growth around our newer technologies and that's whether it's on the banking business, on the merchant business or on the capital market business. The demand we're seeing for our cloud based deployments, our ability to lower the total cost of ownership of these large institutions and drive a real differentiating value proposition is playing out very well in the market. So you've got this combination of revenue synergies, but more importantly, this combination of being able to compete and take share and drive significant new sales wins across all of 3 of our verticals gives us a lot of confidence that our growth profile is going to continue to accelerate in the out years as Woody discussed.
Got it. And I might have missed it, but did you, from just a clarification perspective, provide either the TRA terminations included in the tax rate outlook? And I might have missed the e commerce growth rate if you specifically grew mid to high
teens with e commerce growing higher. Grew mid to high teens with e commerce growing higher over the average and integrated growing slightly lower than that average, rolling back to mid to high teens. With regard to the TRAs, the structure of the deal is only giving an immaterial benefit to EPS in 2020 2021 with further EPS benefit in 20222023 just on the way the deal was actually structured and the timing of the actual ownership of the TRAs, Ashwin.
Got it. Thank
you. Thank you. Next, we will go to the line of David Togut with Evercore. Please go ahead.
Thank you. Good morning, Gary and Woody.
Good morning, David.
Good to see the merchant solutions growth returned to 10% organic in Q4. If you could break down your expectations for 2020, what do you call kind of growth rate for 2020? Yes. If you think about kind of growth rate for 2020?
Yes. If you think about merchant, I think we would still anticipate e comm and integrated to be in the mid to high teens From a planning perspective, growth in the Q4 was strong, expectation in pipeline is strong, so we feel very good about that with the profile of the remainder of the business being similar to what you saw in the Q4 on the growth profile. Obviously, we're hoping to see some of those synergies flow into both banking and merchant. So you've got to balance them around. 2020, our expectation around revenue synergies blends roughly fifty-fifty going into the banking segment versus the merchant segment.
But yeah, we're still pleased with the acceleration into the Q4 and are looking for low double digits all of 2020.
Got it. And then just as a quick follow-up, I think, Woody, historically, you model in about 150 basis points of revenue headwind annually from consolidation and pricing pressure. Can you kind of share with us your expectation on that front for 2020? And are there any specific consolidations that are kind of baked into your guidance?
Yes. We would have similar levels of competitive headwinds that we always bake into the model. So no real change there, David. I would say at this point, we don't have anything specifically outlined other than historical trends.
Yes. No, when we think about consolidation in the industry, we think obviously across our client base primarily impacting the banking capital markets group. That's going to continue, but we're not projecting that's going to accelerate dramatically from where from what we saw in 2019. So it's been a fairly consistent trend. One of the nice things about that FIS' position is because we're typically positioned in the large regional market.
Those tend to be our customers that are doing the consolidating. So we're the we've been in a lot of instances the beneficiary of those combinations. But we'll continue to watch it closely and but modeling pretty well consistent behavior over 2019 on that front.
And next, we will go to the line of Dave Koning with Robert W. Baird.
And I guess, first of all, when you first gave the accretion to the $6.16 number, maybe a few quarters ago or so, I guess, since then we've had what we think maybe is $0.30 of benefit from just better synergies, lower refis, tax rate, I think a little better. Is it fair to think of the bridge that that would have maybe brought it up $0.30 or so, but these incremental investments and then what looks like no real use of cash in 2020, it looks you're not really trying to push the share count down at least in guidance. Those two things maybe are what's bringing it back a little bit down. Is that a fair bridge?
That's pretty close. When we guided accretion in, I think, the Q3, we didn't anticipate the 2nd round of refi benefit. We absolutely were pleased in being able to go back into the market and grab another $135,000,000 or so of interest savings. We saw that as an opportunity along with the sales execution that was delivered in the 4th quarter to reinvest that in sales and delivery, which we kind of described before. We certainly are not buying back shares at this point until we reach our deleveraging targets.
So those are primarily your 2 big deltas, Dave. You got it pretty close.
Okay, good. And then 2 really quick modeling ones. The size of that acquisition and when that hits and then is the tough comp in Q1, is that solely in the Banking segment?
The tough comp in Q1 is in the Banking segment. The small acquisition was roughly revenue contribution of about $75,000,000 in 2019, and we closed it relatively early in Q1.
All right, great. Thank you.
Thank you. And next we will go to the line of George Mallows with Cowen. Please go ahead.
Hey, guys. Thanks for taking my questions. I guess, Gary and Woody, I'm not sure if I missed it, but did you give what the increase in back log is year over year? I think it was up 9% last quarter. Just curious if you have an update on that?
And any color on any specific segment strength that may have been surprising to you?
We didn't give the specific dollar amount of backlog. I don't get disclosed in the 10 ks. What we did talk about was the implementation backlog component of that overall backlog was the highest I've ever seen. While we didn't give a dollar amount, it's certainly connected to the 3 or 4 the 3 big wins in core banking that Gary described, plus some of the big wins in merchant.
Yeah, we really saw great strength in the quarter, frankly, for the whole year across all three of our segments, really saw great growth in capital markets around our regtech solutions and some of the things we're doing through our SaaS model on cloud based technologies. The banking business saw strong sales across our next generation solutions, our next generation digital, our omnichannel things we're doing there. Obviously, we highlighted what's going on with our core banking transformation. And then Woody has talked about several times on the call the strength we saw across e comm and integrated in the merchant business. So we were very pleased with how 'nineteen unfolded.
And obviously, all that pushes us into 2020 with a lot of new sales we have to deliver on, which is good.
That's great. You guys sound really bold up on the opportunity. And just as a quick follow-up, if we can kind of shift gears a little bit just to the merchant side. I'm just curious your perspective. There's been some more consolidation in Europe now.
Curious if you think that will have any impact on the business, whether competitively or from a partnership standpoint? And then Visa, looking to adjust interchange and potentially raising it, I guess, on the e comm side. Just curious if you think that will have any impact on the legacy Worldpay business. Thank you.
Well, look, we continually focus on all kinds of all the combinations going on, any M and A activity, any partnerships, and obviously we watch that very closely. At this point in time, we feel very good about our position across the globe, especially in merchant and our ability. When you look at our scale on merchant and our ability to truly be the only global provider of e com at scale, we feel very good about our positions, but we'll continue to watch those things. As far as Visa, typically we pass on all of those through our fee structure very transparently. Moment.
Thank you. And next we will go to the line of Tim Willi with Wells Fargo. Please go ahead.
Yes. Thank you and good morning. I had two questions. The first was again back to the merchant a little bit. Thinking about again the capabilities that you talked about with Worldpay and the omni channel and over the last 4 to 5 years, whatever it is, retailers have been investing substantially in their own digital commerce platforms.
When you think about pipelines for sales activity, are we at a point where retailers are sort of reevaluating what they've now built, sort of focusing on the back end side, the operational aspect of this now that they've got the consumer side correct. I'm just sort of wondering if there's an escalation in RFPs or something you might see coming down the pipe, for sort of global omni channel that might be different now than even a year ago, year and a half ago as we farther down this journey with the retailers?
Tim, it's a good question. What I would tell you is, obviously, we've only been involved now a little over 5, 6 months. What I'm telling you what we're seeing in the sales cycle, I wouldn't say an increase in RFP activity, but what I would say is we're seeing increased pipeline and increased demand for our capabilities. And so we're obviously leaning into that. Worldpay had made some significant investments around omni channel leading up to our combination.
Obviously, they've made some significant investment in e commerce. They had also made some significant investments in the U. K. On the new acquiring platform. So when you look at all of those things, what they had done on the consolidation between Bantiv and Worldpay, all of that's playing in very nicely into our sales success and allowing us to compete on a global front very effectively.
So we're seeing very good strong pipeline growth and good solid sales success, especially across the e commerce and omni channel as I highlighted 1 in Europe in my prepared remarks.
Great. And then my follow-up
and I'll hop back in the queue is, on sales, you talked a lot about cross sell on this call and I know you guys are always looking at the sales force and optimization and making sure you're cross selling and selling effectively. Have there been any changes as you move through this integration with Worldpay in terms of sales structure, compensation for cross selling, anything along those lines that maybe is kicking in and helping to elevate the performance that you highlighted on this call?
On prior calls, we actually highlighted the fact that we didn't want to change any commission same credit they got before the combination pulled together. That's always been an important step for us, because the last thing we want to do is create any confusion across our sales force. So I think because of those because we haven't made any changes and because we're now giving everybody an opportunity to pull these other products, that's helped increase our pull through. I think the other side of it and we highlighted it on the call in the prepared remarks is we're just finding more and more capabilities across the 2 companies that resonate with those existing customers. So I highlighted our prepaid opportunity.
That was something we really didn't identify during due diligence. But what that came out of a cross sell into an existing Worldpay customer that now has allowed us to create a whole new pulling the teams together just pulling the teams together because we're a full 12 months ahead of where we thought we'd be on integration, the benefits of the team coming together and working as a team and identifying those opportunities, you're just really seeing that pay through in the cross sells.
Great. Thank you so much.
Thank you. And next, we will go to the line of Craig Maurer with Autonomous. Please go ahead.
Good morning. Thanks for taking the questions. First is, I wanted to understand what's assumed in underlying U. K. Trends to allow you to hit guidance this year as we've seen some significant callouts of a weaker U.
K. From Visa, Barclaycard, etcetera. And just secondly, there was a meaningful uptick or at least significantly more than higher than our expectation in stock based compensation, and I wanted to understand the trend there.
Well, on the U. K. Front, as we've talked about in prior calls, we've frankly, our U. K. Volumes are already pretty much at recessionary levels.
We saw a little softness in quarter on the U. K, but we've modeled that in. We've really modeled in no recovery, but we've also modeled in the volumes at about where they were in Q4. In other words, we're not modeling them to fall off a significant amount. We feel very comfortable though with our with the business that we are signing.
We've also got some new leadership in the UK. So we think there's an opportunity to really grow our share in the UK as well. So we're pretty excited of what the team is coming together on that front. But the quick answer is for 2020, we pretty much modeled the U. K.
Consistent with what we saw in 2019.
On the stock compensation comment, the vast majority of it is around accelerations related to severance activity in the 4th quarter. Thank you.
Thank you. And next we will go to Ramsey El Assal with Barclays. Please go ahead.
Hi, thanks for taking my question. I guess, dovetailing with Craig's question just before mine, Can you comment on external and macro factors that you have baked into guidance? Obviously, you've been hearing a lot about coronavirus, but also the big IT spending environment, any other election year impacts on bank budgets? Just what are you presuming in the context of your guidance?
Yes, let me take a few of these and then we'll let Woody get into the details. The quick answer is we've modeled a fairly consistent 20 19. I would say it that way. Our pandemic task force is obviously very focused on the coronavirus right now. We don't see any material impact for us throughout the Asia region.
If we do have any impact at all, it would just be a matter of few $1,000,000 in Q1, but we're monitoring it very closely and frankly, we're very comfortable that that's not going to be an issue. So we continue to watch those things. But as far as when we look at the growth rates around the world, we're modeling consistency through 2020.
Any other comments? Yes. As we talked about last quarter, we continue to see and model softness in the U. K. And Europe broadly.
We have not put anything in our 2020 plan with regard to some outcome from the election. The remainder of it has been relatively status quo in terms of the underlying health of the global economy. That's right.
Okay. And then secondly and lastly from me, could you give us a kind of a status report on some of the key revenue synergy buckets? I think you mentioned that the Penn Debit opportunity was now at scale. I think that was the synergies in the presentation, which I presume is somewhat fully executed upon. What about the other key synergy buckets?
What inning are you in, in terms of the premium payback realization of synergies and maybe also on the card not present authorization rates of progress? I think you mentioned that a little bit in your prepared remarks, but it would be helpful.
No, no, Ramsey, it's great questions. I would say we're just obviously, we're just getting started with our revenue synergies. While we're excited about $80,000,000 we've got a long way to go to reach our raised targets. We feel great about our targets and obviously we feel great about the sales success we've had. I would tell you, I even put in my prepared remarks, our debit routing has done very well.
And so that continues to contribute. We actually saw good volumes, additional volumes even coming through in the quarter. So I would say we're not completely finished there, but as you highlighted in late innings and those were some very early wins, Premium payback, we're just getting started. I mean, we had some very significant signings. You don't want to trivialize the top three merchant and PayPal.
I mean, those are just huge opportunities. Obviously, we've got to deploy those next year, so we haven't started seeing revenue growth. But more importantly than that, we're seeing really large pipeline and additional sales around premium payback. So that's those aren't the only 2 that we've signed. We've now signed a number of customers.
The one that has surprised us is the merchant referral program across our regional banks. We actually didn't predict the response that we're seeing on that base in our larger institutions, which is a very pleasant surprise. The as far as the authorization rates and fraud rates, we talked about that on prior calls, really just working on the models, working on the data consolidation. So I would argue those results have not even started at this point. And we're doing the work leading up to what doing the work that will then drive the results in late 2020 2021.
So very early stages on a lot of these things, but feel really good about the early results, the signings to date and the pipeline.
That's super helpful. Thank you very much.
Thank you. And next we will go to the line of Brett Huff with Stephens. Please go ahead.
Good morning guys. Congrats on a nice quarter.
Thanks Brett.
I know we're getting near the end of the game here on the Q and A, so I'll just ask one. A little more detail on the core wins. So we've been doing this a long time and we've been hearing about the big banks going to do their core transformations for what 15 years. Is this really the beginning of that? And you guys got 3 of the big ones.
But I guess my question really is, if we're finally at that tipping point, what is your visibility into the other big banks that you serve also doing the same thing?
Yes. I'll add some color, Brett, and then let Gary follow on. Even if you go back to Investor Day a couple of years ago, we had one of the questions in the audience was, will you ever see a top 20, a top 30 bank outsource to a company like FIS? This quarter, we saw 3. So I want to say it's really important that we're seeing some of this as a tipping point.
As I described, the pipeline is very full and we're feeling very optimistic about
it. Yes. No, I really do. I think it's just a matter we talked about it in the past. We're really seeing a transformation around technology that frankly none of us have seen in our careers.
And so with this transformation in technology, a lot of people talk about 4th Industrial Revolution, but the reality is these newer technologies are going to require a replacement. You're not going to be able to iterate your legacy technologies. You're going to have to go through a conversion to really take the advantage of these new open standards, these new scaled standards, these new availability standards. And so, yes, Brett, I think we really have, as I said in my prepared remarks, we're seeing a significant milestone in the industry when you've got a top 10, top 20 and top 30 bank all making their decision to go through that transformation. Woody's point is that on, we've had a lot of early success with our next generation core banking system, modern banking platform, but what we're but now, frankly, that's one of the reasons why we're investing so much in delivery.
We've got a very, very strong line and active discussions going on. So we don't expect these to be the only big deals announced. So we're excited about it. And we do believe this is a global issue. I was just over in Asia earlier in January and every customer I met with and even in Q4 when I was outside of the country, every CEO I was meeting with is talking about this issue.
And so this is a global opportunity for FIS. And I just think we're very well positioned in just getting started. And I think for the next 10 years, you're going to see this kind of transformation is going to occur across core banking.
And our last question comes from James Friedman with Susquehanna. Please go ahead.
Hi, thank you. And let me echo the congratulations. I'll just ask my 2 upfront in the interest of time. So with regard to the 100 basis points to 150 basis points of reinvestment related to delivery, should we think about that as one time in nature or will it go away in 2021? And then while we're making our models on a quarterly basis, thank you for the call outs about Q1.
Are there any other call outs that we should remember about the other quarters in terms of non recurring? Thank you.
Yes. I'll take your second question first. I think the only other call out would be Q4 2019, we called out about 2 points of benefit in capital markets that we don't anticipate. We actually normalize it and said the underlying growth was 6 versus 8 that you see on some of the charts. Beyond that, no other callouts.
If you go back to the original question, would we continue to invest as one time? I certainly hope we continue to invest here. If we continue to see sales, particularly in some of these larger institutions outsourcing their core banking, I'd certainly be happy to continue to make this investment
in delivery. Look, we want to make sure, James, whatever we do is that we continue to invest behind our growth to continue to accelerate that growth curve. So like we've seen in the we've got a real unique opportunity here where we really do see the market moving through our sales results and our sales channels across all of our segments. So they need the ability to invest in that and deliver on these capabilities and get them in market and help further accelerate our sales team. We're investing in sales resources as well.
So Woody talked about that, it's not just all delivery. Right now, we've got a tremendous amount of demand. We want to make sure that we have the necessary people in markets that can capture and capitalize on these opportunities.
And we will now go back to Gary Norcross with any closing remarks.
Thank you. I'm proud of our outstanding results in 2019. I also want to recognize the work our team has done to accelerate our integration timeline by a full 12 months. I would also like to thank all of our associates across the globe who are working hard every day to advance the way the world pays banks and invest. If you have any questions following today's call, please reach out to our Investor Relations team.
I want to thank you for joining us today.
Thank you. And ladies and gentlemen, this conference will be available for replay after February 14 at 11 am Eastern until midnight March 13. You may access the AT and T replay system at any time by dialing 1-eight 66 207-ten forty one and entering the access code 1,000,000,000,000,000,000,000,000,000,000,000,000 International participants, please dial 4029700847. Those numbers again are 866 to 710414029700847 7 with an access code of 1,596,000,000