Ladies and gentlemen, thank you for standing by. Welcome to the FIS third quarter 2019 earnings call. At this time, all participants are in a listen-only mode. Later, we will conduct a question and answer session. If you have a question, press star then one on your touch-tone phone. You may remove yourself from queue at any time by pressing the pound key. If you should require assistance during the meeting, please press star zero. As a reminder, this conference is being recorded. I would now like to turn the conference over to our host, Head of Corporate Finance and Investor Relations, Nathan Rozof. Please go ahead.
Good morning, and thank you for joining us today for the FIS third quarter 2019 earnings conference call. The call is being webcasted. Today's news release, corresponding presentation, and webcast are all available on our website at fisglobal.com. Beginning on slide two, Gary Norcross, our Chairman, President, and CEO, will discuss our third quarter 2019 business highlights and FIS's growth strategy. James Woodall, our Chief Financial Officer, will then review FIS's third quarter financial results, synergy performance, and provide updated guidance for the fourth quarter and full year. Turning to slide three, 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.
Thank you, Nate. Good morning and welcome to today's call. Beginning on slide five, I'm very pleased to be able to share our outstanding third quarter performance with you. Our financial results were excellent, with revenue, adjusted EBITDA, and adjusted EPS all significantly exceeding our expectations. We also got off to a very fast start with both revenue and cost synergies, especially considering we operated for only two months as a combined company. We are raising our fourth quarter and full year guidance for revenue, EBITDA, and EPS, as well as our 2020 cost synergy target. The strength of our third quarter performance and raised outlook clearly demonstrates the power of this combination and our overall growth strategy. Including two months of Worldpay contribution, we generated more than $2.8 billion in revenue and approximately $1.2 billion in adjusted EBITDA.
This represents 35% revenue growth on a GAAP basis, over 5% organic growth, and 350 basis points of margin expansion. We generated $1.43 of adjusted EPS, which was well above our expectations. In the third quarter, sales were up more than 25%, increasing our backlog 9% organically, accelerating from 7% growth last quarter. This gives us clear line of sight to continued revenue growth throughout 2020. FIS has successfully generated seven consecutive quarters of exceptionally strong sales. Merchant Solutions also saw continued strong sales momentum within our e-commerce portfolio, including 23 cross-sell wins in the quarter, accelerating from 14 wins in the second quarter. We think these cross-sell wins are another strong indicator of the success and scale that our newly combined company can deliver. Turning to our early synergies from the Worldpay integration, they clearly show that the combination of our two companies is paying significant dividends.
Our combination is strategically differentiated on three main fronts. First, we have a unique strategy to accelerate organic growth by aggressively investing in innovative technologies and automating complexity. Second, we are combining the premier assets in the industry to create leading solutions focused on secular high growth markets. Third, we are bringing value to our clients with our world-class scale. We exited the quarter generating more than $30 million in annualized run rate revenue synergies with significant future opportunity. I'm excited to announce that we have already signed agreements with two of our bank clients to expand our relationships into merchant services. This includes a merchant referral agreement with an $11 billion bank in the United States, as well as an agreement with a large banking client in Brazil. With this agreement, we are now enabling merchant processing in Brazil at the point of sale for over 500,000 merchants.
This step forward demonstrates the power of our new company's global reach, as neither company would have won these transactions on their own. These early wins illustrate the power of our end-to-end value proposition, and we have a solid plan and execution timeline that will drive our results to achieve our $500 million revenue synergy goal. With regard to cost synergies, our team began executing immediately and upon close and generated well over $200 million in savings on an annualized run rate basis exiting the third quarter. Woody will go into more detail regarding cost synergies, but given the outstanding results to date and our current plans, we are very confident in delivering more than $500 million in total cost synergies.
The integration of these large transformational M&A transactions continues to be a core competency, and we will utilize it as part of our strategy and further accelerate our organic growth and shareholder value. Turning to slide six to discuss our growth strategy. We continue to aggressively invest in new technologies across all three of our segments. Investing in future innovation to benefit our clients started more than three years ago. It's part of everything we do at FIS, and will continue to drive our client value proposition. These significant innovations are now coming to market and not only driving our sales results, but leading to our accelerated growth. Our clients depend on us to stay ahead of the market and make investments that enable them to run their operations more efficiently, connect with their customers and grow their businesses.
With the addition of Merchant Solutions, our growth rate will expand to 6% in the fourth quarter. We see numerous secular growth opportunities in all three segments, and our clients and partners are excited about the potential value we can bring to them by solving their current and future needs. Turning to our segment performance, our Merchant segment continues to benefit from its exposure to secular high growth markets and ability to win market share through superior client service. For example, a leading global coffee chain selected FIS for in-store payment technology across more than 600 locations in the U.K. and Europe. Our global reach, innovative capabilities, and differentiated approach resonated with the iconic coffee giant as it expands into new markets. In addition to this marquee new client win, Merchant renewed its important strategic relationship with Kroger to continue providing our innovative suite of omni-channel payment solutions.
While we typically do not highlight renewals, this is one of the largest clients of the former Worldpay business, and we were thrilled with the early commitment Kroger showed in extending our long-standing partnership. In our banking segment, our clients are reinventing their business models to create seamless digital experiences for their customers using our advanced technologies. For example, we expanded our relationship with a global bank to implement a real-time payment solution for their corporate clients in nine countries. The bank chose to partner with us due to our proven capabilities and expertise, as well as our ability to move quickly to meet Europe's regulatory requirements. A large regional bank in the U.S. decided to switch to our outsourced suite of core banking solutions after acquiring one of our clients.
The combined company now has assets approaching $50 billion, and represents a consistent theme of large financial institutions looking to FIS to solve their complex core banking business challenges. The decision was driven by our scalability and our consistent investment in new products, as well as our tremendous scale in the large regional banking market. Similarly, in our Capital Markets segment, our investments to automate complex processes using advanced end-to-end technologies are resonating with clients. For example, a large institutional broker signed an agreement to implement our consolidated audit trail solution to effectively meet new regulatory requirements for monitoring securities trading. Regulatory compliance is critical for our Capital Markets clients, and our ability to automate these processes is a true differentiator. This is our 12th consolidated audit trail win this year and shows our ability to work at scale to simplify the complex.
We also expanded our strategic relationship with a large global financial services corporation. In this instance, we are bundling several FIS cloud-based solutions to help this organization's global travel services enhance treasury controls, optimize cash visibility, and reduce fraud. These impressive client wins across our segments demonstrate the strength of our business model and powerful client value proposition. I'm very proud of the team's sales and operational execution, especially given the backdrop of the significant integration activities occurring throughout the company. With such strong results and revenue synergies already starting to ramp, I am increasingly confident in our expectation for organic growth to approach 7% next year, and to further expand to 8%-9% in the future. I will now turn the call to Woody to round out the financial discussion before he opens the call to questions. Woody?
Thank you, Gary. I will begin with our results on slide eight. We had an outstanding quarter. Revenue increased 5.4% on an organic basis to $2.8 billion, with strong top-line performances from all three of our segments. Adjusted EBITDA increased to $1.2 billion during the quarter, and our margins expanded 350 basis points to 42%. We expanded margins by generating operating leverage, driving data center consolidation, and achieving cost synergies. We also benefited from the inclusion of high-margin merchant revenue for the last two months. As a result, adjusted EPS was $1.43 per share, reflecting our strong revenue and EBITDA performance. Turning to slide nine. We accelerated the timing of both revenue and cost synergies. In only two months, we have already achieved revenue synergies of more than $30 million on an annualized run rate basis, primarily through the benefits from debit card routing.
We expect revenue synergies to ramp up from here, giving us clear line of sight to our $150 million target by the end of 2020. This fast start gives us confidence to increase the fourth quarter revenue guidance and gives us an early lead on achieving our revenue synergy goals. In addition to the debit card routing benefits, we also expect to achieve revenue synergies through cross-selling our combined portfolio, improving authorization rates, reducing fraud, and expanding our geographic presence. For example, our first joint Loyalty as a Currency client is on track to go live during the first half of next year. Completing the integration of this solution into the Worldpay platform will mark a significant milestone. It will streamline the onboarding process for future clients, allowing us to significantly ramp up sales and distribution in order to accelerate revenue synergies.
At this early point in the integration, we are ahead of our planned revenue goals, which puts us clearly on track to achieve our $500 million revenue synergy goal by the end of 2022. Turning to cost synergies. We achieved more than $200 million in annualized run rate cost synergies exiting the third quarter. As a result of our rapid progress, I'm very pleased to increase our 2020 cost synergy target by $50 million to more than $350 million in annual run rate savings. The team has been working hard to drive costs out of the business and started executing day one. We drove cost synergies in the third quarter by reducing duplicative corporate costs, as well as by achieving interest expense savings that we announced last quarter.
Moving forward, we will achieve our cost synergy targets primarily by consolidating our merchant and issuer processing businesses, as well as by streamlining operating and technology costs while maintaining a focus on accelerating revenue growth. We feel very confident about our ability to achieve or exceed our synergy expectations and look forward to continuing to update you on our progress each quarter. Moving to slide 10, I'd like to add some color on our segment results. Merchant Solutions grew 8% organically, including two months of Worldpay during the quarter. We expect Merchant Solutions to accelerate to 10% growth in the fourth quarter as we realize additional revenue synergies, and we expect similar growth levels in 2020. Turning to adjusted EBITDA. The merchant segment generated $371 million in the quarter, representing a very healthy 52% margin. Our Banking Solutions segment increased 5% organically.
This strong performance was primarily driven by continued new sales over the past several quarters, as Gary described earlier. As a reminder, it takes several quarters to convert new sales to revenue, giving us great line of sight to our organic growth targets through 2020. Our strategy to accelerate growth by investing in technology and innovation is clearly paying off. Banking generated $641 million in adjusted EBITDA, driving a 43% margin. Capital Markets also generated very strong organic growth of 5%. This top-line growth was primarily driven by a significant increase in recurring revenue while licensed revenue remained relatively flat. We continue to shift the revenue mix of this segment from license fees to our recurring or SaaS-based subscription revenue model. Our growing recurring revenue base is building a strong foundation for future revenue growth, as well as providing more visibility into our go-forward revenue expectations.
The capital market segment generated $280 million in adjusted EBITDA, representing a 46% margin. Turning to our capital allocation strategy on slide 11. This quarter, we saw a 23% conversion of revenue into free cash flow, up from 20% last quarter. As a result, we generated $640 million in free cash flow with only two months of Worldpay, which is nearly double the amount that we achieved in the prior year period. We used the strength of our third quarter cash flow to aggressively repay debt. We've already paid down more than $700 million of outstanding debt since closing, even as we continue to fund integration. We also doubled our quarterly dividend payment to approximately $215 million, following the increased share issuance related to the Worldpay transaction.
We are committed to our investment-grade credit ratings, and we will quickly de-lever to achieve our 2.7 times leverage target by the end of 2020. Even as we de-lever, the strength of our balance sheet gives us flexibility to continue to invest in innovation for the benefit of our clients, as well as to execute tuck-in acquisitions to further enhance growth. Moving to our fourth quarter and full-year guidance on slide 12. We are raising our revenue, adjusted EBITDA, and EPS guidance ranges for both the fourth quarter and full year. At the midpoint, we are increasing our revenue guidance by $7.5 million for the fourth quarter and by approximately $40 million for the full year. We are raising our adjusted EBITDA guidance by $10 million for the fourth quarter and approximately $50 million for the full year.
Finally, we are increasing our adjusted EPS guidance at the midpoint by $0.03 for the fourth quarter and by $0.12 for the full year. The increase to our fourth-quarter guidance primarily reflects current business trends and ongoing synergy achievement. Our higher full-year ranges reflect both the outperformance that we generated in the third quarter as well as our increased fourth-quarter expectations. Our results and outlook demonstrate the strength of our business model and the power of our growth strategy. This concludes our prepared remarks. Operator, you may now open the line for questions.
Thank you, ladies and gentlemen. If you wish to ask a question, please press star then one on your touch-tone phone. Our first question comes from the line of Dan Perlin with RBC Capital Markets. Please go ahead.
Thanks. Good morning, guys. Nice results.
Dan
a little bit about the modernization of your banks. In the past, you've talked about where they had to go down this pathway in order to really implement a lot of the new technologies, and I'm just wondering what you saw now you've got this combined entity and those kind of conversations and just where we are in that process.
Dan, thanks. It's a great question. I think we're in the early innings of the transformations going on. At FIS, we're in the later innings of that. We started well over three years ago, modernizing all of our technology stack and pushing our compute into our own private cloud. We also started modernizing all of our application layer and bringing on next-generation digital experiences and, frankly, next-generation capabilities across all of our segments. That's resonating well with our clients. You're seeing that in our quarterly results with seven strong quarters of revenue sales. We think we're very early in the process. Frankly, as we've discussed on prior calls, I think the industry held on too long to legacy-based technologies, and really, we're seeing our clients now have to make that transformation. We're excited about the investment that we started years ago.
We are excited about our timing for where the market is, and really, it puts us in a really good spot as we look to the future.
Just as a quick follow-up, can I ask about the geographic mix as you're thinking about the demand environment? Specifically, we've just heard concerns around Europe intra-quarter. Anything on that would be great. Thank you.
Yeah, no. When we look across Europe and frankly, the U.K., what we're seeing in the U.K. with Brexit specifically, we've already seen that volume go down to recessionary periods. Anything that would show any kind of improvement would actually be a tailwind for us. I would agree, Europe has been a little slow for us across the broader banking and capital markets as well, but we have had some nice wins here recently. Other areas like Brazil, we've seen some nice growth out of. We continue to see Asia strong. Our geographic footprint continues to be a very good differentiator for us from a global perspective. When we look at Europe and Woody talks about our guidance and what we're seeing coming in, we're really keeping Europe and broader U.K. at current levels.
Great. Thank you.
Thank you. Our next question comes from Lisa Ellis with MoffettNathanson. Please go ahead.
Hi. Good morning, guys. Nice overall results here. Just one clarification.
Thanks, Lisa.
Yeah. On the Merchant Solutions side, I realize Worldpay's only in that number for two months out of the quarter. Can you give us a sense for one, whether or not that legacy business is still running at that 10% organic growth number it's been running at? Also just within that, can you give a sense for how e-com and integrated are tracking? E-com in particular, just I realize that's a small piece of the business, but just so critical to the overall growth. Thank you.
Yeah, it's a great question. As we tried to highlight last quarter, we expected a little noise related to the transaction, in the third quarter, and we only had two months in there. That probably impacted it by roughly a point, negatively in the quarter. We also saw technology solutions in the old Worldpay nomenclature, mid to high teens, with continued momentum and expectation at that mid to high teens type level, both e-com and integrated had very strong quarters, as we expected.
Yeah.
We continue to see that through both the fourth quarter with a call-out of expecting 10% growth for the Merchant Solutions group in the fourth quarter and continuing that momentum into 2020.
Yeah, Lisa, to build on that, we highlighted in the prepared remarks on our e-commerce sales success, we saw really nice sales win and those sales wins accelerating from a cross-sell standpoint with 23 wins this quarter compared to last quarter. Everything, I would tell you, we're seeing good, strong results. Actually, to your point, e-commerce is very important to the overall growth strategy and continued leadership in that space.
Your next question comes from the line of Georgios Mihalos with Cowen. Please go ahead.
Hey, good morning, guys. Let me add my congrats on a strong quarter.
Thanks, George.
If we can just dig in a little bit on that last question, specific to the tech solutions, I think Woody you said it was growing in the mid to high teens. That would seem to suggest that e-com, I would think e-com is still growing in that 20-ish% range. One, is that the right way to think about it? Then you've had a lot of momentum with cross-sells and the like, just curious, is servicing marketplaces a big opportunity for that e-com business, or is it more blocking and tackling and getting sort of a full suite for merchants that you might be servicing offline and trying to get the online business?
Yeah, I'll get the first question.
Yeah
catch the second half of it. We talked about integrated or the old technology solutions growing roughly mid to high teens. If you break that down even further, we would anticipate e-com in the fourth quarter and into 2020 to stay at close to that 20% level, and feel very good about the momentum in that business right now. Within the third quarter specifically, it was in the mid to high teens when you normalize some wins from last year. Very pleased with the overall growth of that business and anticipate it to continue to stay at those nearly 20% levels in e-com.
Yeah, George, to build on that, I think it's important when we talk about e-com, we're talking about really pure play level online acquiring. When you think about brick and mortar moving to online, that really falls up under our omni-channel deployment. No, our e-com business, which is pure play, really is growing very high as Woody just said, greater than 20%. I think the cross-sell wins are important indicators. You're talking about first quarter, we did 16 of those, second quarter came in at 14 wins, Q3 at 23 wins. Mark, Shane, and the group are really doing a nice job continuing to grow that business.
That's great. Really appreciate that. Just one more if I can sneak in. When you look at the synergies on the revenue side, is there any way to think about that opportunity near term, domestic U.S. versus international, maybe where you might be seeing some more momentum?
Yeah, we expected to come out of the gate strong. We highlighted debit routing as some of it.
Yeah.
I'll tell you more of that's in the U.S. right now. I would tell you, we're actually slightly ahead of plan on our revenue synergies coming out of the first couple of months and feel very good about executing that. More of that in the run rate right now would've been in the U.S.
Yeah, I think George, just building on that, if you look at our revenue stream, more than 70% of our revenue stream's in the U.S., naturally our cross-sells, naturally our revenue synergies is just going to be heavily weighted towards the U.S. I think you're going to see our revenue synergies really pretty much in alignment with the way the revenue falls as the company. We'll see nice opportunities outside the U.S. as well. We highlighted the Brazil opportunity that we just signed, and there'll be more that come online, but just given where the book falls, in general, and all of these revenues are going to be cross-sell, upsell, pull through, data utilization, et cetera, the revenue synergies will predominantly fall in the same manner as our current revenue. Thanks, guys.
Thank you. Our next question comes from Jason Kupferberg with Bank of America Merrill Lynch. Please go ahead.
Hey, good morning, guys. How are you?
Great, Jason.
I just wanted to ask, following up from last quarter when I think you had indicated that the deal should be modestly accretive to adjusted EPS in 2020, and that was relative to the standalone FIS number of, I believe, $6.16. I just wanted to see if you wanted to put a finer point on the magnitude of accretion we should be thinking about in 2020, especially since you've now raised the expense synergy target for next year.
Yeah. I'm not going to give 2020 guidance today on the call, but I would tell you that gives us incremental confidence on both remarks I made last quarter, which were approaching 7% organic revenue growth. I have incremental confidence on that coming out of the gate with strong revenue synergies. Accretive to that $6.16 number you mentioned there. I have incremental confidence on that when we look at the overall increase in the cost synergies next year. Not giving a finer point on it at this point. We'll give more color in February when we actually outline the 2020 guide specifically.
Okay. Fair enough. Just as a follow-up, wanted to get your latest observations in terms of some of the smaller competitors in the market that tend to be termed more the cloud-based competitors in core banking. There was a bit of chatter on that topic at Money20/20 last week, so just wanted to get your perspective, especially as more of the neobanks keep popping up.
Yeah, no, I think we keep highlighting throughout our calls. Obviously, we would say we feel we're the leader in cloud-based computing today at this point in time in financial services, given all of our data center consolidation and us consolidating the vast majority of all that work to the cloud today. Some of the things we're doing with technology really hasn't been seen in the industry before. When you look at our application stack of bringing online our next-generation cloud-based applications, you're seeing success, and we've announced several wins on the call. We have several more coming on specifically core banking. Whether you're looking at our omni-channel digital experiences, Digital One, full cloud-based type technology, we've announced several wins on our next-generation core banking platform and actually have one of those online as well.
We respect that there's always going to be competitors in the industry, but given our position, given our scale, given our historical investment and timing, we think we're well-positioned to take advantage of the next generation of technology and computing in the industry.
Okay. Well, thanks for the comments, and congrats on the quarter.
Thank you.
Thank you, Jason.
Thank you. Our next question comes from David Togut with Evercore ISI. Please go ahead.
Thank you. Good morning. Good to see the strong sales growth and bookings growth, Gary and Woody.
Thanks, David.
Thanks, David.
Given the strength you've seen in bookings, and this looks to be the third consecutive quarter of core FIS in the mid-single digits, should we expect this mid-single-digit growth rate in Banking Solutions to be sustainable into 2020, given the seven consecutive quarters of strong bookings you've put up?
Yeah, I think that's right, David. The way the business flows, we anticipate sales growth driving revenue growth. As we're seeing that sales growth for several quarters, gives us good visibility, and we would expect that mid-single-digit growth that we highlighted last quarter in the banking segment to continue through 2020 and have a high level of confidence and visibility into that as we continue to click off months of sales.
Understood. The big win you called out, Gary, in Brazil in merchant, how does the pipeline look for cross-selling merchant business in Brazil going into 2020?
I would say holistically, the pipeline for cross-sell for merchant across all of our customers looks very good, right? We were excited about the Brazil win. When I look more holistically on a global basis and some of the things that we have going on in the sales channel with regards to merchant, I'm very excited about that overall business and our ability to cross-sell into our customer base. The response has been very strong since the closure.
Understood. Just a quick housekeeping question. For the third quarter, what would total revenue and EBITDA have been if Worldpay were included for the full quarter?
I don't have the dollar amounts of revenue, David. I would tell you they would be slightly under the 6% number as we had some of the noise from the transaction in there. We do still anticipate full-year pro forma revenue as if Worldpay would've been in since January right at 6%.
Understood. Thank you very much.
Thank you, David.
Thank you. Our next question comes from Darrin Peller with Wolfe Research. Please go ahead.
Thanks, guys. Maybe just touch a little more on the drivers supporting the strong growth on the legacy FIS side for a minute, just because I know bookings have been good. Just more particularly, what's driving that 5% on Capital Markets? I know that you expected it to accelerate. Again, it was definitely a rate we haven't seen much in a while on that segment, so that's great to see. That segment as well as even the Banking Solutions side, I know you just said it would be sustainable. Maybe a little bit more detail around what's driving that sustainability now. I just want to hone in on one follow-up. Go ahead.
No, go ahead. Darrin, get your follow-up question.
Yeah, I mean Really just trying to understand, when you combine that, if that's stable, if you combine that with the traction we're seeing on the cross-sells you went through on the Merchant Solutions side, right? Whether it's the cross-sells, Vantiv and Worldpay and some of those synergies, just talk about timing on when we would expect those to come on. When do you expect the revenue from legacy cross-sells, Vantiv, Worldpay deals you did to actually start showing up in revenue, some of the clients you won last year? Then where are we on the rewards, NICE, and the card production build-out?
Okay. Look, a lot in there. Let's back up to the base banking business, capital markets business, and acceleration capital markets, specifically. We talked about last quarter that we were seeing acceleration in capital markets. One of the things that we're real pleased with is actually licensing capital markets were flat. We actually saw an acceleration. We've been telling the market for some time that we're seeing this movement from licensing on-premise to deploying our technologies in our SaaS model. That's back to our investment in innovation and back to investment in technology and leveraging cloud-based computing technology. All of that is playing huge dividends for us when you look at our scale. We expect to see capital markets continue to accelerate in Q4 based on that investment. Banking as well, we're at an interesting inflection point in the industry.
We really have a lot of legacy technologies in market. Frankly, we started those investments, as I said, more than three years ago, where FIS started investing heavily in new innovation, where we really pivoted our spend from legacy technologies to the future. You saw that impact our growth rates in the short term, because frankly, we were spending our capital dollars in areas where we didn't have product to deploy against. Now you're seeing the timing work out very well for FIS, where our customers are looking to take advantage of some of these, lower their total cost of ownership, improve their overall digital experience across their end customers. That's all resonating not only in our sales pipeline, but you're seeing our closings. Those are very strong results on sales now for seven consecutive quarters.
Whether you're looking at Merchant, where we're leading in e-commerce, high-valued e-commerce, high-valued technology integration, Banking or Capital Markets, that key theme plays out very well and is really playing into our accelerated growth rate significantly.
If you're looking at the specifics on timing of revenue synergies, they'll ramp over the course of the year next year. We're starting to see some of those cross-sales from the Worldpay, Vantiv flow into the actual results now. They were built into our expectations as we outlined those last quarter. We'll see the new revenue synergies sort of flowing through, over the course of the year, next year.
Okay. All right. Just one last quick follow-up. The RFPs that we're hearing about on e-com sounds like they've accelerated maybe even two to three times what they were last year for gateway consolidation. Are you seeing the same thing? It seems like there's maybe only four or five key players winning a lot of that bulk of those RFPs. What kind of win rates are you seeing? Obviously, the 23 you announced is a good sign of that.
Yeah. No, look, we're seeing obviously increased demand for our solution set. E-commerce is doing very well. We think there's really three significant players in the space today. Clearly we're the lead global player in that mix. You're seeing that in our cross-sell wins. The team's just doing a really nice job of selling into this key high-growth secular market. You'll continue to see us ramping that up and also the revenue associated with that driving into the results as Woody talked about.
All right. Thanks, guys. Great.
Thank you. Our next question comes from Ashwin Shirvaikar with Citi. Please go ahead.
Thanks. Hi, Gary. Hi, Woody.
Hey.
Hey, Ashwin. How are you?
Hey. Good. Thank you. These are good results. Appreciate the raise. Very solid. Can I start with, I know you're not providing 2020 guidance, but investors are clearly focused on the future? Perhaps maybe I can start by asking, are there things investors should watch out for from a modeling perspective as they put down more granular numbers? Any quarterly trends, the cadence of synergies coming in, any comps, things to watch out for?
Yeah. It's a good question. We'll continue to add color. I would tell you, first quarter comps next year have some challenge in them. If you remember this year, banking had a very strong first quarter of 2019 that had some tailwinds in it. There's some comps in there. We anticipate revenue synergies to increment over the course of the year as they take form from achieve to realizing them in the P&L. We'll see that. We tried to give some color around merchant being at roughly 10% going into 2020 with good line of sight, banking to be mid-single digits, and the capital markets group to be low single digits with some optimism on capital markets as we continue to see the quality of that revenue and the recurring nature of that revenue continue to increase.
We have incrementally more confidence in a 7% or approaching 7% organic growth in 2020, and certainly have incrementally more confidence on the comment regarding it being accretive to the $6.16 I mentioned last quarter. Those would be some incremental color points, Ashwin, as we go into 2020.
Got it. No, thank you for that. I know as a company, both you guys and legacy Worldpay always been sort of focused on reinvesting. When you talk of increased synergies, is that a gross number? Is that a net number? The reinvestments, what are the focus areas for you now? A sort of clarification, obviously, you guys have announced a new headquarters. Can you just provide the capital allocation on that?
Yeah. The synergy number is a number net of dis-synergies, if you will.
Right
we would have to invest related to the transaction specifically would be netted into that number. To the extent we decided to invest further in other areas, we would obviously call that out in a different way. That synergy number is net of dis-synergies within the overall guide for 2020. We are, or just announced that we will be building a new headquarters here in Jacksonville. It's effectively consolidating three existing spaces that we have today in Jacksonville, and we'll expand and grow some incremental jobs as we continue to grow the overall company. It is in our overall guidance. It is our overall capital allocation and would not change anything that we've outlined already.
Got it. Thank you, guys.
Thank you. Your next question comes from the line of Brett Huff with Stephens. Please go ahead.
Good morning, Gary, Woody, and Nate.
Hey, Brett.
Two questions. One to follow up on Brazil. We're pretty excited about that opportunity given the limited U.S. presence there. Gary, you talked about a big bank referral win, which is great. Can you tell us a little bit about your strategy going forward? Are we going to lead with e-com? Are we going to lead with sort of integrated? Are we going to lead by trying to leverage the issuing relationships we have down there? Can you kind of give us a sense of that? Number two question is the 25% sales increase or bookings increase, was that organic, including Worldpay? I want to make sure that I understand what that number is. Thank you.
Yeah. Let's get the second question first. The 25% is an organic growth number, right? We've been very consistent on the quarters that we disclosed it. Back to Brazil, obviously, what we'll continue to focus on, we've been driving heavily into e-commerce, and we want to continue to make sure that we leverage e-commerce where we can appropriately, and Brazil is certainly a great opportunity for us on that. With that being said, we also want to make sure that we take advantage of, we've got a really good, strong client base in Brazil, and we want to make sure that we're partnering with those clients in a way and adding value to them through cross-sells and up-sells as well.
It'll be a combination of both, but I would tell you in general, given what we're seeing in that high-growth secular market, we prefer to lead with e-commerce in any point we can on the merchant side.
Okay, that's great. That's what I needed. Thank you.
Thank you. Our next question comes from the line of David Koning with Baird. Please go ahead.
Yeah, thanks, guys. Good job.
Thanks, Dave. Thanks, Dave.
Yeah, I guess, just first of all, on the merchant segment, is it easiest just to think about the legacy tech solutions high teens and the legacy merchant part low single digits, and that just blends to about 10 over time? As part of that, is merchant growing low single digits, and can that actually get better? Like the old legacy merchant segment.
That's a rough way to think about it, Dave. I mean, some pieces that were moved around, as you know. We certainly saw very good growth in both integrated and e-com and trying to highlight some color on that. One of the theories we had is that the traditional business we could improve and grow faster, and I think we'll see that over time as it flows into the numbers. I think that's a rough way to think about it. We tried to highlight that merchant on a go-forward basis, we anticipate Q4 to be about 10% and then 2020 to be roughly a 10% number, which aligns with that high single, low double-digit comment that we've talked about over the past couple of quarters.
Feel very good about where the business is, health of the very strong growers, and our ability to drive some incremental growth in some of the slower business. Yeah, in general, Dave, I think the way to think about it is obviously we're going to focus on high growth secular trends that are occurring across our various market segments, right? Naturally, we're going to be focusing heavily in merchant on technology and high-valued e-commerce because there's a very strong secular growth trends there. With that being said, Royal and the broader team are doing an excellent job as well with the traditional merchant business. We're not going to turn our back on these other businesses, but you will see us continue to focus on where we see high secular growth.
Capital markets, we're seeing a lot going on in RegTech, which is why we highlighted the consolidated audit trail success there. Anywhere we see these high secular growth trends, we're going to sell into them. We think we've got excellent technology to deliver against them, and you'll absolutely see those just grow at a much higher growth rate.
Great. Thanks. Just one follow-up. On Q4, it seems like the guidance implies growth to be reasonably similar to Q3, unless I'm mistaken. I know you talked about merchant accelerating, I think capital markets accelerating. Is banking about the same? Maybe just so you can take the three segments and say which one's accelerating, decelerating relative to the total company Q4 guidance.
Yeah, I think you've got Merchant Solutions continuing to accelerate off of Q3. We anticipate Capital Markets to continue to accelerate off of Q3, and Banking Solutions closer to the Q3 number as it faces a little more difficult comps in the fourth quarter. Net-net, you're seeing the increase in the fourth quarter on the guide basically being driven by revenue synergies. We already had some of that revenue and cost synergies baked into the original Q4 guidance overall, and we believe it's balanced, Dave.
Great. Thanks. Nice job.
Thank you.
Thank you. Our next question comes from Robert Napoli with William Blair. Please go ahead.
Good morning. Thank you for the question.
Morning, Bob.
With the acquisition now of Worldpay, I was just wondering what the thoughts were on your M&A. I understand you're very tied in right now with integrating and cross-selling. I would imagine that you're generating so much cash flow, I'm sure you're thinking about an M&A strategy. I just wondered if there's any change or any thought in how you're thinking about M&A in the future as you get more into the integration of the two companies.
Yeah, Bob, at the highest level, there's really no change. Obviously, we're very focused on integrating the Worldpay transaction. With that being said, even now, we'll do small tuck-in type acquisitions to augment growth in areas that we're seeing going on in the segments. As you said, we've got plenty of cash flow to not only pay down the debt, as Woody described, also not only to continue to maintain our dividend going forward, but also to make small tuck-in acquisitions. Once we feel like we've got the integration of Worldpay behind us, we want to make sure that we drive the accelerated growth we're looking for, also drive accelerated shareholder value. We'll then look to see if there's some broader M&A activity. M&A is going to continue to play an important role in our strategy as we look for ways to accelerate our growth further.
Thank you. Just to follow up on the outlook for EBITDA margins by segment. As you think about that over, not only into 2020, but long term, any thoughts on how we should think about which areas we'll see the most expansion in margins?
I think you'll see expansion across all three segments.
Absolutely
particularly as corporate costs get leveraged into those segments. You'll see incremental probably in Merchant and Banking, as most of the revenue synergies are driven out of those two segments. You'll see margin expansion across all.
Okay. Thank you. Appreciate it.
Thank you. Our next question comes from Vasu Govil with KBW. Please go ahead.
Hi. Thanks for taking my question, and congratulations on a great quarter.
Thank you.
Thank you.
I guess this first question on the Worldpay and Vantiv cost synergies, are you still tracking in line to deliver that $250 million number that you had called out? Then as we think about the revenue synergies, do you have any updated thoughts given that you've seen this acceleration in deal signings? Could we be tracking better than the $100 million number that you've thrown out there before?
Yeah, on the cost side, we really closed that out last quarter at the $250. Most of the tracking at this point of that is behind us, and we're focused on integrating the new Worldpay with FIS. With regard to the $100 million of revenue synergies that was previously outlined, we anticipated more of that to flow into 2020. I think that's roughly in line with the original expectations as you're seeing us call out those cross-sells, and feel very confident that that's still a good number.
Great. Just a quick follow-up on the strong new sales number. Can you give us a little bit color maybe on what the composition of that new sales looks like, where you were seeing more trend? You also noted the backlog accelerated to 9%, I think it was 7% last quarter. Does that mean we're running ahead of track for 2020, or is there a different interpretation of that?
Yeah, no, most of our sales success, what we're seeing, obviously, we highlighted a number of key wins. You're really seeing it around our new technology, new innovation, new solutioning, right? We highlighted the merger of two very large regional banks coming together to form almost a $50 billion institution, and they selected to come with FIS even though the other bank was acquiring our bank. That's all just based on the innovations around core bank processing, which was a question highlighted earlier, and also our omni-channel digital experience. We're also seeing it across all of our real-time faster payments type solutions. We've highlighted a lot on this call around Merchant. Certainly in Capital Markets, we're seeing strong growth in RegTech and some of the other areas. What I'm really excited about is just how much of it is really now coming into our full-blown SaaS models, right?
We've talked a lot about this. On this quarter, it was really nice to see capital markets growth with actually flat license fees and significant acceleration on the SaaS deployment of software. Really gives us high confidence as we lean into going into next year and as Woody talked about, our accelerated growth targets. All of that makes us feel really good about what we're seeing going into 2020.
Great. Thank you very much.
Thank you. Our next question comes from Matthew O'Neill with Autonomous Research. Please go ahead.
Hi, good morning. Thanks for taking my question. Most of the detailed questions have been asked and answered. I was wondering, though, if we could bring it back to, I think it was the final slide of the merger deck where you talked about the promise of the end-to-end connectivity between issuer data and acquiring, and I think the view that this could bring a durable competitive advantage to auth rates and fraud rates longer term. I know it's only a few months in, but have the teams met? Have the data pools been discussed and shared? Maybe you could articulate how that longer-term synergy process is starting to take shape.
Yeah, no, I think it's a great question, Matt. Absolutely, the teams have met. We've got a full plan around improving our auth rates and reducing our fraud rates. The whole end-to-end, we're evaluating, does even closed loop make sense? There's a lot of opportunities here that the combined asset pool of the combined company can drive into the future. As we've talked about on prior calls, really need to look to those things starting to come online 18 months and after because there's work. Woody highlighted even our Loyalty as a currency, where we're bringing that online in a fully integrated manner in the first half of next year.
We do have to do work as we pull these together, but the quick answer is the teams are highly engaged, and we've got a lot of governance around that, and we'll continue to drive to that because we think there's a lot of opportunity on that beyond in the 18 months out timeframe.
Got it. Thank you.
Thank you. Our next question comes from the line of Ramsey El-Assal with Barclays. Please go ahead.
Hi, guys. Good morning. This is Damian on for Ramsey. I wanted to ask on the pin debit routing, you called that out as the driver of the revenue synergies this quarter. Is that opportunity largely complete now, or is there more to go there? What would you view as the next synergy driver that you'll focus on?
No, I wouldn't say it's complete at all. I think Woody was just trying to highlight something that drove a big piece of the early synergies win that we highlighted. There were other things that were in that number as well. As we look for opportunities to leverage our scale, whether it's in debit routing, merchant referral services, even some of the things we talked about on the last question, that'll continue to drive and accelerate the revenue. We really have identified six major areas that we're focused on today. The teams have rallied around those. We've built detailed plans around that, whether it's investment in software for development purposes, et cetera, or just sales plans and sales tactics and execution. I can tell you, we're way down the path on all of those major categories.
As we come into future quarters, we'll give you more and more highlights as we see that revenue ramp. Last quarter, we increased the amount of revenue for next year from a cross-sell standpoint. Given the quick out-of-the-chute success we've had, we're actually very excited and feel that we're certainly much more confident in that number as we go into it. Future quarters will give more and more detail for you.
Yeah, that's great. Then a follow-up, actually. We've been talking a lot about Brazil today. Maybe we could zero in a little bit more on India. I know you called that out originally as a focus area. Maybe if you'd give us more color on just what exists in your India business today, how much of it is ATM versus core versus card processing, and then which of those businesses you expect to lever the most in the context of this Worldpay cross-sell.
Yeah, look, we've talked a lot in the past. Obviously, we've got a large ATM business in India. We've got a large, now, and growing core banking business in India. We were very successful in leveraging a lot of the new charters that were launched in India as a mandate by the government. We've successfully launched those. We'll leverage, obviously, those customers to cross-sell further payment capabilities in it. We've talked about e-commerce, which we think there's a real opportunity to leverage more e-com in India as well. It's really going to be a combination of all of our capabilities that will continue to allow us to accelerate our India growth rates.
Thank you.
Thank you. Our next question comes from the line of Tien-Tsin Huang with JPMorgan. Please go ahead.
Thanks so much. Looks like a great start to Worldpay. I heard the 9% organic growth in the backlog, Gary. How about underlying retention and pricing? Is that moving up or holding up as well and driving your acceleration comment next year?
Yeah. What I would tell you, Tien-Tsin, we've talked about this in the past. We're not seeing any acceleration in loss rates or pricing compression's been a fact for years in our banking and capital markets business. We're not seeing really an acceleration of that as well. It seems to be pretty consistent. I would tell you, I don't think it's necessarily slowing, but we feel great about the share we're winning and feel great about our competitive positions. We don't see that as an accelerating headwind going into next year and gives us that much more confidence as we look into next year.
Good. That's encouraging. Just two quick clarifications. The merchant bank deals, the U.S. and Brazil, and maybe just the short-term pipeline as well. I am curious, are those mostly de novo merchant bank deals? Just curious how quickly those things can ramp. Also on capital markets, can we say that you've reached an inflection there with converting from licensing to SaaS deals?
Let's go the first one. Both of the merchant deals were competitive takeaways. We're excited about that. When you look at the Capital Markets opportunity that we've talked about, I don't know that we're at the inflection point. Q4 naturally has a heavy license component and always has been. We've talked about how we've got a balance from a sales standpoint of our license grow over compared to our SaaS model. We think this quarter was just a great execution by the team. They really did just a really nice job with that management. Certainly is a strong indicator. You'll see recurring revenue in Capital Markets continue to accelerate. It'll still be next couple of years before we get truly license fees down in the range what you're seeing in banking, which is a very small percentage.
Understood. Thank you for the update.
Thanks, [Tien-Tsin] .
Thank you. Our last question today comes from the line of Joseph Foresi with Cantor Fitzgerald. Please go ahead.
Hi. Just two quick ones to wrap up. Maybe you could give us a little bit more color of your on-the-ground conversation with banks, particularly in the merchant services, how that conversation's going, what pricing looks like, because obviously it's been coming down, over a long period of time. I'll ask my second one upfront as well. Just the delta on the upside on the cost synergies. When we get to that top end of the range, where do you think you might be able to extend the cost synergies, and what functions would you be looking at?
I'll take the first one on the merchant conversations. I think if you look, one of the things that we were excited about when we put the combination Worldpay together was just how much they had spent on next-generation technologies themselves, right? You look at FIS, we've talked a lot about our modernization efforts, our transformation efforts. I would tell you, Worldpay went through a very similar process, whether it's their acquiring platform in the U.K. or frankly, the stuff they've done with high-value integrated payments and then e-commerce. When we're talking to our bank referrals for merchant referral programs, they see the benefits of that investment. They see the technology and what it can drive and how it can help them differentiate and actually grow their revenue streams. From a pricing standpoint, like all the industries, it's price competitive out there.
We think our scale allows us to compete in the investments we've made, we think allows us to compete in that category very, very effectively. Are we seeing increases in price competition? Honestly, I'm not from my chair, but I would tell you it's always been price competitive, right? I think FIS is in a real good position to compete on that.
On the cost synergy side, I think we're really pleased with where we are. At announcement day, we started out with roughly $400 million of cost synergies. We increased that to $500 million. On the second quarter call, we increased that to greater than $500 million today. While we're not end of job, we continue to focus. I think the teams are very good at continuing to drive costs out of the business. We've got a long history of being able to overdrive our synergy targets.
Thank you.
I'm excited by the strength of our performance following the Worldpay acquisition and the progress we've made in bringing our two great teams together. I'd like to thank our more than 55,000 associates across the globe who are working hard every day to deliver exceptional results for our clients and shareholders. If you have any questions following today's call, please reach out to our investor relations team. I couldn't be more excited about the future of FIS, and I want to thank you for joining us today.
Thank you, ladies and gentlemen. That does conclude your conference for today. You may access the digitized replay system after 11:00 A.M. Eastern through December 6th at midnight by dialing 1-800-475-6701 and entering the access code 473273. International participants may dial 3203653844. Those numbers again are 1-800-475-6701 and 3203653844 with access code 473273. That does conclude our conference for today. We thank you for your participation and for using AT&T Executive Teleconference Service. You may now disconnect.