Ladies and gentlemen, thank you for standing by, and welcome to the FIS 4th Quarter 2018 Earnings 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. And as a reminder, this conference is being recorded.
I'd now like to turn the conference over to our host, Mr. Pete Kinlaugsson. Please go ahead, sir.
Thank you, Brad. Good morning, everyone, and Chairman, President and Chief Executive Officer, will begin today's call with company Chairman, President and Chief Executive Officer will begin today's call with company highlights for the quarter the year. Woody Woodall, our Chief Financial Officer, will continue with the financial results for the quarter and full year concluding with 2019 guidance. This conference call is also being webcasted with today's news release and corresponding presentation available on our website atfisglobal.com. Turning to Slide 3.
Today's remarks will contain forward looking statements. These statements are subject to risks and uncertainties as described in the press release and other filings with the SEC. The company undertakes no obligation to update any forward looking statements, whether as a result of new information, future events or otherwise, except as required by law. I refer you to the Safe Harbor language on the slide. Materials presented today will also include references to non GAAP financial measures in order to provide more meaningful comparisons between the periods presented.
Reconciliations between the GAAP and non GAAP results are provided in the attachments to the press release and in the appendix of the supplemental slide presentation. Turning to Slide 4, it is now my pleasure to turn the call over to Gary. Gary?
Thank you, Pete. Good morning and thank you for joining us. Today, I'm very pleased to announce our Q4 and full year earnings results. 2018 was a very good year for FIS as we consistently and successfully executed on the strategic plan we discussed during our Investor Day last May. While impacted throughout the year by revenue mix, especially in our institutional and wholesale division, we exceeded profitability and earnings expectations and met revenue expectations for the full year.
From a strategy delivery viewpoint, we exceeded our plans on data center consolidation, solution modernization and sales execution, which gives us strong confidence as we start 2019. This confidence allows us to continue building on our multiyear track record of delivering solid revenue growth, exceptional margin expansion and significant shareholder returns. For the year, total shareholder returns exceeded the S and P 500 approximately 17%, driven by consolidated margin expansion of 2 80 basis points, adjusted earnings per share growth of 22.5% and a return of over $1,600,000,000 to shareholders through share repurchases and dividends. These results underscore the resiliency of our business model and showcase our ability to create both short and long term value for our shareholders, while executing on our modernization and transformation strategies. Over the last 3 years, we have strategically tuned our solution portfolio, resulting in divestitures of over $1,000,000,000 in annual revenue.
During the same period, the market has rewarded our business performance with a $15,000,000,000 increase in our market capitalization, representing almost 80% growth over that period. Our financial solutions portfolio combined with our large and loyal client base have enabled us to grow through dynamic market conditions. We exited 2018 with very strong sales momentum and pipeline. Our full year sales results were the strongest in our company's history and as typical, Q4 was our strongest new sales quarter of the year. This sales success resulted in a significant increase in our contract Across the company Across the company, we continue to see more demand for software as a service deployments, which will continue to increase our overall reoccurring revenue, predictability in earnings and free cash flow.
Moving to Slide 5 for a review of the segment highlights. Our Integrated Financial Solutions segment drove top line organic revenue growth of 2.5% for the quarter and 4% for the year. As previously discussed, our annual revenue growth for this segment is at the high end of its range and continues to accelerate year over year. Margins expanded by 90 basis points in the quarter and 60 basis points for the year. Additionally, our mass enablement strategy is accelerating product penetration within our markets using an innovative and faster deployment model.
This transformative approach leverages our investments in data center and solution modernization and is a key growth initiative, generating more than $10,000,000 of new revenue in 2018. We expect this deployment methodology to continue to accelerate growth as we bring innovative solutions to market. Based on the success in 2018 from a revenue and sales perspective and the deployment innovations I just discussed, we're expecting this segment to further accelerate its growth in 2019 by approximately 100 basis points. This organic growth is highly reoccurring in nature with strong industry leading margins and very high free cash flow conversion. The IFS segment had its largest sales quarter in Q4 with over $800,000,000 in new contract value, resulting in a growth rate of more than 25% in new contract sales for the full year.
Several of these wins highlight not only the variable size of institutions we serve, but the complexity of solution the market is looking for FIS to deliver. For example, a top 25 U. S. Financial institution expanded its longstanding FIS relationship by entering into a new multiyear agreement to outsource the bank's wealth management services. With this move, the bank is reducing its costs by utilizing FIS variable cost operating model and gaining robust new capabilities by migrating to the industry leading suite of FIS wealth solutions.
In another example, a $20,000,000,000 U. S. Community bank selected FIS as its core banking and digital provider in support of bank's goal to modernize its environment, transform its branches and make better use of business intelligence and analytics across its enterprise. This bank had traditionally run a series of discrete products on premise in a highly customized manner. FIS ability to leverage our next generation cloud based omnichannel digital platform, Digital 1, with our extensive capabilities and scaled outsourcing of core processing and back office services was the key differentiator in winning this business against the competition.
As we discussed in May of last year, our historical investment over the last 3 years in data center and solution modernization is showing value in these large complex wins throughout the industry. Our IFS payments division also continues to deliver strong growth, supported by increased transaction volume and competitive sales wins. As an example of just one of the key in quarter wins for our payments division, the U. S. Arm of a top tier global financial institution of more than $100,000,000,000 signed a multiyear payment outsourcing agreement with FIS in support of its goals to grow revenue and implement a market leading payments as a service solution supporting both business to business and consumer to business transaction.
Our industry leading solutions in this space were the key drivers for this win. Our significant investments in modernization and technology are also paying dividends with key new wins in the large U. S. Bank market. We have discussed on many calls that we think the large regionals will start to move towards modernization of their platforms and we believe our successes in 2018 are significant indicators that transformation is starting to take place.
These transformations will occur not only with our next generation capabilities, but will be consumed through our industry leading cloud deployment on a subscription basis in most, if not all situations. Turning to our Global Financial Solutions segment. The business recorded top line organic growth of nearly 4% for the quarter and 2% for the full year. Margins across this segment expanded by 404.70 basis points compared to the prior year quarter on year. While we are very pleased with this continued transformation, revenue growth is being impacted by the movement to outsourcing and the recent accounting change on license recognition and therefore creating a mix issue.
However, the profit contribution of the revenue is of much higher quality. Because of our growing scale in this market, we are now seeing EBITDA margins approach 40% on an ongoing basis and will continue to expand in the future. This expansion was driven by continual improvements in the segment's SaaS revenue, data center consolidation and leverage across all our key business functions. Given our current level of margins, which have improved by over 1400 basis points since 2015, the profit contribution being delivered from this segment has more than doubled. Turning to our divisions within the GFS segment.
Results in our institutional and wholesale division fell short of expectations due to the revenue mix and accounting change I highlighted earlier. As we have seen throughout the industry, our trading brokerage business has been impacted by lower volumes and slower than anticipated sales. We believe our trading business will continue to be a headwind for this division, but will continue to be offset by the higher quality SaaS sales that are occurring in our buy side and compliance and regulatory businesses. Our growth in SaaS deployment sales was up 25% in this division, which also saw significant growth of more than 20% in new logo competitive wins where our industry leading I and W capabilities replaced many significant competitors. Our banking division saw nice growth, fueled in part generation core banking platform to expand its presence in the U.
S. In addition to core banking, this client will also take advantage our Digital 1 omnichannel platform that I referenced in the IFS segment. Our ability to get leverage from our overall development cycle is paying huge dividends for our ongoing margin as well as growth expansion. This new deal adds client logo to the long list of clients who have relied on FIS to launch a digitally focused bank in support of their growth strategies. Our GFS payments business also had an exceptionally strong quarter and full year.
Much of this growth was driven by strong payment transaction volumes in Latin America and competitive new sales wins. As previously announced, we have successfully closed our Brazilian joint venture and entered into a new 5 year commercial agreement with our former JV partner. We are very pleased to have closed on this transaction 6 months earlier than planned, providing us a faster start in getting a wider portfolio of our solutions into this expanding and attractive market. I was recently in India and met with several largest Tier 1 institutions in the country and universally they are all looking for ways to modernize their core digital and payments infrastructure. Given our market presence and historical success in the country, we are well positioned to capture these transformations in the future.
In conclusion, our GFS segment, we remain confident in continued acceleration of revenue growth in 2019 compared to the prior year period and bullish on the ongoing business transformation that is occurring on SaaS deployment and continued market share gains. Moving to Slide 6. Focusing next on some of our large scale corporate initiatives that our leadership team has remained focused on executing our strategy, which we outlined for you last May Currently, more than 55% of our North American distributed systems portfolio is running in our cloud environment, well ahead of the 50% target that we announced at the start of 2018. By year end, we this percentage to increase to over 65% on a global basis. Due to this success, we exited the year ahead of the $100,000,000 in run rate savings that we shared with you in our last investor conference.
We are continuing to fine tune our service management, capacity on demand and fast provisioning so that our clients benefit from industry leading scale, uptime performance and resiliency in a fully secure FIS environment. We have begun to see early positive reaction to our new modern banking and payments platforms. These new solutions are enabling our clients to run and grow their businesses more effectively by connecting with their customers through more modern and meaningful experiences. In proof points that our investments are delivering differentiating value, our new cloud based Digital One platform has already grown to serve more than 10,000,000 consumers in the U. S.
In 2018. Additionally, we onboarded more than 50 clients to our unified payments platform in 2018 and expect that number to expand dramatically throughout 2019. Finally, we have once again been named a Fortune Most Admired Company and for the 4th year in a row, we sit atop the Chartus RiskTech 100 rankings. Before I turn the call over to Woody for the financial review, we strongly believe that scale and solution capability is the key to driving continued growth and meeting demands of a very rapidly changing industry. As you know, inorganic growth opportunities have been and will continue to be a key component of our long term success.
Our approach and strategy towards these opportunities has not changed. If it fits our overall strategy, drives accelerated growth for our company and is actionable, we will execute accordingly. I'd like to reaffirm that we are pleased with our full year 2018 results and the momentum we have created. We expect this Woody will now provide additional detail on the financial results for the quarter and
full year. Woody? Thanks, Gary. Turning to Slide 8. In the Q4, revenue increased 3.2% on an organic basis and EBITDA grew to $864,000,000 a 5.3% increase compared to the prior year period.
4th quarter revenue was negatively impacted by approximately $40,000,000 due to divestitures. EBITDA margin expanded 200 basis points to 39.9 percent and adjusted earnings per share grew 29% to $1.60 per share. For the year, revenue increased 2.8% on an organic basis, and EBITDA grew to 3,100,000,000 a 5% increase compared to the prior year period. EBITDA margin expanded 2 80 basis points to 37.2 percent, and adjusted earnings per share grew 22.5 percent to $5.23 per share. We are pleased with delivering on our full year consolidated guidance.
Moving to Slide 9. As expected, in the 4th quarter, IFS revenue grew on an organic basis by 2.5%, while EBITDA grew 4.5% with 90 basis points of expansion. Margin expansion was driven by growth in our payments business that has high operating leverage. For the year, IFS revenue increased 3.9% on an organic basis. EBITDA increased 4.7% with margin expansion of 60 basis points to 44.6%.
We are very pleased with IFS' full year performance, which was driven by balanced demand across all divisions for the year and continued robust sales. We expect this momentum to carry into 2019, translating into accelerated revenue growth. Turning to Slide 10. Banking and Wealth grew 1.5% for the quarter. For the full year, this group grew a strong 4.3%, primarily driven by our wealth and retirement solutions.
Payments had another robust quarter and grew 5.2% as our network services continue to see sustained volume growth as well as growth in new solution offerings. For the full year, this business grew 3.3%. Corporate and digital was relatively flat for the quarter as digital growth was offset by a difficult license comparable in our corporate liquidity solutions. For the full year, they grew 3.7%. Turning to Slide 11.
In the 4th quarter, GFS revenue grew 3.7% organically, while EBITDA grew 9.1%. For the quarter, this represents 400 basis points of margin expansion to 42.8%. Although revenue grew slower than expected, EBITDA grew more than 2x faster compared to revenue in the quarter, speaking to the increased operating leverage of the segment and a positive long term revenue mix trend. For the year, revenue increased 2.1% organically. EBITDA grew 5.1% compared to the prior year, reflecting 4 70 basis points of margin expansion to 37.4%.
We are pleased with the ongoing EBITDA margin profile in this segment, which continues to expand in line with our previous comments throughout the year. Moving to Slide 12. For the quarter, our institutional and wholesale business declined 2% and was flat for the year. Positive results in the quarter for our buy side solutions were offset by a few items. Trading volumes were down year over year and were the primary driver impacting growth for the quarter.
Upfront license sales were less than expected as we continue to see sales of long term recurring outsourcing agreements outpacing upfront license sales, which impacts the quarterly revenue growth. Upfront license sales were down 15%, while recurring revenue sales were up 25% in the quarter. This trend will continue to improve the long term quality of the revenue stream. Finally, as we closed out the year, the positive impact of 606 was less than we originally expected. This time last year, we outlined an expected one point tailwind for GFS for the full year related to 606, and the actual impact was closer to flat.
We do not expect 606 to impact 2019 in a meaningful way. As Gary mentioned, although we're disappointed with the results for this group, we remain confident in the long term prospects of the business and the markets we address and have made organizational changes to improve the growth in this business. We anticipate I and W returning to low single digit growth in 2019. Banking and payments grew 10.7% in the quarter, primarily driven by strong demand for our digital solutions in North America, along with continued growth in our international payments businesses. The quarter also benefited from revenue related to the dissolution of the Brazil JV.
Absent this onetime revenue, this group still grew a healthy 8%. For the full year, the business grew 5%, in line with our expectations. Moving to Slide 13. Our Corporate and Other segment revenue grew 8.3% for the quarter to $65,000,000 with an EBITDA loss of $77,000,000 As previously discussed, we do not expect any ongoing revenue headwinds from this segment. Moving forward, we anticipate corporate expenses on a quarterly basis to be $70,000,000 to $80,000,000 For the full year, corporate expense declined 9%.
We finished the year with a revenue backlog of $20,500,000,000 an increase of $1,000,000,000 compared to the prior year, driven by the robust sales execution we have discussed throughout the year. The increase in our backlog gives us a high level of confidence to achieve our 2019 guidance. Moving to Slide 14. Free cash flow was $551,000,000 for the quarter, representing 25% of revenue and about $1,500,000,000 for the full year. For the quarter, cash flow comparisons were negatively impacted by higher than expected CapEx for our data center consolidation efforts, product investment, higher sales commissions and the previously discussed tax benefit in the prior year.
Debt outstanding as of December 31 was $9,000,000,000 with an effective weighted average interest rate of 3.3%. Our effective tax rate for the year was 17.5%. The decrease in our effective tax rate in the 4th quarter was driven by implementation of new corporate tax reform guidance implemented in the period. We anticipate a full year 2019 effective tax rate of approximately 19%. During the Q4, we returned $255,000,000 to shareholders through the repurchase of 1,400,000 shares for approximately $150,000,000 and $105,000,000 through dividends.
For the full year, we returned $1,600,000,000 to shareholders through the repurchase of 12,000,000 shares for approximately $1,200,000,000 $420,000,000 through dividends. $2,700,000,000 remain on our existing share repurchase authorization. The weighted average diluted share count was 329,000,000 for the quarter and 332,000,000 for the year. Going into 2019, our capital allocation principles remain consistent. We'll continue to invest in innovation and product development to better serve our clients and lead the market.
We recently increased our quarterly dividend 9% to $0.35 per share, and we'll continue to grow it in line with our free cash flow. Finally, we will assess value creating M and A opportunities and absent any actionable deals, we'll continue to repurchase shares. Turning to Slide 15. Before I provide 2019 guidance, I want to give a quick update on the Brazil JV unwind as well as the change of our non GAAP EPS calculation. On January 4, we announced a successful unwinding of our joint venture in Brazil.
We previously anticipated this transaction to close by the end of the Q2 2019. Consistent with the transaction announcement in the fall, this transaction will result in $225,000,000 headwind to 2019 reported revenue growth, which is accounted for in our 2018 organic revenue base. In addition, we now expect approximately $0.08 earnings per share headwind in 2019, driven by the earlier than anticipated closing of the transaction. As Gary mentioned, we are very excited about the next chapter of our growth story in Brazil and the broader Latin America market. As you saw this morning in our earnings release, we have revised our reporting of adjusted earnings per share.
We have historically excluded purchase accounting and tangible amortization from our non GAAP earnings. As part of a normal review of our public filings and discussions with the Securities and Exchange Commission, they expressed an objection to our approach regarding adjusted EPS. After several lengthy discussions with the SEC, which included comparisons of our peers, analysts and investor expectations, we agreed on an approach with the SEC that will exclude all depreciation and amortization from our adjusted EPS. We will continue to provide detailed disclosures of the components of D and A and the related tax benefits should you choose to calculate under the old method. We were allotted this quarter as a transition period to make this adjustment in our reporting, and our 4th quarter and full year results are available in both methods within the earnings release.
Given this transition and will continue to provide detailed data points to reconcile back to our prior method of calculating adjusted EPS within the footnotes. However, we will not speak to it on future earnings calls. Our guidance for 2019 and future results will follow the new method. Turning to Slide 16. This morning, we reported an adjusted EPS of $5.23 per share.
The prescribed change to exclude all D and A will increase adjusted EPS by $1.70 per share. Additionally, the impact of divested businesses, including the JV unwind, is approximately $0.12 resulting in a 2018 EPS base of $6.81 Turning to Slide 17. Due to in year divestitures and the JV dissolution, I want to give a transparent walk in our organic revenue base. As we called out on last quarter's call, we have successfully completed our divestiture program and are entering 2019 with a focused and high quality set of assets. Turning to Slide 18.
For 2019, we expect organic revenue growth of 3.5% to 4.5%. This represents continued revenue acceleration and is in line with the long term growth strategy outlined last year at our Investor Day. Consolidated adjusted EBITDA margin expansion of 150 to 200 basis points, which exceeds our midterm outlook adjusted earnings per share of $7.35 to 7.55 dollars representing growth of 8% to 11% compared to a baseline EPS $6.81 And free cash flow as a percentage of revenue of approximately 20%, which represents greater than 10% growth in free cash flow. Consistent with our historical practices, we have provided supplemental planning assumptions in the appendix material. I wanted to provide some additional color on the calendar of our top line growth.
As we've discussed on our Q1 2018 earnings call, GFS had a very strong license revenue, which created a difficult compare this upcoming quarter. Because of this, we expect 1st quarter consolidated organic revenue growth to be the low watermark of growth for the year. The second, third and fourth quarter should be at or above the midpoint of our guide. Finally, Q1 adjusted EPS is expected to be in a range of $1.54 to $1.58 per share. Turning to Slide 19.
We continue to believe we have a strong and resilient business model and will continue to leverage our market leadership to produce accelerating top line growth, exceptional margin expansion and robust cash flow. These strengths allow us to invest for future growth and return value to our shareholders. That concludes our prepared remarks. Operator, you may now open the line for questions.
And we'll go to the line of Dave Koning. Please go ahead.
Yes. Hey, guys. Thank you.
Hey, Dave.
Yes. And I guess, first of all, just thinking through, when we think of IFS and GFS, are they both you expect both to be pretty similar growth through 2019 and I would assume in Q1 GFS would be lower than IFS just simply because of some of the license timing stuff. Is that fair?
Yes. Given our sales success throughout 2018, Dave, we actually see both segments accelerating growth rate going into 2019. But as Woody talked about, Q1 in GFS, given the grow over, will be the low watermark
for the full year. If you look at the color between the two segments, Dave, we actually expect IFS to grow roughly 100 basis points and accelerate roughly 100 basis points, so even higher than the 4% we saw this year. When you look at our midpoint being a 4% growth, that would translate into GFS being closer to 3%, really driven by this mix shift in the GFS segment.
Okay, great. And I guess just my follow-up, free cash flow, I know for much of the year you had talked about kind of 110 percent or 105% or something like that conversion on cash earnings. It looked like you finished the year, I think we have 86% of cash earnings under the old method. Maybe you can talk through that. And it seems like guidance is well a little lower than what we had previously thought on cash flow.
Yes. If you look at cash flow, there are really 2 items that were impacting 2018 for the full year. If you look at that Hurricane Irma tax relief that we got last year in terms of a benefit and had to pay this year plus the increase in sales commission payments, both were roughly $100,000,000 apiece. If you add those 2 together, we were really close to 100% free cash flow conversion. Going forward, we're continuing to invest.
We're investing roughly 7.5% of revenue back into data center consolidation, modernization and product. So that might be a little higher than we originally anticipated, but certainly are pleased with percent free cash flow conversion as a percentage of revenue.
And our next question will come from the line of David Togut. Please go ahead.
Thank you. Good morning.
Good morning, David.
I'd like to ask about And you've said that isn't they're not core clients, but how do you think about kind of modeling in the impact of customer consolidation into your guidance both near and long term?
Well, the first on the competitive front, David, we've talked a lot about this. We that the market is going to continue to need to consolidate. Scale is going to be a key contributor to be able to compete and grow. And certainly, historically, FIS has participated in those inorganic activities. We will always look for opportunities that center around our 3 main verticals, whether it's retail banking payments or institutional wholesale.
We want to take good care of the capital in the company that our shareholders are entrusted to us. And certainly, as we look for opportunities that can accelerate our growth rate and help us grow our scale, that's going to be important. When you look at industry consolidation across the various financial institutions, we actually modeled going into 2019 a very consistent level of industry consolidation. It's very hard to predict when these announcements are going to occur. It's very hard to predict what the impact could be both positive and negative depending on how the institutions come together.
But at this point in time in 2019, for modeling purposes, we've modeled consistent over 2018 from a consolidation standpoint.
And by consistent, you mean, you've modeled in a specific headwind to revenue and EPS or?
Yes, very similar to what we've done in the past between customer losses and compression, roughly 150 basis points a year, Dave, just like we have in the past. We don't see any acceleration, if you will, of potential customer losses here. In fact, one of the comments on one of the bank consolidation calls was their need to continue to expand and invest in modernization and technology to compete in the future and we think that could be certainly a benefit for us on a go forward basis.
And as we highlighted throughout the call, David, I mean, you see a number of really large wins for us across 2018 and where large institutions are doing just that modernization and investment. So to Woody's point, that should be a that could be a positive tailwind for us.
Understood. Just a quick final question. The 2019 EPS guidance calls for 8% to 11% growth on an adjusted basis. That is somewhat below your 3 year target of 10% to 13% growth. Is that just the math of the new adjusted EPS reporting structure?
Or is it mostly a slow start on I and W?
I think the biggest difference is a tax headwind in 2019 compared to 'eighteen, David. We landed with a lower tax rate in 2018 at 17.5%. We think 2019 is going to be roughly 19%. Actually, if you look at old method, new method, we guided 7.35 to 7.55. If I were guiding old method, I would have guided 560 to 580 dollars with a midpoint of $5.70 And really, the difference between that and current consensus estimates is the early closing of Brazil, which cost us about 0.08 dollars versus our original expectation.
Understood. Thank you very much.
Thank you.
And we'll go to the next line of queue to come from Brett Huff. Please go ahead.
Good morning, guys. How are you doing?
Good morning,
Brett. Can you talk a little bit about the revenue shift that you guys have been mentioning? I think this came up a couple of times, maybe 1 or 2 quarters earlier in 2018. Why is this accelerating so much? Is it a function of your kind of pushing your modernization by modularity?
Is there some big change that the bigger banks you guys serve or maybe the medium sized banks, they're choosing outsourcing more? What's the acceleration that's driving this longer rev rec?
I think, Brett, we're seeing it in the sales cycle. I think larger institutions are looking at their total cost of ownership. They're looking at their legacy technology debt that they have in place. We're running it on premise. Frankly, as they look at our more modern solutions and being able to consume that with the investments that we're delivering in our private cloud surrounded by our robust security measures.
So they're seeing higher availability, lower total cost of ownership. And as we've discussed, we just we felt for a long time the industry is going to start moving in that direction. And for years classic community banks what we define as community banks were all outsourcing. But now as you move up market, you see $20,000,000,000 institutions, dollars 100,000,000,000 institutions now looking for ways to leverage our investment and scale around technology and modernization. And that's just playing out in our sales efforts, including the I and W side.
As I And that's just an indicator of the market And that's just an indicator of the market looking for ways to lower their total cost of ownership and leverage our scale and investment.
That's helpful. And then, Woody, I think in your guidance, I believe you said that you expect CapEx to come in at 7.5%. Did I hear that right?
That's a 7.5% of revenue for CapEx in 2019, which is a continued acceleration off of 2018 really around this modernization, the innovation work that we have and the data center consolidation, which is driving some of the market expansion.
Yes. As you can see, I mean, we're well ahead of where we thought we would be on data center consolidation and the return we're getting on that investment through not only cost saves, but just availability and market recognition has been very beneficial. So we want to continue to lean in on that program and accelerate that for the remaining couple of years.
Ex the data center, should we expect a higher level? I mean, is this now an industry where we just kind of have spend a little more to keep ahead of the technology curve even if we look ex the data centers? I mean usually I think it's been 5% to 6%. Should we expect 6 to 7 even ex data centers going forward? Or how do we think about the reinvestment that you guys need to do?
We talked about that last May in our investor update. As you think about it, the industry we've been a leader in this industry for the last 50 years. And as we think about where the future is, clearly, there's a tremendous amount of legacy technology that's going to have to be modernized for the future. It's going to have to be built with cloud deployment from the ground up. And so we do see a hump here where we're going to have to invest at a level.
But as we talked about in May, we see that declining back to more normalized levels once we've moved our legacy technology and application to the future. And the whole industry will have to go through this process. You're seeing it with every call. As Woody highlighted, when you look at the BB and T Sundress combination, they highlighted the need to be able to invest in innovation in digital. That's just really a different way of saying needing to move their technology stack from historical positions to the future.
And so we'll see this run-in the 7s as we're doing today. We'll also but we'll see the advantages of that. And then once we get through this curve over the next couple of years, you'll see it return back to a normalized 5% to 6% as we discussed in May.
Okay.
That's what I needed. Thanks, guys.
The next question or comment will come from the line of Darrin Peller. Please go ahead, sir.
Thanks, guys. Look, just we're getting a lot of questions still on just the outlook, just to make sure that where the confidence is coming from and the acceleration of over 100 basis points on top line. So maybe just give us a little more color on whether or not how much of that is already and what you've already signed in terms of new bookings that you had some pretty strong growth on in the quarter? And then any more granularity you can give us on the sub segments? What kind of acceleration in, for instance, the I and W category that showed some weakness this quarter, where the payments business continuing to show some strength?
Any more color would be great. Thanks.
Yes. I mean, I think most of the strength comes in the sales commentary we've been talking about and the buildup of the backlog. That $20,500,000,000 a significant chunk of that comes through as we show in our 10 ks disclosures and our 10 Q disclosures each quarter. We anticipated that to grow and it did along with the sales themselves. If you look at the components of growth by segment in 2019, I think across the 3 groups, IFS, all of those guys will accelerate over the 2018 growth rates.
If you break it down between banking and payments and institutional and wholesale within GFS, let's call GFS a roughly 3% grower for full year, you're going to see higher growth than that out of banking and payments, slightly lower growth than that out of institutional and wholesale for the full year. Again, with some headwind in Q1 on GFS, but broadly, that 4% midpoint for the full year.
Yes, that's right, Darren. I mean, if you look, the sales success was very, very strong last year and to Woody's point, the highly reoccurring nature of our business going into 'nineteen, we don't have any more risk than what we would have in 2018. It's just good strong sales performance and now we've got to onboard those sales and get the results of that and continue to sell through the year.
All right. That's helpful. Gary, just a quick follow-up. I mean, I know you were asked briefly about the deal, the M and A environment, but I guess we're just getting a lot of questions. So maybe a little more pointedly, I mean, what are your thoughts in terms of your need or not or lack thereof to get something done now?
It's been a little while, obviously. And if so, I mean, just remind us the areas that you think about as the core priorities for M and A for FIS in the next year or 2?
Yes. No, look, Darren, I mean, as we talked about consistently inorganic activities will play a role in our strategy. You've seen us focus on clean our portfolio. I would tell you that work's done. You've seen us focused on strengthening our balance sheet, I would tell you that work's done.
You've seen our investment ability to compete in the industry today as we currently sit. With that as a backdrop, we would be interested in pursuing something inorganically if it fits our strategy. We want to find something that will definitely accelerate our growth rate. We also want to find something that fits within our financial services focus. We're interested as I think about the company, I think about 3 broad categories and I think about them on a global basis.
So we think about retail banking, we think about payments and we think about institutional wholesale. And there's a number of opportunities within each of those areas that could make sense from a strategy viewpoint. Of course, they would have to be actionable and have to make financial sense. But we do believe that the market will continue to consolidate both on the provider side as well as on the financial institution side and financial services side. So and scale is going to continue to drive and be a differentiator.
The need to invest to continue to modernize both the technology and application layers and to innovate around those so that our customers can deal with various disruptors in the industry are going to be important and scale will contribute to that.
All right. Thanks guys.
And the next question in queue will come from Chris Shutler. Please go ahead.
Hi, guys. This is actually Andrew Nicholas in for Chris. I was hoping you could talk a little bit about the recent sales activity in the institutional and wholesale segment. I'm mainly curious how the recent market volatility impacted the quarter and the pipeline in that business. And then also, how much of the revenue in I and W is priced based on assets?
Yes. No, we did see some impact in some of our trading platforms due to platforms due to volatility. But I also highlighted last year, we had a great year of new logo wins in the I and W business where our products continue to take share from a lot of the competition in that space. So we're excited about some of the results that we've seen in that. Of course, our SaaS sales are way up as well.
We've got a number of different products, so pricing is never answered just on a simple unit price, but most of our products are tied to, from a pricing viewpoint, tied to some type of unit price and then hosting with license fees wrapped around that in the I and W space.
As we've talked about in the past, the amount of revenue tied to asset size is very, very small. The amount of revenue tied to trading and volumes is roughly 2.5% of consolidated revenue. So still in the big picture, a relatively small impact from a volatility perspective.
Okay, great. That's very helpful. And then second, I was hoping you could walk through the different factors that would drive you to the high versus low end of your margin expansion guidance. Thanks.
Yes. I think continued efforts around data center consolidation, which is really one of the primary drivers on the outsized margin expansion versus what we talked about last year. Our divestiture activity, which we've completed this year, are driving roughly 30 basis points of margin expansion in 2019. And then continued efforts around managing our costs and deploying one to many model type revenues that continue to provide higher incremental margins. Those are the 3 primary components that help us drive that margin
next question will come one moment here will come from the line of Jim Schneider. Please go ahead.
Good morning. Thanks for taking my question. I was wondering if you could maybe talk a little bit more around the IFS acceleration, specifically which products are the ones that are picking up? Maybe talk about which ancillary products as well as if you're seeing any kind of new core wins in that acceleration number from 4% to 5% this year?
Yeah. No, I mean, as Woody mentioned and we tried to cover some of that in the prepared remarks, honestly, we've seen good growth across all of the sub segments within IFS. So we've highlighted some really nice core banking wins in 2,008 on actually an outsourced basis or in a SaaS deployment. We think that trend is going to continue. Our pipeline looks good there as we bring new capabilities in market.
We've seen some strengthening in our payments business throughout 2018 and going in 2019. We've seen some great results around mass enablement around that customer base and ability to really innovatively deploy products faster into that market and that's going to expand. So and when you look at the digital footprint, we highlighted our new Digital One platform that we brought to market in 2018, saw a lot of opportunity for that in the GFS segment in 2018, which helped overdrive some of the banking business there, but that's actually now deploying in our IFS market, so getting good reception on that. So we're really seeing our sales effort hitting on all cylinders. We tend to skew towards the larger side of community banking historically and we've highlighted a number of examples in the script of where that came through in the quarter.
That's helpful. And maybe as a quick follow-up, relative to the BB and T SunTrust environment, I guess a different angle on it, which is what are your clients saying about their competitive response, if any, that merger, kept the next level down from the merged super regionals? And can you maybe talk about where they might decide to invest more versus any places you think that might pull back a little bit?
I think it's early to see what the response is. We've got to see how that combination transpires. I would say in general, if you look at the large regionals or really large community institutions, we're seeing and we're seeing in our sales success throughout 2018, really starting to see a strong demand to modernize the platforms. A lot of those institutions have been dealing with a level of technology and application debt for years and they're looking for how do we modernize our platforms and lower total cost of ownership. We've highlighted a couple of examples in the script where a $100,000,000,000 institution moved to a much more robust payments as a service solution, leveraging all of FIS' capabilities and leveraging our cloud based deployments.
We have another $20,000,000,000 institution that really is moving from a series of discrete drive scale so they can have investment dollars to accelerate their innovation and change, all of them are still talking about the need to change. So do we think there will be further consolidation? As Woody talked about, we don't believe it's going to accelerate over where it was in 2018, but it's very hard to predict.
Thank you.
And we'll go to the line of Ashwin Shirvaikar. Please go ahead.
Hey, Gary. Hi, Woody. Hi, Ashwin. My question, at least my first question was, you talked already about the cadence of revenues through the year is improving as you go from 1Q to 4Q. Could you talk about the cadence of margin improvement, particularly given you're saying that you're quite far along on the data center consolidation side and solution modernization.
So could you kind of talk about how we should think about how the cost side flows through?
Yes. If you think about it, we'll continue to see incremental benefits of data center consolidation along the year. So that will help incrementally grow margins from Q1 through to Q4. The divestiture components will go in line with where the time line is on the divestitures and sales. So you'll see that flowing relatively ratable over the year.
And in the Q1, we'll probably be a little lower in terms of margin expansion because of the heavy license component that we talked about this time last year in Q1 of 'eighteen. So that should give you some color on how we think about where the margin will flow, Ashwin.
Okay. Got it. And then the second question is, broadly speaking, as you talk about year over year improvement in demand, it seems to me you've touched on a few points. And I'd just like to confirm, there seems to be a higher win rate perhaps. There seems to be broadly maybe more demand for the particular products that you are now bringing.
And you're also with mass enablement onboarding faster. Is that Am I understanding correctly that you're actually checking all these boxes?
Yes. No, I think I would add one more. I think the trend towards outsourcing or SaaS deployment leveraging our investment around cloud. So our data center consolidation is really driving 2 things. 1, it is driving cost reductions.
We've highlighted that. But it's really elevating our technology stack to a much more modern architecture and deployment with much higher resiliency. And so all of those things are feeding into people wanting to leverage that investment that FIS has made. And so therefore, as we've talked in the past, as we move from on premise deployment to SaaS deployment, you're going to see a much higher revenue stream, larger contracts, etcetera. But I think those three things are really driving the increase in growth rates that we've talked about.
Yes.
If you think back a few years ago, we started increasing our investment in CapEx. That CapEx is not just hard assets for data center consolidation, but it's also around product innovation and trying to bring those new solutions to market faster. I think all those things collectively are resonating with the client base, and it's resonating in the actual sales closure rates.
Yes. And the point you made about mass enablement, we're very excited about it. Obviously, it generated a relatively small amount in 2018, but that's accelerating dramatically going into 2019. And really how do you one of the things a lot of the things our clients are asking for is how do you get product to market faster? How do you remove friction through that process?
And so we've spent a lot of money on innovating to be able to bring some of those solutions, not one at a time, but how do we deploy a new capability across 100, across 500, across 1,000 customers. And we think it's going to make a real impact as we continue to innovate around that and bring more and more capability to market faster.
Understood. Safe to say that you guys are maybe in the middle innings. These kind of transitions tend to be multiyear in nature, can take 3 years, 4 years, middle innings is fair?
Yes. No, I think that is fair. We highlighted data center consolidation. We just wrapped up the 3rd year of data center consolidation. And we're very pleased at where we are on the run rate cost takeout.
As I highlighted in the script, we're ahead of where we originally thought. So we still have another 2 to 3 years left globally on that. We've got 2 years in the domestic. So we're going to continue to push through that and we're going to continue to drive a total of more than $250,000,000 of cost saves out of just that one exercise. But it's more important to understand where the end state is going to be at that point in time.
And at that point in time, when you look at resiliency, when you look at the level of cloud based computing we're going to have in the industry, when you look at our security posture, we're going to have a great environment for our clients and our prospects to take advantage of it. And then when you build the application modernization innovation that we're bringing to market, we're excited about
the future at FIS. And these investments are starting to translate into revenue growth from 2% to 3% to 4%. We're feeling really good about getting good return on that investment.
Got it. Thank you, guys.
And we'll go to the next question in queue comes from George Mihalos. Please go ahead.
Hey, good morning guys. So just wanted to ask on Brazil now that you're liberated from Bradesco. How have the sales opportunities been? Just curious kind of how the commentary is with other potential clients and partners. And then the $0.08 of dilution, just want to make sure I understand where that's coming from.
Is that because of the change in reporting? Or is there something else that's driving that dilution?
Well, first, we've got a great long term relationship with Bradesco. They just we now got a 5 year commercial agreement with them. So they're still going to be a great substantial client going forward. But you're right, George, it really does free up the ability now for us to bring more product, more capability into that market. Historically, the way the JV worked, we were somewhat encumbered because everything had to come through that joint venture.
And therefore, a lot of customers weren't interested in given the ownership structure. So it does now free us up to move new product and capability in market. Woody was just down there. I know he met with a lot of the clients in market and a lot of the prospects. I would tell you our sales team is very excited.
We're also already moving some of our capabilities down there. So I think Brazil is going
to be a very good market for us going forward. If you're specifically asking on the $0.08 dilution, it's really around the timing. We had anticipated this thing to close roughly June 30 this year versus January 1. So instead of having that revenue and EBITDA roll into the consolidated for 6 more months, we just got done early.
Okay, great. And just a quick follow-up, Woody, for purposes of calculating EPS for 'nineteen more in line with how you've done it in the past, Can you break out for us what your expectation is for core D and A and then intangible amortization?
Yes. I think if you think about it, we've got disclosures in there that give you one for 1. We haven't given D and A disclosures for full year yet, but you could think about roughly $1.75 of difference between the $7.35 to $7.55 versus an old method of $5.60 to $5.80
Great. Thanks, guys.
Our next question comes from Andrew Jeffrey. Please go ahead.
Hey, good morning, guys. Thanks for taking the question.
Good morning,
Andrew. You've been talking very consistently for the past year about process improvement, product delivery improvement, which I take to mean time to market and newer solutions like SaaS. I just wonder if you think over a multiyear period, how do you quantify the ability to kind of bend your growth curve? I mean, 2019 is a year where IFS does a little better, maybe GFS has more trading volume exposure. But on a compound basis, is there a point where some of these investments really start improve the sustainability of your growth, the cycle notwithstanding?
Yes. No, obviously, we think so, Andrew, and we're seeing that in our sales cycle. We're seeing sales accelerate year over year. We're seeing growth rates accelerate year over year. We're seeing margins accelerate year over year.
And all of that's about our consistent strategy around modernization, both technology and the application layer. And you're right. I mean the industry is looking for more flexibility. They're looking for more speed, they're looking for higher availability and you're not going to get that through the historical technology stacks. And it's obviously, it's a heavy lift that all providers will need to go through.
We're just moving into our 4th year of that. And so we do feel good that you'll continue to see our growth rates trend up. And given the reoccurring nature of our revenue, we'll continue to be very predictable and will lead the industry with regards to margin as well. So we're very confident in investments. We've been very consistent on the strategy.
And we think the long term outcome for the company is going to be a much stronger growth rate as we deploy this.
Okay. And if you could maybe opine a little bit on geo mix. I mean, a lot of the increased tech spend, as you cited in the SunTrust BB and T deal, seems to be driven by U. S. Imperatives.
What about Europe and Rest of World? Where do you think we are in terms of demand for more digitized solutions and perhaps what might change the growth parameters outside the U. S?
Yes, we've been fairly consistent. We saw Europe return slower than what than some of our other geos. But we had a really good year in Europe with regards to sales demand and we have a good pipeline going into 2019 on Europe. I mean, one of the things that we're doing and I referenced in the script, not only are we making all this investment in technology, we're getting better leverage across the 2 segments. So we're building out an omnichannel digital next generation digital platform called Digital 1.
Great success with that in the U. S. In 2018 in the GFS market. You're seeing us deploy that very rapidly in the IFS market. You're going to also see us push that into other geos around the world.
So we're getting more leverage out of our investment as well across the various segments. We're doing the same thing with regard to our data center consolidation and our technology stack as we move more of our compute into the cloud both segments are able to take advantage of that with industry leading we'll be able to continue to expand in the various geos we're in. We highlighted some opportunities we have in Brazil. We still see good opportunities in Europe, especially in the U. K, in certain Western European countries.
And then in Asia, we continue to have good solid growth in Asia and we think all of that will continue.
Thank you. And our last question on today's call this morning will come from Ramsey El Assal. Please go ahead.
Hi, guys. Thanks for squeezing me in here. I wanted to ask, kind of following up on Ashwin's question a bit. You called out a really strong sales backlog and obviously your solutions are resonating in the marketplace. But is there a IT bank, IT spending sort of overlay here?
It really feels like banks' wallets are sort of opening up in a nice way. Can you comment a little bit on the broader environment irrespective of the strength of your solutions?
Yes, Ramsey, I do think we're seeing that. I think the recovery has been slow. And I think that financial institutions broadly are realizing that they're now having to open up their spend and actually start spending money on next generation technologies. And we're seeing the results of that in our sales cycle. They really are looking for how to achieve a higher level availability and risk posture.
You're not going to do that unless you really embrace some of these new cloud technologies. They're really looking for what are built digitally native from the ground up, how do we drive more open API framework so we can build around the edges and all of those things FIS have been investing in very heavily, whether it's Code Connect, which we launched last year, which we're seeing great adoption, which is truly a new fully open API framework, whether it's some of our next generation components that we're now bringing to market. We highlighted a large bank that's entering the U. S. With a digital institution that's going to take our cloud native core banking solution surrounded by Digital One or our omnichannel digital platform.
Also as you go over into the I and W space, we're seeing a lot of demand and highlighted that with our new logo sales. That's indications of our clients now looking to move from their historically in house developed products or even 3rd party products that they customized and cobbled together moving to the future. So yes, I do think that IT spend is opening up in the market and we're seeing in our sales cycle FIS be the beneficiary of that.
Okay. That makes a lot of sense. I wanted to as a quick follow-up here, I wanted to ask about your margin, your inherent operating leverage in the business. I mean, the full year margin guidance obviously came above came in above your 3 year range and then there's quite a bit of moving parts in terms of divestitures and mix and other factors. But when you strip away some of the non recurring contributors like data center consolidation expense efficiency, has your underlying operating leverage kind of improved relative to when you last gave that sort of long term guidance just due to mix and divestitures and other factors.
I mean, could we be looking at margin outperformance kind of in the out years relative to that guide or is really what's driving the outperformance sort of nonrecurring factors at this point?
Yes. I think the quality of the assets at this point is better than it was when we talked about things in May last year. So to your point, I think you could see us driving midpoint or higher on that margin even in the out years once we get past data center consolidation. So yes, I think it is an improved cost efficiency and business mix that we have that's an ongoing benefit.
That's terrific. Thanks for taking my questions.
Thank you for joining us today and for your ongoing interest in FIS. We are pleased to deliver another year of strong revenue, profitability performance and earnings growth. We have a robust pipeline heading 2019 with positive sales momentum. Combined with our business model and consistent execution of our strategy, we are confident that we are paving the way for a successful 2019 and beyond. I'd like to thank our loyal clients who depend on and trust us to keep their businesses running and growing every day.
And I'd like to thank our leaders and employees for their hard work and dedication in serving our clients. It's because of both that FIS continues to empower the financial world. Thank you for joining us today.
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