Fidelity National Information Services, Inc. (NYSE:FIS) Q4 2023 Earnings Call Transcript

Fidelity National Information Services, Inc. (NYSE:FIS) Q4 2023 Earnings Call Transcript February 26, 2024

Fidelity National Information Services, Inc. misses on earnings expectations. Reported EPS is $0.94 EPS, expectations were $0.95. FIS isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).

Operator: Good day, and welcome to the FIS Fourth Quarter 2023 Earnings Call. At this time, all participants are in a listen-only mode. After the speaker presentation, there will be a question-and-answer session. [Operator Instructions] Please be advised that today’s conference is being recorded. I would now like to hand the conference over to your speaker, Mr. George Mihalos, Head of Investor Relations. Please go ahead, sir.

George Mihalos: Thank you. Good morning, everyone. Thank you for joining us today for the FIS fourth quarter 2023 earnings conference call. This call is being webcasted. Today’s news release, corresponding presentation and webcast are all available on our website at fisglobal.com. On the call with me this morning are Stephanie Ferris, our CEO and President; and James Kehoe, our CFO. Stephanie will lead the call with a strategic and operational update, followed by James, who will review our financial results. Turning to Slide 3. Today’s remarks will contain forward-looking statements. These statements are subject to risks and uncertainties as described in the press release and other filings with the SEC. The company undertakes no obligation to update any forward-looking statements whether as a result of new information, future events or otherwise, except as required by law.

Please refer to the safe harbor language. Also, throughout this conference call, we will be presenting non-GAAP information, including adjusted EBITDA, adjusted net earnings, adjusted net earnings per share and free cash flow. These are important financial performance measures for the company but are not financial measures as defined by GAAP. Reconciliation of our non-GAAP information to the GAAP financial information is presented in our earnings release. And with that, I’ll turn the call over to Stephanie.

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

We took a decisive action and moved with urgency to put the company on a sustainable path for long-term success, unlocking value for shareholders and re-committing to our clients who are at the center of everything we do. In a short period of time, we successfully executed a number of significant operational commitments, while consistently delivering financial outcomes ahead of expectations. Earlier this month, we announced the successful completion of the majority sale of the Worldpay business to GTCR, a key milestone for our future. This landmark transaction creates two market-leading companies with greater strategic flexibility and operational focus to capitalize on their respective growth and margin opportunities in rapidly evolving markets.

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

The separation reinforces FIS’ position as a global enterprise software leader servicing the technology needs of the most complex global financial institutions, multinational corporates and governments. With a sharp focus on our marquee set of clients, we are well-positioned to capitalize on favorable industry trends and quickly push into faster-growing verticals and segments of the market. This builds on our first-mover technology advantages, allowing us to accelerate revenue growth as our 2024 outlook demonstrates. The Worldpay transaction also allows us to recapitalize our balance sheet, providing ample flexibility to reinvest in the business, while at the same time, accelerating capital returns to shareholders and lowering our leverage ratio.

I’m pleased to announce that we are once again raising our share repurchase target. We are now committing to buying back at least $3.5 billion of stock in 2024, up from our previous $3 billion target. Including repurchases completed in the fourth quarter of 2023, this brings our total share repurchase commitment up to at least $4 billion. This increased buyback reflects our confidence in the business, our strong capital position and our view on the intrinsic value of FIS’ shares. Lastly, we continue to execute against our Future Forward strategy, exceeding our targets for 2023 and increasing our commitment for operational excellence in 2024. The program is changing the way FIS operates with a focus on driving greater efficiency, effectiveness and growth for our clients and for FIS.

Our successful efforts are underpinned by distinct and tangible proof points. For example, over the second half of 2023, we were able to return the company to year-over-year margin expansion. And, we expect to drive further profitability improvements in 2024. We refocused our sales force to prioritize higher-value, higher-margin technology sales, and we intensified our efforts to improve the customer experience, including accelerating implementations of our next-generation technology solutions. While there is still plenty of work to be done, I couldn’t be prouder of the FIS team and what we’ve accomplished together in just a year’s time. Now let’s turn to a discussion of our financial results. Turning to Slide 6. The significant actions we undertook in 2023 are already driving improved financial outcomes.

We delivered full year 2023 financial results ahead of our outlook, including four consecutive quarters of outperformance on a total company basis. Adjusted revenue growth of 2% was driven by strong total company recurring revenue growth of 4%, including 5% recurring growth across our Banking and Capital Markets segments. Profitability improvements were primarily driven by our Future Forward program. This resulted in adjusted EBITDA margin expanding over the second half of 2023 despite headwinds in high-margin non-recurring revenue such as license and termination fees. We meaningfully improved adjusted free cash flow conversion in 2023 to a normalized 95% as compared to 72% in 2022. Capital expenditures declined to approximately 8% of total company revenue in 2023, down from 9% in 2022 as a result of continued execution against Future Forward initiatives.

Lastly, we returned over $1.7 billion in capital to our shareholders through the combination of both dividends and share repurchases with over $800 million in the fourth quarter. Turning to Slide 7. The trajectory of our recurring revenue growth trends exiting the year and continued expense management gives us confidence that both revenue growth and profitability are inflecting in 2024. We expect a sustainable acceleration in adjusted revenue growth from 3% in 2023 to more than 4% in 2024. This acceleration is principally driven by a meaningful improvement in Banking’s revenue growth from 2% in 2023 to at least 3% in 2024. We expect the momentum we’ve been experiencing in our Capital Markets segment over the past few years to continue with healthy growth in excess of 6%.

The segment will continue to benefit from market share gains and expansion into newer verticals. During the third quarter of 2023, fueled by the success of our Future Forward strategy, we returned the company to year-over-year adjusted EBITDA margin expansion for the first time in nearly two years. Building on the success of Future Forward and the underlying fundamentals of the business, we are confident that the company is positioned for sustainable margin expansion in 2024 and beyond. The revenue acceleration and operational improvements just discussed, coupled with balanced capital deployment, will allow us to deliver 5% to 7% normalized EPS growth, which include a high single-digit negative dis-synergy impact. As a result of this improved financial outlook, we are committed to returning over $4 billion of capital to our shareholders across buybacks and dividends in 2024.

Looking forward, current favorable market trends as well as the operational efficiencies we continue to drive leave us confident that we are positioned for further earnings acceleration beyond 2024. Turning to Slide 8. We are seeing increased client demand and a growing sales pipeline as our products and services continue to resonate, especially with large financial institutions. Based on the current level of activity we’re seeing across our pipeline, we expect an acceleration in new sales in 2024 as compared to 2023, aiding revenue growth beyond 2024. During the fourth quarter, we signed multiple marquee wins across our businesses. Beginning with enterprise core platforms, we’re seeing increased demand from the regional community bank market for our bundled offerings of core digital payments through strong new sales and implementations.

Additionally, we signed several new and expanded core engagements with regional community and international financial institutions, including a key competitive takeaway Banc of California with approximately $40 billion in assets. Also, demand for FIS’ digital banking solutions remains strong. Our Digital One platform was selected by some of the most demanding banks and financial institutions, including a global asset manager with greater than $1 trillion in assets under management. Likewise, we’ve seen continued robust sales for our Digital One Studio with leading national, regional and super-regional banks, including Hancock Whitney, First Citizens Bank and Bank of Montreal. These banks have all deployed solutions from our digital suite, which offers deeper personalization capabilities in support of their deposit growth, product cross-sell and customer experience improvement objective.

To underscore our progress in digital banking, our sales pipeline continues to expand with demand from large financial institutions increasing in the double digits. Our payments and network businesses continue to gain traction and we are expanding our sales focus in these areas, given the long growth runway they represent. The NYCE debit network had another strong quarter of new sales. We signed multiple new engagements with premier financial institutions, retailers and global media companies. Additionally, FedNow continues to gain traction. We now have over 215 clients either in contract or in our pipeline and we are now certified to both send and receive payments. Moving on to Capital Markets. Beginning with securities trading and processing, our market-leading Cleared Derivatives solution was selected by a global financial technology provider and a leading alternative asset manager.

Additionally, our Treasury Solutions had another strong quarter of new sales. We signed new engagements with a leading financial technology company, several municipal governments, a multinational healthcare provider and an online consumer apparel provider. Our Lending Solutions also had a number of impressive new or expanded wins in the quarter. This included a leading U.S. automaker, several European automakers as well as several global financial institutions who are seeking a partner who could service and support their global client base. I’m encouraged by the trends we experienced over the second half of 2023 and confident we are poised for a meaningful sales acceleration in 2024. 2023 was a year of significant positive momentum at FIS. I’m incredibly proud of the team for their commitment to our Future Forward strategy and the heightened focus on improving client centricity, accelerating product innovation and simplifying our go-to-market approach.

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

James Kehoe: Thank you, Stephanie, and good morning. I’ll begin on Slide 11 with some comments on our 2023 performance and the key drivers of earnings power for the upcoming year. As Stephanie noted, we are pleased with our results having consistently exceeded the high end of the outlook. The original EBITDA guidance was $5.9 billion to $6.1 billion and the actual results came in well above the high end of the range. The outperformance was driven by strong recurring revenue growth from both Banking and Capital Markets, profitability improvements, fueled by our Future Forward program, and better-than-expected performance from Worldpay, which is now reflected in discontinued operations. On January 31, we completed the majority sale of the Worldpay business.

The transaction positions both companies for future success, allowing them to focus on their respective end markets and to pursue appropriate capital allocation strategies. The transaction has also allowed FIS to transform its capital structure, paying down debt to ensure an investment-grade rating while accelerating return of capital to shareholders and allowing for appropriate levels of investment in the business. FIS is now well-positioned to deliver accelerating revenue growth with a return to sustainable margin expansion. Revenue growth will accelerate from 3% in 2023 to 4% to 4.5% in 2024, or 3.8% to 4.3% excluding acquisitions and dis-synergies. Adjusted EBITDA margin is projected to expand by 20 basis points to 40 basis points. Adjusted EPS is projected to grow 38% to 41% year-over-year on a continuing operations basis, including a significant contribution from the deployment of Worldpay proceeds and the first-time inclusion of the Worldpay Equity Method Investment contribution.

On a normalized basis, we expect adjusted EPS to grow 5% to 7%, including a high single-digit negative impact from dis-synergies. Strong core business performance and our Future Forward program have more than offset the negative impact from dis-synergies. Turning now to Slide 12 for a few considerations on our financial reporting going forward. Beginning in the first quarter of 2024, FIS’ 45% financial interest in Worldpay will now be reported separately on the Equity Method Investment line of the income statement. Our 2024 adjusted EPS outlook of $4.66 to $4.76 includes a $0.69 to $0.71 contribution from Worldpay. Please note that the $0.69 to $0.71 is for 11 months only. Had the transaction closed at the end of last year, our 2024 adjusted EPS for continuing operations would have been $0.06 higher resulting in a pro forma adjusted EPS of $4.72 to $4.82 on a full-year basis.

Consistent with our prior messaging, our go-forward adjusted EPS outlook will include the Worldpay EMI contribution. And we will also be providing condensed quarterly financial results for Worldpay on a 100% basis, including revenue and EBITDA on both a GAAP and adjusted basis. Lastly, going forward, FIS will be presenting revenue growth on an adjusted basis. This reflects year-over-year constant-currency revenue growth for our Banking Solutions and Capital Markets operating segments. With that, let’s turn to our fourth quarter results on Slide 13. Overall, we are pleased with our performance in the fourth quarter and this is the fourth consecutive quarter of meeting or exceeding the high end of our outlook. Including Worldpay, total company revenue increased 1% to $3.7 billion with an adjusted EBITDA margin of 43.2% and adjusted EPS of $1.67.

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

Adjusted EBITDA margin contracted 160 basis points reflecting a less favorable revenue mix and the timing of certain expenses. Moving now to cash flow and balance sheet metrics, where we continue to drive improvements. We generated strong free cash flow of $1.1 billion in the fourth quarter, resulting in a normalized free cash flow conversion of 100%, with a full year conversion rate of 95%. This compares very favorably to our 2023 full year target of greater than 80% free cash flow conversion. We ended the year with total debt of $19.1 billion with a leverage ratio of 3 times. As previously communicated, we repurchased $510 million of shares during the fourth quarter of ’23 resulting in over $800 million of capital returned to shareholders in the quarter and $1.7 billion for the year as a whole.

Turning now to our segment results on Slide 14. For the quarter, adjusted revenue growth was flat year-over-year, in line with our expectations. As expected, backlog remained stable at $23.5 billion. Continued strong recurring revenue growth of 7% was offset by anticipated non-recurring headwinds. Banking revenue was flat in the quarter, while adjusted EBITDA margin expanded 270 basis points, primarily driven by Future Forward cost initiatives. Banking recurring revenue grew a healthy 7%, including stronger-than-expected consumer spend in our payments business and the benefit from a prior year grow-over. Note that our calculation of Banking recurring revenue growth reflects two changes. First, in keeping with historical practice, we have transitioned certain non-strategic businesses, which we expect to settle or wind-down from Banking Solutions to the Corporate and Other segment.

Second, with the expiration of federal funds related to pandemic relief programs, we have moved this revenue from recurring revenue to non-recurring revenue with no change to total revenue. We have provided a detailed reconciliation table for these adjustments in the appendix. As you will see, these adjustments have a de minimis impact on full year recurring revenue growth. Banking recurring revenue growth of 4% in 2023 is unchanged, while the changes increase our 2022 recurring revenue growth by a mere 40 basis points. The recurring revenue growth of 7% was offset by expected declines in other non-recurring revenue and professional services of 22% and 31%, respectively. The decline in other non-recurring revenue includes an 11% headwind from the decline in pandemic relief revenues while the decline in professional services reflects a difficult comparison.

Turning now to Capital Markets. Capital Markets adjusted revenue increased 1%, led by continued strong recurring revenue growth of 7%. As expected, non-recurring revenue declined by 10%, primarily driven by a difficult year-over-year comparison related to license fees, which we have consistently messaged throughout the year. The decline in higher-margin non-recurring license revenue was the primary driver of the 250 basis point margin contraction. Looking forward, we will be facing lower headwinds from both professional services and other non-recurring revenue. And we expect to see closer alignment between adjusted revenue growth and recurring revenue growth. Turning now to our full year results by segment on Slide 15. Adjusted revenue growth increased 3%, led by strong recurring revenue growth of 5%.

Banking revenue was up 2% as recurring revenue growth of 4% offset declines in non-recurring revenue and lower professional services. Adjusted EBITDA margin was flat, but margins were strong in the second half of the year as Future Forward savings accelerated. Capital Markets revenue increased 5%, led by very strong recurring revenue growth of 9%. Adjusted EBITDA margin contracted 60 basis points to 50.3%, primarily due to lower margins over the second half of the year, reflecting a lower contribution from higher-margin license fees. Turning now to Slide 16 for an update on Future Forward. I am pleased to report that we have exceeded our 2023 target for Future Forward OpEx savings and we see further upside in 2024. We delivered in-period EBITDA savings of $155 million, well above our original goal of $100 million.

And we are raising our 2024 incremental savings target from $215 million to $280 million. We are reiterating our total cash savings target of $1 billion for the Future Forward program. We are reaffirming our capital reduction target, increasing our OpEx savings goal, and adopting a slightly more conservative view regarding the reduction in acquisition, integration and other expenses. Turning now to our capital allocation priorities on Slide 17. Our capital allocation priorities remain unchanged from the prior quarter. We intend to use our strong financial position and balance sheet flexibility to prioritize a balanced set of capital allocation priorities. These priorities include maintaining an investment-grade rating while investing to accelerate growth and consistently returning ample capital to shareholders.

For 2024, we are assuming a year-end leverage ratio of approximately 2.8 times, which allows us ample flexibility to invest in the business, while increasing our share repurchase target for the year. We remain committed to paying an above-market dividend. And going forward, we will grow the dividend in line with adjusted net earnings. Reflecting our confidence in the business and our strong free cash flow generation, we are once again raising our share repurchase commitment. We now expect to repurchase at least $3.5 billion of stock in 2024, up from our prior target of at least $3 billion. And through the first two months of this year, we have already repurchased approximately $490 million of the $3.5 billion target. Lastly, we will selectively invest in complementary tuck-in M&A where we can leverage our scale and distribution to drive faster growth across strategic verticals.

This balanced capital allocation framework provides a robust value proposition for long-term shareholder value creation. In total, we expect to return greater than $4 billion to shareholders in 2024, up from $1.7 billion in 2023. Now, let’s move on to our 2024 outlook on Slide 18. Building on the operational and financial improvements of 2023, our ’24 outlook confidently forecast accelerating revenue growth and expanding margins. We are projecting reported revenue of $10.1 billion to $10.15 billion, and this includes an adverse currency impact of around $20 million. Adjusted revenue growth will accelerate from 3% in ’23 to 4% to 4.5% in 2024. Our projections include 70 basis points from closed tuck-in acquisitions. But this is mostly offset by a negative impact of 50 basis points from dis-synergies.

Net of these impacts, adjusted revenue growth would be approximately 3.8% to 4.3%. We expect the Banking segment to grow between 3% to 3.5% or 3.3% to 3.8% net of acquisitions and dis-synergies, up from 2% in 2023. And we anticipate Capital Markets revenue growth of 6.5% to 7% or 5.1% to 5.6% net of acquisitions, as compared to 5% in 2023. We are forecasting year-over-year margin expansion of 20 basis points to 40 basis points, reflecting continued favorable impact from the Future Forward program and the inherent leverage in our business model. Included in this outlook is a $280 million year-over-year benefit from the Future Forward program. And this will more than offset dis-synergies from the Worldpay transaction of $250 million. We have provided our assumptions regarding the key below-the-line items with some additional details in the appendix.

We are projecting D&A of $1.075 billion and we anticipate a tax rate of 17.2% to 17.5%. Interest expense is projected at around $350 million. And we expect shares outstanding of 556 million shares, a reduction of 6% compared to 2023. Including an 11-month EMI contribution of $0.69 to $0.71, we expect to deliver adjusted EPS of between $4.66 and $4.76. This translates to a growth rate of 38% to 41% on a continuing operations basis. On a normalized basis, we expect adjusted EPS to grow 5% to 7%, including a high single-digit negative impact from dis-synergies. Lastly, on a pro-forma basis, including 12 months of Worldpay EMI contribution, we anticipate adjusted EPS of $4.72 to $4.82. We are confident in our balanced outlook for 2024 and believe we are well-positioned to accelerate long-term earnings growth.

Let’s move now to Slide 19, where we provide a reconciliation for our 2023 results on a normalized basis. Last quarter, we provided an estimated normalized adjusted EPS range of $4.40 to $4.55. I am happy to report that both continuing ops EPS and normalized EPS came in within the guidance ranges we provided. Continuing operations EPS was $3.37, and was at the higher end of the range that we provided on the third quarter call. On a 12-month basis, normalized EPS was $4.50, and again this was toward the higher end of the range. Adjusted for an 11-month EMI contribution, 2023 normalized EPS is $4.44. Moving now to Slide 20 for an overview of our first quarter outlook. We are projecting revenue growth of 2.5% to 3.5% with Banking Solutions at 1% to 2% and Capital Markets at 6% to 7%.

We expect Banking revenue growth to accelerate over the course of the year, reflecting easier year-over-year revenue comparisons and the favorable impact from stronger new sales over the second half of 2023. We are anticipating adjusted EBITDA of $955 million to $970 million, which translates to year-over-year margin expansion of 180 basis points to 200 basis points, reflecting Future Forward savings. Including an expected two-month EMI contribution of $0.09 to $0.10, we expect adjusted EPS of $0.94 to $0.97. Continuing operations EPS is projected to increase 31% to 35% and we estimate high single-digit growth on a normalized basis. In summary, we are expecting a good start to the year, with revenue growth accelerating compared to the fourth quarter and improved alignment between adjusted revenue and recurring revenue growth.

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

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

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Q&A Session

Operator: Thank you. [Operator Instructions] And our first question will come from the line of Tien-Tsin Huang with JPMorgan. Your line is open.

Tien-Tsin Huang: Hey. Thanks a lot. Good morning here. Just hoping to maybe have you comment a little further on the Banking side, just a formula for just the revenue acceleration there in the Banking segment. I know there’s backlog conversion, new sales, you talked about a little bit, retention. Any call-outs there as we sketch the outlook? Thanks.

Stephanie Ferris: Yeah, thanks, Tien-Tsin. Yeah, we’re very excited to be guiding to an accelerated total company revenue growth in 2024 as well as in Banking specifically. As we talked about last year, we came in from a recurring revenue standpoint pretty strong, but were facing some nonrecurring headwinds as we disclosed all the year. As we come into 2024, feeling really good about lapping those headwinds. So, thinking about recurring and total Banking Solutions revenue growth coming more in line together as well as the strength of that we’re seeing in the back half of 2023 and into 2024 from a sales standpoint and as we think about those sales coming in and delivering on revenue in the back half of ’24 and into ’25. So both scenarios are helping us in terms of giving us confidence for Banking Solutions and the total company revenue growth to accelerate in 2024, which is why we feel good about what we’ve guided.

Tien-Tsin Huang: Good. Just my quick follow-up then. Stephanie, anything to consider with respect to M&A in the bank sector? We’ve been, sector-wise, getting a lot of questions on the Cap One-Discover piece, opportunities, risks? Thanks.

Stephanie Ferris: Yeah. Well, first of all, I’d say in terms of Capital One-Discover, I think it’s another representation of why it’s really important and how people strategically value having many different assets across the fintech ecosystem, which, as you know, at FIS is critical for us in terms of thinking about issuing, payments, network, et cetera. And then, with the strategic relationship we struck with Worldpay going-forward, we’ll still have access to the acquiring piece. So, I think it’s a demonstration in terms of seeing why the value of having all those assets together is important. With respect to Cap One and Discover, we have very strategic relationships with both. So, we see it for us in terms of a net positive broadly across the ecosystem.

TBD in terms of consolidation. We continue to see folks that would love to consolidate. We’ll see what happens with the regulatory environment. But as you know, we tend to be beneficiaries of that consolidation because we tend to serve the larger financial institutions. But I’m waiting and seeing just like everybody else.

Operator: Thank you. One moment for our next question. And that will come from the line of Ramsey El-Assal with Barclays. Your line is open.

Ramsey El-Assal: Hi, thanks for taking my question this morning. I was wondering if you could help us think through the sort of macro assumptions in your guidance, and maybe any thoughts about the general sort of bank IT spending environment, particularly as it relates to the backlog.

Stephanie Ferris: Sure. Maybe I’ll start, and if James thinks I missed anything, he’ll add on. But I would say broadly in terms of macro assumptions, we would say, as we come in on the payments side of our business, within the Banking business, we kept consumer spend pretty consistent in 2024 over 2023. In terms of overall Banking spend, I think we see two different things happening. I certainly think we see banks who have the opportunity to trend down on discretionary spend. They’ve been doing that, quite frankly, it’s not a new trend. Where we see the demand continuing, and you heard me talk about it in my prepared remarks, is spend around digital to continue to enhance their ability to deliver products and services, and then, really focused around making sure that they can gather deposits.

So, utilizing money — or money movement capabilities and our payment capabilities to help them become the primary depositor for a lot of their lenders. So, I would say there is interest in spending around digital, around money movement capabilities. And then as the regulatory environment continues to heat up, always a focus around our reg tech products. So, I would say overall, IT spend in the banking sector is pretty consistent. We just continue to see it move into those categories and spending less around anything that they would consider discretionary.

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

James Kehoe: Yeah, I’ll just give you maybe a way to think about it. We’re not providing explicit guidance for recurring revenue, but we did say in the prepared comments, in 2024, we would expect recurring revenue to at least be equal to the adjusted revenue and probably slightly better. So, if the total company has grown X, the recurring revenue is slightly positive compared to that, so that implies that still next year, there is a slight headwind coming from the total of professional services and other non-recurring. But it’s dramatically reduced compared to 2023. So, the key message for you is there’s — if you take the year as an average — and that’s the only caution I would give you, on the average of the year, recurring will be better than non-recurring. But the quarters could vary. So, all I would ask, sometimes it’s a little bit choppy in a particular quarter, but overall, we’re very confident in the realignment between recurring and total revenue growth.

Operator: Thank you. One moment for our next question. That will come from the line of David Koning with Baird. Your line is open.