We are pleased to welcome Erik Hoag, CFO of FIS with us today. Erik, thanks so much for being here. Appreciate it. Hey, Ramsey. Good morning. Thank you for having me. Hi. Well, to kick it off here, give us a little view of sort of what you're seeing in terms of transaction trends most recently in your book or any maybe what that bleed into some commentary about the overall macro environment, what are you seeing out there? Yeah, sure. Maybe if I were to even take a step back to the start of the year. On the acquiring side, we saw strong growth in January and February. It moderated a little bit during the month of March, April, very consistent with March and year-to-date May, very consistent to the month of April. On the FIS side, global volume was 9% in the first quarter as well. Really strong start to the year. Fantastic. I wanted to drill down a little bit into that 9% volume growth in merchant in the quarter, which was an impressive result. You know, disaggregate that a little bit in terms of the drivers. What's working in merchant? You know, where is there, you know, what isn't, you know, you know, help us think through how you kinda achieved that solid result. What's working in merchant? Great question. In the Q1, our merchant business grew roughly 2%. If you break it down, you know, the real bright spot in merchant during the Q1 for FIS was our e-commerce business. We had 15% organic revenue growth in the Q1, 18% growth if you exclude the impact of Russia and Ukraine. Our global e-commerce business is performing well. It's grown double digits for the last several years. We guided 2023 to double digits as well. Underlying drivers to growth in e-commerce, we've got differentiated authorization rates. We help enable our customers drive their own P&Ls, I'd say first and foremost. Number two, global reach. Our global e-com business truly is global. The one thing that FIS really did bring to the table associated with the FIS Worldpay acquisition was the global scale that FIS was able to help enable. The banking business, the capital markets business, they operated in so many different geographies that we were able to quickly stand up and integrate our global e-commerce business into some additional geographies. Incremental geographies, differentiated authorization rates. In December 2021, our e-commerce business, we acquired a company called Payrix, performed very well in 2022, performing very well in 2023 as well. The e-commerce book, which is roughly 30% of the merchant portfolio at FIS, we've got an enterprise book, which is roughly 45% of the revenue within the segment, think big box retail, grocery, pharmacy. This business, in a steady state environment should bump around at GDP. We're priced per transaction in the enterprise book. The business is performing well. Obviously, there's some macro factors here. The U.K. sits in our enterprise book as well. The SMB book, which is roughly 25% of the portfolio. E-com 30%, enterprise 45%, SMB 25%. We've got some structural challenges here. When we guided 2023 for the SMB book, we included roughly 300 basis points of headwind associated with some product gaps. We had a good Q1. We outperformed that a bit. One of the underlying catalysts for the spin of the Worldpay business was to help enable getting incremental product into the SMB book through organic investment and strategic M&A. In the SMB book or in the SMB business, what parts of the value proposition are you lacking? Like, what is it sort of more precisely that the SMBs might be looking for now that you know, what's that gap you need to fill in order to get that? Good question. Probably no surprise to anybody here, COVID changed the acquiring landscape rather dramatically. The SMB book has historically been a card-present channel. As COVID came through, and then there was more curbside pickups or more order ahead needs, it really disenfranchised the SMB book that we had. What we have done, the Payrix acquisition in December of 2019 provides card-not-present capabilities down into the SMB sub-segment, which is helping address some of those gaps. You already answered a significant part of this question, but maybe not fully in terms of e-com. You know, the value proposition there that's allowing you to win, you mentioned authorization rates. You know, what is it there that, you know, how do you differentiate yourself kind of from a competitive standpoint in, in global e-commerce, a couple of big high-profile competitors, what's allowing you to win there? Is it just pure performance on the transaction, or is there a technology overlay, or tell me more about that business. Yeah. I would really say I would really come back and talk about just those two things I mentioned before. Mm-hmm. The global reach that it provides, that we can follow customers as customers want to expand their own geographies. Mm-hmm We're enabled in many of those geographies that they want to expand into. The second piece really is the authorization rates. I mean, it's really all about enabling our customers, trying to drive more throughput for our customers and ensuring that they're capturing as many transactions as they can. The one thing that investors focus on for better for worse is the spread between volumes and revenue. Speak to the drivers of that delta and whether we should expect that to sort of widen before it tightens, or how we should think about that as we move forward. Sure. The merchant business for FIS had a yield of -7 in the Q1, organic revenue growth of two, global volume growth of nine, yield of -7. I'd say maybe a couple things about yield in the Q1. Number one, the consumer was strong. We saw a lot of volume that came through our enterprise channel. Think about, you know, I mentioned non-discretionary spend. Non-discretionary spend where we're priced per transaction, volume, less revenue. We also have a headwind associated with Russia-Ukraine. The e-commerce book, very rich yields, a headwind in the first quarter associated with Russia and Ukraine. As we move through the cadence of the year, I would expect our yields to narrow. Just as those factors sort of anniversary Russia, that type of. Anniversary of Russia. We've got, the U.K. as well as we start to normalize off the U.K. from last year as well. I think those are two predominant drivers associated with yields. One last question on merchant. U.K. is another place where you guys are doing business. There's obviously a lot of macro headwinds there. You know, give us just a little bit of an update on the U.K. merchant business. Not a whole lot of change associated with the U.K. merchant business quarter over quarter. Q4 to the Q1 as we head into the Q2. The good thing, as I just mentioned, is the yields will moderate a little bit and provide us a little bit more comfort associated with revenue and volume. Are you seeing a little more macro stability in the U.K., or is it hard to pin down? I would say that moving into the Q2 from the Q1, there hasn't been much change. Not much change. Yeah. Okay. On moving on to banking and capital markets. You know, I've been covering this company for quite some time, and I remember in the old days on the earnings calls, you would often hear a lot of questions about the bank IT spending environment. On the other hand, there's a, you know, kind of an understanding that some of these businesses are pretty defensive and you know, resilient when it comes to the, you know, the cycle, the economic cycle. I guess the question is, with that preface, bank IT spending environment, first, that's a kind of a tactical question. What are you seeing out there? Second is, how important is that? Do you guys really see those budgets tighten and loosen? Does that have a big impact on the kind of keep your lights on type services that you guys are providing? There's two questions in there. Good questions. you know, the bank IT spend, I would say that there hasn't been any change quarter-over-quarter, particularly coming out of I hate to call it a bank crisis in the month of March, you know, sort of the volatility with regional banks in the month of March. From a sales perspective, I might even step all the way back and say, in the middle of 2022, we've changed our sales construct to be a little bit more quality focused as opposed to quantity focused from a sales perspective. we're focusing back on core IT spend, mission-critical software associated with the core, ledgering systems associated with the banking side, ledgering systems associated with the capital market side. what that has done is... What that will do is drive higher incremental contribution margins, a refocus back to what you're probably familiar with over the years, which is core sales, the ancillaries that come surrounding the core sales, higher contribution margins. To your specific question associated with IT spend, we haven't seen much change. Hmm. Interesting. I'd like to drill down a little bit on the shift in strategy in terms of the sales strategy. I think you called out sort of pursuing more sort of high profit deals. Unpack that a little bit for us. You just mentioned, you know, emphasizing kind of core products. Does this mean more profitable products? Are the contracts structured differently? Like, what exactly is shifting in terms of what you were pursuing, what you're going after then versus now? Yeah. Over the last several years, Ramsey, if we go back to 2019, on the backside of the Worldpay acquisition, we had talked about a pivot to growth, and we're being rewarded for growth. Between 2020 and 2021, there was really a shift towards the quantum of sales transactions, volume of TCB driving growth. What we found is that some of those solutions that we were selling just had lower contribution margins. Lower contribution margins, which forces us to do other things in the operating, in the other parts of the organization to drive enterprise-wide operating margins. What we've done in the back half of 2022 and what we've done here in the first part of 2023 is recalibrate the sales organization, recalibrate our commissioning structure, recalibrating our quota allocation processes to focus more on longer-term, SaaS-driven product sales. The longer-term, SaaS-driven long contracts, wide competitive moats, where we can drive higher incremental contribution margins, helping drive total company operating margins. As opposed to what we had been doing, which was, and you're seeing in our financials today, which is there had been growth, but also dilutive in nature as well. We're trying to get back to the roots of what FIS was, which was Software-led sales, high incremental contribution margins, high levels of cash generation, which all ultimately drives shareholder return. How difficult is the process to make that transition? Which I guess is another way of asking, is there sort of an air pocket as you pivot to these new deals, start new sales cycles, get those to fruition? Is there a little bit of a gap there? Or maybe that's not the case. How should we think about that, you know, in terms of magnitude and duration? As I think about the banking business, from a... I'm going to step out and step back and talk about the growth algorithm itself, right? There's an organic element of the banking business where we've got in-store sales growth, number of deposit accounts that are at a financial institutions, number of transactions that are running across our NYCE Network. We have got net new sales. We've got the sales element that you're talking about. There is a conversion underway to move from lower contribution margin to higher contribution margin. There's also energy being put associated with the attrition stat, right? If you think about same store sales, organic growth, net sales, which is new sales minus customer attrition, and then net pricing. There's an opportunity for us to ensure that we're getting the most out of our price, offsetting with compression as well. There's a couple ingredients to the growth algorithm that, sales is one of them, but it's not the only one. Interesting. Capital markets, from my perspective, is always probably the least well understood segment in terms of the investors. Help us think through sort of what the growth algorithm is in capital markets. You know, what should we be thinking about as driving, you know, growth there? The banking and capital markets businesses are becoming more and more similar every day. Mm-hmm. When we acquired the SunGard business in 2015, this was a license-based organization. Today, it is a SaaS-driven organization. It's not product sales, it's solution bundles as well, longer term contracts, price escalators, very sticky product sales. Over the last several years, we've held license revenue flat. The growth that we're seeing in capital markets is all recurring in nature. It's high incremental contribution margins. This is a business with very rich operating margins. They're leaning heavily into a focus around high incremental contribution margin sales, and the predominant growth algorithm is just that. It's more recurring, less one-time revenue, and we'll continue to wean off that license dependency over the next several years. Recurring revenue in capital markets is roughly 72% or 73%. In banking, it's 83% or 84%. We've got a little bit of runway till the business, till it catches up with the banking business. We feel great about what's going on in the capital markets business. Performance has been very strong over the last several years, and I'm excited about what it can continue to become. Do Are there any external exogenous factors that drive that business? If we see periods of extreme market volatility or of increased, you know, any type of, you know, external activity, is there any correlation in terms of it, whether it could be a tailwind or headwind for the business? Or is it sort of more, again, like the rest of your business, kind of keep your lights on, steady state, license per seat type of thing? Ramsey, we are moving more towards the banking-like environments. In the Q1, admittedly, I mean, a little bit of a couple stats on the capital markets business for those of you who might not follow the story. 7% organic revenue growth in the Q1. Recurring revenue growth in the Q1 was 11%. The 11%, to your point, slightly overstated because we had some market volatility in the month of March associated with what was going on in the banking macro. More and more it is recurring in nature and less volatility associated with trading or other drivers like AUA or AUM. I meant to ask this one earlier. In terms of the overall turmoil in the banking system, it's evident that it didn't have any kind of acute impact on the business. Is there any longer duration kind of impacts folks should be thinking about maybe bank consolidation or other types of, you know, impacts that may or may not materialize from the banking crisis? Or is it a non-event as far as you're concerned? So maybe a little bit of background for those in the room on the banking, the banking business and who we serve. You know, FIS really tailors up market towards larger financial institutions. As banking consolidation occurs, we believe that we're benefactors there because it's the larger regionals that should be the acquirers, the acquirees. So we think we're positioned very nicely associated with the FI market itself. And then very specifically, during the month of March, we saw an increase in new account openings, new deposit account openings. So as customers were trying to get under the FDIC limits, we saw new account openings, and once the new account is opened, you see all the ancillaries, right? You have the new deposit accounts, you've got the new deposit, the debit card, the credit card, the prepaid card, the NYCE Network, and the other ancillaries that come with opening a new account. We saw an acceleration in the month of March. The banking business outperformed our guide in the first quarter, in part due to incremental accounts on the banking side during that tail end of the quarter. You're not really indexed to kind of deposit flows at the end of the day. The sort of save-maybe savings account type flows is not really something that is, you know, that people need to keep an eye on. There's just a narrative of deposits leaving sort of small and regional banks and going to sort of larger banks. You guys index a little higher than some of your competitors in terms of the asset size institution, so maybe that's the. We do index a little bit higher, but the predominant driver for us for revenue is the number of accounts, not the value of the deposit. Right. Okay. I wanna move on to the proposed merchant spin. You know, maybe take a step back and again help us think through the rationale of that, you know, of that decision to basically hive off that business. Sure. I'm gonna bring our conversation back to the SMB discussion that we had a little bit ago. In the 2023 guide, we included roughly 300 basis points of merchant headwind associated with product gaps. For really thrive, it needs to be fed with some incremental product injections, whether it's organic investments or strategic M&A. The spin rationale is really dependent upon the capital structures of both organizations. Worldpay think, high yield, think more M&A. On the RemainCo side, think compounder, investment grade, lower leverage levels. Capital allocation philosophy is really associated with growing our dividend, share repurchase, potentially some tuck-in M&A. The predominant driver here, Ramsey, is unlocking merchant to be able to go out and drive incremental product into their portfolio. How should we think through the sort of distribution of debt or leverage in terms of the, you know, the RemainCo and the SpinCo? One question I often get is if the SpinCo comes out, you know, with some leverage on it, will that, you know, make it more difficult to execute on the strategy? Working through it right now. You know, I would hope that with our Q2 call, we're able to talk more fulsomely about the synergies as well, and leverage leverage levels. Broadly speaking, when I, when I think about the two companies, it's back to the comments that I just made, which is Worldpay, high yield, higher leverage, more focused on product investment, either organic or inorganic. Then on the RemainCo side, lower leverage, investment grade, different capital allocation philosophy. You mentioned dyssynergies. I know that you guys have called out things like commercial agreements to manage revenue dyssynergies. Is that relatively simple? Do you just basically say we continue operating kind of as is and ink a longer term agreement to protect those revenues? That's the intent. That's the intent. That's the intent. You know, if you think about synergies and dyssynergies from Worldpay, let me break this up into three individual discussion points. On the revenue side, we had talked about roughly $750 million worth of synergies. Think about this as unlocking sales channels. This is selling the loyalty Premium Payback product that sits in our banking segment to retailers. This is selling, our corporate treasury offerings and capital markets to the corporates that we have in merchant. This is selling, acquiring through our banking and capital markets channels through the, through the financial institutions. We believe that commercial agreements can solve that. The relationship between Stephanie Ferris and Charles Drucker, which is very strong, I think will help harden that and ensure that the commercial agreements are successful. On the cost side, we had talked about roughly $900 million worth of synergies, really split between $500 million of OpEx synergies and $400 million worth of below-the-line synergies. On the below-the-line items, we're gonna reconstitute a new balance sheet, new capital structure for Worldpay, which will take care of that. Then the $500 million worth of operating expense synergies, I know you didn't ask about the OpEx synergies. I was about to, so you're psychic. I would think about this as, again, a lot of work underway. We've got operating expense synergies within the business, and then we've got operating expense synergies that happen on the corporate side. You know, Charles right now is working on building out his organizational team. We're working on the entanglements associated with pulling these two organizations apart. A lot of focus associated with right now on the OpEx side. Can you leverage or are you leveraging the sort of Future Forward program to make some of the changes that we're talking about here? Should we think about that as kind of a, you know, technically sort of separate? I guess maybe you. No, I think it's, I think it's a good question. Future Forward is the initiative that FIS is running associated with, driving incremental cash improvements. The program itself includes initiatives associated with OpEx, savings. It includes programs associated with CapEx savings. It includes winding down some of the modernization programs that had been sitting in our non-GAAP add back line. It's really around driving cash. We've had a lot of success, so I'm gonna deviate and talk about this- Please for a minute. Steal it away. As we ended the first quarter, Future Forward broadly, we expect it to be at roughly $600 million at the end of 2023. We ended the Q1 with roughly $200 million worth of CapEx savings, roughly $100 million worth of operating expense run rate savings exiting the Q1, really off to a good start with Future Forward. The initiative itself, it's really taken root within the organization, like a cultural change associated with trying to drive incremental cash across the organization. As we think about operating expense dissynergies through the split, we're obviously gonna lean hard into what can we incrementally do with Future Forward to help mitigate some of those, some of those dissynergies. How should we, you know, it might be early to ask this question, but post-spin, how should we think about the sort of balance sheet strategy or the capital deployment strategy of FIS, the RemainCo? Is it the type of thing where you'll be kind of staying within those, you know, the lanes that you're in right now in terms of banking capital markets? How should we think about M&A versus, you know, returning cash to shareholders in the RemainCo, putting merchant aside for the? Yeah. RemainCo capital strategy, capital allocation philosophy, we wanna remain investment grade. We want to invest in the organization, in our product suite. There's organic and inorganic. Clearly a bent towards organic investment. We wanna continue to grow the dividend, we've got a 35% payout ratio today. I continue to expect a 35% payout ratio tomorrow. Share repurchase. The spin itself will afford the ability for us to get back towards our target leverage ratio faster, of 2.8. We're currently sitting at 3.2. From there, it's dividend growth, share repurchase, and potentially some tuck-in M&A. Okay. I meant to ask you this too. Timing, any latest thoughts on timing of the spin? You know, a lot of parts to the spin from, you know, carve out financials, a Form 10, a PLR, identifying the disentanglements associated with pulling the two organizations together. We're tracking. You know, with our Q4 call in February, we said within a year, we're tracking to the timeline we initially discussed. FedNow launching reportedly in July. What do you think about that product, that solution? Is it something that's going to have an impact? Maybe answer that in two ways, for you guys in particular, but more broadly, do you think it's something that we'll see widespread adoption or what? I think too soon to tell. I'll tell you that FIS, we've got some customers signed up in pilot. You know, we're moving forward, right now I think it's too soon to tell whether it's gonna have a meaningful impact or not. Do you see the prior launch and rollout of The Clearing House real-time payments as sort of a proxy for the level of interest in the ecosystem? Or Is FedNow like a significantly different capability? I'm not sure, Ramsey. Okay. Yeah. All right. It's kind of a loaded question. Yeah, I know. I actually- That's okay. I actually think it is. Then, really lastly, I also just wanted to get your quick read on just more broadly that, you know, what you're seeing in terms of the regulatory environment in the markets that you operate. You know, are you seeing any, you know, increased activity? Do you see any kind of potential regulatory-driven catalyst? One item, for example, is the Reg II and the addition of debit card route, the new debit card option or network option to online debit transactions. You know, there's a lot in that question, you know, regulatory environment tactically, strategically. Yeah. I'm gonna answer it very broadly. You know, regulatory changes at FIS, regulatory changes broadly, are benefit for FIS. You know, we operate predominantly an outsourced environment for our customers on the banking side and on the capital market side. Whether it was IFRS 17 or the PPP program with COVID or P-EBT, what we have found is, it's an opportunity for us to help our customers. If regulators were to reevaluate FDIC limits, we think it's an opportunity for us to help our customers. We have found over the years, it's an opportunity to not just help our customers, but it winds up manifesting itself in our P&L as well. Fantastic. Great conversation. Appreciate you being here. Thanks so much for joining us. Thanks for having me.