Ladies and gentlemen, thank you for standing by. Welcome to the FIS Second Quarter 2016 Earnings Conference Call. As a reminder, today's conference call is being recorded. And I would now like to turn the conference over to your host, Pete Gunnlaugsson. Please go ahead.

Thank you, Lia. Good morning, everyone, and welcome to FIS' Second Quarter 2016 Earnings Conference Call. Turning to slide two, Gary Norcross, President and Chief Executive Officer, will begin with a business summary. Woody Woodall, Chief Financial Officer, will continue with the financial results for the second quarter. Today's news release and the supplemental slide presentation are available on our website at fisglobal.com. Turning to slide three, today's remarks will contain forward-looking statements. These statements are subject to risks and uncertainties as described in the press release and other filings with the SEC. The company undertakes no obligation to update any forward-looking statements, whether as a result of new information, future events, or otherwise, except as required by law. Please refer to the Safe Harbor language on the slide. Today's remarks 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 four, I will now turn the call over to Gary to discuss the business highlights in the second quarter. Gary?

Thank you, Pete. Good morning, and thank you for joining us on today's call. I'm extremely pleased to open the call today, reporting that FIS had another strong quarter, outperforming our expectations. We saw growth across both operating segments and exceeded our consolidated revenue, EBITDA and EPS targets. These results build on the positive momentum established in Q1 and characterized the first half of the year with strong profitable growth delivering outstanding shareholder returns. Our outlook for the remainder of the year remains positive. As a result, we will be increasing our guidance. Turning to slide five, second-quarter top-line growth exceeded expectations. Adjusted revenue increased more than 5% organically compared to the prior-year quarter. We continue to see EBITDA contribution from our organic revenue growth and also strong benefit from our synergy attainment to date. This resulted in EBITDA growing more than twice as fast as revenue at 13% and adjusted earnings per share rose 22%. As we reported last quarter, we remain ahead of schedule with our SunGard integration and are confident that we will exit the year with $150 million in run rate synergy. We remain on track to beat our stated end goal of $200 million. The team continues to perform well against both committed cost synergies and sales execution, which is beginning to yield results in new and existing client sales. They also have maintained a heightened level of focus on this integration with a clear line of sight to all of our targets. As highlighted previously, FIS has a proven track record of meeting or exceeding our synergy targets and based on our progress to date and proven integration processes, this trend will continue. While the markets have experienced some turmoil, FIS has continued to deliver impressive results. Our mission critical applications, which serve clients…

Thank you. Our first line we will go to is David Togut with Evercore ISI. Please go ahead.

Thanks. Good morning, and nice to see the strong results. James “Woody” Woodall: Thank you.

Thanks, David.

Could you just drill down into the Payments business? Very strong growth in the quarter, up 8.3%. Could you perhaps just elaborate on the growth you saw at NYCE? And I'm wondering if you saw any benefit from dynamic routing, which Visa called out as a headwind to their results in the quarter? And then where we are in the EMV card manufacturing cycle?

Yeah, David. We had another good quarter in NYCE. We didn't really see any impact with regards to dynamic routing. Frankly, the team is executing very well in that group across the board. Not only did our network perform well, but some of our EFT processing volumes came through nicely. We had some very nice continued mobile wallet enablement which helped drive it. And to your EMV question specifically, we now have seen consistently multiple quarters in a row with EMV providing a very nice tailwind in that business. We're still early on in the process but, as you know, in the back half of the year, we'll start getting into grow-overs over prior years' tailwinds. But that continues to be a very nice business. And frankly, we saw our volumes in the EMV actually accelerate quarter-over-quarter. James “Woody” Woodall: Yeah, to add some color, David, we issued about 8 million EMV cards in the second quarter.

Yeah. James “Woody” Woodall: That would get us to about 14 million cards year-to-date in 2016. That would compare to about 10 million cards we issued for the full year in 2015. So certainly a tailwind for us...

In EMV. James “Woody” Woodall: In EMV. Certainly a tailwind for us in terms of the payment revenue growth.

What percentage of your customer base has now issued chip cards?

We're still very early in the process. We're seeing it primarily in credit. We've not seen it move over into the debit platforms as aggressively yet. We're in that 20% to 30% range of cards being issued at this point in time.

Understood. And then, the Institutional, Wholesale business was particularly strong in the quarter, up 5.4%. Since that is principally SunGard, could you drill down into the drivers of that growth in a little more detail and perhaps address recent bookings performance and sustainability of growth?

Yeah. The team has done an extremely nice job. We highlighted a number of the wins in my prepared remarks when you look at the Credit Suisse deal, for example, in the post-trade Derivatives Utility, we continue to see continued interest there. Licensing revenues were continued to be strong, not only in renewals but also new sales really coming across the board in all of the categories. I would say the team has really come together very nicely through the integration process. We've made some changes in the go-to-market strategy under Marianne Brown's leadership and that's starting to show results in the market as well. So, really, it wasn't any one specific area. It was just good solid production across the spectrum.

Got it. And then, just finally on Brazil, which continued to be strong despite the deep recession in that country, could you talk about the drivers of growth going into the back half of this year and 2017 and your ability to sustain double-digit growth in Brazil? James “Woody” Woodall: Yes. We talked about earlier, our largest customer in Brazil about a card portfolio. We've been working on transitioning and converting that card portfolio over. We've been seeing revenue growth associated with those conversion services. We anticipate that portfolio to convert in the third quarter and start to see revenue from that. So, very good visibility into that growth into third and fourth quarter and we believe we'll sustain that double-digit growth, David, into 2017. Still believe the macroeconomic environment in Brazil is not getting better at this point, so a little more cautious on 2017 growth at this point, but we haven't gone through the planning process yet and again, feel very good about where we're at for 2016 and the double-digit growth in Brazil.

Thank you very much.

Thank you.

Our next question is from Dave Koning with Baird. Please go ahead.

Hey, guys. Great job on revenue.

Hey, Dave. Thanks. James “Woody” Woodall: Thanks, Dave.

Yeah. And, I guess, first of all, just on SunGard, maybe you could just talk a little bit about on a standalone basis, the total SunGard revenue pool how much that grew. And then how much do you think FIS – just being part of FIS now might be helping. It just sounds like you've signed a lot of new deals. Like is that just all SunGard or do you think being part of FIS is helping?

Yeah, Dave, what we've seen traditionally when FIS does these large acquisitions obviously as we pull them together and perform our integration playbook and actually implement some of our go-to-market strategies, we do see that the combination helps accelerate revenues. Frankly, as you know, SunGard was primarily – had been under private equity ownership for 10 years. So, I talked about on earlier calls how the clients are actually relieved seeing where SunGard landed under a publicly traded company focused on financial services. And so I do think we're seeing some lift with that. Overall, the overall SunGard business performed very well, even on a combined basis. We've referenced Institutional Wholesale, which was over 5% but even on a combined basis, this is more than 4% organic. James “Woody” Woodall: Yeah, Dave, if you look at SunGard as if it stood alone, it's about 4%, which is similar to last quarter. Basically, you've got a stronger Institutional and Wholesale growth partially offset by a little slower growth in corporate liquidity, but right in line, if not ahead of our expectations.

Exactly. James “Woody” Woodall: Yeah.

Okay. Great. And then, I guess, my second question, just on GFS, you called out the Banking and Payments segment having a little bit of a tougher comp in Q2. Does that basically mean that that has an easier comp the rest of the year? We know Consulting has a much easier comp in Q3 and then even more in Q4. Does that just mean that – like how much better – if Global Financial was 3% growth this quarter, does that mean the rest of the year it's more like 5% or better? James “Woody” Woodall: I will tell you that specifically in Banking and Payments we had a large license in Q2 last year that didn't recur. If you normalize for that license, Banking and Payments would've been in the 3.5% growth, Dave, and that would have put overall GFS growth at about 4%. We believe that's a normal number for where we're at right now and then we would anticipate, to your point, the Consulting group having easier comps in the back half of the year. So still comfortable in that mid-term guidance range, but it'll be a little better, we believe, than the 3% from this quarter.

Okay. Great. Thanks. Nice job.

Thanks, Dave.

Next is the line of Darrin Peller with Barclays. Please go ahead.

Great. Thanks, guys. Let me just start off again as a follow up on SunGard, again, it's growing well. Just a little update on what you think is any type of surprise to the upside versus what you initially anticipated being a 3% to 4% grower. It's certainly coming in stronger, I think. And then maybe give us more color around the progress on synergies in terms of what's actually been recognized so far. And any further color on timing? The comment you made, Woody, just a moment ago around third quarter having a lower synergy number and the fourth quarter having a higher. Just what – maybe some more detail, what's going on there? And then just as a follow up on that topic, the margin expansion in GFS, how much of that was driven by synergies versus organic? James “Woody” Woodall: A lot of questions there, Darrin. Let me try to answer...

Oh, really? James “Woody” Woodall: One at a time. If you look at the SunGard growth itself, we talked about it being about 3% to 4% grower. If you carve SunGard out of the various segments, it was at the high end of that at about 4%. So, again, higher growth in Institutional, Wholesale, a little lower growth in the corporate treasury and liquidity business. So that's the first item there. With regard to synergies, we originally talked about $100 million as our target. In the first quarter, we talked about it being about a $0.02 to $0.03 expectation and us beating that by about $0.01, or about $0.04 in the first quarter. I will tell you the second quarter was close to that $0.04 number, exiting the second quarter at a little over $100 million in run rate synergies.

Great. James “Woody” Woodall: What you've got is some of the first phase items that we've gotten out relatively quickly and are seeing the benefit of that. Then you'll go into a second phase that will see more of the benefit of that into the fourth quarter. That's the biggest delta in the terms of the synergy delta between third and fourth quarter. The other item in the third quarter, again, was really around incentive accruals. We're having a better year this year and our incentive accruals are accordingly a little higher than normal levels. That, coupled with last year, we reversed incentive accruals, which gave a lift in operating expenses that we don't expect to recur and are creating a difficult comp in the third quarter. So, a combination of those two factors are really what you're seeing in that third to fourth quarter shift.

And then just the margin expansion. When I look at the GFS-driven margin upside, I guess, can you help us understand how much of that actually came from the synergies here versus just organic mix shift, maybe IP-related revenue? James “Woody” Woodall: You've got a combination of it, right? The synergies are clearly driving some of that margin expansion. The faster growth in the higher margin IP-led solutions is also driving a portion of that growth. Haven't really given math on the breakout between those, but you could probably do some math if you bust those synergies out that I just described.

Yeah, the bottom line is, Darrin, the SunGard acquisition is performing better than we expected, right? I mean, the...

Yep.

The product sales are coming in very strong. Frankly, the synergy and integration, we're ahead on the playbook at this point in time and continue to see that continuing through the rest of this year.

Yeah, it's good to see. On Capco, you mentioned that results were in line with expectations. Can you just really comment on trends again and whether you see that – I know comps get easier in the second half but any type of acceleration beyond just easier comps? I mean, is it new deals? Could that have actually been flowing on or will flow on in the second half of the year?

Well, yeah. Now we've talked a lot about Capco in past quarters. The team is doing an excellent job transforming that business. We really have pushed back into more transformational thought leadership-type consulting engagements. Our book-to-bill continues to be very high. So, are we onboarding new clients? All of the time. And we're refilling that. As you mentioned, the back half of the year, we do have easier comps. We'll see that growth rate accelerate. As we talked about in the last quarter, we intentionally will – we don't expect that our Consulting business to accelerate growth much beyond the overall GFS growth rate...

Yeah.

Historically. But the team has done an excellent job and continues to bring on new business with all this uncertainty and oftentimes that drives consulting engagements for us. So we're certainly available to help our clients as they deal through all these changes.

Okay. Last question for me is just on the sale of the business you had talked about, the Public Sector business. Any update on that in terms of progress or demand? James “Woody” Woodall: I think we've talked about continually looking at the portfolio and always being open to take non-strategic assets and monetize those assets to reduce the debt that we have on the balance sheet right now. That business has performed well – 6% growth on the second quarter, 6%-plus growth year-to-date. Expanding margins, so it's performed well, but that's the extent of the update right now.

Okay, guys. All right. Nice job. Thanks.

Thank you.

Next we go to the line of Andrew Jeffrey with SunTrust. Please go ahead.

Hi. Good morning, guys. Thanks for taking the question.

Good morning.

When I take a look at your IFS business, you obviously had a great quarter here. I'm wondering if you can speak a little bit to the competitive environment in particular and whether or not you see, for example, a distinction between relatively larger banks and your win rates there versus relatively smaller banks. In other words, is the market bifurcating at all between you and your competitors in North America? Is that one way to think about your success?

Well, Andrew, we've talked about it a number of times. First, I mean, the U.S. market is an extremely competitive market, right? We see a lot of competition from a lot of different providers in the space. We have also talked about in past quarters, to your point, as you move upmarket and I even referenced in my prepared remarks another large $16 billion community bank making the decision to roll all of not only our core processing across the full enterprise but surrounding that with FIS Channel Solutions across the board. So, I do believe you're seeing a clear differentiation as you move upmarket. As you get greater than $10 billion, you start seeing FIS take on a true significant leadership role in that space. But the team continues to compete very effectively across all the community and regional banks. But at the end of the day, it's a very competitive market. We know we have to serve our clients and be their champions each and every day and continue to drive the business and we're seeing the results of that through our sales team and our ability to deliver.

Okay. And is there a difference in the pace of outsourcing in your view as it relates to asset size or that sort of second tier, so maybe below the super regionals, below the top 15 but above say the top 50? Are those institutions perhaps outsourcing in more of a structural or quicker way? Is there any difference in the pace of spend?

I would tell you, we've been talking for years now about the pace of outsourcing in the small community banks across North America and, as you know, that's going to continue. But I would state that we are seeing an acceleration in outsourcing as you move upmarket. We highlighted the Credit Suisse situation in the post-trade side outsourcing all of that capabilities to our Utility. You see a number of other institutions when I highlighted that $16 billion institution on an outsource basis. So the reality is the larger institutions are accelerating. They're looking for ways to take cost out. They're looking for ways to accelerate their deployment of solutions to compete across the spectrum and that's just going to naturally drive the outsourcing. We also continue to see that accelerate in the global markets. Frankly, we saw the India ATM deal a couple of years ago. We highlighted that as really the first significant step for outsourcing in that country. We now highlighted three brand new institutions coming on to our full capabilities. That's all on an outsource basis. So we're seeing outsourcing accelerate definitely across the globe.

Okay. And one more quick one, if I may. Can you just speak to how accelerated payments, real-time settlement, for example of bill payment and perhaps other types of payments might influence your IFS organic growth going forward? I'm thinking about 2017 and beyond perhaps.

Well, we certainly see it as a big opportunity. Frankly, we bought the Clear2Pay acquisition in many ways because it was ahead of where the market was with regards to real-time payments. But like everything, we'll continue to monitor that and settle into that market but we think it'll be a good opportunity for us going forward.

Thank you very much.

And next we go to the line of Brett Huff with Stephens. Please go ahead.

Good morning, and congrats on the results, guys.

Thanks, Brett. James “Woody” Woodall: Thanks, Brett.

Can you just reiterate what you said about the GFS growth rate? I think you said – it came in at 3%. But you said ex a large license deal in the Payments business there, it would've been more like 4%. Is that what I heard, right, Woody? James “Woody” Woodall: That is correct, Brett. And I'll try to give you the color. The Banking and Payments, which is about flat 0.5%...

Yep. James “Woody” Woodall: Normalize that, it would have been about 3.5%. So below what we want it to be longer term obviously, but clearly better than flat. But you heard that exactly right.

Okay. And then, as we look forward, thanks for the help in the 3Q/4Q split. Can we just go over the things we need to be aware of as we think about the 3Q and 4Q? I know the comps on Capco get easier. I know that the IFS, I think, comps get a little bit harder. Just remind us of sort of those tailwinds/headwinds kind of in a macro view if you could. James “Woody” Woodall: Yeah. I'll give you a few bullets. You're exactly right. The comps in IFS get more difficult. We don't anticipate this level of growth from the IFS group in the back half of the year, but we would anticipate to be higher than the midpoint of our mid-term revenue guidance. Higher than the 4.5% midpoint of the guidance that we gave. We also have a flattening, if you will, of synergies. We would expect the same level of synergies in Q3, an accelerated level of synergies in Q4 based on the timing of activities that we have going right now. The third item that we talked about was the third quarter having a more and more difficult comp related to incentive accruals. Last year we reduced incentive accruals significantly. In fact, took them to zero as of the end of the third quarter. This year we're performing better and incentive accruals are higher than a 100% right now. Those are the three big items that you see in there. As we look to understand SunGard better and better too, you're seeing a little bit more seasonality as we flow between the third and the fourth quarter as they have a higher level of revenue and renewal growth in the fourth quarter than originally anticipated. Those are your four big items, Brett, to look at. Net-net again about $0.06 below expectations compared to the market consensus for the third quarter, increasing about $0.06 compared to market expectations in the fourth quarter. In the full year, I think you guys are at about $3.80 on a consensus basis, which is midpoint of the updated guidance.

Okay. That's helpful. And then the second question is anything we need to think about in terms of big bank M&A benefit or loss to you all? I think one of the things you mentioned, a big bank win was your system being rolled out to a piece of M&A that another bank did. That's obviously a positive. Anymore positives or negatives on that front as any super-regionals or some of your clients buy and sell items?

We've talked about this, Brett, in the past. M&A is very hard to predict. You're exactly right. The scenario you just rolled out is exactly what happened. But what was interesting is we were able to cross-sell and up-sell a lot of our digital channels around that. So that was just a nice win overall. Frankly, the best indicator that we can point to is really term fees. We talked about on a number of calls how those term fees have continued to stair step down in our business. This quarter our term fees were certainly at a normalized rate of what we've seen traditionally. And so at this point in time we've not really seen, so far through the first half of the year, any significant impact of M&A on FIS. But we'll continue to monitor it and certainly as our clients do some buying, we'll make sure that we try to take advantage of that through cross-selling and upselling.

Great. Last question for me. Woody or Gary, I think you both – maybe both mentioned that Capco, you could see some of that business increase or a piece of that business, because of bank CEOs needing some help as they think about Brexit. Can you remind us what happened to those pieces of business in Capco during the last recession just to give us a sense of is history going to repeat itself here in terms of demand there? James “Woody” Woodall: Yeah, I think it's uncertain at this point, Brett, in terms of what Brexit may mean for Capco. I think it would be the sort of tip of the spear in terms of what may happen there. To date we haven't seen any pullback in consulting engagements or any losses. In fact, a lot of conversation about what this may mean on a go-forward basis. I think the other thought on Brexit specifically would be, we anticipate it's going to take a couple years at least for things to sort themselves out. Again, traditionally we've seen upside. The more difficult time we saw with Capco was in the fourth quarter of last year, we saw a 10% decline. We don't anticipate anything like that given the nature of the consulting engagements and then refocusing on the more boutique and strategic consulting versus the larger projects. So, I feel good about it. Again, easier comp in the back half of the year for the Consulting business but we don't anticipate a lot of growth out of it this year. We talked about it being mid-single digit. So, again, aligning about where we expect it to the first half of the year.

Frankly, Brett, the team is doing just an excellent job and certainly exceeding our expectations. They are already generating a number of thought leadership pieces on Brexit, helping our clients think through it. If anything, as I said in my prepared remarks, change typically drives opportunity for us and based on what we've seen through the first half of the year, the team will execute against that.

Great. Thank you, guys. James “Woody” Woodall: Thanks, Brett.

And next question is from the line of Tien-Tsin Huang from JPMorgan. Please go ahead.

Thank you. Good results. Just a follow through on that on the Brexit side, so is the uncertainty really limited to Consulting or do you think it eventually could impact revenue bookings conversion or new sales performance because I could also argue that it could help outsourcing at some point in the next one or two years.

No, no. We agree, Tien-Tsin. I think that's what we think if anything – and we are seeing it, right? We highlighted Credit Suisse, we've highlighted a number of others. We are seeing these larger institutions starting to move more and more towards outsourcing because frankly, they've got to get their costs out and they've got to get into a more leveraged capability. And if anything, we think that could help create that opportunity. We continue to see some softness in discretionary spend around people-based services, but when you get to true outsourcing with our intellectual property wrapped in it, we think it could actually be an opportunity to play out over the next couple years.

Okay. So we'll watch the Consulting side, makes sense. And then, did you quantify sort of the new sales or the bookings performance in the quarter? And I'm also just curious, generally speaking, how revenue realization or bookings conversions is performing versus plan. James “Woody” Woodall: We didn't really give a number around bookings. Sales were solid in the quarter. I would tell you, Tien-Tsin, we've got very good visibility into the third quarter for the Consulting group. As you know, we don't have as long a line of sight but we've got good visibility into the third quarter with a little less in the fourth, which is very normal and natural. Yeah.

Good to know. Last one, just the free cash flow was really high this quarter. Any call-outs for third quarter or fourth quarter and how that might behave? James “Woody” Woodall: We were very pleased with cash flow this year. We have been very focused as a team in trying to improve collections, drive costs out and generate free cash flow to make sure we can pay the debt down. I would say we would anticipate continuing to see it and outpace sort of adjusted net earnings this year.

Okay. So this is still at a premium. All right. Good stuff. Thanks.

and Ladies and gentlemen, we have time for one last question. It's the line of Ashwin Shirvaikar with Citi. Please go ahead. Ashwin, your line is open. Sir, do you have your phone on mute? And there is no response.

We can move on then, will you please? We will go to closing remarks.

Very good.

Thank you.

Well, thank you for joining us today and for your questions and continued interest in FIS. Clients are reacting well to our expanded value proposition and the ability to serve the breadth and depth of their needs. Our deep focus in investment and financial services is allowing us to drive change and competitive differentiation for our clients and across the industry in an environment of increasingly strenuous regulatory challenge and market uncertainty. I'd like to thank our loyal clients who depend on us and trust us to keep their businesses running every day. I'd also like to thank our leaders and our more than 55,000 employees for their hard work and commitment to our client champion promise. It is because of our clients and employees that FIS continues to empower the financial world. Thank you for joining us today.

Ladies and gentlemen, this conference is available for replay after 11:00 a.m. Eastern Time today through August 9 at midnight. You may access the digitized replay service at any time by dialing 1-800-475-6701 and enter the access code of 397459. International participants may dial 320-365-3844. Those numbers once again are 1-800-475-6701 and 320-365-3844 with the access code of 397459. That does conclude your conference for today. Thank you for your participation. You may now disconnect.