Fidelity National Information Services, Inc. Q1 FY2021 Earnings Call

Good morning, ladies and gentlemen, and welcome to the FIS First Quarter 2021 Earnings Call. As a reminder, this conference call is being recorded. I would now like to turn the conference over to your host, Nate Rozof, Corporate Finance and Investor Relations.

Good morning, and thank you for joining us today for the FIS First Quarter 2021 Earnings Conference Call.

Thank you, Nate. Good morning, and thank you for joining us. We achieved a very strong start to the year, exceeding our expectations across the board in the first quarter. As shown on Slide 5, we realized accelerating revenue growth, exceptionally strong new sales and significantly expanded margins across all our operating segments. Our Worldpay revenue synergies are also accelerating through increased cross-selling as well as ramping volumes on prior synergistic sales. As a result, we are increasing our 2021 and 2022 revenue synergy targets to $600 million and $700 million, respectively. During the quarter, we leveraged our continually strong free cash flow to begin buying back stock, fund our increased dividend and make strategic investments in intriguing new companies that are accelerating new capabilities and pushing the boundaries of financial technology. I’m also pleased to share that we divested our remaining minority position in Capco in April, netting a very positive return for our shareholders in over $350 million in proceeds for our remaining stake.

Thanks, Gary, and thank you, all, for joining us today. Starting on Slide 11, I will begin with our first quarter results, which exceeded our expectations across all metrics to generate an adjusted EPS of $1.30 per share. On a consolidated basis, revenue increased by 5% in the quarter to $3.2 billion, driven by better-than-expected performances in each of our operating segments. Adjusted EBITDA margins expanded by 10 basis points to 41%. Strong contribution margins and synergy achievement within each of our segments more than offset increased corporate expenses from unwinding last year’s COVID-related cost actions. We continue to make excellent progress on synergies, exiting the quarter at $300 million in run rate revenue synergies, an increase of 50% over the fourth quarter’s $200 million, accelerating revenue synergy attainment driven primarily by ongoing traction and ramping volumes within our bank referral and ISV partner channels as well as cross-sell wins related to our new solutions and geographic expansion. Given our progress to date and robust pipeline, we’re increasing our revenue synergy target for 2021 by 50% or $200 million to $600 million; and for 2022 by $150 million to $700 million. Our achievement of cost synergies has also been very successful. We have doubled our initial cost synergy target of $400 million, exiting the quarter with more than $800 million in total cost synergies. This includes approximately $425 million in operating expense synergies. Our backlog increased mid-single digits again this quarter as strong new sales more than offset our recognition of revenue in the quarter. Turning to Slide 12 to review our segment GAAP and organic results. As a reminder, the only difference between GAAP and organic revenue growth for our operating segments this quarter is the impact of currency. Our Banking segment accelerated to 7% on a GAAP basis or 6% organically, up from 5% growth last quarter. These strong results were driven primarily by ramping revenues from our recent large bank wins, recurring revenue and issuer growth. Our issuing business grew by 10% in the quarter, driven primarily by revenue growth from PaymentsOne, increased network volumes and economic stimulus. We expect both of these tailwinds to continue, driving accelerated growth into the second quarter in support of our outlook for mid- to high-single-digit organic revenue growth for the full year. Capital Markets increased by 5% in the quarter or 3% organically, reflecting strong sales execution and growing recurring revenue. The Capital Markets team is driving a fast start program for the beginning of 2021 and appears to be trending toward the higher end of our low to mid-single-digit organic growth outlook for the year. In Merchant, we saw a nice rebound, with growth of 3% in the quarter or 1% organically, accelerating 10 points sequentially as compared to the fourth quarter. Merchant’s first-quarter performance was driven primarily by strength in North America and e-commerce, including significantly ramping volumes on our new acquiring platform. COVID impacts on travel and airlines as well as continued lockdowns in the U.K. drove a 5-point headwind in the first quarter. Slide 13 shows the significant ramp in volumes and revenue that the Merchant business generated throughout the quarter. Importantly, as volumes rebounded, yields grew significantly. We ultimately exited the quarter generating approximately 70% revenue growth during the last week of March, including 5 percentage points of positive yield contribution. We expect this positive revenue yield tailwind to continue to expand in the second quarter and continue throughout the remainder of the year. Based on March exit rates and second quarter comparisons, we expect merchant organic revenue growth of 30% to 35% in the second quarter. The expanding investments we are making in merchant technology platforms and global sales execution will yield long-term benefits for our clients and significant new wins for our business. As Gary highlighted, we are very pleased with the execution of our segments. With accelerating revenue growth and strong new sales, each of them are winning market share. Turning to Slide 14. We returned approximately $650 million to shareholders in the quarter through our increased dividend and share repurchases. Starting in March, we bought back approximately 2.8 million shares at an average price of $143 per share. Beyond this return of capital, we also successfully refinanced a portion of our higher interest rate bonds, which extended our average duration by a year and lower expected interest expense for the year by about $60 million to approximately $230 million. Total debt decreased to $19.4 billion for a leverage ratio of 3.6x exiting the quarter, and we remain on track to end the year below 3x leverage. Turning to Slide 15. I’m pleased to be able to raise our full-year guidance so early in the year based on our strong first-quarter results and second-quarter outlook. For the second quarter, we expect organic revenue growth to continue to accelerate to a range of 13% to 14%, consistent with revenue of $3.365 billion to $3.39 billion. As a result of the high contribution margins in our business, we expect adjusted EBITDA margin to expand by more than 400 basis points to approximately 44%. This will result in adjusted EPS of $1.52 to $1.55 per share. For the full year, we now anticipate revenue of $13.65 billion to $13.75 billion or an increase of $100 million at the midpoint as compared to our prior guidance driven primarily by accelerating revenue synergies. We continue to expect to generate adjusted EBITDA margins of approximately 45%, equating to an EBITDA range of $6.075 billion to $6.175 billion. With our improved outlook, successful refinancing and share repurchase to date, we are increasing our adjusted EPS guidance to $6.35 to $6.55 per share, representing year-over-year growth of 16% to 20% and an increase of $0.15 at the midpoint above our prior guidance. By all measures, this was a great quarter for FIS. The investments we’re making in driving strong new sales are driving strong new sales and accelerating our revenue growth profile. As a result, we remain confident in meeting or exceeding our increased outlook for 2021. I would like to thank our colleagues for their ongoing effort to drive FIS forward and to empower our clients to succeed.

Your first question is from the line of Dave Koning with Baird.

Yes. Congrats on the momentum.

Thanks, Dave.

Thanks, Dave.

And I guess, first of all, the banking wins continue to be really, really good. And I’m just wondering, how do we think about the lag from the strong signings to hitting revenue? You’re already getting a lot of momentum from previous wins. But it seems like your pace is so much stronger now than before even. Does the current wins really help 2022 and beyond or already in the back half? Or how do we think about that? And then is this high single digits a year from now revenue?

Yes, we are very confident in what we're seeing on the sales front. Bruce and his team are doing an excellent job driving sales and bringing numerous new capabilities to the market. Our modern banking platform has been very successful, which makes us confident that these onboardings will continue to accelerate our growth throughout 2021 and into 2022. It's important to note that nearly all of these sales are highly SaaS-enabled solutions in our cloud. As growth and demand increase and new capabilities are introduced, you will see our revenue growth continue to accelerate. We are very pleased with the performance of the banking segment. We have made significant investments in banking over the past several years, including new products, data center consolidation, and cloud enablement, and we are now witnessing the results in the market.

All right. And then I guess just as a follow-up, in the Merchant segment, Q1, I was just looking at the revenue, it was about 103% of Q1 of '19. And I guess I’m wondering, Q2, when you say 30% to 35% growth, do you mean excluding the tax shift last year? Because if that’s right, then Q2, there’s momentum to a higher percentage of revenue relative to Q2 of '19. I just want to make sure that 30% to 35%, what the base revenue is for that.

Yes. Within the 30% to 35%, Dave, you’re right, the tax shift is probably 3 to 4 points of benefit in there. Certainly, we saw April volumes in excess of the 30% to 35%. So we’re trending well there. Obviously, where we’re at, we feel like we’re getting our hands around our ability to project into the future. But there’s still a little bit of uncertainty there. So we feel very confident in the guide that we gave for Q2 that we can meet or exceed that guide. And that’s how we think about the 30% to 35%.

So is the growth of 30% to 35% compared to Q2 last year? Because that would place you slightly below the 103% from two years ago. Is there a reason for that?

Yes, it’s off the Q2 number from last year. As we’ve talked about, we’ve got about 3 to 4 points of benefit from that tax shift from last year. And then we’re seeing very good results into April, and we wanted to make sure we produced a guide that we could meet or exceed, Dave.

Your next question is from the line of Ashwin Shirvaikar with Citi.

Great quarter. I also want to go back to sort of the steady drumbeat of large bank wins that you had and ask sort of is the sales cycle shrinking now as prospects realize that they must act with urgency? Can you give us some insight into what these deal discussions look like maybe?

Yes, Ashwin, I’ll let Bruce take that one.

Good morning, Ashwin. When we think about the sales cycle, what I would say is that the actual sales cycle that we have is relatively consistent on the days in the sales cycle to close. What I would say has changed a little bit is that the mindset and the view of where the market’s moving towards. And so you’re seeing a lot more people pre-sales cycle kind of making those determinations on their own, and that’s really accelerating the whole process for us. And so I think you’ll continue to see this. Our pipeline is very robust around this area and look forward to continuing to see this accelerate as we move forward.

Got it, Bruce. So the second question is on Merchant Solutions. Obviously, you guys mentioned here some strength incrementally going into April. Would that also include the UK given the high rate of vaccinations over there? Is that market opening up and sort of what the sequential benefit of that might perhaps incrementally look like, if you could break that down?

Yes. We’re certainly seeing volume growth coming back. April’s benefit was about 40% or so in terms of total transaction and volume growth that we saw, which is in excess of the 30% to 35%. The blend of that, obviously, is a little higher internationally, actually. So as you see some of the openings happening, we believe international and the U.K. will actually be an incremental benefit in Q2 compared to the U.S. But obviously, as restrictions and reopenings continue to move forward, we’re seeing very strong growth across both U.S. and international operations and expectations.

The next question is from the line of George Mihalos with Cowen.

Congrats on some very solid results here.

Thanks, George.

Thank you.

Of course. I just wanted to delve in a little bit on the dynamic between the revenue growth and the volume growth, which, again, you’re sort of getting that positive mix shift on the yield. Just looking at that delta, exiting March, I’m just curious, you had some, obviously, underperforming verticals. That benefit in April, is that really being driven by verticals like hospitality coming back? And just curious how much of a contribution or how much of an improvement are you seeing in, say, a vertical like travel that has been under a lot of duress since 2020?

Yes. Travel overall continues to be in duress, still down around 60%. But what we are seeing is retail and restaurants, for example, opening back up. We’re seeing the yield dynamics that we talked about being a tailwind for us continuing into the second quarter and believe will be a tailwind for the full year. We anticipate volumes for the full year to be roughly high single digit to low double digit. And obviously, we’ve guided to revenue growth of mid to high teens. So you’re seeing yield dynamics that will benefit the entire year. The exit rate of plus 5% in the last week of March. The April, what we’ve seen so far, and our expectations for Q2 would be higher, obviously, than that 5% positive yield. And we think that trend will continue over the course of the year.

Okay. Great. So it sounds, again, like that travel benefit is still very much ahead of you. You really haven’t seen much of any benefit in April. Just as a quick follow-up as it relates to sort of the debit processing business. Just curious, the DOJ suit against Visa, has that changed any of the dynamics for you guys as it relates to NICE and those sort of products? Or is it sort of business as usual from a competitive standpoint?

Yes. For us, it’s been business as usual from a competitive standpoint at this point. Our issuing business performed extremely well, with an increase of 10%. I mentioned in my prepared remarks the growth we’re seeing through our PaymentsOne platform and NICE network. The team has effectively presented our value proposition. Therefore, we are continuing to compete in the market and gain market share.

Your next question is from the line of Darrin Peller with Wolfe Research.

Nice job on the quarter. When we look at that spread, just to follow up on the revenue and volume print in Merchant, is there any way to give us a sense of what the normalized spread could be going forward longer term, especially with this new mix that we’re seeing with more digital, more e-com? And I guess on that note, I didn’t see a data point on e-com growth specifically this quarter or what it was into April even relative to that very strong rebound or maybe just comment on e-com, integrated some of the other specific channels in Merchant.

Yes. I think if you go back historically, you would see roughly about 3 points of benefit from revenue yield over volume historically. I think once everything normalizes out, let’s call that 2022-2023, we would anticipate to continue to see some of that traditional yield over volume dynamic continue as we continue to provide capabilities in market. If you look at e-com itself, e-com growth in the first quarter excluding travel and airlines was about 45%; and inclusive of travel and air, was about 25%. So very strong growth in e-com, very good sales. I think Gary mentioned about 80 wins in the quarter. We’re seeing a lot of momentum in that area right now.

Yes, Darrin. I mean, the team has done a great job of just retooling the whole go-to-market. Obviously, we had some big programs that we had to get completed with the Worldpay integration, the NAP completion and migrations completely behind us. When you look at everything we’re doing on the gateway and fully launched, and you see how quickly our new gateway is ramping up and with the changes Bruce and his team have made in the go-to-market, I mean, we had great sales not only in e-com, but I mean, we had great sales across our integrated channels, our banking channels, our large enterprise and feel really great about what that’s going to do as far as accelerating revenue growth in that Merchant channel.

That's great to hear. We've received positive feedback on Access Worldpay as well. Regarding the banking successes, I'd like to follow up on your significant investments in engineering and skills for implementing large contracts. With new contracts like BMO now in place, what are your expectations for the onboarding timeline? Has that improved compared to last year? Also, is it easier to scale the incremental margin for these new contracts?

We've discussed this extensively before, Darrin. The timeline for implementation primarily hinges on the complexity of the day 1 launch. Many of our new customers are starting with new capabilities or products right from the beginning, which can lead to rapid acceleration in their launch. The positive aspect is that once these solutions are live, they will allow for the introduction of additional products in the retail bank's deposit sector, followed by lending, as previously mentioned. When considering these significant wins, it’s not just about the initial revenue from the day 1 launch but also how that revenue will grow in the coming years, which is a source of excitement for us. However, the overall complexity of the day 1 launch still somewhat influences the implementation timeline. Our team has done an exceptional job in automating these new technologies. In the past, certain processes could take weeks or months, but now they can be completed in days or even hours thanks to automation and the establishment of new environments. These investments in cutting-edge technologies have truly set us apart in the market. As Bruce noted earlier, we are beginning to see demand grow from clients who recognize the need to change. They realize that embracing the cloud and cloud-native technologies is essential to remain competitive and adjust their cost structures to compete with emerging disruptors. This positions us very well, particularly in the large bank sector.

Yes. I would like to add to Gary’s comment regarding Darrin’s question about the investment. We have modernized our technology infrastructure and focused on our applications, resulting in a range of award-winning platforms, with MBP being one of them. Now, our team is shifting its focus to accelerate our business processes. For instance, when it comes to code deployment, 95% of our deployments are now automated, a significant improvement compared to a couple of years ago. The team is dedicated to increasing speed and driving revenue as we onboard new clients.

Your next question is from the line of David Togut with Evercore ISI.

Good to see the guidance increase and the strong bookings growth.

Thanks, David.

Yes. Looking at the second half for Merchant Solutions, can you talk through your expectations for U.K. reopening since heritage Worldpay was almost 100% U.K.-based? And also the return of travel and airline in the back half of this year?

Yes. Even when considering the second quarter, we expect that the reopening in the U.K. will contribute to the 30% to 35% growth, and our outlook for international growth, which includes the U.K., is positive, especially in the second quarter. For the rest of the year, we anticipate some improvement in travel and airline sectors. However, we believe that this will still fall short compared to 2019 levels and we do not expect a full recovery until sometime in 2022. We have already experienced a significant amount of travel and airline activity this quarter, and we will face more of that in the second quarter. I genuinely think we will see a return to more normal levels, but that is likely to happen in 2022.

Got it. Is most of that travel primarily domestic, or is there also a significant amount of cross-border travel?

There’s a good portion of cross-border in there, and that’s particularly where the higher yields are.

Got it. Just a quick final question. In Capital Markets Solutions, the 3% revenue growth is against your toughest compare since you were up 7%, I believe, in Q1 of 2020. So there seems like there might be some upward potential on the guide, the low- to mid-single-digit organic as the compares get easier and you roll on some of the new bookings. Is that an accurate read?

A couple of thoughts there. They have got off to a fast start program. So we saw a little bit of some second-quarter activity pulled into the first quarter. We were pleased with that. Beyond that, we do anticipate second quarter to still being in the low to mid-single digits and then the remainder of the year, third and fourth quarter to pace mid-single digits or higher, David, getting us to sort of the higher end of that low to mid-single-digit guide we talked about in my prepared remarks but feel very good about acceleration into the back half of the year this year.

Your next question is from the line of Jason Kupferberg with the Bank of America.

Woody, I just wanted to pick up on your comment that you guys are expecting high single-digit to low double-digit volume growth in the Merchant segment this year. And I guess if I just look at the first 4 months of the year, just trying to piece together the math from the slide in the deck as well as your comments on April, it seems like you’re up maybe about 17% through the first 4 months of the year. So just the high single to low double, especially with some easy comps still ahead of you seems potentially conservative. So I just wanted to check that math and see if you’re just simply taking a prudent approach early in the year in terms of the full-year forecast.

I think that’s right, Jason. It’s difficult to forecast volumes for the full year in the first quarter particularly in the backdrop that we’re working in. The real comment was around we believe we’ll continue to see positive revenue yield over the course of the year. And then the volumes will be what the volumes are, ultimately. But we’re certainly seeing that improvement. The revenue yield trend that was a headwind last year will be a tailwind the entire year this year and just gives us confidence in our mid- to high-teens revenue growth even this early in the year.

Okay. One of the metrics that really got my attention was that the e-com sales being up 2x year-over-year. And I’m wondering if there’s a material contribution to Merchant revenue growth this year from those sales. Or is that more of a 2022 event?

Yes. This is Bruce. The team has done a phenomenal job, really kind of accelerating our sales process around that. You can see the e-com business as a whole continues to accelerate. I think when we look at this year, we see growth from our historic CAGR of our growth rate to where we’re going to be this year. So we feel that, that will contribute a little bit this year and into ‘22.

Your next question is from the line of Ramsey El-Assal with Barclays.

It's great to see the outperformance this quarter. I wanted to ask about the full-year guidance raise. It seems you've increased full-year revenue synergies by approximately $200 million, but the overall revenue guidance midpoint has only been raised by about $100 million. I'm curious about your thoughts on the contribution from core this year compared to revenues and that guidance raise. It seems a bit conservative to me, but I wanted to check if there are any specific points regarding the contribution from those two sources.

Considering the additional $200 million we raised today, it is expected to increase throughout the year. Our estimate for the in-year impact, specifically from revenue synergies, is likely between $60 million and $75 million. Additionally, we are experiencing strong operating performance that has contributed to adjusting our guidance. This has allowed us to raise the lower end of the range while increasing the upper end as well, resulting in a midpoint adjustment to $100 million as you mentioned. The revenue synergies will develop throughout the year, with an anticipated in-year contribution of approximately $60 million to $75 million, leaning towards the higher end of that range.

Got it. Okay. So the ramp is the differential there. I also wanted to ask about the crypto banking effort, which I think is really fascinating. And could you comment a little bit on the demand environment there in terms of your clients looking to offer those types of services? And also maybe comment on whether you are contemplating offering acceptance of crypto on the merchant side of your business at some point.

Yes, that's a great question about crypto. As we examine the situation, it's clear that there is significant demand in the market, with strong interest from our institutions as they seek to cater to their customers' needs. We believe this offering is promising within an emerging asset class. We're confident in our ability to lead the market in providing these services. In Gary’s comments, we touched on our strong position in the acquiring space related to crypto. We have made a strong start in promoting crypto acceptance, and we anticipate that this will continue to drive growth for us throughout the year.

Yes, Ramsey, just to build on that. I mean, to be real clear, we’ve seen crypto really move into an asset class, right, which is really, really a lot around investment, et cetera. And so the team has done a great job, I think, of positioning it. They’ll offer it to our financial institutions, and we’ve had, as Bruce just mentioned, a lot of demand there. And then whether it moves truly to a point of presentment currency, that remains to be seen. But to Bruce’s point, it’s just been a home run with these exchanges and where we’re acquiring and converting other currencies into crypto, and it’s really been a nice job by the team of identifying an emerging market and taking advantage of it, and as we highlighted today, finding hyper growth because of it.

Your next question is from the line of Lisa Ellis with Matt Nathanson.

I wanted to follow up on the comment on international expansion, the 9 new countries since the close of the Worldpay acquisition. That was one of the biggest synergies originally from the deal. Can you just elaborate a little bit more on your progress there, kind of what’s involved, what’s going well, less well than you expected, what’s sort of involved and what type of revenue growth or contribution you’re anticipating? How meaningful is this likely to be now over the next year or 2?

Yes, I’ll start off and let my colleagues join in. As we mentioned during the deal a couple of years ago, geographic expansion has been a key part of our strategy. It’s always been essential for us to enhance our growth rate and follow our clients globally, which we are actively doing as we increase our presence in these markets. One notable achievement by the team is their collaboration across the organization, particularly with our risk and legal teams, to develop a comprehensive plan for entering these markets. Therefore, I expect our geographic expansion to continue, significantly contributing to our growth acceleration. Regarding our Merchant business, historical data shows that our organic growth is indeed picking up as we look ahead to 2021 and 2022.

Yes. I’ll just build on a little bit, Lisa. I mean when you look at our raise on the revenue synergies with the Worldpay integration, you see the significant contribution that all of our strategies are producing. And as you mentioned, at the start of this, we really felt confident that, with the combination of Worldpay, FIS’ expertise in these global countries could allow us to expand quite rapidly, and I think you’re seeing that. And when you look at where we are just even on the e-com business and our new sales, our ability to launch in these new countries, bring e-commerce capabilities as a day 1 stepping point and think about our global nature of our clients in e-com, we talked about on multiple calls the enterprise nature of those customers, they’re seeing that as an opportunity because now we’re opening up new markets for them. And then as they open up those new markets as well, we capture that volume. So it’s really a win-win combination of us absolutely penetrating into those markets but also taking our global companies on an e-com basis into that, and as they grow, we grow. So, it’s certainly a contributor to our revenue synergies. And as you see, we’re raising that again on this call. So feel really good about how all this is coming together.

Okay, yes, good. I have a quick follow-up regarding RealNet, the network of networks for real-time payments, which is quite exciting. Can you describe in more detail what RealNet will enable you to do that hasn't been possible before or how it differs from what others can offer in terms of global money movement?

Yes. Lisa. Thank you. I was hoping someone was going to ask, so. So really excited about this as we look at kind of new opportunities and kind of adjacent markets, things that we really want to expand and grow on. When I look at RealNet, I think of it more in the construct of kind of payments orchestration. So it allows us to really connect different networks, different payment rails on a global basis. And I think this is something that we’re going to be very excited. So, whether it’s connecting to central banks’ real-time payment infrastructures, from country to country to card networks, to different delivery mechanisms for payments, we feel there’s really a need there and an opportunity for us to step in and orchestrate payments in the most optimal way for our clients. And so we’re very excited about this. We think that the use cases are going to be really substantial as we move forward. And I think our team, as you know, has been involved in kind of real-time payments, certainly over the last decade. And we have a lot of expertise in here. But bringing really that concept of payments orchestration to a network of networks is really unique and an exciting opportunity for the company.

Our next question is from the line of Dan Dolev with Mizuho.

Guys, great results.

Thanks, Dan.

Thanks, Dan.

So really quickly, you mentioned April volumes, I think, 40%. Can you maybe give us some sense of the revenue trends in April? And then I have a follow-up.

Yes. We hadn’t closed out April from a revenue perspective here is the first of May. But I would think they’re going to continue to flow higher, obviously, than the volume profile. We’re seeing good yield dynamics over the course of April. It will flow all the way through into the second quarter where we think yield dynamics will significantly outpace volumes for the second quarter for sure. But that’s how we’ve been thinking about it. The yield dynamics continue to flow in excess and the overall volume dynamics continue to be robust through April.

Great. And then maybe just to touch on that, what is kind of the yield assumption embedded in the second quarter guidance?

Yes. I think we’re looking at double-digit yield assumption in the second quarter guide compared to volume.

As a positive yield.

Your next question is from the line of Craig Maurer with Autonomous Research.

Wanted to ask about the gaming space in the U.S. We’re seeing a significant ramp in approvals, states legalizing it. I know Vantiv digital entertainment historically has had a very strong position in that market. So I was curious how you see growth evolving in the domestic market there and how you see the legacy product or what might be a new product comping against what seemed to be at least 2 notable new entrants into the domestic space?

Yes. So the gaming space is, as you said, it’s one we’ve played in historically and done very well in. And we continue to see that opportunity in front of us is a very good opportunity. When we look at the things that we’re doing around our platform, whether it be the Access Worldpay, we feel that we’re positioned very well. What I would say is the gaming market, as everyone knows, and you alluded to in your question, it has come along slower and it is finally starting to kind of accelerate here domestically. We have a great gaming business internationally. We have a lot of assets to bear there. And so I think we’re prepared well to compete and compete very well here domestically as it starts to unfold.

Your next question is from the line of Jamie Friedman with Susquehanna.

Great results here. Gary, I was wondering if you might share any view on bank IT budgets for 2021. Is that not how you look at it? Do you see rising end demand? Or are you kind of making your own weather?

I believe it's a mix of factors. We're benefiting from increased demand, particularly in digital enablement, self-service, and modernization. This positions us strongly in the upper bank market. While we're observing some consolidation at the lower end, we find ourselves in a favorable position there as well. We're witnessing an uptick in IT spending as businesses emerge from the pandemic, particularly directed towards the areas where we've invested, such as cloud-native technology. For example, PaymentsOne has seen success, onboarding around 300 new financial institutions in the past year. Similarly, Digital One is gaining traction with customer movement and the NYDIG arrangement. Our monitoring banking platform has also achieved size and scale. Overall, we're strategically positioned to benefit from increased spending, as it aligns with our investments over the last three to four years. We feel we have excellent timing in the market and are optimistic about our position.

Your next question is from Kartik Mehta with the North Coaster Research.

Gary and Woody, I would like to hear your thoughts on the Merchant business and FIS overall. You made significant progress in 2020, and I’m curious about the company's margin profile as we emerge from the pandemic. How does this compare to your initial expectations given all the changes you've implemented?

No, I’d say no, not directly. We anticipated to be able to drive really good margins all the way back to the Worldpay combination inclusive of synergies and operating leverage within the business. I think that’s proving out. It’s really around getting our volumes back and continuing to execute on that long-term strategy. So we feel really good about the margin profile and our ability to continue to drive margins on a go-forward basis through operating leverage and new capabilities. So, I wouldn’t say it’s a significant change.

Yes. That’s where I was going to go. I mean not only we’re going to hit exactly what we thought or even exceed that with regards to the combination. I mean, the team is doing a very nice job of now moving into the next round. Bruce talked earlier about how much faster we’re moving, and it’s really all through automation. So as you think about the next chapter of where we’re taking technology, we’re now taking advantage of all those historical investments. So our ability to expand margins even further in the coming years, we’re very comfortable with. And we talked about that on the last call, about pushing our margins even higher in 2022 and beyond just due to all these other automation and AI-type utilizations and new technology. So we feel really good about the positioning and the outcomes.

It seems like the company is really well positioned to drive margins higher. And then just one last question. Have you seen a change at all in the competitive nature on the Merchant side? I didn’t know if the pandemic had created maybe a more competitive environment or if the environment is about the same.

Yes. If I can jump in there. What I would say is the merchant space, over the course of the history, has always been a very, very competitive space. Just like our banking space, just like capital markets. So what I would say that has kind of emerged has been that pandemic has created a catalyst, if you will, an accelerant to the marketplace. And as we look at it, we look at the subsegments that have kind of emerged within the merchant vertical, and there are people that have emerged in those subsegments and are competitive in those subsegments. We play exceptionally well in the enterprise commerce space. That’s the large-scale complex stuff that Gary talked about just a moment ago, that is multi-country type transactions. We’re playing exceptionally well and very, very competitive in those spaces. There are some of these subsegments that historically, we hadn’t played in that have emerged. And now we’re looking at them, and we view those as TAM expansion opportunities for us. And so we’re very excited about moving into some of these and being competitive and playing in these markets.

Your final question is from the line of Tien-Tsin Huang with JP Morgan.

I know you’ve covered a lot already. I wanted to ask about the Merchant side. Now that you have a new acquiring platform and have completed the NAP migration, I'm curious if that allows you to adjust your sales approach and perhaps be more aggressive or alter your go-to-market strategy. At least from what we've heard, there's significant merchant activity or interest in consolidating vendors. I would love to get your perspective on this.

Yes. I’ll let Bruce elaborate on this. Tien-Tsin, I believe it certainly enables us to be more proactive. We had significant initiatives to complete during the Worldpay integration, such as finalizing the NAP acquiring platform and migrating all clients. Bruce mentioned the success of Access Worldpay, and I echoed that as well, and we’re beginning to see that reflected in our sales efforts. In fact, due to the strong demand we’re experiencing, we mentioned that we plan to add 300 more salespeople focused on the merchant business. This indicates both the demand we’re encountering and our confidence in our ability to compete and gain market share. We have seen positive results in recent quarters, not just in Q1 but also in the ramp-up during Q4. I believe that many large enterprise merchants are increasingly choosing to consolidate their services with single providers. Given our capabilities, including ease of access, multicurrency support, and multi-country functionality, all offered on a unified and modern platform, we feel very optimistic about our position.

Yes. The point I would just kind of underscore there that Gary brought out is as the market continues to mature around commerce and having a broad solution set, we play very well in that space. And it’s really a strength for us. So the market is really moving towards us. And so we think there is going to be an acceleration in the sales motion there.

It’s a great opportunity. It’s always a great question. We always look at it very hard. As you know, mergers and acquisitions will always be an important part of our strategy to help drive scale and new capabilities, and we’ve discussed this on every call. Our appetite hasn’t really changed since last quarter. We still believe properties are quite expensive in the market. We are experiencing great success organically with our sales engine. Woody pointed out the amount of stock buybacks we executed in the first quarter. We still think our stock price is undervalued. Therefore, we believe the best company to buy right now is ourselves. However, we will keep an eye on the market and look for opportunities that can bring us new capabilities or that make sense financially, with the right timing and cultural alignment. If we can find that, we would still be open to pursuing some M&A. But my perspective on it hasn’t really changed since the first quarter, and you will continue to see us focus on paying down our debt, increasing our dividend, and buying back shares, all while investing in transformation as we move into our growth curve. Thank you. And I want to provide some closing thoughts as we end the call. We are emerging from the pandemic with an even stronger competitive position than when we entered it. Our ongoing commitment to growth and innovation is unwavering, and we will continue to enhance our value proposition by continuous modernization of our platforms and delivering new capabilities to the market. Our achievements and success are built on the dedication and hard work of our colleagues, clients, and communities. We rely on these key stakeholders to continue advancing commerce in the financial world. Together, we will win as one team and deliver on our commitments. In closing, I’d like to thank you for your investment in FIS, and our colleagues who are delivering value to our clients each and every day. We appreciate your support. If you have any further questions that were not addressed on this call, then please contact our Investor Relations team. Thank you. Stay safe and goodbye.

Ladies and gentlemen, this concludes today’s conference. Thank you for your participation. You may all disconnect.