Fidelity National Information Services, Inc. Q3 FY2024 Earnings Call

Good day, and welcome to the FIS Third Quarter 2024 Earnings Call. At this time, all participants are in a listen-only mode. After the speaker presentation, there will be a question-and-answer session. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker, Mr. George Mihalos, Head of Investor Relations. Please go ahead, sir.

Thank you, Shereen. Good morning, everyone, and thank you for joining us today for the FIS third quarter 2024 earnings conference call. This call is being webcasted. Today's news release, corresponding presentation, and webcast are all available on our website at fisglobal.com. Joining me on the call this morning are Stephanie Ferris, our CEO and President, and James Kehoe, our CFO. Stephanie will begin the call with a strategic and operational update, followed by James, who will review our financial results. 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. Also, throughout this conference call, we will be presenting non-GAAP information, including adjusted EBITDA, adjusted net earnings, adjusted net earnings per share, and free cash flow. These are important financial performance measures for the company, but are not financial measures as defined by GAAP. Reconciliation of our non-GAAP information to the GAAP financial information is presented in our earnings release. And now, I'll turn the call over to Stephanie.

Thank you, George, and thank you everyone for joining us this morning. FIS delivered another quarter of strong results with broad-based outperformance against our financial targets, sales momentum across the enterprise, and success securing several strategic partnerships, strengthening our leading position across the money lifecycle. As our third quarter performance demonstrates, we are executing on our strategy to drive greater shareholder value. Let me share some key financial results and operational highlights with you. Adjusted revenue grew 4% in the third quarter, fueled by a strong acceleration in recurring revenue growth. Adjusted EBITDA margin of 41.3% exceeded our outlook, with both operating segments posting year-over-year margin expansion. We also continue to focus on driving high-quality recurring sales, with cross-sell activity across the enterprise up over 20% year-to-date. Adjusted EPS of $1.40 increased 13% year-over-year on a normalized basis, and we returned a total of $700 million of capital to shareholders in the third quarter across both buybacks and dividends. We also recently closed a small acquisition in the digital space, Dragonfly Technologies, as we make progress against our M&A goals. Our strong operational performance and disciplined capital allocation allow us to once again raise our outlook for 2024. Now turning to slide six. The sales momentum we saw over the first half of the year continued through the third quarter with strong execution across the entire money lifecycle. Within Money at Rest, we continue to see solid demand across core banking and digital solutions. In core banking, we've already signed more core engagements through the first three quarters of 2024 than we did in all of 2023. During the quarter, we signed new deals across all three of our core platforms: IBS, Horizon, and Modern Banking Platform. Our digital business continues to see accelerating sales momentum with new sales nearly doubling year-over-year. We look forward to further capitalizing on this momentum with our recent acquisition of Dragonfly. Dragonfly complements our Digital One portfolio, expanding our digital offerings across large financial institutions, including some of the largest regional banks, for which we already have significant relationships. The company provides banks with a full suite of solutions to meet the needs of large, complex commercial customers, including managing liquidity, combating fraud, and handling payments. Dragonfly also services a number of banks not currently using an FIS core, creating attractive cross-sell opportunities for us. Within Money in Motion, our differentiated payment offerings, particularly our loyalty solutions, had a strong sales quarter as we signed several new marquee partners. We meaningfully expanded our premium payback ecosystem with key new partnerships across a number of sectors including leading technology companies, retailers, and financial institutions. Our ability to partner with these market-leading companies underscores FIS's unique ability to unlock financial technology to the world. We continue to execute across treasury and risk with solid sales and risk management and continued product innovation, including soon to launch next generation treasury solutions in partnership with market leading AI companies. Across Money at Work, we recently launched our digital trading storefront, and we continue to see very strong double-digit growth in commercial lending. In summary, we're executing strongly across all growth vectors and are seeing continued new sales momentum across the enterprise. Now turning to slide seven. As discussed, we find several marquee client wins and secured several high-profile new partnerships during the quarter. Beginning with money at rest, we continue to see traction with banks below $10 billion in assets with a competitive win of a leading mutual bank, South Shore, who will be migrating to our IBS core. Additionally, we signed a license agreement with a leading global commercial bank in the APAC region for the modern banking platform. Digital had another strong sales quarter with a number of new engagements. One example is our expanded relationship with EverBank, a growing Southeast-based bank with nationwide deposit and lending capabilities with over $35 billion in assets that opted for our Digital One teller solution. EverBank, as I will discuss shortly, is a leading example of our cross-sell flywheel at work, as the bank is both a banking solutions and capital markets customer, opting for new solutions across both segments this past quarter. Turning to Money in Motion, our premium payback loyalty offering had a standout quarter, as we entered into new engagements with a number of leading companies across a wide spectrum of industries. Commerce Bank, a leading regional bank in the Midwest, has selected FIS to provide it with an end-to-end loyalty management platform, including leveraging our premium payback loyalty offering. We're excited Commerce Bank has selected FIS to help them differentiate their customer value proposition. We're also working with Apple to bring additional payment options to Apple Pay users. In the future, U.S. users checking out with Apple Pay online and in apps on iPhone and iPad will be able to redeem rewards for purchases across eligible participating Apple Pay issuers with FIS. In capital markets, our treasury risk solutions continue to resonate globally. In the quarter, we renewed and expanded our relationship with one of South Africa's largest financial services providers that relies on FIS's Enterprise Risk Suite to manage the risk exposure. Within Money at Work, we continued to see strong demand for our commercial lending solutions. As I mentioned earlier, EverBank, a banking solutions client, selected FIS for their commercial loan origination needs, expanding our relationship across the bank. Similarly, Beal Bank, a large U.S.-based financial institution and banking solutions client, opted for capital market's commercial loan servicing and compliance solutions. This demonstrates the unique value proposition of one FIS, servicing the most complex clients across both our banking and capital market segments. I'm also pleased to report that FIS has once again been recognized as one of the world's best companies by Time Magazine. Additionally, a number of our solutions received accolades from leading expert advisory firms and prestigious industry journals, including IDC, naming Modern Banking Platform as a leader in its recent North American digital core banking platforms report. In Chartis Research, a leading risk technology research firm, recognized FIS in its inaugural AI 50 report, highlighting AI adoption in the financial industry. These awards reaffirm our leadership position across the money life cycle. Before I turn it over to James, I want to thank all of our colleagues here at FIS for their hard work and welcome our new Dragonfly colleagues to the team. I also want to welcome our two newest board members, Nicole Anasenes and Courtney Gibson to the board. With that, James?

Thank you, Stephanie, and good morning. We are very pleased with our performance in the third quarter, as we once again exceeded our financial outlook and raised our full-year 2024 projection. Adjusted revenue growth was steady at 4% in the quarter, driven by an acceleration in recurring revenue growth. Adjusted EBITDA margin exceeded our expectations at 41.3%, with margin expansion across both operating segments, offset by a tough year-over-year comparison in corporate expenses. Adjusted EPS was $1.40 in the quarter, up 49% compared to the prior year, and increasing 13% on a normalized basis. As described in our earnings release, we made some non-cash adjustments to our previously reported financial statements, primarily reflecting an increase in the cost of revenue in the output solutions business within our banking segment. These revisions had an immaterial net impact, reducing 2022 adjusted EPS by $0.06 and 2023 adjusted EPS by $0.03. For 2024, our adjusted EPS decreased by $0.01 in each of the first two quarters. Free cash flow was not impacted by these revisions. We have provided a full set of revised financial statements in our earnings materials and we are confident that the issue has been resolved and there is no impact on the business going forward. In fact, we are raising our full-year outlook. Moving now to our balance sheet and cash flow metrics. Total debt at the end of the quarter was $10.9 billion, with a leverage ratio of 2.6 times. We returned $700 million of capital to shareholders, including share repurchases of $500 million. Year-to-date, we have repurchased $3 billion of shares and are well on track to deliver our $4 billion full-year target. Free cash flow was $530 million, with a cash conversion rate of 85%. Cash conversion was impacted by an increase in capital expenditures to 9% in the quarter. We have increased our growth investments and now expect CapEx to be closer to 9% of revenue for the full-year. Given the higher growth investments, we now expect free cash flow conversion of approximately 85% for the year. We remain confident on meeting all of our capital return commitments for 2024 and over the medium term. Turning now to our segment results on slide 10. Adjusted revenue growth was 4% with recurring revenue accelerating to 6%. Banking revenue growth of 3% came in at the higher end of our outlook. Recurring revenue accelerated to 6% in line with our expectations. Other non-recurring revenue declined 24%, reflecting a tough comparison related to pandemic relief revenue in the prior year. Lastly, professional services revenue increased 10% year-over-year, in line with our prior commentary around stabilization and second half acceleration. Adjusted EBITDA margin expanded 10 basis points reflecting cost-saving initiatives and operating leverage. Turning now to capital markets, adjusted revenue growth was 7%, led by recurring revenue growth of 6%. Excluding acquisitions, adjusted revenue grew 6%, consistent with the second quarter. Other non-recurring revenue increased 20%, with strength in license sales, and professional services increased 4%. Adjusted EBITDA margin expanded 90 basis points, reflecting operating leverage and favorable revenue mix. Consistent with prior messaging, we continue to expect full-year margin expansion across both segments. Turning now to our full-year outlook on slide 11. We are increasing the low-end of our revenue range by $20 million and the low-end of our EBITDA range by $10 million to reflect our year-to-date performance and confidence in the fourth quarter outlook. This leads to an EBITDA margin of approximately 40.7%, reflecting year-over-year margin expansion of 50 basis points. We are raising our full-year EPS outlook by $0.09 to $0.12 to $5.15 to $5.20, reflecting normalized growth of 16% to 17%. This increase is driven by operational outperformance and continued favorability in below the line items. Turning now to slide 12. Our $20 million increase to the low-end of the revenue range reflects confidence in our capital markets achieving the high-end of a 6.5% to 7% revenue growth target. For banking, we anticipate coming in closer to the lower to midpoint of the range after adjusting for the higher revenue base in 2023. We are raising the low-end of our adjusted EBITDA range, reflecting our outperformance in the third quarter, and we remain confident in achieving our increased full-year EBITDA range. We are meaningfully increasing our EPS outlook, driven by our operational outperformance and improvements across interest expense and Worldpay EMI. The interest expense favorability primarily reflects lower levels of debt outstanding given a slower-than-anticipated level of M&A activity. With that said, our acquisition pipeline remains robust and we expect to close additional deals in the near future. We are once again increasing our EMI outlook by $35 million to $480 to $495 million, primarily reflecting a delay in planned operating expense increases. In summary, we are raising our full-year adjusted EPS to $5.15 to $5.20, a 10% increase from the outlook we provided at the beginning of the year. Let's now wrap up on slide 13. We have delivered another strong quarter, accelerating our recurring revenue growth and projecting 50 basis points of margin expansion for the year. We are once again raising our 2024 EPS outlook and we returned $700 million to shareholders and are on track to meet our $4 billion of share repurchase commitment for the year. Lastly, we are confident in delivering strong returns to our shareholders over the foreseeable future. With that, operator, could you please open the line for questions?

Thank you. Our first question will come from Ramsey El-Assal with Barclays. Your line is open.

Hi, thank you very much for taking my question this morning. Can you help us think through the puts and takes for capital markets growth in Q4? The implied expectations in Q4, the year-over-year comparison gets easier. I'm just trying to back into how we get to your applied guidance? Thank you.

Yes. As we said on the prepared remarks, as we took a look at the business more recently, it had a strong Q3. Looking out, we recognized that our 6.5% to 7% full-year guidance was a little on the conservative side. That's why in the verbal commentary I said we expect to be at the high end of the 6.5% to 7%. That will result in strong both recurring and total adjusted revenue growth in the quarter. As a reminder, it's in the bag, because in both businesses we had relatively weak adjusted revenue in the prior year quarter. The total company was close to zero, and I think capital markets was up 1%. So we're very confident on this capital markets number touching 7% on the full-year.

Got it. Okay. And one more for me. On the Dragonfly acquisition, can you comment on the contribution you're expecting as we close out the year here in the fourth quarter from that deal?

Yes, it's really pretty small because the deal is basically closing as we speak. I think that number is less than $10 million of revenue in the quarter. The acquisition is probably dilutive to company margins in the initial 12 months, but we see strong synergy opportunities on both the revenue and cost side, principally on revenue. This is a great acquisition and highly strategic.

Thank you. And that will come from Tien-Tsin Huang with JP Morgan. Your line is open.

Hey, thank you. Good morning. Happy Monday. I just want to ask on visibility going into the fourth quarter in general, any changes across recurring, non-recurring in both segments? It looks like higher CapEx investments is really the only change, and any other color on that specifically? Thanks.

Tien-Tsin, maybe I'll start in terms of trends. I mean, we continue to see very stable economic trends across banking and capital markets. As James talked about our confidence in the fourth quarter guide, but generally, we see very consistent trends. Banks continue to spend. Technology continues to be one of their largest spend areas. We're not overly exposed to consumer spending; that continues to be stable. So nothing causing us concern as we think about the fourth quarter. I'll turn it over to James for the second-half of your question.

Yes, no, there's we don't see any particular concern. I'll just add on margins as well. We see a strong outlook for margins in the fourth quarter. As you saw from our prepared remarks, total year margin expansion is now at 50 basis points. We're seeing strong benefits from our cost programs and operating leverage. On capital, yes, we had two big drivers here as we were working through it over the last couple of months. One is we took select decisions to invest in the business to stimulate and continue to drive revenue growth. But then, another factor is we have some technology suppliers, who have been dramatically ramping up their prices—pretty exorbitant increases, 50%, 60%, 70%. Essentially, these companies are owned by private equity, and they're placing us in a position where we're facing high levels of inflation across some of our capital programs. We're working through this and you can be sure we will take action against it. It's put some pressure on our capital spend over the finish of the year. But I do want to emphasize this is all incredibly manageable within the free cash flow conversion. As we look forward into next year, we're pretty comfortable on cash conversion. Capital will probably remain at current levels, but we're very, very confident on any guide we provided in the past concerning return of capital to shareholders. This is temporary. Some suppliers have ratcheted up prices higher than we would find acceptable, but we just have to manage through this over the coming months.

Okay, no, very clear. Thank you both for that. Just quickly, what's driving the prior period accounting revision again and given the new baseline, should we consider any adjustments to the longer-term outlook as well? Thank you.

Yes, good question. This was first of all, I would say it's relatively immaterial. I gave you some of the numbers on the call. If you think about it, it was $0.01 in each of the first two quarters of this year. It was pretty immaterial to EPS. Two, it didn't have an impact on cash. So it was basically a non-cash adjustment. We've completely worked through this. We've resolved the issue, which was about a small output solutions business, which essentially is card production and print and mail—a very small business. And final comment is it has no impact on future operations. From the quarter, we had a solid beat in EBITDA, and we're calling up the full year on EPS, and we have good confidence in the future as well. This is very much behind us, and we're encouraged by current business results.

Thank you. And that will come from the line of Dan Dolev with Mizuho. Your line is open.

Hey, guys. Great results again. Quick question on banking, looks like growth is expected to accelerate organically in the fourth quarter. Can you maybe give us some color on how you're tracking versus different customer types? And we're hearing some chatter that you're doing really well in the down market versus the incumbent. So maybe, Stephanie, if you can elaborate on that, that would be great? Thank you.

Yes, thanks Dan. Appreciate your comments. So as James mentioned, we feel confident on banking. We're coming off a fairly easy comp from last year; we're driving some higher growth. We are pleased with the progress we're making in terms of competitiveness around core and digital in particular. We span the large financial institution market and the community bank. We don't really go below the $2 billion mark, focusing where we think our sweet spot is. We have been successful with our cores: Modern Banking Platform, IBS, and Horizon. We've made a big push to ensure that we fortify our existing customer base and pursue the banks we think we can win, and we've been really successful with that. We're continuing to keep our heads down and be very competitive there. We believe we have the best-in-class product suite across the board. So we leverage that as well as the scale of the distribution channel and feel good about where we're going. Still have work to do and will continue to focus, but feel good about the progress we've made so far.

Thank you. And that will come from the line of Jason Kupferberg with Bank of America. Your line is open.

Good morning, guys. Thanks. I wanted to start on the banking segment. I think you said you expect to be in the lower to middle part of the full-year guidance range. So I know last quarter you had talked about doing at least 5% growth in the fourth quarter for banking. Can you clarify if you're downticking a little bit there and just what you now expect for Q4 in banking and maybe what changed around the margin in the last three months? Thanks.

As we looked at the banking guide, I want to clarify that we're confirming the total company guide and we're very comfortable with that. We updated capital markets. We were doing some cleanup of the forecast because capital markets were overly conservative for the fourth quarter. Looking into banking, we had two things. When we did the accounting revision, it increased the revenue last year. There was a slight revenue impact, which pulls down our overall growth expectation by about 15 to 20 basis points. The second piece is, we've signed a lot of contracts, and we've been seeing strong traction in new signings. We've encountered some physical conversion delays to the first half of next year, but there's no impact on business as usual. The contracts remain signed, and it's just about programming them out.

Yes, the only thing I would add is that the timing is client requested. We have the resources available and are ready to go. It's more about when the clients are ready. As we get closer to the end of the year, people tend to implement freezes, so they weren't quite ready, pushing into the first half of next year.

Thank you. And we will now take questions from Jason Kupferberg with Bank of America. Your line is open.

Okay, it's actually a good segue to my second question. I know at the investor day earlier this year, you talked about banking growing 3.5% to 4.5% next year, and in 2026, and then 7.5% to 8.5% on capital markets. As we start to tune the models for 2025, what should we be considering in terms of factors that might land you more at the lower end versus the higher end, both implying acceleration versus 2024? Thank you.

We haven't changed anything regarding the commitments made at Investor Day, but we're not quite ready to provide guidance for 2025. You can see that Banking Solutions is accelerating, Capital Markets is accelerating in the second half. Those are positive data points, but we're not ready to call 2025 yet.

After the call, take a look at first-half versus second-half banking. There’s quite an acceleration both in recurring and adjusted revenue. We would feel very comfortable with the second-half growth, and we'll return to you in early February with the full-year guide. We're confident regarding growth drivers on the banking business.

Thank you. And that will come from the line of Darrin Peller with Wolfe Research. Your line is open.

Hey, thanks guys. Nice job. Just to quickly touch on M&A for a minute, I think you had talked about doing about a $1 billion for the year, and if you didn't get deals done, you would focus on returning capital to shareholders. With having done relatively little so far, maybe just give us a quick update on what you're expecting over the next couple of quarters in terms of capital versus buybacks and also remind us of the strategy you're looking for to add onto the business?

The strategy remains consistent. We're looking at small tuck-in acquisitions that can advance our growth verticals—digital payments, commercial lending, treasury, etc. We're focused on areas that have higher growth and higher margin for us. The universe continues to be fairly robust, and we think valuations are fair. We're being cautious to ensure high returns on invested capital. We've been light on acquisitions but are excited about the Dragonfly acquisition, which was about $300 million in the digital space and aligns with our revenue goals. If we don’t spend through the end of this year the $1 billion, we would consider returning it to shareholders in 2025 as share repurchase, but we won't hold cash on the balance sheet if we can't find suitable M&A transactions.

All right. That's really helpful, Stephanie. Thanks. Just to reiterate again, the acceleration in the recurring banking growth, I know comps were easy, but the trends do sound like there's some strength being seen on the core side. Can you just remind us the top drivers giving you confidence in recurring revenue on the banking side, having accelerated in the second half and arguably into the first half a bit?

In recurring revenue, organic growth in banking is driven by transactions across debit and issuer capabilities as well as accounts. We discussed this in Investor Day, expecting organic growth in the range of 3%. As we add new sales, you can see that number go up. We anticipate a better second half than the first half as that equation starts to favor us with new sales and overcoming some non-recurring headwinds.

Thank you. Your line is open, John Davis with Raymond James.

Hey, good morning, guys. Just want to circle back to CapEx. I think you said 9% this year; the medium-term guide is 7% to 8%. How should we think about CapEx over the next couple of years?

Longer term, we're confident that the business runs at 7% to 8%, probably closer to 8%, which is in line with the competitive set. It might be a bit higher due to some aggressive positions by technology providers, plus scale-up in investments. We're entering the year with more spending on digital business, and that’s one of our most strategic categories. We expect the 9% pressure to be temporary, primarily from supplier pressures. We're committed to managing cash conversion and returning capital to shareholders through dividends or share repurchases.

Yes, that’s helpful, thanks James. And then just, there's been a lot of chatter recently on international tax changes with Pillar 2. You guys are guiding to a tax rate to step down next year? Any impact for you guys, anything to call out with the tax changes?

No, based on current legislation, we see absolutely no risk to the 12 to 13 guide that we provided for the next couple of years. We have all the elements in place or are actively working on them. Our specific circumstances are well under control with strong visibility.

Thank you. And that will come from the line of Vasu Govil with KBW. Your line is open.

Hi. Thank you for taking my questions. Maybe first one for Stephanie. Core signing seems to be picking up with banks below $10 billion, and that's really great to see? I was just curious what your discussions are looking like with larger banks, and if there's a pipeline there, and if there's any catalyst on the horizon you think could drive more momentum with larger banks?

Yes, thanks, Vasu. We've been having a lot of success with our IBS core, which is focused on banks $20 billion in assets and above. It continues to be a marquee core for us. we talked about it in respect to a couple of wins today. As you get above that into regional or super-regional, we have the modern banking platform, which continues to have a large operating platform. We’re focused on various stages of implementation with several large super-regionals. There’s significant interest in the APAC region. We're seeing a lot of demand for MBP outside the U.S. and are committed to prioritizing growth there while also leveraging M&A for vertical expansion. We feel positive about the momentum on the core front.

Thank you for the color there. And just a quick follow-up on the Worldpay; the equity income there continues to outperform. Any color on what's driving that outperformance? And as we look at the base, is the 7.5% to 9.5% growth outlook in the upcoming year still the right algorithm for us to consider?

Worldpay is performing better under the direction of Charles Drucker and the GTCR team in terms of revenue growth, being stronger than expected. We're seeing positive outperformance compared to their forecast, thanks to better revenue growth. There have also been benefits from the refinancing of debt, contributing to EMI savings. Regarding growth outlook, I think it is too early to draw conclusions as we need to work through this with our Worldpay partners.

It's still early to develop a hypothesis around this, but we see no reason to be massively concerned about the 7.5% to 9.5% growth range. We'll have to collaborate closely with Worldpay to align our long-term forecasts, but the current direction suggests we can remain within that range.

Thank you. And that will come from the line of Will Nance with Goldman Sachs. Your line is open.

Hey, thanks for taking the question this morning. Nice job today. Maybe just dovetailing off that last question a little bit. I was wondering if you had any thoughts on just margin cadence next year and particularly as it relates to the TSA with Worldpay. How are you thinking about the cadence of that rolling off as well as any associated cost efficiency actions that you might take to offset that? I know you've spoken about feeling good about finding offsets, but is there anything we should be considering from a cadence perspective for next year?

We're in the direction of the margin guide we provided for the medium term, which was 40 basis points to 60 basis points. We indicated at the time we would be at the lower end due to TSA roll-offs. So we are not seeing anything placing this at risk. As you saw from our full-year guide, we're delivering 50 basis points. We have strong visibility on our cost programs. The TSAs are not under our control, but we'll manage the situation in an orderly way.

Got it, that's super helpful. And just maybe a little bit more strategically, you had the MBP win in APAC and also the South African sale that you mentioned. We've heard some chatter that you guys have just been very active recently in international. We'd love to hear about what you're most excited about and what momentum you’re seeing across international markets?

Yes, from an international standpoint, we’re experiencing success across both the capital markets and banking sectors. We're observing strong demand for our treasury risk and security products in Europe and Asia Pac. In banking, we have strong demand from international payments. We’re focusing on expanding in the capital markets and banking sectors internationally, including exploring M&A opportunities that would fuel growth.

Thank you. And now we will take a question from Timothy Chiodo with UBS. Your line is open.

Great, thank you. I want to talk a little bit about bank M&A, both recent trends and expectations ahead, with highlight on how you may benefit from acquiring more accounts on file and transactions to support growth with the larger bank customers that you serve. There’s also a minor benefit from the term fees that you receive when smaller customers up to scale. Could you touch on bank M&A in general and its impact to your business?

The bank M&A market is still fairly suppressed. We’re seeing more activity in smaller institutions. While we’re not seeing significant movement in larger institutions, there have been some larger banks paired with others, we haven’t seen extraordinary activity there. Nonetheless, we’re engaged with various customers in different sizes for M&A opportunities that allow us to solidify our standing as an integrated solutions provider.

We benefit as a net beneficiary of M&A as larger banks tend to choose us as their provider. The consolidation generally turns out to be positive for us, and we welcome it.

Thank you. And that will come from the line of David Koning with Baird. Your line is open.

Yes. Hey, guys. Nice job. I know you've answered a lot of questions about banking recurring revenue, but looking at it another way, it was up $50 million this Q3. The last couple of years was relatively flat sequentially. Was there macro, pricing, or perhaps new revenues coming out from new signings? What was different this year, and do you expect anything different in Q4? Was there anything kinda elevated in Q3?

If you look across the years, we have a transaction processing business that has some seasonality. Last year, recurring revenue was high in the fourth quarter, this year it’s high in the third quarter. It's mostly a seasonal notion based on when that transaction processing occurs. It normalizes over time, but the specific peaks may vary, and this could be subject to those variations. Last year was a strong quarter in Q4. This year, it was in Q3. So we expect this to even out annually.

We guided for a strong recurring in the third quarter and pointed to a tough Q4 on a year-on-year basis since you are lapping a strong number from last year. While there will be lower growth in Q4 compared to Q3, we expect stronger non-recurring and professional services this year, as we’re going over a weak number from the last year. It's all related to seasonal timing. We have driven growth, as you may note, approximately a 100 basis points difference between first-half and second-half recurring growth. We have managed to see acceleration as we went through the year. This guidance indicates a strong trajectory, so it becomes our job to continue this acceleration moving forward.

Thank you. And that will conclude today's program. Thank you all for participating. You may now disconnect.