Fidelity National Information Services, Inc. Q1 FY2025 Earnings Call

Thank you for joining us for the FIS First Quarter 2025 Earnings Call. All lines are on mute to minimize background noise. After the speakers finish their remarks, we will have a question-and-answer session. I would now like to hand the call over to George Mihalos, Head of Investor Relations. Please go ahead.

Thank you, John. Good morning, everyone. Thank you for joining us today for the FIS first quarter 2025 earnings conference call. The call is being webcast. Today's earnings release, corresponding presentation, and webcast are all available on our website, fisglobal.com. On the call with me this morning are Stephanie Ferris, our CEO and president; and James Kehoe, our CFO. Stephanie will lead the call with a strategic and operational update, and James will review our financial results. Turning to Slide 3. Today's remarks will contain forward-looking statements. These statements are subject to risks and uncertainties as described in the press release and other filings with the SEC. The company undertakes no obligation to update any forward-looking statements, whether as a result of new information, future events, or otherwise, except as required by law. Please refer to the safe harbor language. Also, throughout today's call, we will be presenting non-GAAP information, including adjusted EBITDA, adjusted net earnings, adjusted net earnings per share, and adjusted free cash flow. These are important financial performance measures for the company, but are not financial measures as defined by GAAP. Reconciliation of our non-GAAP information to the GAAP financial information is presented in our earnings release. And with that, I'll turn the call over to Stephanie.

Thank you, George, and thank you everyone for joining us. I'm pleased to report that 2025 is off to a strong start. Our laser focus on driving commercial excellence across the enterprise, while simplifying and strengthening our portfolio, is delivering results for our shareholders. Our durable business model is underpinned by high levels of recurring revenue, and this allows us to deliver consistent financial results across all economic cycles. In the recently announced strategic acquisition of a global payments issuer business and the sale of our minority Worldpay stake will strengthen our value propositions to clients while further strengthening our financial profile. In the first quarter, we delivered adjusted revenue growth of 4%, ahead of expectations. Recurring revenue growth accelerated meaningfully from 2% last quarter to 4%. We expect to see continued strength over the course of the year as signed deals continue to be implemented on schedule. The three client requested delays that we mentioned on our last quarter call are all live, and we have not seen any negative impacts from macro factors. First quarter adjusted EBITDA was at the high end of our outlook, while free cash flow conversion exceeded 70%, a very strong start, giving us confidence in delivering on our full-year outlook. Adjusted EPS grew 11% to $1.21 at the upper end of our outlook, and we returned $670 million to shareholders across share repurchases and dividends. Our solid start to the year and strong execution leaves us confident in reaffirming our full-year outlook. Now let's turn to Slide 6 for a discussion on new wins and our leading position in the markets we serve. During the first quarter, we signed several new marquee engagements across the money life cycle, and we are seeing momentum building in the second quarter, beginning with money at rest. On the heels of a record year for core wins in 2024, we continue to see strong demand for our core solutions and are expecting another year of solid sales. I'm pleased to announce that our IBS core was selected by a leading East Coast commercial bank with over $15 billion in assets as part of an evaluation following an acquisition. After a highly competitive process, the bank's management team selected FIS for their complex needs as a growing financial institution. This win demonstrates how we are well positioned to capitalize on consolidation given our skew towards larger banks and a stronger product set. This is a positive proof point of our strong competitive positioning and much improved retention rates. We anticipate momentum and core wins to continue in the second quarter with an active pipeline of opportunities we expect to close. Our digital solutions continue to gain traction in the market. During the first quarter, a Midwest Community Bank with over $15 billion in assets selected our digital one product to help the bank transform its branch teller technology. The win represents another competitive takeaway for our digital capabilities, which were also recognized by Celent for market momentum and support in their recent reports. Moving to money in motion, where our office of the CFO capabilities are resonating with a broad range of clients. During the quarter, we expanded our relationship with a leading multinational engineering and technology firm. The company selected FIS's award-winning treasury management solution to assist it with its cash and risk management needs. The company also selected several of our payment solutions, including our payments hub, a connectivity solution that helps corporates centralize, standardize, and process payments quickly and at scale. This is a prime example of how the office of the CFO is expanding our addressable market beyond traditional financial institutions to corporates. We are encouraged by the market reception to our office of the CFO offerings and are well on track to meet our sales goal for the year. Moving to money at work, we continue to expand our presence in adjacent growth vectors such as private equity and private capital. In the first quarter, Atlas SP, a global investment management firm specializing in private credit, selected our commercial lending solution to help manage its servicing needs on complex loans and investor reporting requirements. The win is a competitive takeaway and represents our first direct lender client for our commercial lending solution. Turning to more traditional capital markets activity, our derivatives processing solution was selected by a premier buy-side firm looking to expand its self-clearing capabilities. We continue to see a trend of buy-side firms adopting self-clearing capabilities and are encouraged by the prospects of our derivatives clearing solution. Now turning to Slide 7 for a quick review of our recent milestone transaction. On April 17th, we announced two transactions that accelerate the strategic repositioning of our portfolio. First, we entered into an agreement to sell our 45% stake in Worldpay to global payments for $6.6 billion in pre-tax value. The sale price represents a premium to the valuation FIS received when it sold its majority stake in 2024 and accelerates the monetization of Worldpay versus pursuing an IPO. Second, we announced the acquisition of the Issuer Solutions business for a net enterprise value of $12 billion, including a $1.5 billion tax benefit. As a reminder, the transactions are expected to close simultaneously in the first half of 2026. The acquisition of the Issuer Solutions business and the sale of our Worldpay stake strengthens our strategic and financial position. Issuer Solutions complements our existing banking solutions product suite with best-in-class credit processing capabilities at scale and enhances our value proposition to large banks and corporates, unlocking greater cross-sale potential across existing clients. The acquisition is also financially attractive. The transaction is accretive in the first 12 months to adjusted EPS, EBITDA margins, and adjusted free cash flow with greater benefits longer term as synergy targets are achieved. It strengthens our financial profile and provides us with greater recurring revenue. And lastly, the transaction allows us to monetize a non-strategic asset and replace it with a growing stream of durable revenue and strong free cash flow. We look forward to closing the transactions and are excited to be partnering with Global Payments going forward. We're confident the transactions will represent a significant win for all companies involved, and with that, I'll turn it over to James for a review of our first quarter financials.

Thank you, Stephanie, and good morning. I'll begin on Slide 9 with an overview of our first quarter results, which we previewed on April 17th. We had a great start to the year with adjusted revenue growth of 4%, exceeding the high end of our outlook. We delivered upside from both operating segments, further increasing our confidence in meeting our full-year outlook. Adjusted EBITDA came in close to the high end of our outlook at $958 million, leading to an EBITDA margin of 37.8% in the quarter. Adjusted EPS was $1.21, and it was also near the high end of our outlook with year-over-year growth of 11%. Cash conversion improved significantly as we rolled out working capital initiatives and lapped a weak prior year. Free cash flow was $368 million in the quarter compared to $95 million last year with a cash conversion rate of 71% compared to 18% in the prior year. As a reminder, the first quarter is historically a lower conversion quarter, so we are off to a strong start on our full-year target of 82% to 85%. Capital expenditures were $233 million in the quarter, or 9% of revenue, consistent with our full-year expectation, and we exited the quarter at our target leverage of 2.8 times. Lastly, we returned $670 million to shareholders, including $450 million of share repurchases, putting us well on track to meeting our $1.2 billion annual target for share repurchases. In summary, a great start to the year with strong execution across all key metrics. Turning now to our segment results on Slide 10. Adjusted and recurring revenue growth was 4% with recurring revenue at 81% of total revenue. We continue to emphasize growth in this durable, high-margin revenue stream. Banking grew 2% in the quarter, coming in ahead of the high end of our outlook. Recurring revenue growth outpaced adjusted revenue growth at 3% in the quarter. Non-recurring revenue increased 3% as the anticipated 2 percentage point headwind from termination and license fees was offset by stronger performance from our card production business. Professional services declined 5% as we successfully concluded some large projects at year-end. As Stephanie discussed, client implementations are on track, and we expect accelerating professional services growth over the course of the year. Banking EBITDA margin contracted to 40.1%, reflecting high license and termination fees from last year and the timing of operating expenses. Turning now to capital markets, where we had another strong quarter. Adjusted revenue growth came in ahead of the high end of our outlook at 9% with recurring revenue growth of 6%. Non-recurring revenue advanced 47% as the team delivered a strong license quarter, including outsized renewal timing. Professional services declined 5% year-over-year, reflecting the completion of some project work and is expected to return to growth in the second quarter. Adjusted EBITDA margin expanded 90 basis points, reflecting strong growth in high-margin license revenue and continued favorable operating leverage. Moving now to our outlook on Slide 11. As messaged on our April 17th call, we are reaffirming our outlook for the full year, and we are not changing any of our key assumptions. Implementations are ramping on schedule, and we have good line of sight into the 150 basis points of incremental banking growth that is tied to commercial excellence. For the second quarter, we anticipate adjusted revenue growth of 4.2% to 5%. We are targeting banking revenue growth of 3.7% to 4.4%, consistent with our commentary on the fourth quarter call and in line with our full-year outlook. This acceleration will be underpinned by strong and accelerating recurring revenue growth. For capital markets, we expect adjusted revenue growth of 6% to 6.7%, and combined with a strong first quarter, this puts our first half growth modestly ahead of our full year outlook. We are projecting sequential margin improvement of approximately 200 basis points to around 39.8% to 40% in the second quarter. For the year, we anticipate continued sequential marginal improvement over the remaining quarters as we progress to our full-year target of 41.3%. We are projecting adjusted EPS of $1.34 to $1.38 with EPS growth ranging from 0% to 3%. The result is held back by two items with a combined negative impact of approximately 5 points of growth. Firstly, we are lapping a sizable one-time rollover in interest income as we opportunistically invested Worldpay proceeds last year. Secondly, we are facing a tough year-on-year comparison on EMI. Worldpay had a very strong performance last year, including a slower-than-planned buildup of standalone operating expenses. Consistent with prior quarters, we have provided our detailed assumptions in the appendix. Let's now wrap up on Slide 12. In summary, our first quarter results were above expectations, with strong starts on both revenue growth and cash conversion. We are on track for accelerating growth from our banking segment beginning in the second quarter, and we are reaffirming our full-year outlook with total shareholder return of 11% to 13%. Capital returns were $670 million in the quarter, putting us on schedule for our $2 billion annual capital return target. And lastly, we announced a significant transformation of our financial profile, replacing our non-cash minority interest in Worldpay with a durable cash-generating asset in Issuer Solutions. With that, operator, could you please open the line for questions?

Ladies and gentlemen, we will now begin the question-and-answer session. Your first question comes from Tien-Tsin Huang with JP Morgan. Please go ahead.

Good morning, everyone. Thank you for the update. I wanted to follow up on what Stephanie mentioned about the timely conversions related to the three delayed deals that have gone live. It seems like there aren't any issues with decision delays. I'm interested in hearing what other feedback you have regarding decision-making, pipeline rebuilding, and any client insights that might be relevant to the Issuer Solutions business.

Thank you, Tien-Tsin. A few points to highlight: as we mentioned earlier, the client conversions were rolled out in the first and second quarters, and I’m pleased to report that they are all live, contributing positively to our banking revenue projections for both the second quarter and the full year. Everything is progressing as anticipated, with perhaps even some positive momentum. Regarding the overall client pipeline, one of the advantages of FIS is the high recurring spend that is necessary regardless of economic conditions, so we haven’t observed any reduction in client spending. In fact, our pipeline is significantly increasing compared to last year. We are optimistic about the pipeline and are monitoring it closely in light of tariff and economic factors. This resilience is a key strength of FIS, as the required spending is durable and essential, rather than discretionary. On the TSYS front, I must say the client response has been exceedingly positive. We undertook thorough diligence on the TSYS business and are familiar with their team from our long-standing presence in the market. While we did not compete directly with them, they have established a strong brand. Feedback from their clients, many of whom are also ours, indicates substantial commitments to their high-quality product offerings and customer service. We also found little value in merging merchant acquiring with TSYS, which aligns with our focus on serving financial institutions and that specific solution set, as this customer base typically doesn’t seek merchant acquiring services. Overall, the outlook is very encouraging.

Great. It's just a quick follow-up. I know I've had it before on this call before, Stephanie, but just any updated thoughts on Capital One, Discover that's moving a little bit more forward.

No, I mean, I think they had some really positive news. It sounds like it's moving forward. We have a great partnership with them. We had a great partnership with Discover, so we see nothing but positives with them and continue to support them in everything they want to do. It's nice to see them get through their hurdles and get to the other side of it. We think it's going to be a great combination.

Your next question comes from the line of John Davis with Raymond James. Please go ahead.

Hey, good morning, guys. Just wanted to drill in a little bit to 2Q guide for capital markets, a little bit of a de-sell. You do have a little bit of a tougher comp; anything else to call out recurring, non-recurring, anything else that would be helpful.

Yeah, so I think when you think about second quarter, it really is a first quarter, second quarter. If you look at our first quarter results for capital markets, they had a very high non-recurring benefit in the first quarter from a renewal. So, that was a timing-related benefit in the first quarter. We saw their recurring revenue first quarter to second quarter is very consistent, and then the license and the renewal activity goes back to more of a normalized situation. They were benefiting in the first quarter from that. And so you see our second quarter guide being very consistent with the first quarter, excluding that renewal timing.

Okay, great. And then just thinking about the banking segment on a pro forma basis, can you help us, what percentage of that banking segment will now be the combined debit issuing business that you have plus TSYS and just maybe a rough sense of what is kind of an account on file versus a per transaction fee just so we can get a sense of any sort of cyclicality with the slowdown from a macro perspective.

Well, those are great questions, John. I don't think I have all that at my fingertips. I think you heard this morning from the TSYS guys on their call that they are seeing consistent and strong account on file growth, and they even had positive spend, positive transaction growth and still a little bit of muted commercial. From our side of the house, debit, just like you would expect from a consumer spend standpoint, we're seeing consumer spend on debit continuing to be consistent with what you're hearing from everybody else. We don't see a slowdown; it's also a very resilient part of the business for us. We're seeing very strong debit transaction growth. Our credit portfolio is not very big, but we aren't seeing any slowdown there. So, hopefully, that's helpful. I don't have the numbers in front of me in terms of accounts on file or transactions.

Yes, the only thing we highlighted on the call was just we're adding 2.5 billion to a banking business; this roughly 7, so the scale in banking goes up by I think it's about 35%, so it's a 9.4 billion of revenue. Then, we said that overall, it's additive to margins by about 80 basis points. We didn't give any specifics here, except that we did point out their strong position in the market, and they have, I think the beauty of that business, the average tenure of the clients is 25 years, so it's highly durable revenue, which is very consistent with our core banking business. So, 80% recurring revenue with margins in the low to mid-40s.

Yeah, I think the other thing is it supports what we said at Investor Day in terms of the ability to continue to grow payments in a very large scale and durable way, so debit and credit, and it also gives us an opportunity with clients to do more bundling as we think about the cross-sell whether we have debit and they have credit, or they have credit and we have debit, which is pretty significant.

Your next question comes from the line of Dan Dolev with Mizuho. Please go ahead.

Hey guys, great results there, really nice to see that. Stephanie, can you maybe give us a sense of how you're feeling about the Worldpay EMI outlook and how revenue growth has been tracking relative to your expectations.

Thanks, Dan. The Worldpay EMI outlook remains very steady year-over-year, consistent with our forecasts. We're not observing any signs of weakness there. In fact, we believe that there is strong growth potential, and we're always optimistic about outperformance, but we have not received any negative indications regarding the EMI outlook; it aligns well with the information they've shared with us. Regarding revenue growth, which was also mentioned earlier on the call, we are very encouraged by the acceleration in Worldpay's revenue last year. Separating that business was clearly the correct choice, and with the return of Charles and a renewed focus on growth and investment, they've successfully revitalized that area. We’re seeing revenue growth in the fourth quarter and continuing into the first quarter. They face the usual challenges like everyone else with Easter and leap day, but their revenue growth remains on track with the market, and they are optimistic about their trajectory—moving from low single-digit growth back up to mid to upper growth rates. We feel very positive about their performance; they are highly committed to execution, and we believe this will be a valuable asset for Global Payments.

Thank you. And just as a quick follow-up, can you give us a sense of the EBITDA margin cadence given the timing of the investments in the first quarter?

For Worldpay?

Yeah.

The EBITDA margin cadence for Worldpay. I don't think we externally talk about that. I think all we can show you technically is revenue and EMI. You would expect though that they are making investments in the business. They had some benefits in EMI you saw last year, because the investments were a little bit slower to get started. They're fully ramping those, so no change from what we've said historically.

Your next question comes from the line of Ramsey El-Assal with Barclays. Please go ahead.

Hi, this is Ryan for Ramsey. Thank you for answering our question today. As we consider the pro forma business, what do you see as the easiest opportunities for cost synergies, and any insights on the timeline for realizing these synergies would be helpful.

Sure, maybe I'll take the types of cost synergies and I'll default over to James in terms of rate, but I think what we shared was, we think the biggest amount of cost synergies and just as a reminder, we talked about $125 million, would be rationalizing duplicate vendor costs. So, when you think about bringing the both card businesses together, whether it's debit or credit, we use the same set of vendors. Think about vendors like technology, software, fraud vendors, etc. So, we think there's quite a bit there. You would expect us to pull those very quickly. We also anticipate back office optimization. So, when you think about whether you're producing a debit card or a credit card, we have consistent card production capabilities, we have print and mail capabilities, those can be optimized. You can imagine that the TSYS side is bigger than our side, but we don't need all of them. And so you would expect us to have back office optimization there. And then to the extent we have operational capabilities that we think we can bring together and quite frankly use the TSYS expertise, because it's much larger than ours on the credit side, we think we could see opportunities there. In terms of cost synergies, you should expect to see us get out of the gate very quickly with those. They're obviously the lower hanging fruit, and so we will use the time frame between now and signing to get very organized around that. I don't know that what cadence James we gave a view towards revenue and EBITDA synergy?

What we said was if you look at total synergies of $150 million, we said split it evenly over year 2 and year 3, while we will get some cost synergies in the first year. We will have some TSYS from Global in the first period, so we'll get our arms around it, but as Stephanie said, we'll go really quickly on cost synergies. I think the upside is bigger than the $150 million longer term. What we did say on the call was that only included $45 million of revenue synergies up in the first 3 years, but we did highlight a long-term potential on revenue synergies of $125 million, so that $150 million will build as you look further out in the period. But take a 50/50 over year 2 and year 3, and you won't be too far along.

Great. Thanks. That's all for me. Congrats on the quarter.

Thank you.

Your next question comes from the line of Andrew Schmidt with Citi. Please go ahead.

Hi, Stephanie. Hi, James. Thanks for taking my questions this morning. I know you mentioned that the Issuers Solutions transaction will be accretive in the first 12 months, but I'm wondering if you could just comment on the level of accretion that you expect, we get to those single digits in 12 months and then higher, maybe mid-single in 24 months; obviously there's probably some upside to that depending on timing and favorability and things like that, but any comments there would be helpful.

I think we won’t elaborate further than what we shared during the transaction call. We are pleased that it is immediately accretive, and as I mentioned, it is both immediately accretive and transformational. Therefore, the EPS accretion is not the most significant figure, as we are giving up a valued and highly accretive Worldpay stake that also provided tax advantages; however, we are replacing it with a 35% increase in our banking revenue. More importantly, our cash flow is expected to increase by 35%, fundamentally changing the structure of the company. The scale is translating into cash rather than EPS. I emphasize that element more than anything else. The margins are also improving, which bolsters our banking business. The specific EPS accretion is not the most appealing aspect of the deal. It is about reinforcing the strength of our banking business and enhancing our overall scale moving forward. But for me, the real impact is on the cash line, which adds $700 million, whereas our current adjusted cash flow is around $2 billion. That is a substantial increase. If we consider the long-term revenue synergies, they will only enhance the attractive financial profile of the company.

Thank you for the insights on cash flow and strategic benefits. I would appreciate it if you could provide more detail about the sales process related to cross-selling credit issuance processing. I'm assuming that when dealing with large financial institutions, you are focusing on enterprise-level engagement, so I'm interested in how that sector of the business can be integrated. I'm also curious about the approach you take for the cross-selling process. Thank you.

The reason this transaction is so beneficial is because of the number of clients we both serve. On our end, we can offer core services, network services, debit services, as well as trading and lending, especially when considering large financial institutions. We're already engaging in cross-selling between our banking and capital markets businesses and providing a bundled solution. The main opportunity has always been the lack of credit capabilities in larger markets. With the potential to integrate credit into our offerings, including credit, debit, core network lending, and trading, we believe we are uniquely positioned as the only provider with this range of products. Our efforts are already in motion. Additionally, in terms of relationships, we often interact with chief technology officers or CIOs in the back office of banks and capital markets. However, when we discuss credit issuance, we move to the forefront of the bank due to the significant revenue-generating potential involved. We see this as a major opportunity to expand our market reach within large financial institutions where we already have established relationships, a cross-selling approach, and are introducing a product set supported by a strong team with critical relationships. It's a win all around, and we are very excited about it. Moreover, as I mentioned earlier in the call, feedback from clients has been very positive about both the TSYS products and customer support, as well as the advantages they see in dealing with FIS as a unified provider. This simplifies regulatory compliance and helps them achieve optimized results.

Next question comes from the line of Jason Kupferberg with Bank of America. Please go ahead.

Good morning, guys. Thank you. I wanted to start on the banking side. It looks like based on the Q2 guide, we'll need maybe 200 basis points of acceleration in the second half to get to the midpoint of the full year. I know that's pretty consistent with what you originally anticipated. Now that we're a third of the way through the year, can you hone in on the specific drivers there? I don't know if it's mostly just the ramp of the three delayed implementations and just your overall visibility and confidence level on that acceleration?

As we consider margins for the second quarter and the latter half of the year, there are two key factors to note. The first is the overall mix. We've previously discussed our strong sales and high revenue retention, and during our fourth-quarter guidance for 2025, we highlighted the transition towards higher-margin products, which we expect will gain traction in the latter part of 2025. From a margin perspective, we anticipate positive contributions from this mix in the second half of the year. Additionally, we've been actively implementing our forward cost programs and significantly ramping those efforts. Given our current position, we are confident in both our completed activities and those planned for the future as we progress through the year. Furthermore, we are likely to benefit from a more favorable year-over-year comparison as we enter the second half. By concentrating on the mix and continuously improving our operating expense programs, we are optimistic about margin expansion. James, would you like to add anything else?

No, I would say the way it's playing out is very much as we predicted when we put our plans in place at the end of last year. You'll recall back as far as Investor Day we said we would do roughly 175 basis points of cost reduction annually. We're actually running ahead of that. The only thing is, last year the first half had the highest proportion of cost reduction relative to the total year, and this year the back half has a higher proportion of the total cost reduction. I would say our visibility to the cost reduction initiatives is excellent. I don't think it could be any higher. All of the initiatives are in full swing. We are probably performing slightly better in the first half, so we feel very comfortable with the split between the first and second halves. Maybe we didn't communicate this well enough to the market, but as Stephanie said, two things are happening. One is the mix. The first quarter's story is that we're comparing to exceptionally high margins from the same quarter last year. That's behind us now, so the revenue mix contribution should improve in the latter three quarters. And as I mentioned regarding the cost side, we could not have better visibility into the cost programs, which are being managed extremely tightly, and we encountered no surprises in the first quarter whatsoever, so we are fully on track.

Okay, so comps, mix and costs, very clear there. So maybe just on the revenue side of banking, that too I know the expectation was to be kind of second half loaded. How are you feeling about the visibility there when you've got the three implementations that are now live, but I don't know to what extent you're depending on kind of new sales, kind of formulating and ramping in the latter part of the year, just kind of give us some color on the drivers there, because I think we need maybe a couple of points of second half versus first half acceleration to get to the midpoint on the full year.

I want to emphasize that our confidence in confirming the second quarter performance is significant. We highlighted this three months ago when we provided the full-year guidance, and our conviction remains strong, if not even stronger now. We have excellent visibility regarding the second quarter. In our full-year guidance, we identified one major factor driving the banking acceleration, which is 150 basis points from our commercial excellence efforts. While you mentioned that new sales in the second half will not affect second-half performance, it is important to clarify that the new ACV we expect in the second half will not impact that period. What we have sold, particularly most of what was sold in 2024, was during a very robust year for our banking business, which we stated was up approximately 12%. Additionally, we highlighted exceptionally high retention rates, especially within the banking sector. This trend is consistent across our entire business, but banking has notably shown retention rates in the high 90s, a significant improvement compared to the past. This combination of strong retention and a successful prior sales year accounts for the increase of 150 basis points. Interestingly, our confidence is exceptionally high due to the work that has already been completed. Furthermore, last year was a record-setting year for core wins, with digital sales increasing by 50%. As previously mentioned, the second half consists of sales that have already been established, and we are now just recognizing this revenue. Therefore, we feel highly assured about our full-year guidance.

I don't think I could say it any better than that. Well done.

Thank you.

The next question comes from the line of Bryan Bergin with TD Cowen. Please go ahead.

Hi guys, good morning. I wanted to start on free cash flow. Could you just comment on further progress in the net working capital optimization initiatives you have? And then as you think about combining with Issuer Solutions, appreciate the OpEx leverage commentary you shared earlier. From a CapEx standpoint, may a broader scale give you added flexibility there to drive more favorable terms in areas like infrastructure?

We're really pleased with our progress. As we mentioned in the last call, we are implementing working capital initiatives and are moving quickly rather than just addressing the problem. Most of the improvement in cash flow compared to last year is due to net working capital. If you break that down, last year's first quarter was challenging, with some one-time items. Overall, the improvement from last year to this year has gone from 18% to 71%, with approximately half of that improvement attributed to last year's poor performance and slightly more than half from our new initiatives. For instance, our procurement team has worked with our top 50 vendors to achieve 90-day payment terms. We haven’t reached our goal yet, but we've secured a significant amount already for the current year and are now focusing on Tier 2 suppliers. This effort is actively underway, and we've increased governance around extending payment terms to clients. Often, it's the straightforward measures that yield the greatest benefits. I'm particularly pleased to see these results early in the year, which reduces the need for assurances in the second half. Historically, the first quarter is usually very low. For example, in Q1 of 2023, we were at 40%, and Q1 of 2024 was at 18%, while this year is at 71%. This strong start gives us confidence in our full-year cash guidance. Regarding capital expenditure, if I recall correctly, our Issuer business is currently about 8% of revenue, down from 9% last year, with a long-term expectation of 8%. I agree with you. As Stephanie mentioned earlier, one of the synergy opportunities lies in leveraging our scale with vendors and suppliers to secure more favorable terms. You can indeed expect to see benefits reflected in the P&L through reduced operating expenses and lower capital expenditure, although we still need to finalize these plans. It's all ahead of us, but I appreciate your insight.

It is. The only thing I would add is just to be a little bit cautious on that. Remember, TSYS is in the middle of a modernization program. So, while we would look to definitely get savings from joint vendors, we also don't want to take away and continue to have in our model, consistent with their model, the work we need to do to continue their modernization efforts. So, that could be what would keep us at higher levels of capital while we finish out that program with them.

Yes. I think we said on the transaction call, actually, we said that we would anticipate a continued rate at about 8% for the foreseeable future, because of exactly what Stephanie just said. So, I wouldn't go building in any major changes in trajectory until we're well past the modernization of systems.

All right. That's clear. On the capital markets side, can you just comment on how sales are progressing in both your traditional and non-traditional verticals?

I think we mentioned that we are very excited about the opportunities we see in both our pipeline and our ability to close on non-traditional private credit hedge funds, leveraging our capabilities as traditional and non-traditional markets merge. On the traditional side, we continue to identify numerous opportunities in trading and processing, especially as we enhance our offerings with additional capabilities like Demica and Torstone, and cross-sell those products to our existing clients. Capital markets are executing at very high levels, and the products being introduced are significantly increasing our pipeline and sales. We're not slowing down in expanding the number of products we bring to market or in growing our pipeline and sales. Overall, we feel optimistic about our opportunities in both traditional and non-traditional markets.

Your next question comes from the line of Rayna Kumar with Oppenheimer. Please go ahead.

Hi, good morning. Can you talk a little bit about any potential dissynergies that may be tied to the sale of your Worldpay business? And any potential offsets to it?

We don't have any dissynergies from the Worldpay business. I mean, I think we already took all of that as we separated the 55%. So, there aren't any.

Your next question comes from the line of Vasu Govil with KBW. Please go ahead.

Hi, thank you for taking my question. Apologies if I missed this in the prepared remarks, Stephanie, but can you comment on the ACV growth this quarter? I know historically you've given us that number.

I don't think we've historically given that number. I think we talked about it for a full year basis. I think we feel good about ACV coming into the year. First quarter is typically our lowest quarter in terms of sales, and that's consistent year-over-year. See very strong growth across the business in cores, digital, consistent with the way we talked about it on a year-over-year basis. As James mentioned, our products continue to drive increased ACV in sales, but we also are seeing the incremental benefits of the product investments in high levels of revenue retention, we talked about as we come into the fourth quarter, our level of confidence and then James just reiterated it in the first quarter in both sales that we saw at the end of the fourth quarter and in the first quarter, as well as high levels of revenue retention, both of those were part of the commercial excellence program I put in place since I started as CEO, because as James mentioned, it's not just about new, it's about making sure we can cross-sell into the existing base and that we have high levels of renewal rates. We think that's significantly as well underpinning the confidence we have as we go into the back half of the year. And then we'll continue that program as we think about continuing to activate sales as well as recurring revenue or high renewal rates into 2026. So, feel very good about the activity; but as I mentioned, first quarter always is our lowest quarter, but things continue to go well.

Thank you for that information. I know you touched on this earlier, but now that the Cap One and Discover deal is approved, I'm curious if that opens up any additional opportunities for you beyond what you've already done for both companies, and what timeline we should expect for any announcements regarding this.

Yes. As I mentioned, we are involved in both sides of that transaction and are very excited to partner with Capital One to help meet their expectations as they work to close the deal. This presents a great opportunity for us. We aim to be a supportive partner in whatever they want to pursue, and this will be part of our sales objectives for the year. Clearly, finalizing this deal is important to us as it is to them. While it may not significantly impact our overall strategy, it represents a very active and crucial relationship.

Ladies and gentlemen, that concludes today's question-and-answer session in today's conference call. You may disconnect your lines at this time. Thank you for your participation.