FIS - NYSE

Thank you for standing by and welcome to the FIS First Quarter 2025 Earnings Call. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there will be a question-and-answer session. [Operator Instructions] I would now like to turn the call over to George Mihalos, Head of Investor Relations. You may begin your conference.

Thank you, John. Good morning, everyone. Thank you for joining us today for the FIS first quarter 2025 earnings conference call. Call is being webcasted. 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 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%. And we expect to see continued strength over the course of the year as signed deals continue to be implemented on schedule. The 3 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 well -- how we are well positioned to capitalize on consolidation given our skew towards larger banks and 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 the 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 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 -- a global investment 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 for 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 2 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. James?

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 week 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 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 2 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. [Operator Instructions] Your first question comes from the line of Tien-Tsin Huang with JP Morgan. Please go ahead.

Hey, good morning, everyone. Thanks for the update. Just want to – [Julian] [ph], I think Stephanie talked about timely conversions under the 3 delayed deals did go live, it sounds like you're not hearing any decline decision delays. I'm just curious what other feedback you're getting in terms of decision making, pipeline rebuild, and of course any client feedback that's worth sharing with respect to bringing the Issuer Solutions business on.

Yeah, thanks Tien-Tsin. So a couple of things, yeah, as we had indicated, those client conversions were going live in first quarter and second quarter. They're all live, so really happy about that and you're seeing that show up in the banking revenue guide in second quarter and full year. So, very good, everything went well, progressing exactly as expected and maybe even slightly positive. In terms of overall pipeline from clients, I mean that's the benefit of FIS is regardless of the economic cycle, we have very highly recurring and were required spend, so not seeing any impact from clients in terms of slowing spend down. In fact, our pipeline is actually increasing very significantly even as we compare it to year-over-year. So, feeling really good about pipeline, we're obviously keeping a very tight watch on it in terms of tariff and economic activity, but I'd say that's the benefit of FIS, it's very durable, highly recurring and required spend, it's not really discretionary. And then with the last piece on TSYS, I have to say from a client standpoint they -- it's been really, really positive. So, we did obviously a lot of diligence on the TSYS business. We know them. We know the team there just from being in the market for a long time. We didn't compete against them, but they have such a great brand. And from their clients that are also clients of ours, people were -- we are hearing very strong commitments to them in terms of best in class product suite, as well as client service and then consistent with didn't really see a value of having merchant acquiring and TSYS together, so like the focus with the ultimate acquisition by us in terms of continuing to focus on financial institutions and on that solution set, because that customer base is typically not looking at merchant acquiring, so very positive all around.

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. 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 obviously 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. So, they were benefiting in the first quarter from that. And so you see our second quarter guide being very consistent with 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're even -- they had positive spend, they earn 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 revenue -- 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 to 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 ability to continue to grow payments in a very large scaled 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's revenue growth has been tracking their relative to your expectations.

Yeah, thanks, Dan. So, the Worldpay EMI outlook is very consistent year-over-year with what we've been putting in the guide. We're not seeing any softening there. In fact, we always think, as you know, that [Charles] [ph] has strong growth, so we're always hoping for outperformance, but nothing negative at all in the EMI outlook very consistent with what they've provided to us. In terms of revenue growth, and I think [Cameron] [ph] gave some updates as well on the call this morning, we're really pleased to see the acceleration of revenue in Worldpay last year, separating it was clearly the right decision and bringing back [Charles] [ph] and having growth and focus there and investment, they've really been able to turn that business around. You're seeing the revenue growth in the fourth quarter and then into the first quarter. They obviously have lapping of Easter and leap day like everybody else, but their revenue growth continues to be consistent with the market, and they're feeling really good about where they're taking it -- taking it from when we had it really as a low single digit grower to back up to mid to upper. So, feeling really good about the performance there, they're highly focused on execution, and I think it'll be a great 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] [ph] on for Ramsey. Thanks for taking our question today. As we start to think about the pro forma business, what would you consider the lowest hanging fruit from a cost synergy standpoint and any additional color you could provide on the rate in which you expect to realize 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 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, 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 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, so that 150 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 digit 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're not going to go any further than what we said on the transaction call. We're very happy that it's immediately accretive, and as I said -- what will happen is, it's immediately accretive, but it's transformational at the same time. So, the EPS accretion I think is the least important number, because we're losing a fairly and very accretive Worldpay stake that also gave us tax benefits, but we're replacing it with a boost to our banking revenue at 35%. More importantly, our cash flow will go up 35%, so the construction of the company is completely different. The scale is flowing through to cash as opposed to EPS. That's the part I would point to more than anything else. The margins are boosted as well, which strengthens our banking business. The specific EPS accretion is not the most attractive part of the deal. It is solidifying the strength of the banking business and call it fortifying our banking business going forward, driving enhanced scale on the total company. But you know, where it really plays out for me is on the cash line, which is adding 700 million when the reality is our current cash flow is in the region of 2 billion on an adjusted basis. So, that's an incredible boost. And I think, you look at the revenue synergies longer term, and that can only be additive to the attractive financial profile of the company.

Thank you. [indiscernible] on the cash flow and strategic benefits. I appreciate that. If you could just talk about a little more detail the sales motion with cross selling credit issuance processing, I assume often with large FIs you're talking in enterprise level, so that part of the business can be pulled in, but just curious, just maybe a process question, how you go about the cross-sell motion. Thanks a lot.

So, the reason why this transaction makes just so much sense is the amount of clients that we both support. So, on our side we could be doing core and network and debit as well as trading and lending when you think about these large financial institutions. So, we already have that cross-sell motion going between the banking and capital markets business, and offer out a bundled solution set there. The opportunity has always been having -- not having the credit capabilities up-market. So, when you think about ability and an opportunity to add credit now to credit and debit as well as core network lending and trading, we think we're uniquely positioned, because we think we're the only player that has that cross section of product sets. And we already have the motion in play. We also think just relationship wise, if you think about where we play typically with the banking and capital market solution sets typically back office. So, when you think about who we're interacting with chief technology officers or CIOs, when you start to talk about credit issuing, we're now in the front part of the bank, because of how much revenue generating capabilities it is. So, for us we really think about this as a big unlock of incremental market for us in a large financial institution space whereby we are already have existing relationships, have cross-sell motion, and now we're adding a product set and a set of a team that has significant relationships. So win, win, win there and very excited about it. And then as I mentioned to Tien-Tsin in the very beginning of the call, hearing from clients just really positives around both the TSYS product set and teams over there in terms of customer service, but also that they like the benefits of dealing with FIS altogether as you think about one provider serving them across their ecosystem makes it easier for them from a regulatory standpoint and overall from getting the best optimized metrics for them. So, that's been very positive as well.

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, and 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 3 delayed implementations and just your overall visibility and confidence level on that acceleration?

More numeric, I think as you think about margins for us, it's really 2 things going into second quarter in the back half of the year. The first one is just overall mix. So, as we talked about the sales and high levels of revenue retention, when we did our guide in the fourth quarter into 2025, we talked about the mix of less lower margin and more higher margin and not really taking hold in the back half of 2025. So, we think from a margin standpoint, we would expect and as you know, as you can see, we now have really strong visibility to a positive mix driver for that in the back half of this year. In addition to that, we, as you know, have been executing against all of our future forward cost programs and continue to significantly ramp those and so as we sit here today and may feel very confident about the activities we've already done and what are yet to be done, as we think about going into the rest of the year, we have a lot of muscle around this, we have a lot of programmatic focus on this and have been doing it since the end of 2023 and then probably the last thing I would say is we just have an easier comp as we go into the second half if you look at the year-over-year. So, really focusing on mix continued of our operating expense programs, which we think we're really good at this point and an easier comp makes it where we feel really confident around the margin expansions. I don't know, James, do you want to talk about anything else?

No, I would say -- 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 annually 175 bps of cost reduction. 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 actually are probably in the first half doing slightly better, so we're actually very, very comfortable in the first half, second half split. Maybe we didn't telegraph it well enough to the market, but as Stephanie said, there's 2 things happening, and I'll double down on this. One is mix. The mix is basically a first quarter story is that we're lapping these exceptionally high margins in the first quarter of last year. That's done. It's behind us. There's none of this on a go-forward basis, so the revenue mix contribution improves in the latter 3 quarters. And then as I said on the cost side, we could not, I just want to be clear on this, we could not have better visibility to the cost programs, and these are just managed extremely tightly and we got no surprises in the first quarter whatsoever, so fully, 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 3 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 think I'd point out first that the comfort at which we're confirming the second quarter should not be lost on you. We called this out 3 months ago when we gave the full-year guide on the second quarter and we still have just as strong conviction if not even higher. So, we have great visibility into the second quarter. What we said on the full-year guide is, there is one big driver in the banking acceleration, it's 150 basis points that's coming from commercial excellence. And this is, as you said correctly on the call, you said it's essentially it's new sales, but any new sales you have in the second half is not going to impact your second half performance? What I mean -- I mean new ACV you get in the second half has no impact on the second half. This is all stuff that's already being sold and most of it was sold in 2024, which was a very strong year for the banking business. And I think we said the total was up 12% -- I think it was 11%, 12% on banking. So all of that, you see it flowing in. The other part that we called out was the incredibly high retention rates that we're seeing, particularly on the banking business. It's actually across the entire business. But banking compared to the past is -- it's a very, very strong number in the high 90s. So, when you've got this retention and you had a strong sales year in the prior year, that's what's driving the step-up of the 150 basis points. So actually, funny enough, our conviction is extremely high just because it's work that's already done and dusted. And I'll just add on. Last year was a record year for core wins as well. So, we had almost -- and then digital was up 50%. We gave all these data points before. The second half field is stuff that has already been put in place. And now it's just recognizing it as revenue in the second half. So, we have a high level of comfort on the full-year guide.

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?

[Questions.] [ph] The thing we're really pleased. We did say it on the last call, we were rolling out working capital initiatives, and we said we weren't going to steer at the problem, we're going to move pretty quickly. So, most of the cash flow improvement versus prior year is coming from net working capital. And if you split that in 2, last year was a rocky first quarter and there were some one-time items. I would say of the total improvement year-on-year from 18% to 71%. Half of it is coming from a bad year last year, and slightly more than half is coming from initiatives put in place. I'll give you examples. The procurement organization is -- has worked on the top 50 customers and taking them to -- sorry, vendors and taken them to 90-day turns. We're not all the way there yet, but we've already locked in a large number for the current year, and we're working now on Tier 2 suppliers. So, that's actively in motion and then increased governance around the extension of terms to clients. And sometimes it's the simple stuff that gives you the biggest benefits. What I'm really happy about is we're seeing it early in the year, and we don't have a show-me story in the second half. And just to emphasize this, the Q1 is historically an incredibly low quarter. So, Q1 of 2023, I think was 40% and Q1 of 2024 was 18% and this year is 71%. This is a great start ahead of the gate that really makes us comfortable on the full year of cash guide. So, I'm feeling good about that. Your point on CapEx, if I get my numbers right, I think the Issuer business is running at about 8% of revenue, and we we're at 9% this year with a long-term outlook of 8. I think you're right. We will be looking, as Stephanie said earlier one of the synergy opportunities is, we are -- we have bigger scale with our vendors and suppliers, and we would be expecting more attractive terms. And you're exactly right. You would expect to see a benefit in the P&L in terms of lower OpEx and you would expect to see a benefit in terms of lower CapEx. But, we still got to approve all this stuff out. It's well in front of us, but your point is not -- is well taken.

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?

So, I think we mentioned -- as we mentioned on the call, and let's start with the non-traditional, very excited about things we are seeing as opportunities both in the pipeline as well as closing on non-traditional private credit hedge funds using our capabilities as we see the markets merge across traditional and non-traditional. In addition to that, on the traditional side, continue to see a lot of opportunities in trading and processing, especially as we bring in capabilities and add additional capabilities like Demica, Torstone, and cross-sell those products into our existing base. So, capital markets continues to execute at very high levels the products they continue to bring to market are driving a lot of increased pipeline and ultimate sales, and we're not slowing down in terms both the increased number of products that are being brought to market as well as that pipeline and close sales. So, feeling really good about both traditional and our opportunity in the non-traditional.

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.

Understood, thank you.

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. And 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 color. And I know you alluded to this a little bit before, but with the [Cap One] [ph] and Discover deal now approved, just curious if that unlocks any additional opportunities for you in addition to what you've already implemented for both of them and like the timeline we should look for to hear any such announcements.

Yes. So we -- as I mentioned, we are on both sides of that transaction, very excited to partner with Capital One and help them meet all of their expectations as they look to close on that transaction. It's always an opportunity for us. I think as we think about being a good partner to them in terms of whatever they want to do, it would be part of our sales goals for the year. And obviously, that getting closed is important to us like it is important to them. I don't know that materially moves the needle for us as we think about what we need to do for them; but, it's a very active and very important relationship.