Erik Hoag
Chief Financial Officer at Fidelity National Information Services
Thanks Stephanie. I'd like to start today by outlining some of our priorities as a new management team before touching on our financial results. As I stated last call, a priority of ours is to be transparent about our future expectations and we delivered results in line with that revised outlook.
Today, I'd like to lay out a few more priorities for 2023 and beyond. First, we will manage FIS as a high-quality compounder with predictable and consistent earnings growth. Our operational structure and long-term capital allocation strategy will prioritize delivering double-digit total shareholder return. This is the core tenet of a compounder investment thesis, which FIS is operationally and financially positioned to achieve.
Next, as Stephanie mentioned, we are focused on enhancing the cash flow characteristics of FIS. In 2023, despite an anticipated reduction in EBITDA and earnings, we are taking actionable steps to increase our cash flow on a year-over-year basis. This increase in cash will be primarily driven by decreasing our capital expenditures by approximately $200 million. We are also taking conscious actions to reduce one time spend associated with transformation and integration programs. I am confident we are taking the correct actions to deliver strong shareholder returns over the longer term.
With that as the backdrop, let's quickly touch on our fourth quarter results. On a consolidated basis, revenue increased 4% organically to $3.7 billion, with an adjusted EBITDA margin of 43.2%, yielding an adjusted EPS of $1.71. At the segment level, banking grew 4% organically in the quarter. Banking margins were pressured due to unfavorable revenue mix and inflationary cost pressures. We had an exceptionally strong quarter in capital markets with 10% organic revenue growth and 220 basis points of margin expansion.
Fourth quarter revenue growth included a 4 point benefit associated with the timing of license renewals which drove a 22% increase in non-recurring revenue. As I look to proactively message any one-off tailwinds or headwinds, this license benefit in the quarter should be flagged as a potential headwind in the fourth quarter of 2023. Excluding this tailwind, capital markets increased 6% organically, well ahead of historical trends. Additionally, recurring revenue grew 11%, marking the fifth consecutive quarter of recurring revenue growth greater than 8%.
Our strategy to transition to durable SaaS deployments continues to resonate in the market. Merchant grew 2% on a constant currency basis in the fourth quarter, including a point of headwind associated with Russia and Ukraine. Ecommerce revenue growth remained strong, increasing 16% on a constant currency basis. Our card present channel and SMB experienced softness as lower sales did not outpace attrition and compression trends. These trends in SMB reflect a lack of new product investment, which we believe the spin will best enable us to remedy. And in enterprise, we saw economic weakness in the UK and anticipate further deterioration this year.
Touching quickly on cash flow and balance sheet, we generated roughly $3 billion of free cash flow in 2022, which was lower than originally expected, primarily due to negative working capital, more specifically the timing of receivables within the Merchant segment. Total debt as of 12/31 was approximately $20 billion with a weighted average interest rate of 2.6% and leverage was approximately 3.2 times.
Turning to Slide 16 for our 2023 guidance. Our philosophy remains conservative in our forward projections as we look to build credibility and deliver on our commitments. With that in mind, for the year we anticipate consolidated organic revenue growth of negative 1% to positive 1% or $14.2 billion to $14.45 billion of revenue, adjusted EBITDA of $5.9 billion to $6.1 billion or margins of 41.5% to 42.2% and adjusted earnings per share of $5.70 to $6. This outlook assumes further macro deterioration, including a global recession impacting our Merchant segment.
To be clear, our guidance assumes macroeconomic trends continue to deteriorate throughout the year. We expect total company margins to improve over the course of 2023 as we ramp the benefits associated with Future Forward. At the segment level, we expect banking organic revenue growth of 0% to 2%, which includes lapping difficult compares associated with non-recurring revenue cycles, non-recurring revenues as well as the near-term impact of elongated sales cycles.
Banking margins will improve throughout the year, with a return to margin expansion in the second half. In Capital Markets, we expect 4% to 6% organic revenue growth coupled with continued margin expansion. This segment continues to benefit over our multi-year shift of sustainable SaaS deployment over license revenue. In merchant, we're anticipating organic revenue decline of 2% to 4%. This guide reflects a 300 basis point headwind associated with attrition and compression in the SMB sub-segment, and further macro deterioration impacting growth by an additional 500 basis points.
We expect Worldpay to reaccelerate post spin as it leverages its scale with both organic and inorganic investments to once again differentiate itself in the market. Lastly, we're focused on our cash flow fundamentals and anticipate expanding our free cash flow conversion to over 80% in 2023.
Turning to Slide 17. As Stephanie mentioned, we have two temporary headwinds impacting these segments this year and empirically believe the underlying growth rate is 3% to 5%. We're undertaking various strategic priorities for these segments, which we believe will improve our fundamentals moving forward. First, we've hired a new Chief Revenue Officer to focus on higher quality and sustainable sales growth.
Specifically, while we still pursue large transactions where FIS is clearly differentiated, we want to ensure that our cross-selling to existing clients remains a priority. The breadth of solutions we have between banking and capital markets will continue to take market share as we expand our lasting relationships with our valued clients. We also see the benefits of Future Forward ramping through 2023 and 2024 to support an already expanding margin profile. Lastly, as Stephanie mentioned, we believe the spin of our Merchant segment will help simplify our operating model and focus our investments on the most pressing needs of our clients.
With that, I'll turn to an overview of the merchant growth profile on Slide 18. Accounting for two known headwinds, we believe Merchant normalized growth is 4% to 6%. The first of these headwinds has been a lack of new product investment, driving compression and attrition in our SMB sub-segment, accounting for approximately 3 points of headwind in our merchant guide. We're confident this is near-term in nature and will be directly addressed with the successful spin of Worldpay as it transitions to a growth-oriented capital structure and investment philosophy.
Second is the macroeconomic impact we anticipate this year. Our guidance assumes further macro deterioration in the UK and a recession in the U.S. This recessionary assumption accounts for approximately 5 points of headwind in our merchant guide. Similar to our strategic priorities in banking and capital markets, we're taking actions to accelerate off this 4% to 6% normalized growth rate. The merchant segment will benefit from new product investments to enhance its competitive profile and growth profile. Additionally, Future Forward will help support increasing profitability later in 2023 and beyond.
I'll finish by noting that as revenue accelerates in the segment, it carries a very high contribution margin, which will drive underlying margin expansion beyond the Future Forward benefit. All in, we view the segment as accelerating off the 4% to 6% normalized revenue growth in 2023 with margin expansion incorporated in the model.
Moving to a breakdown of EBITDA expectations on Slide number 20. Both our Banking and Capital Markets businesses are expected to increase adjusted EBITDA and expand margins in 2023. In Banking, we would anticipate margin expansion of over 50 basis points and Capital Markets to expand margins by 50 basis points to 100 basis points. This significant margin expansion in Banking and Capital Markets reflects both underlying strength in the contribution margins as well as Future Forward. These segments are positioned for durable and profitable growth over the longer term, leveraging a one to many operating model with high concentrations of recurring revenue.
Conversely, we anticipate a weaker performance in our Merchant segment, coupled with higher corporate costs. In Merchant, we anticipate a reduction in EBITDA associated with lower revenue and increased expense associated with residual payments. In our Corporate segment, we're seeing the impact from divested businesses in 2022 and a temporary headwind associated with a tough comparable on incentive compensation.
Looking beyond 2023, we're confident that we're moving the company to the appropriate path of margin expansion. There are two key tenants underpinning this confidence. First, we expect to benefit from our Future Forward initiatives to continue to ramp with incremental benefit in 2024. Second, we will continue to benefit from our newly implemented sales and commission structure, which emphasizes higher margin revenue growth. Both of these initiatives will support consistent and ongoing margin expansion at FIS moving forward.
Turning to Slide 21 for an overview of how Future Forward will continue to right-size our expense base and further support profitability and cash. We expect to generate approximately $150 million of in-year operating expense reduction. These savings will ramp to approximately $600 million on a run rate basis exiting 2024. In addition to these opex savings, Future Forward will support our priority to improve our cash flow through a reduction in capital expenditures and one time program spend.
We're targeting a $200 million reduction in capex during 2023, and we intend to reduce capex by another $100 million in 2024. We're also aggressively ramping down spend associated with transformation and integration projects, such as platform consolidation resulting in a benefit to cash. Taking all of this into account, we're pleased to increase our expected net cash savings associated with future forward to approximately $1.25 billion exiting 2024. We will continue to provide quarterly updates on achievement of those targets throughout the life of the program. These initiatives are the bedrock for improving the operational performance of FIS and aligned directly with our priorities outlined today.
I'll conclude with our current capital allocation priorities on Slide 22. In 2023, we're focused on paying down debt, increasing our dividend and decreasing capex. First, we utilize excess free cash flow to reduce debt in support of our investment-grade credit ratings, which is a key pillar to FIS' long-term capital and operating strategy. Next, we recently announced an increase to our core quarterly dividend of more than 10%, and we anticipate to exit the year approximating our 35% target payout ratio.
Moving forward, we intend to continue increasing our dividend roughly in line with earnings growth. As mentioned throughout my prepared remarks, Stephanie and I are also prioritizing a reduction in capital expenditures this year. We're putting a heightened focus on ROIC to ensure an appropriate return on investment and are making targeted investments aligned to client needs. Finally, in conjunction with the spin, we will conduct a comprehensive review of our capital structure to reduce future volatility in our net interest expense.
We're moving with a high sense of urgency to drive these outcomes. While we face challenges, we remain confident that this is the right path forward to improve the company's performance, free cash flow and earnings. I'd like to thank everyone for their time this morning. Please note additional guidance, assumptions and next steps on the spin in our appendix.
Operator, would you please open the line for questions?
