James Kehoe
Chief Financial Officer at Fidelity National Information Services
Thank you, Stephanie, and good morning.
I'll begin on Slide 11 with some comments on our 2023 performance and the key drivers of earnings power for the upcoming year. As Stephanie noted, we are pleased with our results having consistently exceeded the high end of the outlook. The original EBITDA guidance was $5.9 billion to $6.1 billion and the actual results came in well above the high end of the range. The outperformance was driven by strong recurring revenue growth from both Banking and Capital Markets, profitability improvements, fueled by our Future Forward program and better-than-expected performance from Worldpay, which is now reflected in discontinued operations.
On January 31, we completed the majority sale of the Worldpay business. The transaction positions both companies for future success, allowing them to focus on their respective end markets and to pursue appropriate capital allocation strategies. The transaction has also allowed FIS to transform its capital structure, paying down debt to ensure an investment-grade rating while accelerating return of capital to shareholders and allowing for appropriate levels of investment in the business.
FIS is now well-positioned to deliver accelerating revenue growth with a return to sustainable margin expansion. Revenue growth will accelerate from 3% in 2023 to 4% to 4.5% in 2024, or 3.8% to 4.3% excluding acquisitions and dis-synergies. Adjusted EBITDA margin is projected to expand by 20 basis points to 40 basis points. Adjusted EPS is projected to grow 38% to 41% year-over-year on a continuing operations basis, including a significant contribution from the deployment of Worldpay proceeds and the first-time inclusion of the Worldpay Equity Method Investment contribution. On a normalized basis, we expect adjusted EPS to grow 5% to 7%, including a high single-digit negative impact from dis-synergies. Strong core business performance and our Future Forward program have more than offset the negative impact from dis-synergies.
Turning now to Slide 12 for a few considerations on our financial reporting going forward. Beginning in the first quarter of 2024, FIS' 45% financial interest in Worldpay will now be reported separately on the Equity Method Investment line of the income statement. Our 2024 adjusted EPS outlook of $4.66 to $4.76 includes a $0.69 to $0.71 contribution from Worldpay. Please note that the $0.69 to $0.71 is for 11 months only. Had the transaction closed at the end of last year, our 2024 adjusted EPS for continuing operations would have been $0.06 higher resulting in a pro forma adjusted EPS of $4.72 to $4.82 on a full year basis. Consistent with our prior messaging, our go-forward adjusted EPS outlook will include the Worldpay EMI contribution. And we will also be providing condensed quarterly financial results for Worldpay on a 100% basis, including revenue and EBITDA on both a GAAP and adjusted basis.
Lastly, going forward, FIS will be presenting revenue growth on an adjusted basis. This reflects year-over-year constant-currency revenue growth for our Banking Solutions and Capital Markets operating segments.
With that, let's turn to our fourth quarter results on Slide 13. Overall, we are pleased with our performance in the fourth quarter and this is the fourth consecutive quarter of meeting or exceeding the high end of our outlook. Including Worldpay, total company revenue increased 1% to $3.7 billion with an adjusted EBITDA margin of 43.2% and adjusted EPS of $1.67.
Total company adjusted EBITDA margin was flat year-over-year, held back by a margin decline in discontinued operations. On a continuing operations basis, revenue was flat at $2.5 billion and this was in line with our expectations. Strong recurring revenue growth across both Banking and Capital Markets was offset by expected declines in nonrecurring revenue and professional services. Adjusted EBITDA margin expanded by a strong 70 basis points year-over-year, led by meaningful margin expansion in Banking Solutions.
Adjusted EPS for continuing operations was $0.94 in the quarter, a decline of 4% compared to the prior year, reflecting higher interest expense with a negative impact of $0.07. For discontinued operations, revenue increased 2% to $1.2 billion, modestly ahead of our expectations. Adjusted EBITDA margin contracted 160 basis points reflecting a less favorable revenue mix and the timing of certain expenses.
Moving now to cash flow and balance sheet metrics, where we continue to drive improvements. We generated strong free cash flow of $1.1 billion in the fourth quarter, resulting in a normalized free cash flow conversion of 100% with a full year conversion rate of 95%. This compares very favorably to our 2023 full year target of greater than 80% free cash flow conversion. We ended the year with total debt of $19.1 billion with a leverage ratio of 3 times. As previously communicated, we repurchased $510 million of shares during the fourth quarter of '23 resulting in over $800 million of capital returned to shareholders in the quarter and $1.7 billion for the year as a whole.
Turning now to our segment results on Slide 14. For the quarter, adjusted revenue growth was flat year-over-year, in line with our expectations. As expected, backlog remained stable at $23.5 billion. Continued strong recurring revenue growth of 7% was offset by anticipated nonrecurring headwinds. Banking revenue was flat in the quarter, while adjusted EBITDA margin expanded 270 basis points, primarily driven by Future Forward cost initiatives. Banking recurring revenue grew a healthy 7%, including stronger-than-expected consumer spend in our payments business and the benefit from a prior year grow-over.
Note that our calculation of Banking recurring revenue growth reflects two changes. First, in keeping with historical practice, we have transitioned certain non-strategic businesses, which we expect to settle or wind-down from Banking Solutions to the Corporate and Other segment. Second, with the expiration of federal funds related to pandemic relief programs, we have moved this revenue from recurring revenue to nonrecurring revenue with no change to total revenue. We have provided a detailed reconciliation table for these adjustments in the appendix.
As you will see, these adjustments have a de minimis impact on full year recurring revenue growth. Banking recurring revenue growth of 4% in 2023 is unchanged, while the changes increase our 2022 recurring revenue growth by a mere 40 basis points. The recurring revenue growth of 7% was offset by expected declines in other nonrecurring revenue and professional services of 22% and 31%, respectively. The decline in other nonrecurring revenue includes an 11% headwind from the decline in pandemic relief revenues while the decline in professional services reflects a difficult comparison.
Turning now to Capital Markets. Capital Markets adjusted revenue increased 1%, led by continued strong recurring revenue growth of 7%. As expected, nonrecurring revenue declined by 10%, primarily driven by a difficult year-over-year comparison related to license fees, which we have consistently messaged throughout the year. The decline in higher-margin nonrecurring license revenue was the primary driver of the 250 basis point margin contraction. Looking forward, we will be facing lower headwinds from both professional services and other nonrecurring revenue. And we expect to see closer alignment between adjusted revenue growth and recurring revenue growth.
Turning now to our full year results by segment on Slide 15. Adjusted revenue growth increased 3%, led by strong recurring revenue growth of 5%. Banking revenue was up 2% as recurring revenue growth of 4% offset declines in nonrecurring revenue and lower professional services. Adjusted EBITDA margin was flat, but margins were strong in the second half of the year as Future Forward savings accelerated. Capital Markets revenue increased 5%, led by very strong recurring revenue growth of 9%. Adjusted EBITDA margin contracted 60 basis points to 50.3%, primarily due to lower margins over the second half of the year, reflecting a lower contribution from higher-margin license fees.
Turning now to Slide 16 for an update on Future Forward. I am pleased to report that we have exceeded our 2023 target for Future Forward opex savings and we see further upside in 2024. We delivered in-period EBITDA savings of $155 million, well above our original goal of $100 million. And we are raising our 2024 incremental savings target from $215 [Phonetic] million to $280 million. We are reiterating our total cash savings target of $1 billion for the Future Forward program. We are reaffirming our capital reduction target, increasing our opex savings goal and adopting a slightly more conservative view regarding the reduction in acquisition, integration and other expenses.
Turning now to our capital allocation priorities on Slide 17. Our capital allocation priorities remain unchanged from the prior quarter. We intend to use our strong financial position and balance sheet flexibility to prioritize a balanced set of capital allocation priorities. These priorities include maintaining an investment-grade rating while investing to accelerate growth and consistently returning ample capital to shareholders. For 2024,we are assuming a year-end leverage ratio of approximately 2.8 times, which allows us ample flexibility to invest in the business, while increasing our share repurchase target for the year.
We remain committed to paying an above-market dividend. And going forward, we will grow the dividend in line with adjusted net earnings. Reflecting our confidence in the business and our strong free cash flow generation, we are once again raising our share repurchase commitment. We now expect to repurchase at least $3.5 billion of stock in 2024, up from our prior target of at least $3 billion. And through the first two months of this year, we have already repurchased approximately $490 million of the $3.5 billion target. Lastly, we will selectively invest in complementary tuck-in M&A where we can leverage our scale and distribution to drive faster growth across strategic verticals.
This balanced capital allocation framework provides a robust value proposition for long term shareholder value creation. In total, we expect to return greater than $4 billion to shareholders in 2024, up from $1.7 billion in 2023.
Now, let's move on to our 2024 outlook on Slide 18. Building on the operational and financial improvements of 2023, our '24 outlook confidently forecast accelerating revenue growth and expanding margins. We are projecting reported revenue of $10.1 billion to $10.15 billion. And this includes an adverse currency impact of around $20 million.
Adjusted revenue growth will accelerate from 3% in '23 to 4% to 4.5% in 2024. Our projections include 70 basis points from closed tuck-in acquisitions. But this is mostly offset by a negative impact of 50 basis points from dis-synergies. Net of these impacts, adjusted revenue growth would be approximately 3.8% to 4.3%. We expect the Banking segment to grow between 3% to 3.5% or 3.3% to 3.8% net of acquisitions and dis-synergies, up from 2% in 2023. And we anticipate Capital Markets revenue growth of 6.5% to 7% or 5.1% to 5.6% net of acquisitions, as compared to 5% in 2023.
We are forecasting year-over-year margin expansion of 20 to 40 basis points, reflecting continued favorable impact from the Future Forward program and the inherent leverage in our business model. Included in this outlook is a $280 million year-over-year benefit from the Future Forward program. And this will more than offset dis-synergies from the Worldpay transaction of $250 million.
We have provided our assumptions regarding the key below-the-line items with some additional details in the appendix. We are projecting D&A of $1.075 billion and we anticipate a tax rate of 17.2% to 17.5%. Interest expense is projected at around $350 million. And we expect shares outstanding of 556 million shares, a reduction of 6% compared to 2023, including an 11-month EMI contribution of $0.69 to $0.71.
We expect to deliver adjusted EPS of between $4.66 and $4.76. This translates to a growth rate of 38% to 41% on a continuing operations basis. On a normalized basis, we expect adjusted EPS to grow 5% to 7%, including a high single-digit negative impact from dis-synergies.
Lastly, on a pro-forma basis, including 12 months of Worldpay EMI contribution, we anticipate adjusted EPS of $4.72 to $4.82.
We are confident in our balanced outlook for 2024 and believe we are well-positioned to accelerate long-term earnings growth.
Let's move now to Slide 19, where we provide a reconciliation for our 2023 results on a normalized basis. Last quarter, we provided an estimated normalized adjusted EPS range of $4.40 to $4.55. I am happy to report that both continuing ops EPS and normalized EPS came in within the guidance ranges we provided.
Continuing operations EPS was $3.37 and was at the higher end of the range that we provided on the third quarter call. On a 12-month basis, normalized EPS was $4.50 and again this was toward the higher end of the range. Adjusted for an 11-month EMI contribution, 2023 normalized EPS is $4.44.
Moving now to Slide 20 for an overview of our first quarter outlook. We are projecting revenue growth of 2.5% to 3.5% with Banking Solutions at 1% to 2% and Capital Markets at 6% to 7%. We expect Banking revenue growth to accelerate over the course of the year, reflecting easier year-over-year revenue comparisons and the favorable impact from stronger new sales over the second half of 2023. We are anticipating adjusted EBITDA of $955 million to $970 million, which translates to year-over-year margin expansion of 180 to 200 basis points reflecting Future Forward savings. Including an expected two-month EMI contribution of $0.09 to $0.10, we expect adjusted EPS of $0.94 to $0.97. Continuing operations EPS is projected to increase 31% to 35% and we estimate high single-digit growth on a normalized basis.
In summary, we are expecting a good start to the year with revenue growth accelerating compared to the fourth quarter and improved alignment between adjusted revenue and recurring revenue growth. Margins will expand and this is consistent with the performance delivered in the second half of last year.
Let me now wrap up on Slide 21. In closing, we are encouraged by our 2023 results and believe we are on the right path as we reposition the enterprise for long term success. The completion of the Worldpay transaction positions both companies for future success and meaningfully improves our capital structure. We are confident FIS will deliver accelerated business growth in 2024 with adjusted revenue growth of at least 4%, and a return to consistent margin expansion. And given our confidence in how the business is performing, our improved financial flexibility and the attractive valuation of our stock, we have once again raised our total share repurchase target to at least $3.5 billion in 2024 and greater than $4 billion in total.
With that, operator, could you please open the line for questions?
