Fidelity National Information Services (FIS) Q4 2021 Earnings Call Transcript

Fidelity National Information Services (FIS 1.90%)
Q4 2021 Earnings Call
Feb 15, 2022, 8:30 a.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Ladies and gentlemen, thank you for standing by, and welcome to the FIS fourth quarter 2021 earnings conference call. [Operator instructions] Please be advised that today's conference is being recorded. [Operator instructions] I would now like to hand the conference over to your speaker, Mr. Nathan Rozof, head of investor relations.

Please go ahead.

Nathan Rozof -- Head of Investor Relations

Good morning and thank you for joining us for the FIS fourth quarter and full year 2021 earnings conference call. The call is being webcasted. Today's news release, corresponding presentation and webcast are all available on our website at fisglobal.com. Gary Norcross, our chairman and CEO, will discuss our operating performance and 2022 priorities.

Stephanie Ferris, our president, will describe our strategy to unlock the value of FIS. Woody Woodall, our chief financial officer, will then review our financial results and provide forward guidance. Finally, Erik Hoag, our deputy CFO, will also be joining the call for the Q&A portion. Turning to slide three.

Today's remarks will contain forward-looking statements. These statements are subject to risks and uncertainties as described in the press release and other filings with the SEC. The company undertakes no obligation to update any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law. Please refer to the safe harbor language.

Also, throughout this conference call, we will be presenting non-GAAP information, including adjusted EBITDA, adjusted net earnings, adjusted net earnings per share and free cash flow. These are important financial performance measures for the company but are not financial measures as defined by GAAP. Reconciliation of our non-GAAP information to the GAAP financial information are presented in our earnings release. With that, I'll turn the call over to Gary.

Gary?

Gary Norcross -- Chairman and Chief Executive Officer

Thanks, Nate, and thank you for joining us this morning. Starting on slide five. By all metrics, our colleagues delivered a historic operating performance for FIS in 2021. Our strategy continues to resonate with our clients and prospects, and our team continues to execute at an exceptionally high level.

For the full year, revenue increased 11% to nearly $14 billion. Margin expanded by over 200 basis points to 44%, and adjusted EPS increased 20% to $6.55 per share. Growth for the year was driven by strong performance across our operating segments, with banking at 8%, capital markets at 8%, and merchant at 19%. In the quarter, merchant came in softer than we expected due to the Omicron variant.

As you will see in our deep dive on merchant later in the deck, without this impact in late November and December, our merchant growth would have been even higher. For the year, we generated record free cash flow of $3.6 billion. We returned $3 billion to shareholders, increased our dividend and acquired Payrix, which will accelerate Merchant's eCommerce offering for platforms that primarily serve SMBs. We also successfully completed the Worldpay integration nearly a year ahead of schedule, beating our initial revenue synergy target by 50% and more than doubling our initial expense synergy target.

We had a very strong sales quarter, even with the Omicron variant, due to the strong demand for our differentiated solutions. New sales increased our backlog to a record $23 billion, an increase of 8% organically. By any account, this was a record year for FIS and the strongest operating performance in our 53-year history. Turning to slide six.

Given our sales success, we wanted to highlight several landmark wins across our company with clients and prospects who look to FIS as their trusted technology partner to help them to expand or transform their business. In banking, this includes a top 15 global financial institution who wanted to accelerate their growth and expansion in the U.S. by executing a digital strategy. This innovative client selected FIS and the modern banking Platform to modernize their infrastructure using our cloud-native processing platform.

They will also use our cloud native Digital One platform to enable their strategy, which was a key selling point in their decision-making process. Additionally, Amerant Bank signed a significant deal to outsource most of their solutions to FIS, which allows them to transform their business from a multi-vendor solution to a single innovation partner. This will drive a significant savings for Amerant while bringing their solutions to the most current technologies, which is a great example of the power of the FIS portfolio. These wins are indicative of how the differentiated capabilities in our banking segment drove the more than 30% increase in new sales for the year.

Turning to our merchant segment. Geographic expansion was a core tenet to our strategic rationale of the buy of Worldpay. Throughout 2021, we entered seven new countries, which continued to push accelerated growth in our merchant offerings, especially eCommerce. One of those markets was Argentina.

And as a direct result, we signed the country's largest airline this quarter. They chose FIS because they are looking for a trusted partner with a sophisticated vertical expertise and global processing platform that will help them grow their business. Another key rationale for the Worldpay acquisition is our ability to utilize our combined solutions and data to increase authorization rates. We now integrated our merchant and issuer processing solutions to create AuthMax Preferred.

This innovative new solution dramatically increases authorization rates for transactions, where we are both the merchant acquirer and issuer processor based on our insight into both sides of the transaction. With this significant innovation, we can improve authorization of historically declined transactions as much as 40% for trusted cardholders of Worldpay's participating merchants. This generates significant revenue uplift for our clients. Based on this advancement, Netflix expanded our long-standing relationship this quarter to quickly take advantage of this new capability.

Given our strong pipeline, we are looking forward to building on a record new sales increase in merchant to more than 40% for the year. In capital markets, we signed our largest deal in the history of this business with Franklin Templeton. Like our T. Rowe Price announcement a few quarters ago in the wealth vertical, this anchor client establishes us as a leading global player with a differentiated international transfer agency solution that will provide a new leg of growth for capital markets.

Additionally, the recent investments we've made in our cleared derivatives platform are driving significant new wins, including SocGen this quarter, which will transition their middle and back-office through our innovative solution. We could not be more pleased with the structural transformation that has occurred within our capital markets business. This team has done an outstanding job of combining our industry-leading products and to advance end-to-end solutions that are clearly resonating through our sales channel. Like our other segments, capital markets had a record year in sales and organic growth with new sales increasing more than 40% for the year.

On slide seven, I'd like to revisit a topic that we discussed last quarter, which is the opportunity that we are seeing in the market to bring solutions together from across our segments. Buyer preferences continue to move in our favor, with clients consuming more of our solutions across their enterprise to create unique client experiences. Last quarter, we brought forward the example of Amazon, first utilizing our NICE debit network capabilities from banking before consuming our omnichannel merchant-acquiring capabilities and adding a treasury and cash management solution from capital markets. Given our success in revenue synergies with the Worldpay integration, we continue to evolve our go-to-market strategies through better organizational alignment, which allows us to take advantage of a broader addressable market for our unique solution set.

These changes are driving real results as we grow our list of clients that are working across our business segments in unique and differentiating ways. As we continue to build capabilities, programmatically addressing this opportunity to create innovative new experiences truly unlocks the power of FIS. We will continue to bring this forward in the coming quarters as we think this alone could accelerate our growth rates from current levels. As we close out 2021, I'd like to take a moment to recognize some of the awards FIS earned and to lay out priorities for 2022 on slide eight.

This year, we saw a tremendous recognition for our leadership in fintech as a global company. To name a few, Fast Company Magazine named FIS in their Best Workplaces for Innovators' List, which recognizes companies that empower their employees to improve processes, create new products and invent new ways of doing business. In merchant, our Access Worldpay earned honors for Highest Authorization Rate by the Strawhecker Group. In banking, our Unity Wealth Management Platform was named Best Technology for Family Offices in the PAM Awards.

And in capital markets, our Cleared Derivative Suite was named Post-Trade System of the Year, Global Investor Group. We were also recognized by Fortune as the Most Admired Company, and we were named the Best Place to Work for the LGBTQ+ community for the fourth consecutive year. Lastly, we were recognized for the Best ESG Reporting by IR Magazine. Turning our focus to 2022.

At FIS, we have consistently invested for growth, executed at scale and delivered innovation at the highest level. We will continue to focus on unlocking the power of FIS in an organized and systematic way. This will be centered around delivering compelling new solutions for our clients and taking advantage of our significant head-start in the cloud to innovate at speed. We will also continue to componentize our technology stack to make all our industry-leading solutions available to every client, regardless of the segment where they reside today.

This will enable us to expand into attractive new verticals like crypto to capture fast-growing and emerging new markets. We have built FIS into an industry leader over the past 50 years. And in 2022, we will again demonstrate how FIS will further its lead over the next 50 years. This business will continue to grow and generate exceptional profitability and free cash flow, which we'll use to maximize shareholder returns and drive continued strong organic growth rates.

Finally, I'd like to address a couple of executive announcements that we made this quarter. First, Bruce Lowthers decided to leave FIS to pursue a role outside the company. Over the past 15 years, Bruce has been a champion of our transformation, and the result of his focus and contributions has been significant acceleration in growth at FIS. Thank you for your service to FIS, Bruce.

We wish you all the best with your next role. Second, I'm pleased to announce that I've promoted Stephanie Ferris to be president of FIS. Stephanie returned to the company in September of last year as chief administration officer, after originally joining FIS from the acquisition of Worldpay in 2019. She is a seasoned global executive with over 25 years of experience leading payments and technology platform businesses.

She also has impressive experience driving digital transformation, frontline customer engagement and inclusive growth. This is a tremendous achievement, and we are excited to have Stephanie step into this new role. Congratulations, Stephanie. She joins us today and will continue to participate on future earnings calls.

Stephanie, welcome. I'll turn the call to you.

Stephanie Ferris -- President

Thanks, Gary. Good morning, everyone. I'm excited to be here and to share a little bit more about our vision to unlock the power of FIS. FIS is uniquely positioned with the best and broadest set of assets delivered at scale and with global reach.

All the start-ups that are coming to market are trying to create what we already have. They want to offer embedded finance solutions and are trying to build those capabilities one by one. We already have leading deposit, lending, issuing and B2B solutions. And we have a large network of financial institutions, capital markets and merchant participants to drive adoption at a global scale.

Our clients compete effectively within their traditional segments, but the market post-pandemic has shifted in the lines between traditional segments or foreign. By bringing all of our capabilities together to deliver embedded finance solutions, we have the unique opportunity to help our clients compete and win in this new reality. I'll build on this by providing an example of how we are translating our leading crypto capabilities within eCommerce to drive innovation across all of FIS. Beginning with slide 10, we see merchant's eCommerce opportunity as centered around three segments: enterprise, platforms, and small to medium-sized businesses.

Today, our expertise is in the enterprise space. Multinational enterprises and leading global brands choose us because of our global reach, best-in-class authorization and fraud rates and white-glove service. We consistently win landmark clients who need our help to expand into new countries or to help them solve their challenges using our payments expertise. The clients in these segments have unique needs.

Serving millions of small businesses directly or through a platform requires specialized capabilities like automated underwriting and onboarding. Payrix will modernize our client experience through their next-generation product suite and enable us to deliver differentiated embedded finance and payment experiences for platforms that primarily serve SMBs, speeding our entry into this high-growth segment of eCommerce. Their team is extremely talented, and we are excited to welcome them into the FIS family. Following the Payrix acquisition, we expect to formally launch our entry into platforms later this year, and I will be back again next quarter to share an update with you about this.

But first, on slide 11, I'd like to give you a little more color about how we operate in enterprise eCommerce and provide a case study about why we win in the crypto vertical. We serve four of the top five exchanges and have 100% client retention. Our success reflects a combination of both our product and innovation leadership. FIS was the first to offer Apple Pay for crypto currencies, and now we are launching direct settlement in crypto.

We offer 14 payment methods across 46 markets and were named Crypto Payment Service Provider of the Year by Crypto AM in 2021. We were able to quickly expand into this emerging vertical because we have the technology and the expertise to enter new markets faster than our peers. We also have sophisticated solutions that we developed by serving other complex verticals, like travel and airlines, that allow us to assess and properly underwrite new clients that other players may not understand. Here's where it gets interesting.

We are expanding our expertise in crypto from merchant to both banking and capital markets. Our clients in all of our segments want access to this high-growth vertical. We're enabling banks to open cryptocurrency accounts for their customers. And we enable them to buy, sell and hold crypto in partnership with NYDIG.

By integrating Digital One, our clients can offer these accounts to their customers through their mobile apps, displaying crypto and traditional checking and saving accounts side by side. We are also blazing the trail for cryptocard issuing within our banking segment. FIS will handle all aspects of card management and processing for CEX.IO. This crypto exchange is offering a new line of crypto-based consumer cards across Europe and the U.K.

by leveraging our innovative capabilities. Additionally, our capital markets segment developed a software that powers exchanges, traders and asset managers. These solutions are in demand by our crypto exchange clients, and we are quickly deploying our expertise there. In summary, we are expanding the reach of our crypto expertise from merchant to banking and capital markets in order to enable all of our clients to participate in this high-growth vertical.

With that, I'll now turn the call over to Woody to discuss our financial results and provide 2022 guidance. Woody?

Woody Woodall -- Chief Financial Officer

Thanks, Stephanie, and thank you all for joining us. I will begin with our fourth quarter and full year results, then touch on our balance sheet, cash flow and 2022 guidance before taking you through our enhanced market disclosures. Starting with the fourth quarter on slide 13. On a consolidated basis, revenue grew 11% and adjusted EBITDA margins expanded 120 basis points and generated adjusted EPS of $1.92 per share.

Both banking and capital markets revenue grew 8%, while merchant revenue growth accelerated by 500 basis points sequentially to 19%. Banking's adjusted EBITDA margin expanded 30 basis points to 45%, primarily due to continued operating leverage. Merchant's adjusted EBITDA margin expanded 140 basis points to 52%, primarily due to revenue and cost synergies associated with the Worldpay acquisition. Capital markets' adjusted EBITDA margin remained constant at 52%, primarily reflecting higher bonus expense related to strong revenue growth, which offset operating leverage from new wins.

Turning to full year results on slide 14. On a consolidated basis, revenue grew 11%. Adjusted EBITDA margins were 44%, and adjusted EPS was $6.55 per share. Adjusted EBITDA margins expanded 220 basis points, primarily due to operating leverage and strong execution of revenue and cost synergies associated with the Worldpay acquisition.

In banking, revenue growth accelerated 8%, primarily due to strong new sales execution. Based on our large and growing backlog, as well as our expanding pipeline of new opportunities, we expect banking to continue to grow high single digits in the midterm. In 2022, banking will grow 6% or more due to approximately 200 basis points in grow overs. This is primarily due to lapping pandemic-related stimulus and expected lower termination fees.

Merchant revenue grew 19%. While new variants of COVID-19 are affecting near-term results, our strong new sales gives us confidence that merchant will grow low double digits in 2022 and beyond. Capital markets also continues to execute well with revenue growth of 8%. This segment is well positioned to accelerate revenue growth to the mid- to upper-single digits in 2022, driven by another strong year of new sales, cross-sell opportunities and recurring revenue growth.

Turning to slide 15. I'll touch on the strength of our balance sheet and free cash flow. We generated $3.6 billion of free cash flow for the full year, which we used to buy back 15 million shares, and we paid nearly $1 billion in dividends during 2021. During the fourth quarter, we generated approximately $850 million in free cash flow, which we primarily used to acquire Payrix.

In addition, our board of directors recently increased our quarterly dividend by 21% to $0.47 per share. We intend to increase our dividend by approximately 20% per year. This will allow us to gradually grow our dividend payout ratio to approximately 35% of adjusted net income. Turning to our guidance on slide 16.

In the first quarter, we expect organic revenue growth of 7% to 8%. We expect our adjusted EBITDA margin to increase by approximately 50 basis points to 41%. And lastly, we expect to generate adjusted EPS of $1.44 to $1.47 per share. For the full year, we expect organic revenue growth of 7% to 9%.

We expect our adjusted EBITDA margin to increase by 50 to 100 basis points to approximately 45%. We expect to generate 150 to 200 basis points of margin expansion from operating leverage and annualization of synergies. This will be partially offset by higher labor costs resulting in our guidance of 50 to 100 basis points of margin expansion for the full year. As a result of our accelerating revenue growth and expanding margins, we expect adjusted EPS to grow 11% to 13% to a range of $7.25 to $7.37 per share for full year 2022.

We expect to generate free cash flow growth of approximately 15% and improved conversion of about 27% of revenue, which is approaching 95% of earnings for the full year. To start of the year, we'll repay debt and reduce our leverage below three turns before we resume share repurchase. Our guidance then assumes share repurchases of approximately $3 billion, mostly during the back half of 2022. Please note that we have provided our detailed assumptions for depreciation and amortization, tax rate and share count within the appendix of this presentation on slides 26 and 27.

Turning now to our enhanced merchant disclosures on slide 18. Our volume trends continue to track closely with the networks. As compared to 2020, global volume growth remained stable at 17%. As a reminder, the networks also experienced stable volume growth between the third and the fourth quarters.

Our U.S. volume growth accelerated by 200 basis points to 19%. This trend is again consistent with the networks. On slide 19, we show volume growth trends as compared to 2019.

Our global volume growth remained consistent at 23%, while the networks' volumes accelerated modestly. This is due to our larger U.K. exposure, where Omicron variant had a significant impact, as I will show you in a few minutes. In the U.S., our volume accelerated by 100 basis points to 26%.

We do not currently serve SMB eCom or platforms, which help the networks to accelerate slightly more than us this quarter. We're looking to use Payrix as a first step to close this gap, as Stephanie mentioned earlier. As we begin 2022, our volume trends continue to be consistent with the networks in January. International volumes began to improve in January as new Omicron cases started to slow in the U.K.

In the U.S., volume growth slowed modestly in January as we lap last year's stimulus. As the Omicron variant recedes, we expect our volumes to continue to track closely with the networks. Turning to slide 20. We updated the detailed subsegment data that we showed last quarter to include our fourth quarter results as compared to 2019.

While all our subsegments continue to grow well above 2019 levels, the Omicron variant impacted the fourth quarter. Omicron primarily affected revenue yield as compared to 2019 by reducing the mix of SMB, travel and international volumes for the quarter. On a more positive note, as compared to 2020, merchant yield improved both sequentially and on a year-over-year basis, demonstrating our future revenue growth potential as high-yielding segments recover from the pandemic. Over the next few slides, I will talk you through the results of each subsegment and how they contributed to our merchant revenue growth.

Global eCommerce generated $1.2 billion in revenue during 2021, as shown on slide 21. During the fourth quarter, global eCom revenue grew 31% as compared to 2019, excluding travel and airlines. Even with these strong results, we saw the effects of Omicron in travel and airlines. The chart on the right shows our monthly travel volumes versus 2019.

Travel accelerated through November, but then pulled back to May levels in December. The difference between same-store sales and our total volume growth is due to new client wins. As travel comes back and exciting new verticals like crypto continue to emerge, we see significant opportunity for future growth. Turning to slide 22.

Enterprise generated $2 billion in revenue during 2021. During the fourth quarter, revenue grew 16% year over year and 8% over 2019. In the upper right-hand corner, the impacts of Omicron on the U.K. are obvious, where growth dropped to zero in December from mid-teen levels previously.

Our U.S. Enterprise business also saw some pullback in December, but it was not nearly as severe as in the U.K. SMB revenue growth over 2019 decelerated to 11% in the fourth quarter, as shown on slide 23. This is clearly due to Omicron as the deceleration occurred in all verticals.

As this variant recedes, we expect growth to reaccelerate. However, we are more excited by the opportunity to push into SMBs with eCommerce. In summary, while we continue to see impacts from the pandemic in the short term, merchant TAM is expected to grow 8% to 10% through the midterm, as shown on slide 24. Further, as we continue to grow eCommerce as a larger and larger portion of our overall revenue mix, we're confident in our ability to outpace TAM growth and to generate low double-digit merchant revenue growth in 2022 and beyond.

The combination of merchant growth with our continued strength in banking and capital markets gives us confidence in our 2022 outlook and in the future of FIS. I would like to thank our colleagues for their continued efforts in serving our clients and driving our business forward. With that, I'd like to open the line for Q&A. Operator?

Questions & Answers:

Operator

[Operator instructions] Our first question will come from Rayna Kumar with UBS. Please go ahead.

Rayna Kumar -- UBS -- Analyst

Good morning, Gary and team, and congratulations, Stephanie. Can you comment on the banking solutions' demand environment and where you expect your financial institutional clients to focus IT spend this year?

Gary Norcross -- Chairman and Chief Executive Officer

Yeah. No, Rayna, thanks. Yeah, it's a great question. Honestly, we don't -- we're not seeing a lot of change from a demand standpoint.

It's been very strong, and it continues to accelerate that strength into 2022. We're coming off a record year in banking sales. That was off a record year in 2020 as well in 2019. So we've seen consistent acceleration of our signings.

What we're seeing in that industry is a massive transformation and the needs to occur off legacy technologies. And we are well ahead of this trend. As you know, we started our cloud migration over five years ago. We started our cloud-native development applications in market three years ago and then brought modern banking with the last one that we brought forward.

So seen a really strong pipeline around all of those topics as financial institutions around the world are going to need to transform to go to more componentized, highly nimble architectures, open systems to allow them to drive and innovate against some of the other disruptors that are entering in the space. As you think about interest rates, and obviously, there's been a lot of touting of interest rate expansion, this is a good news for our financial institutions. So it will actually embolden them to continue to accelerate that spend and that demand on those fronts. But we think we're extremely well positioned going in 2022.

We're coming off a great year in banking, and that's going to continue throughout next year.

Rayna Kumar -- UBS -- Analyst

Got it. Very helpful. So Payrix, that's a very interesting acquisition. If you can talk about what the acquisition brings to the table for FIS in regards to vertical exposure and new eCommerce capabilities.

And then, for the purposes of modeling, what impact should we anticipate from Payrix on your revenue and earnings this year? Thank you.

Stephanie Ferris -- President

Yeah, no. I'm happy to talk about that. So Payrix is a small but really highly strategic acquisition for us. First of all, it brings our leading global eCommerce capabilities downstream to SMBs through platforms, similar to Stripe Connect.

Specifically, it brings capabilities around automated underwriting and onboarding, which are really critical for us to be able to access that marketplace. Secondly, and even more strategically, it enables us to add our unique card presence capabilities to create an omnichannel experience, along with our embedded finance capabilities, whether it's deposit taking, issuing banking-as-a-service capability. So we think about this acquisition as being very strategic, both in terms of accessing an eCommerce market we haven't been in before, but also really unlocking the value of FIS as we start to be able to deliver embedded financial services out to this marketplace.

Woody Woodall -- Chief Financial Officer

In terms of its financial impact, I would tell you, it's immaterial to the top line organic growth rate and probably a few pennies dilutive, so modestly dilutive to EPS.

Rayna Kumar -- UBS -- Analyst

Got it. Thank you.

Operator

Thank you. Our next question will come from Jason Kupferberg with Bank of America. Please go ahead.

Jason Kupferberg -- Bank of America Merrill Lynch -- Analyst

Good morning, guys. Thanks for taking the question. I just wanted to go back to the slides where you outlined the volume growth versus the networks. Like you said, the trajectory is quite similar, but just the absolute level of growth.

Obviously, the spread there widened out a bit in the quarter. I mean, do you attribute all of that to Omicron? I'm just trying to get a sense of how investors' expectations should maybe be calibrated during 2022. Do you think there can actually be some convergence in the absolute level of volume growth for FIS merchant versus the networks? And is there any way to perhaps suggest what merchant volume or revenue growth in the quarter would have been, if not for Omicron? Thank you.

Woody Woodall -- Chief Financial Officer

Yeah, I think it definitely was Omicron-related. I think it's very clear, as you look at the U.K. and our exposure to the U.K. compared to the others potentially, 13% or so of our revenue comes out of the U.K.

from the merchant segment. And obviously, it dropped to zero in December. So you're clearly seeing the impacts. As that comes back, you certainly anticipate volumes to come back around it as well.

So we feel like it was definitely Omicron-related. We saw some improvement in volumes in January, particularly in the U.K., as we started to see cases reduce there and some of the reopening come back there. And obviously, it's having a little bit of an impact on our guide for the first quarter, but it's Omicron-related.

Jason Kupferberg -- Bank of America Merrill Lynch -- Analyst

OK. Understood. And then, just a follow-up on the SMB eCom strategy. It sounds like there'll be more formal announcements over the next quarter or so.

But how long do you think this takes to move the needle on overall merchant segment revenue growth once the strategy is implemented and you start to execute out in the market?

Gary Norcross -- Chairman and Chief Executive Officer

Why don't I start, and then we'll let Stephanie add. I mean, as we're guiding to -- for the merchant business, we really see the Merchant business growing in low double digits this coming year. If you look at historically based on where the merchant business group prior to COVID, this is certainly a substantial acceleration given our exposure into eCommerce at the enterprise level. We counted eCom growing at greater than 30%, minus travel and airlines.

So we've got a really strong business. This actually, in 2022 in the short term, is going to be very little tailwind for us. But we do think it's very strategic to move into this new market that we've talked about on prior calls that we are not traditionally in. So that's why we think this acquisition is going to be very important for our future expansion in this new market.

But I'll let Stephanie add to that.

Stephanie Ferris -- President

No, I think Gary nailed to answer to that. The other thing I would say is, as we look at the merchant segment and we think about eCommerce as being we're one of the best-in-class and being able to access a market we haven't been in before, it's obviously very strategic. It also enables us to bring the embedded finance capabilities of the banking and capital markets segments into this customer set and really starts to unlock that full value. And we do -- we're very excited about that.

Now granted, that's going to take us a bit of time, to Gary's point, but the asset is really strategic for us, both from accessing the eCommerce segment, as well as really starting to deliver those embedded finance capabilities that we already have. So we're really excited about it.

Jason Kupferberg -- Bank of America Merrill Lynch -- Analyst

All right. Well, thank you for the comments.

Operator

Thank you. Our next question will come from John Davis with Raymond James. Please go ahead.

John Davis -- Raymond James -- Analyst

Hey, good morning, guys. First, I just wanted to touch on banking. Woody, you called out about 200 basis point kind of grow over headwinds, stimulus and term fees. So first, maybe a breakout there.

Is that basically 100 basis points each? And also, do you have anything in the guide for any of the CPI inflators that are in the contracts in the banking segment? Or is that just outside of that 6% number?

Woody Woodall -- Chief Financial Officer

Yeah. The impact on stimulus is about 150 basis points, think primarily Paycheck Protection Program and the lending capabilities that we rolled out last year. The term fees are roughly 50 basis points in our expectation of just lower term fees this year. We do have CPI within our contracts.

They roll over in terms of how the contracts roll in terms of annualization. So that will come on over the course of the year. It's really how we think about the shape of the year too, where we expect a little higher growth in the back half of the year as those contracts kick in with CPI.

John Davis -- Raymond James -- Analyst

OK. Thanks. And then, just a quick follow-up on free cash flow. You talked to 95% conversion, but 15% free cash flow growth, which is a little bit faster than EPS growth.

I mean, I guess, how do we think about that 95% going forward? And would you expect the EPS growth to catch the cash flow growth once the kind of the capex roll through to D&A?

Woody Woodall -- Chief Financial Officer

Yeah. It's a great point, John. We're trying to highlight it as well. We've been spending heavier than many in the capex world for the past several years.

We actually anticipate capex about 8% to 9% this year, but I could see it rolling toward the lower end of that outlook. As we see that, you'll see cash flow outpace earnings per share potentially for the next few years, and then it will normalize out, where you've seen it go the other direction for the last several years, where we were expanding capex and then the D&A is catching up right now. So the D&A right now is one of the headwinds that we're seeing in terms of higher-teens EPS growth, but you're seeing it convert into free cash flow at that 15% growth level.

John Davis -- Raymond James -- Analyst

OK. Appreciate it. Thanks, guys.

Operator

Thank you. Our next question will come from Darrin Peller with Wolfe Research. Please go ahead.

Darrin Peller -- Wolfe Research -- Analyst

Thanks, guys. Let's shift gears to the banking segment for a minute. I know a lot of talk about merchant, but just given the magnitude of the growth there and the size, along with -- and maybe just touch on Cap Markets too. Gary, can you just tell us if you think you have all the right assets now? There's been a lot of smaller companies moving up the value chain in terms of trying to get bigger and work on bigger banks.

But in terms of what you can offer from a cloud-based offering for both core and some of the ancillary products, do you have enough to see yourself growing in that segment, in that 7% to 9% range, call it, medium term, medium to long term for banking? And then look, I mean, cap markets has been strong, but just remind us what's really driving that and if that's sustainable in your mind.

Gary Norcross -- Chairman and Chief Executive Officer

Yeah, Darrin, it's a great question. The quick answer is absolutely. I mean, we think these are, in the near term, easily 7% to 9% growers as we get beyond a couple of these headwinds in banking. From an asset pool, I think we're best in class at this point in time.

Woody just highlighted it. Our free cash flow is increasing because our large program spend is coming down, because our large programs are completing, right? And so we knew we were going to have to go through this process. But if you look from a banking standpoint and you look at our Digital One capabilities, which is truly an omnichannel digital experience, cloud native from the ground up, built, we're into hundreds and hundreds of institutions now that have deployed various components of that Digital One platform. When you look at Code Connect, we've got a similar scenario.

You look at our modern banking platform and some of our key wins. With that being said, we have had some competitors announced that they're entering into the space. And we think that just endorses our strategy that we started three-plus years ago. I mean, so today, we're leader in cloud deployment.

No one can beat us on availability. No one can beat us on total cost of ownership and delivery to improve our private cloud, as well as our ability to burst to the public cloud. When you look at our application stack, we have the most advanced solid application stack in market today and even our capabilities of driving further outcomes through back-office type services, etc. When you look at capital markets, it's a very similar story.

We told everybody that we were going to start leaning into Software-as-a-Service and deploying in a one-to-many model our leading capabilities after we brought our applications together and modernize those an end-to-end solution stack. You look at what we saw in 2021, you look at what we're seeing in 2022, that acceleration is just going to continue. The only headwind we have in that market is really our license fee grow-over business, which, over the years, we've been telling the market very consistently, the percentage of revenue tied to license fees continues to decline. But we do still have license fee volatility due to the term nature of those fees.

The reoccurring revenue on capital markets has been growing very, very strong now for a number of years that continued through 2021. So both of these businesses have continued to perform exceptionally well, and our timing has been very strong, given now this inflection point that all of our financial institutions and large investment houses, private equity firms are going to need to be going through a modernization strategy, and they're all looking to drive that in a highly resilient outsourced fashion. So we feel great about these two businesses, a little headwind in the banking business this year due to the grow-overs Woody talked about. But this is a very -- these two businesses can easily grow greater than 7% in the coming years, and we feel very good about it.

Darrin Peller -- Wolfe Research -- Analyst

All right. That's helpful, Gary. Just a quick follow-up is on the capital allocation strategy and the focus there, just given if you believe everything you're saying, the stock should obviously move in the right direction. So can you remind us of the capital, the liquidity you really have when considering free cash and your debt capacity that you can actually put toward either buybacks or even M&A and on M&A? Obviously, there's probably a narrowing of bid as spreads in some of these smaller fintech growth e-companies.

So what are your thoughts now given the way the market is trading around and even on the private side, some of the valuations for some of these growth assets? Thanks, guys.

Woody Woodall -- Chief Financial Officer

Yeah, Darrin, it's interesting I talked about it, we've got a couple of things going there. One, we're going to pay debt down below three turns. In a rising interest rate environment, we think our credit rating is extraordinarily important. The pandemic put us behind probably two years in terms of reducing our debt back to below three turns.

So we're going to focus on that first. At that point in time, call it, midyear this year, we'll look to either buy back shares or do additional M&A. As you've heard us consistently talk about, we would rather do M&A, but we look at share buyback for default purposes. And your other point is also very interesting, where there's some interesting assets that are in the marketplace.

Valuations look a lot differently than they did, say, six months ago. So I think it maybe resets a bit of a chessboard for other assets that are out that we might be able to consolidate or bring into our distribution channel.

Gary Norcross -- Chairman and Chief Executive Officer

Yeah, Darrin. The only thing I'd add to that is, look, I mean, Woody's kind of hitting on it. The aperture gets more open, right, as some of these pullbacks occur in valuations. So we've all always talked about it.

When we look at M&A, we've got to find capabilities that are driving new product or service to an existing market we serve or break us into an adjacency. Financials matter, right? Obviously, we've got to make a strong investment for our shareholders, and that return is important. Culture is important. But we can have a pretty wide aperture when it comes to things that we look at now given the scope of our business.

But M&A will continue to play an important role once we get our balance sheet reloaded, and we'll continue to look for strategic ways to accelerate our growth from here. We're not looking to do turnaround deals, and that we've been very clear about that. We've gone through a tremendous transformation at FIS. You can go across any one of our businesses, and you look at this modernization effort is starting to become behind us, right, with our capabilities in market, even when you look at Access Worldpay and the new acquiring platform on the merchant side.

So really, it's going to be all about things that can accelerate our growth from these current levels. And last year was a record growth year for us. So just really strong operating performance. So we'll continue to evaluate that lens on M&A.

Darrin Peller -- Wolfe Research -- Analyst

Thanks, guys.

Operator

Thank you. Our next question will come from Ramsey El-Assal with Barclays. Please go ahead.

Ramsey El-Assal -- Barclays -- Analyst

Hi. Thanks so much for taking my question this morning. I wanted -- I was wondering if I could ask you about revenue yield and sort of the trend for the rest of the year, whether we should continue to expect see expansion in fiscal '22, I guess, due primarily to travel -- recovery in travel volumes and other mix-related factors. But any commentary on the revenue yield kind of trend and expectations in '22, would be appreciated.

Woody Woodall -- Chief Financial Officer

Yeah. Thanks, Ramsey. Yes, we anticipate revenue yields to continue to improve. As you compare to 2020, revenue yields were a minus 3% in the third quarter, a plus 2% in the fourth quarter.

So you're starting to see that. You compare back to 2019, we saw a little bit of a step back for Omicron. But over the course of the year versus 2019, you saw a minus 14% and minus 16%, then you saw a minus 7%, so improvement and then minus 10%, really impacted by Omicron in the fourth quarter. But obviously, we expect those yields to continue to come forward and trying to highlight that really looking at the sequential and year over year in 2020 yields.

Ramsey El-Assal -- Barclays -- Analyst

Got it. All right. And a follow-up for me. I wanted to ask about the slide seven and the componentized cross-segment solutions that you discussed.

What type of internal work needs to be done technologically, organizationally? What type of integration needs to be done in order to really execute on that strategy? And just also if you could just comment on whether share repurchase is contemplated in the EPS guide.

Gary Norcross -- Chairman and Chief Executive Officer

Yeah. So let me take that. Let me take the cross-segment sales. I think the team has done an excellent job driving cross sales through the Worldpay acquisition.

I mean, we exceeded more than $700 million in cross sales, and so we far exceeded our original guide of what we thought we would get. What that has opened up is this opportunity that we just got significant cross-sell opportunities across the entire base. So what needs to be done from a product standpoint is we need to continue to drive our investment in some of these modernization platforms and exposure through componentization. We're going to continue to work on that through this year.

And then, those programs will predominantly be completed at that time. You've seen us lay the groundwork and some of the -- some stuff we've done through cloud. We've got now over 83% of our compute in the cloud. So a lot of the technical aspects of this are done.

Now organizationally, we are starting to pull the organization together in a very different way with our go-to-market motion. So historically, while our sales have been enterprise in nature, they've been enterprise in nature within the segment. We're now lifting those up, and we're starting to bring our sales teams together, where they're enterprise in nature across the entire company. And we're doing that by focusing first on our top 200 client base.

That's where a lot -- most of our revenue is generated. We want to lean in on to that base first and really drive that sales team to engage, where they're bringing the full capability of FIS. We're really just getting started on that. We've got a little over -- there's a little over 20 of our top 200 clients today that are executing across all three segments.

That's going to grow exponentially with this first change. We've had a lot of success with this in the past, where we've lifted up our sales from the product level to -- first to the customer level and then to the segment level. We're doing the same thing now. We're lifting it up to the enterprise level.

So we're really excited about this opportunity. We think this alone could accelerate our growth rate from where our current 7% to 9% targets are. So we're going to certainly continue to keep our investors up to date on this. Just made the change last week as we rolled it out through our sales kickoff meetings, and so really excited about what the future holds here.

Woody Woodall -- Chief Financial Officer

To answer the second part of your question around share buyback, we do anticipate and modeled about $3 billion in share repurchase, and that's mostly in the back half of the year, Ramsey.

Ramsey El-Assal -- Barclays -- Analyst

Thank you very much. Appreciate it.

Operator

Thank you. Our next question will come from Dave Koning with Baird. Please go ahead.

Dave Koning -- Robert W. Baird and Company -- Analyst

Yeah. Hey, guys. Thank you. And maybe to ask the yield question another way.

I think yield this year is about 89% of 2019. Is there any reason that the mix has permanently shifted? Or do you think it could come back to a normal economy? And if so, if we get back to 100%, you could have a volume year of normal 10%, let's say, plus 10% extra from yield. Like could you have a 20% merchant yield just because merchant gets back to normal kind of mix of business?

Woody Woodall -- Chief Financial Officer

Yeah. As we've talked about, as recovery occurs, particularly in the high-yielding verticals, we certainly would anticipate that to invert the other way. As we've talked about for last several quarters, actually. That said, we don't see travel coming back 100% in 2022.

We do continue to expect it to increase over the course of the year, but not to be at 100% of pre-pandemic levels. But you're right, we do anticipate seeing yields being a net benefit as those higher-yielding verticals return back to more normalized levels.

Gary Norcross -- Chairman and Chief Executive Officer

Simply stated, Dave, we're seeing no difference in yields as they decline due to the pandemic, as they come back to after the pandemic, the yields return. So there's -- we're seeing zero evidence of anything impacting our yields from that viewpoint.

Dave Koning -- Robert W. Baird and Company -- Analyst

Got you. Thank you. And then, just as a follow-up. I think, if I remember right, back when you announced Worldpay, I think you assumed kind of mid-teens EPS growth kind of through the -- in the future.

And I know you're guiding to 11% to 13% this year. Despite pretty good revenue growth and recovery type revenue growth. Maybe what's the delta there? And can we get back to mid-teens or better in the future?

Woody Woodall -- Chief Financial Officer

Yeah, I think we can. I think you got a couple of things in terms of the yields here. We've got some labor costs that are a bit of a headwind, about 100 basis points of headwind in that 50 to 100 basis point margin expansion guide. When we pulled that together originally, I don't think we anticipated this level of labor costs.

And then, you're seeing some of the D&A being a little bit of a headwind in the short term. And as we normalize that over the next few years, we think you'll see that mid-teens growth again in EPS.

Dave Koning -- Robert W. Baird and Company -- Analyst

Got you. Thanks, guys.

Operator

Thank you. Our next question will come from Timothy Chiodo with Credit Suisse. Please go ahead.

Timothy Chiodo -- Credit Suisse -- Analyst

Great. Thank you. Good morning. Thanks for taking this question.

It's on the embedded finance opportunity. You talked a lot about addressing this with new platforms and expansion into SMB and eCommerce. Maybe you could talk a little bit about the opportunity for embedded finance with your existing book of software partners through the traditional integrated payments business? And as a follow-up, maybe you could just give us an update on the number of software companies that you're already working with through that business. I understand it's a pretty large absolute number and, any good starting point.

Stephanie Ferris -- President

Yeah, no, great. It's a great question. Happy to chat. So our existing ISV business, we have about 1,000 partners there.

In order for us to really enable embedded finance, we needed automated onboarding and underwriting capabilities. Because you don't do that as a one-off, you do that really automated. So that's what the Payrix acquisition brings to us is those capabilities. We've been partnered with them.

They've been integrated to us using our best-in-class acquiring payment capabilities since they started in 2015. So they bring that automated boarding and underwriting. And so, you're exactly right. We can offer out now that capability to our existing ISV base to the extent it's relevant to them because, as you know, it's vertical-specific in terms of if this capability works for you.

But it is an opportunity to go through our existing base. As you know, our strategy has been software-led, not the current market -- the current term for that as platforms. But our strategy within SMB has always been software-led dating way back to when we bought Mercury. The acquisition of Payrix really starts to strategically pivot us, continuing our software-led strategy, but now getting us to access our eCommerce capabilities and our embedded finance capabilities.

So we're pretty excited about it, both in terms of being able to access the platforms that sit in market we can't serve today because we didn't have the CNP capabilities, but also to go back to our existing ISV base and offer out these capabilities as well, including not just payments but also embedded finance. So really excited about it.

Timothy Chiodo -- Credit Suisse -- Analyst

Great. Thank you.

Operator

Thank you. And our next question will come from Lisa Ellis with MoffettNathanson. Please go ahead.

Lisa Ellis -- MoffettNathanson -- Analyst

Hi. Thanks for taking my question. I wanted to follow up on the announcement you made around AuthMax Preferred. You had highlighted this capability, I recall, at the time of the Worldpay acquisition, the ability to connect the issuer processing side and the acquiring side together to offer this differentiated solution.

Can you just maybe dimension a bit how we should think about what portion of either the TAM or your existing customer base this type of capability is applicable to? And kind of what opportunity that could drive for FIS?

Gary Norcross -- Chairman and Chief Executive Officer

Yeah, Lisa, it's a great question. I'll start. We'll let Stephanie add in on this. But at the end of the day, I mean, this is a fantastic product that's specific -- not specifically, it's good for all of our merchants, but our eCommerce merchants really are going to like this solution.

As you pointed out, this was an area that we thought there was a unique opportunity for as we put the companies together. The team has successfully come together. There was a lot of work here in getting these two data streams together and really being able to tie all of this together, successfully launched this in very late Q4. As we highlighted, Netflix very early adopter of it.

We really can see some significant improvement in decline rates. And when you're especially in the eCommerce world, that decline rate is very, very important to manage that and to make that as strong as possible in order to drive onboarding growth. So I think we'll see a lot of demand early on from our eCom merchants, but it will push down into all of our merchant capabilities. It's just another way for us to differentiate the strength of FIS going forward.

But just launched it in late Q4 and just coming online, so excited about the future of it.

Stephanie Ferris -- President

Yeah. I think it's very relevant, as Gary said, for our global eCommerce clients. The power of having issuing and acquiring data together is very powerful. I also think -- I keep beating this drum on platforms, but I also think that it's really relevant for platforms that serve SMBs or marketplaces because, as Gary said, they're really about driving those businesses' revenue.

And so, being able to authorize a transaction or more transactions is really relevant to them. It drives revenue to the end business. And so, we think it not only is really relevant for our global eCommerce space, but also for really any Software-as-a-Service platform or a marketplace out there who's really trying to help SMBs deliver more revenue to their end customers.

Lisa Ellis -- MoffettNathanson -- Analyst

OK. And then, my follow-up was going to be on the SMB's eCom strategy that you highlighted on the right-hand side of slide 10. This is -- you highlighted at the bottom, attractive new TAM opportunity, and I know SMBs is an area where FIS has historically not been a huge focus. Can you just elaborate a bit here on what you're going to be doing differently to really differentiate FIS in this space relative to some of the more, I guess, vertical specific, like PayFac and other players? And what's a pretty competitive space with a lot of the players may be coming up from the very small end of that market? Thank you.

Stephanie Ferris -- President

Yeah. So really, it's all about -- we do believe that payments is going to be embedded in software. Software is how payments are going to be consumed. And so, whether you're getting a payment through a platform or through a marketplace, we do ultimately see software being the leading capability for that, which is why we bought the Payrix asset.

Lisa, we're starting with platforms, the software-led piece, and then we're giving ourselves some optionality around SMB direct. But our strategy is really around enabling those Software-as-a-Service platforms to enable their SMBs long term. We do see vertical-specific strategies. As you know, we haven't been a buyer of software.

We don't think that's the right answer for us. We think the right answer for us is to be the embedded finance and payments player for all those Software-as-a-Service companies. And you can really start to see there's a lot of niche players that are coming up and providing all kinds of as-a-service capabilities to these platforms, software as a -- or I'm sorry, Payments-as-a-Service, Checkout-as-a-Service, Risk-as-a-Service. We see -- in the midterm, we stand perfectly positioned to deliver those types of services.

We're just starting with what we have in-house, which is payments and Banking-as-a-Service solutions. But we don't see these platforms long-term wanting to have that many vendors and that much complexity in their back office. So hopefully, that helps.

Lisa Ellis -- MoffettNathanson -- Analyst

Yes, super helpful. Thank you.

Operator

Thank you. And we do have time for one last question. That will come from Tien-Tsin Huang with J.P. Morgan.

Please go ahead.

Tien-Tsin Huang -- J.P. Morgan -- Analyst

Hey, thanks so much. Good morning. I just wanted to follow up on Tim and Lisa's question here and what you said there, Stephanie. By the way, congrats on the title and the change.

I'm happy for you. Just on the integrated versus embedded payments sort of strategy change, just thinking about the back book and now the front book of how you're describing it, what are the implications there for revenue? And can -- do those two coexist? I'm just trying to understand how that transition plays out here.

Stephanie Ferris -- President

Yeah. So great question, Tien-Tsin. So I think the world started with integrated. I think as software pushed down market and became much more competitive, the world has moved and evolved to embedded.

So those platforms -- the integrated solution will always be available, but it's a bit of an evolution, which is now we need an embedded payments capability. And then, I think you're even -- the next gen, as well as embedded fintech. I don't envision embedded payments lives by itself very long either. I do think you're seeing the world converge on embedded fintech.

I think the nice thing about the Payrix acquisition for us, it enables us to give any model people want. So some people might be really happy with their integrated solution in that model. We now have the embedded payment solution in that model. And as you know, we have a PayFac solution in that model.

We do have a pretty significant back book of card-present ISVs, and we're pretty excited about it because we think that we can now offer our embedded capabilities. Remember, along with these embedded capabilities, beyond onboarding and underwriting, there's also all kinds of other a la carte services we can offer like KYC, credit risk monitoring, a lot of capabilities that these platforms have been looking for. But have to keep a close eye out on the financials around that, but we think we're pretty good at that, and we're excited about the opportunity, both for front book, and back book.

Tien-Tsin Huang -- J.P. Morgan -- Analyst

Got you. Got you. No, it's good to have the good -- the full spectrum. So and there's not one solution that fits everyone.

So I think I appreciate that. I know we're at an hour here, but I wanted to ask one on margins, if you don't mind. Just you're guiding a little bit more expansion than what we had expected. Do you have enough room to invest and make the push toward some of these -- for the platform side, as well as implementing the back book, which sounds like the bookings were quite good? Just curious around the balance of investing, integrating versus playing out the normal margin expansion.

Thank you.

Woody Woodall -- Chief Financial Officer

Yeah. Thanks, Tien-Tsin. It's a great question. We always try to balance margin expansion versus investment.

We haven't pulled back on our capital as well. The synergies and the level of synergies that we've been able to push through and the operating leverage within the business allows us to continue to invest but to still drive that margin expansion, even in light of higher labor cost this year. So we feel good about having enough money to invest and having enough resource focused toward that investment. You also -- while we talked about capex maybe not being quite as high as it has been in the past, we still have a good bit of capex, call it, 8% of revenue outlined to build out some of those capability Stephanie's talking about as well.

So we think we're properly resourced and feel good about being able to deliver these capabilities that will help drive revenue growth in '23 and '24 and beyond.

Tien-Tsin Huang -- J.P. Morgan -- Analyst

Great. Thank you.

Operator

Ladies and gentlemen, thank you for participating in today's question-and-answer session. I would now like to turn the call back over to Mr. Gary Norcross for any closing remarks.

Gary Norcross -- Chairman and Chief Executive Officer

Thank you again for joining us this morning and thank you to our dedicated colleagues who continue to show their commitment to providing world-class technology solutions for our clients so that they can stay ahead of the curve. This commitment will lay the foundation for our growth in 2022 and beyond. If you have any further questions that were not addressed on this call, please reach out to our investor relations team. Thank you, and I hope you enjoy the rest of your day.

Goodbye.

Operator

[Operator signoff]

Duration: 63 minutes

Call participants:

Nathan Rozof -- Head of Investor Relations

Gary Norcross -- Chairman and Chief Executive Officer

Stephanie Ferris -- President

Woody Woodall -- Chief Financial Officer

Rayna Kumar -- UBS -- Analyst

Jason Kupferberg -- Bank of America Merrill Lynch -- Analyst

John Davis -- Raymond James -- Analyst

Darrin Peller -- Wolfe Research -- Analyst

Ramsey El-Assal -- Barclays -- Analyst

Dave Koning -- Robert W. Baird and Company -- Analyst

Timothy Chiodo -- Credit Suisse -- Analyst

Lisa Ellis -- MoffettNathanson -- Analyst

Tien-Tsin Huang -- J.P. Morgan -- Analyst

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