Fidelity National Information Services (FIS) Q2 2022 Earnings Call Transcript

Fidelity National Information Services (FIS -1.10%)
Q2 2022 Earnings Call
Aug 04, 2022, 8:30 a.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Good day, and welcome to the FIS second quarter 2022 earnings conference call. At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session. [Operator instructions] Please be advised that today's conference is being recorded.

I would now like to hand the conference over to your speaker Mr. Nate Rozof with investor relations. Please go ahead.

Nate Rozof -- Investor Relations

Thank you. Good morning, everyone, and thanks for joining us today. The call is being webcast. Today's news release, corresponding presentation, and webcast are all available on our website at fisglobal.com.

Gary Norcross, our chairman and CEO will provide a business and strategy update; Stephanie Ferris, our president will discuss our operating performance; Woody Woodall, our chief financial officer will then review our financial results and provide forward guidance. And finally, Erik Hoag, our deputy CFO will be with us for the Q&A. 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 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 non-GAAP information to the GAAP and financial information is presented in our earnings release. Finally, I'm excited to share that George Mihalos will be joining our team during the third quarter. He knows both our company and the industry extremely well and will be a valuable addition to FIS.

With that, Gary, I'll turn the call to you.

Gary Norcross -- Chairman and Chief Executive Officer

Thanks, Nate, and thank you for joining us today. I'd like to begin today's call by congratulating Erik Hoag as he begins to transition into his new role as chief financial officer of FIS and by thanking Woody for his more than 14 years of distinguished service with the company. Erik's been with FIS for nearly 15 years, working closely with Woody throughout that time. Having spent most of his time leading financial planning and analysis of FIS, Erik has a strong insight into both our business and financials.

This transition represents the strength of our talent development and succession planning, and I have the utmost confidence in Erik's ability to meet or exceed our financial commitments while returning capital to shareholders. As a key member of my leadership team, Woody's contribution to FIS has been immeasurable. During his tenure, he helped transform FIS into two of the largest strategic acquisitions in the industry. He meticulously managed costs while at the same time empowering our businesses to accelerate their growth profiles, his leadership will be missed.

Woody will step down effective November 4th and remain with the company through a transitionary period as CFO emeritus to ensure a smooth transition. I'll now begin our earnings presentation on Slide 5. FIS delivered another strong operating performance in the second quarter, revenue grew 8% organically to $3.7 billion. EBITDA increased 5% to $1.6 billion, and adjusted EPS grew 7% to $1.73 per share.

Each of our segments exceeded the revenue expectations, with banking growth of 6%, merchant of 14%, and capital markets up 7%. Our decision to continue to invest through the pandemic has put FIS in a leading position as we continue to see strong demand from our clients and prospects. US consumer health and client demand were strong throughout the quarter, as evidenced by our financial results. I want to highlight how proud I am of our team who remain focused on our clients, colleagues, and communities.

They have continued to deliver excellent results in the face of increasingly volatile macro conditions. Turning to Slide 6. In addition to our strong financial model, our competitive position has never been better. We have the most modern solution suites in the market with world-class scale and differentiated end-to-end solutions.

In banking, we continue to be the leader in cloud-native core processing with our modern banking platform. In addition, we are quickly becoming a leader in embedded finance under Stephanie's leadership. We continue to expand our capabilities to enable financial institutions to offer digital banking services to business and commercial clients through a fast-paced offering that can be quickly deployed as a consumer, demands continue to evolve. Our embedded finance solutions are easily scalable, and they create new revenue streams for our clients by enhancing their digital footprint in our merchant segment.

We continue to be a disruptor in the industry. We recently became the first payment processor to eliminate our clients' financial liability for chargebacks due to fraudulent purchases. The new guaranteed payments offering allows us to increase our already industry-leading authorization rates with fraud protection through a single integrated solution. We've also continued to see exceptional strength out of our recent Payrix acquisition, and we're actively integrating Payrix with our ISV channel to develop and enhanced SMB offerings.

Stephanie will expand on these in a moment. In capital markets, we continue to differentiate with end-to-end solutions using a recurring revenue SaaS model. For example, our Cleared Derivatives Suite is a high-performing and modernized technology platform that seamlessly integrates with clients existing infrastructure and spans end-to-end post-trade derivatives processing. We also continue to invest in self-service automation, which is a key feature in our personal pension solution that recently drove a new win with the UK pension service.

Despite the cloudy macro environment, this is an exciting time at FIS from a technology and a client services standpoint. Lastly, I'd like to touch on the strength of our balance sheet on Slide 7. FIS has historically performed very well during periods of economic stress, and the strength of our balance sheet is a key differentiator for us in the marketplace. To that end, we reduced our leverage ratio to 2.9 times during the second quarter.

We also successfully refinanced a portion of our debt in early July to increase our financial flexibility and to further decrease interest rate risk. In addition, the return of shareholder capital is a priority for us. We paid nearly $300 million in quarterly dividends, and we intend to continue to drive 20% plus annual dividend growth each year. We also resumed share repurchase, buying back approximately $300 million in shares during the second quarter consistent with expectations.

Our cash flow conversion is robust, which we will utilize to sustainably invest for growth while simultaneously returning significant capital to our shareholders through dividends and by default share repurchases in the back half of the year and throughout 2023. With that, I'll turn the call over to Stephanie to describe how the strategic accomplishments are translating to our segment operating performance. Stephanie?

Stephanie Ferris -- President

Thanks, Gary. And welcome, everyone. We've reached a pivotal moment in fintech where we've seen a fundamental shift in the way our clients and their customers want to consume financial services. First, financial institutions are both modernizing their financial technology stacks and looking for ways to expand their own growth, driving increasing demand for banking as a service.

Second, payments and financial capabilities are being embedded in software and across platforms, driving demand for financial technology partners to help create a seamless consumer experience. And finally, rapidly evolving customer digital experiences are pushing our clients to focus on their core businesses and products, creating demand for offerings using a cloud base as a service business model. These trends have created large new areas of growth that cannot be served with traditional fintech models and segments. Our clients are looking for us to deliver these financial services to them by creating new models that utilize our best-in-class assets combined in creative new ways.

At FIS, we are uniquely positioned to capture these opportunities. We spent the past five years developing the best-in-class next-generation banking and capital markets technology. We have one of the only truly global e-commerce platforms. We have a marquee set of global corporate clients, large global banks, and asset managers, and we built all of this at scale with global distribution.

We're really pleased with our results again this quarter, and you will see that many of our wins reflect these trends and opportunities. In banking, we had a very strong quarter of core wins showing continued strength in our traditional banking channel. We're pleased to share that we signed another two modern banking platform deals this quarter, signing our first large bank outside of the US with ANZ Banking Group, the second largest bank in Australia and New Zealand. Being selected by a global bank of this caliber clearly showed that MBP has global reach and scale.

Just as impressive is our recent core banking win with Columbia Bank and Umpqua Bank. Umpqua has been a key client of ours for years, but they were recently acquired by Columbia, who historically worked with one of our competitors. Typically, when a merger like this happens, you would expect the acquiring bank to consolidate onto their core. Instead, I'm proud to share that Columbia Bank decided to consolidate onto the FIS core because of our expertise in serving large financial institutions.

Similarly, a large Northeast regional financial institution, Valley National Bank, had made the decision to leave FIS for a competitor. However, their conversion got kept getting delayed, and during that time they acquired another bank that was also running on a FIS core. After a review of the capabilities that the combined bank needed and their experience with their previous attempts to convert off FIS, the bank made the decision to consolidate the new combined bank onto our most advanced regional banking solution. These two examples point to our differentiation and strength in these larger regional bank markets.

As we turn to new market growth, FIS is capitalizing on the rising demand for banking as a service solution, as banks seek to create new revenue streams by widening their traditional distribution to end consumers through fintech, and they're looking to leverage our embedded finance ecosystem. As an example, a leading-edge digital bank chose FIS as banking as a service solution to support fintech and offer account opening, money movement, and card issuance to their customers. They're an early adopter, expanding their reach through the fintech landscape. We've also seen increased demand for banking as a service solution from fintech that is demanding other use cases such as embedded lending, accounting, money movement, and faster payments.

In another exciting win for us, Block recently selected our national payments network to power their Cash App card. They were drawn to the flexibility and service that we can offer them and are excited to leverage the power of our combined merchant and issuer ecosystem. Opportunities like this are creating a growing pipeline across verticals for payments, crypto, and digital financing so that banks and fintech can grow with us as they expand their embedded offerings, all demonstrating the power of unlocking our assets. In addition to embedded finance, we also see an emerging opportunity to deliver our offerings using our cloud-based as a service model and are experiencing this in the wealth and retirement space.

Franklin Templeton and T. Rowe Price are two examples of strategic as a service wins for FIS. In order to win their business, we lead with our differentiated technology, and we demonstrated our ability to automate and scale our services across their expansive businesses. These landmark wins required an as a service approach, resulting in a win-win for both our clients and FIS.

This business model enables both our clients and FIS to participate in the benefits of growing the organic base of revenue and margins of our clients. And to date, these clients have grown organically by 10% and all have expanded their scope of services with us. Finally, we're seeing significant momentum behind our digital banking solution, Digital One where we recently signed several new large regional financial institutions, including CIT and Signature Bank. Given current signings, the Digital One flex solution will be supporting over 4 million customers by the end of 2023.

Turning to Slide 10. In capital markets, our end-to-end solution continues to meet our clients' needs. We successfully signed the fourth largest bank in Japan, Sumitomo Trust Bank, which will implement our risk analytics manager to protect their operations from future regulatory changes. Our growing relationship with this bank also underscores the importance of our world-class scale and international reach.

Turning to Europe, we're expanding our relationship with UBS by adding additional modules from our Cleared Derivatives Suite, which will help to enhance their existing operations. This growing relationship highlights the competitive advantage that we created by using components architecture to deploy our new solutions. Each of these important new wins demonstrates how our end-to-end solutions differentiate us from the competition by better meeting client needs with advanced technology. On Slide 11, our merchant results demonstrate that our long-term strategy is working.

Our strategic focus and e-commerce for large, as well as SMB and platform businesses, is driving strong results. Our diversified e-commerce portfolio in terms of the size of clients and verticals that we serve, recent new wins, the share of wallet gained from existing customers, and the addition of the Payrix capability, which opens up our ability to serve SMB via SaaS platforms are all contributing to outstanding performance. We continue to open new geographies as well as add differentiated new solution capabilities like our recently launched Guaranteed Payments solution. With this solution, FIS was the first payments processor to guarantee e-commerce merchants, increase approval rates, and eliminate the financial liability of fraudulent purchases.

Built on the back of our investment to improve authorization rates for our clients, this new solution now takes that investment to the next level, creating an end-to-end solution from merchants to banks. It not only eliminates rules at the merchant level through sophisticated machine learning decisions but allows them to increase transactions through our issuer partnerships, allowing us to pass fraud scores and information on compromised cards from our merchants to our issuers. This solution ultimately helps the merchant drive significantly more revenue by authorizing and approving more transactions. A large global health and beauty retailer will be an early adopter of guarantee payments, which they will use to help maximize their revenue.

As an early adopter, we've seen their approval rates increase by 600 basis points, increasing their annual revenue by approximately $45 million, while also eliminating financial fraud liability. Because of the significant value that this brings to our merchants, we're able to increase our revenue in most cases, doubling what we're earning over our processing revenue. We have many examples of clients getting value from our ecosystem and a full suite of solutions, including one of the world's largest grocers who continues to expand their relationship with us, adding more banking capability to their operations, and a very large global retailer who is expanding their loyalty portfolio by tapping into FIS network of merchants for rewards redemptions. These two expansion deals combined drove more than 30 million of the new contract value in the quarter.

All these recent wins demonstrate that our strategy is working. Our expansion into SMB e-commerce with our new platform is also going exceptionally well. Payrix is exceeding our expectations for growth, and we're leveraging its embedded payments as a service model to expand into SMB e-commerce in two ways. First, it enables us to serve cloud-based platforms like [Inaudible], which is a B2B subscription management and financial operations platform that recently selected us to be their payments as a service layer.

We didn't have the ability to serve cloud-based SaaS platforms like this before Payrix. Second, it enables us to offer e-commerce capability to our existing ISV clients. For example, Revel is a long-standing ISV of ours serving several verticals. We traditionally serve them for card presence only, and now they're expanding and embedding Payrix technology to enable payments and their online ordering and delivery services, as well as card not present options to their end customers.

We're in the process of bringing our capabilities for SaaS platforms and traditional IPs together into an enhanced platform offering. This platform strategy is critical to our future, and we're continuing to invest to bring new capability, leveraging our full assets. We expect a full rollout during the third quarter, and I'm looking forward to sharing more with you on the next call. I'll wrap up with Slide 12, which describes how merchants' 14% constant currency growth is built up by subsegment.

Global e-commerce continues to be our fastest-growing business. Consistent with our strategy, its revenue growth accelerated to 28% in the second quarter, from 23% in the first quarter on a constant currency basis. Enterprise and SMB are also both continuing to grow very well, generating 9% and 8% revenue growth this quarter respectively. Despite the noise that circulated about Worldpay during the pandemic, our strategy for our merchant business is clearly an advantage in the fastest growing and most strategically important segments of the market.

I want to end my remarks where I started. We spent the past several years investing to bring forward the next generation of fintech solutions. The market is recognizing our shift. I'm pleased to share that for the second year in a row, we've been named a fast company's 100 Best Workplaces for innovators list, jumping 14 spots in just a year's time, competing with over 1,500 companies from various industries.

Our inclusion in this exclusive list is a result of our demonstrated commitment to encouraging innovation at all levels, attracting top talent, and bringing bold new ideas to market. It's a rewarding recognition of the investments we've made. With that, I'll now turn the call over to Woody to discuss our financial results. Woody?

Woody Woodall -- Chief Financial Officer

Thanks, Stephanie. And thank you all for joining us today. I will begin with our financial results on Slide 14. We are very pleased with our 8% organic revenue performance for the quarter and 9% for the first half of the year, which was driven by strong top-line results achieved by all of our operating segments.

In addition, we drove below the line leverage and achieve an adjusted EPS of $1.73 per share. Turning to our segments. Banking organic revenue growth was 6% as the team continues to execute on our strategy and recent wins. Banking adjusted EBITDA margins contracted 130 basis points to 44%, primarily due to the high contribution margins associated with last year's term fees and the pandemic-related revenue that we had to grow over, as well as ongoing wage inflation.

Merchant revenue grew 14% in constant currency and 12% on an organic basis, which includes a little over one point of headwind from the Russia-Ukraine conflict. We're particularly pleased with e-commerce growth at 28% in constant currency and 22% on an organic basis. We continue to anticipate e-commerce to grow about 30% in constant currency and more than 20% organically for both Q3 and Q4. Merchant adjusted EBITDA margin contracted 280 basis points to 47%.

The Russia-Ukraine conflict had a negative impact on margins of about 50 basis points, and we continue to invest in geo expansion for e-commerce plus payer sales channel expansion to capture strong demand. Capital markets organic growth was 7%, primarily due to 10% recurring revenue growth was driven by strong sales momentum and our transition to SaaS. Capital markets adjusted EBITDA margin expanded 140 basis points to 48%, as the segment continues to benefit from operating leverage and diligent [Inaudible]. Overall and very pleased with our strong revenue growth through the first half of the year.

We continue to see wage inflation as an ongoing challenge but have pulled operating levers to help offset this cost. Accordingly, we still anticipate adjusted EBITDA margins of 44% to 45% for the full year. Turning to Slide 15. We generated over $800 million of free cash flow during the second quarter, which is in line with expectations.

We remain on track to achieve free cash flow conversion, approaching 95% of adjusted net earnings for the full year as free cash flow conversion expands in the second half consistent with normal seasonality. Debt was down by approximately $675 million, which helped us push leverage below three times and restart our share repurchase program. In the absence of M&A, we are focusing on share repurchase and are on track to buy back approximately $3 billion in shares during 2022. We also anticipate utilizing excess free cash flow in 2023 to buy back shares.

Turning to Slide 16. We are maintaining our expectation for 7% to 9% organic revenue growth for the full year and adjusting our EPS outlook to account for recent macro changes and divestitures. Since we initially provided full year guidance on our fourth quarter earnings call, geopolitical and macro environments have changed materially. The Russia-Ukraine conflict created a little over a point of headwind within our merchant business that we have covered so far with stronger revenue performance in e-commerce, and we expect to be able to continue to offset this headwind without affecting guidance.

We've also been able to offset rising costs from inflation and do not anticipate needing to change guidance for this year. With the strength of our financial model, we were able to overcome one or two headwinds in most years. This year, the macro-environment is also changed by another two vectors that our initial guidance cannot absorb foreign exchange and interest rates. In an effort to provide as much transparency as possible on the implications of FX and interest in our full year 2022 guidance.

First, the US dollar has appreciated the multi-decade highs compared to the pound sterling and the euro. Making foreign currency translation our largest revenue [Inaudible]. The FX translation has about a 30% impact on our full year 2022 EPS as compared to original expectations. Second, rising interest rates are impacting our net interest expense.

This increased interest rates on our variable rate debt in conjunction with our recent bond issuance account for another $0.13 of EPS headwinds. Finally, we sell two businesses that are corporate and other segments consistent with our strategy to divest or wind down non-strategic assets. As these transactions close, we intend to use the proceeds to help fund share repurchase but assume about a $0.3 impact on the year. Combining FX, interest, and divestitures are driving our guidance revision as our operating performance remains quite strong.

When excluding these macro factors, we're effectively raising the high end of our guidance by $0.02 in the low end by $0.04. I'm extremely proud of our colleagues here at FIS who have worked diligently to continue to drive our business forward through volatile macro conditions. On Slide 17, we provide our typical guidance update. For the third quarter.

We expect organic revenue growth of 5% to 6%, consistent with the range of $3.58 billion to $3.64 billion. This includes organic revenue growth assumptions for banking in the mid-single digits, capital markets in the mid to upper single digits, and merchants in the upper single digits. The third quarter faces difficult comps, particularly in banking, as we had a large termination fee in the third quarter of the prior year. We also had expected to term fee for the third quarter of this year that has been pushed out to the fourth quarter.

We expect adjusted EBITDA margins of approximately 45%. For adjusted EBITDA guidance range of about $1.6 billion to $1.63 billion. Lastly, adjusted EPS is expected to be in the range of $1.74 to $1.78 per share. For the full year, we expect organic revenue growth to land in the middle of our original 7% to 9% organic growth range at about 8%.

Our full year revenue range is $14.6 billion to $14.7 billion. At the segment level, our organic revenue growth assumptions are unchanged, including Banking of 6% plus, Capital markets in the mid-upper single digits, and Merchants in the low double digits. Finally, we expect full year adjusted EBITDA margins of 44% to 45%, resulting in adjusted EPS of $7 to $7.10 per share. Updated assumptions for D&A, net interest expense, tax, and share count are included in the appendix section of this presentation.

I would like to conclude on a personal note. I thoroughly enjoyed my time with FIS and I wouldn't trade any of the last 10 years, I've been a CFO. We've seen tremendous growth and I'm proud to have played a part in FIS today. Gary, thank you for your friendship, partnership, and leadership over the past 14 years.

I'd like to thank the board of directors for their advice and support over these years. I'd also like to thank all of my colleagues here at FIS. They're the ones that have truly made the difference. Finally, I'd like to congratulate Erik Hoag on his promotion to CFO.

He has been an invaluable partner, and I'm confident I am leaving you all in good hands. While I'll miss my time here, I am looking forward to retirement. With that operator, we please open the line for questions.

Questions & Answers:

Operator

Thank you. [Operator instructions] Our first question will come from Jason Kupferberg with Bank of America. Please go ahead.

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

Thank you, guys. Congrats to Erik, and Woody on your retirement as well. I just wanted to start on the third quarter organic revenue growth outlook to 5% to 6%. A little below what we were anticipating, you walk through the segments there, just it seems like you'll need to see reacceleration to maybe around 8% to 9% in Q4 to get to the full year 8% target.

So just wanted to get a sense of your visibility on that reacceleration. I know you mentioned the termination fee and banking moving into the fourth quarter, but if you can just walk us through that at the start, I'd appreciate it?

Gary Norcross -- Chairman and Chief Executive Officer

Yeah. Thanks, Jason. Erik, why don't you take that one?

Erik Hoag -- Deputy Chief Financial Officer

Yeah, sure. Hey, Jason so nice to meet you. So a couple of things on the third quarter, the fourth quarter shift. So we talked and there's a connection here to margin as well.

So in the second quarter, we talked briefly about -- or Woody in his prepared remarks talked about the termination fee moving -- that we had a headwind associated with termination fees year over year. We've got that same termination fee headwind in the third quarter as well. So as we move to termination fee in 2022, from the third quarter to the fourth quarter, it pulls banking growth down modestly, but it also impacts margin rate. So as we begin to talk about the rest of your revenue growth and the rest of your margin, the termination fee dynamic is real and that's the predominant change between the third quarter in the fourth quarter in banking solutions.

Banking solutions being about half of the company's revenue obviously impacted the total growth for the company. Woody anything you want to add on there?

Woody Woodall -- Chief Financial Officer

The other thing I'd highlight if you remember, Jason, last year, in December, the UK was shut down from COVID. So we've got an easier comp in the fourth quarter on the revenue side as we don't anticipate the UK to be shut down like it was last year. So those are really the two big issues that we see. We always had high visibility into the revenue base as we go through there, but obviously trying to highlight both in the prepared remarks and through the Q&A that shift that we're seeing in Q3 to Q4.

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

OK. Thanks for that. And just on the interest expense. Can you just walk us through the pieces there? I think everyone knew it would go higher, just given the rate environment.

But, how much of this increase is from the latest refinancing versus kind of the preexisting debt stack, if we can just understand the math there? And then, did you guys not disclose the merchant volume and transaction growth this quarter? I might have missed it, but curious on that. Thank you.

Woody Woodall -- Chief Financial Officer

Yeah, on the interest cost itself, we've got about 40% of the debt is is variable in the stack. We anticipate another two raises from the Fed is at least our assumption right now at about another hundred basis points from where we are today, which is about 2.25 at the Fed level. We also saw some increase in the ECP raising rates over the year. And then the bond issuance that we just did was about $2.5 billion at just under 5%.

So the combination of those factors is what's driving interest. We think the interest for the full year based on the assumptions is about 285 right now from where it was. So obviously, seeing some headwinds there. On the volume side, we saw sequential volume decreases in line with Fiserv, Visa, MasterCard, and Global very similar constant currency volumes, about 6%, and we saw yields at a plus 5%.

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

Thank you.

Operator

One moment for our next question that will come from the line of Rayna Kumar with UBS. Please go ahead.

Rayna Kumar -- UBS -- Analyst

Good morning. Congratulations Erik and Woody. Can you provide any color on the conversations you've had with core processing customers on any early indication for bank technology spending next year and any hints at the macro environment or causes pullback in spending?

Stephanie Ferris -- President

Yeah. Rayna, this is Stephanie. Happy to answer that. I would say, spending continues to be robust in financial institutions.

Gary has spent a bunch of time with all of our financial institutions over the last six months coming out of the pandemic. They are feeling very strong with respect to their own [Inaudible] of their financial institutions themselves. They also benefited a lot from the [Inaudible] and P2P. And they also recognized through the pandemic, the importance of digital transformation --

Operator

Please remain on the line. Your conference will resume shortly.

Gary Norcross -- Chairman and Chief Executive Officer

Operator. Are we still live? Keep going, Stephanie. I think we're still alive.

Stephanie Ferris -- President

Sorry about that. So what I would say is it's still robust. So there's still a high demand for bank technology. We're seeing --

Operator

Ladies and gentlemen, please stand by.

Gary Norcross -- Chairman and Chief Executive Officer

Operator. Is the line open?

Stephanie Ferris -- President

We're seeing that customers continue to have a high demand for banking technology solutions because they're wanting to drive their own digital transformation. I talked in my prepared remarks about embedded finance, and banking as a service solution, we continue to win on the modern banking platforms, so we're seeing high demand. We're not seeing any slowness in that at all. Gary, would you add anything?

Gary Norcross -- Chairman and Chief Executive Officer

No, I think you covered it. I think the banking environment has never been stronger. I mean, look at interest rate increases. When we look at everything that contributes to the bank's balance sheet contributes to its profitability.

Operator

Please remain on the line. Your conference will begin shortly.

Gary Norcross -- Chairman and Chief Executive Officer

And so the result of that is -- we've seen very strong demand. We came off our biggest single-core sales environment that we've seen in Q2.

Rayna Kumar -- UBS -- Analyst

Got it. And that's very helpful. And we did hear your complete answer. So I appreciate that.

Gary Norcross -- Chairman and Chief Executive Officer

OK. Thanks, Rayna.

Stephanie Ferris -- President

Thanks, Rayna.

Gary Norcross -- Chairman and Chief Executive Officer

Thanks, Rayna. We're trying to figure that out like you guys. But the bottom line is the banking industry is very strong. As I said, we just came off a really strong sales quarter on actual retail core banking sales, one of the biggest ones in the last several quarters.

Two more modern banking wins, but also really strong strength in our regional and community bank offerings in large financial institutions. So I feel good about the buying behavior right now.

Rayna Kumar -- UBS -- Analyst

Perfect. Ok. And Stephanie, you touched on this in your opening remarks, but I'm just curious to hear more about the progress with Payrix. The Payrix integration, any key milestones that we should look out for? And any metrics you can share on it for the quarter would be helpful.

Thank you.

Stephanie Ferris -- President

Sure. So Payrix does continue to go phenomenally well for us. As with the acquisition of that, we now have an access card not present for SMBs through that platform business. The good news for us is they were already integrated into our back-end acquiring stack.

So now it's about really us continuing to take massive share in the marketplace. And so what I would say is the best driver is really looking at e-commerce growth. You can see our e-commerce growth is outperforming across the board in terms of volumes and revenue growth. And so that would be the really the key metric as we continue to grow both the traditional e-commerce space, which was really global enterprise, and now with Payrix being able to access that SaaS platform SMB base, you're going to see us -- that's our strategy.

It is all about e-commerce and accessing both the large and the small. And now with Payrix, we're seeing a significant ability to do that.

Rayna Kumar -- UBS -- Analyst

Perfect. Thank you.

Operator

One moment for our next question. That will come from the line of Darrin Peller with Wolfe Research. Please go ahead.

Darrin Peller -- Wolfe Research -- Analyst

Hey. Thanks, guys.

Gary Norcross -- Chairman and Chief Executive Officer

Hey, Darrin.

Darrin Peller -- Wolfe Research -- Analyst

Can we just touch on the embedded assumptions in the second half of the year, when we think about constant currency guidance? I know there was quite a bit of change from FX and divestitures, which largely were expected for the guide. But really the implied constant currency trends per segment are what I'm trying to figure out. And maybe you could hone in on the merchant volume side also? Stephanie, just a quick follow-up. I'll put it all together now is really just when you mentioned wins with Block.

Can you just explain what the kind of win is? What actually you're doing for them, and then some of the other newer tech wins, if you can just expand on some of those as well as this as my follow-up? Thanks, guys.

Gary Norcross -- Chairman and Chief Executive Officer

Perfect. Darrin we'll let Woody take the FX and talk about that, and Erik will chime in and then we'll address your Block question.

Woody Woodall -- Chief Financial Officer

Yeah. On the FX side Darrin, we've got a little over 15% of our revenue in pound sterling and euro. Obviously, those are very high contribution margin businesses for us. So that profitability has some exposure to translation.

You've seen the pound and the euro drop by about 13% year to date, obviously driving an impact both on revenue and EBITDA. That's where we got the $0.13 on the translation. From an EPS perspective, if you look back to constant currency or organic growth, really, we continue to believe banking at 6% plus, capital markets in mid to high single digits, and merchants in the low double-digit area for the full year. So we haven't had any change in that outlook from a revenue growth profile on a constant currency basis.

The other component I would tell you is I did highlight in the prepared remarks we do see pay rates contributing to e-com growth where we're looking at organic growth north of 20%, which is consistent with our previous remarks. We're looking at constant currency growth in both the third quarter and the fourth quarter at about a 30% level for e-commerce.

Gary Norcross -- Chairman and Chief Executive Officer

Stephanie, do you want to take block?

Stephanie Ferris -- President

Yeah. So block is a super exciting win for us. It continues to show the strength of our issuer and acquiring capabilities coming together. We are powering their Cash App card, which is it's a big strategic position for them.

And we were excited about that, we won that business very competitively. But again, it continues to demonstrate the benefit of our assets across our segments. And also to talk a little bit about what we're seeing in banking as a service and embedded finance. I mean, you're seeing a lot of disruptors come out and talk about their ability to really do that.

And as we think about our own ability, we've launched banking as a service as well. We have one of our new digital banks I mentioned who is using our banking as a service product really to expand out their market share to fintech so they can offer digital account opening, embedded money movement and embedded payment flow. We really see this is where the industry is going as we think about disruption and we think we have a huge advantage given our assets across our segments to bring those together and drive new meaningful revenue, not just in traditional ways, but also to access new markets like embedded finance, like banking as a service. And then, as we come into the third quarter, I'm going to be really excited to announce our Worldpay platforms, but you're going to see all that start to come together as well there.

And so we really think about, our traditional business, but opening up new markets not only for ourselves but our customers as they want to use our fintech stack in a different way, either as a service model or in a way for them to advance their own customers ambitions.

Gary Norcross -- Chairman and Chief Executive Officer

Yeah. And just to add a little bit Darrin on your Block question. As Stephanie referenced in her prepared remarks, we're leveraging our network there, which was a key component of what allowed us to win that Cash App to drive individual revenue back end to Block. And so it just shows and kind of paints the strength of the overall asset pool.

Darrin Peller -- Wolfe Research -- Analyst

Understood. Is this the network nice or is this issuer process? Just to be clear, I'm sorry.

Gary Norcross -- Chairman and Chief Executive Officer

Well, we're doing both, right? So we're doing the issuer side of it, but we're also leveraging our nice debit network and routing the transactions that way. And that combination is what allowed us to differentiate win.

Darrin Peller -- Wolfe Research -- Analyst

All right. Really helpful, guys. Thanks again.

Operator

Thank you. One moment for our next question. That will come from the line of Lisa Ellis with MoffettNathanson. Please go ahead.

Lisa Ellis -- MoffettNathanson -- Analyst

Yeah, Good morning, and congratulations for me as well to both Woody and Erik. I wanted to follow up, Stephanie, I'm guessing this one is for you. It's for you on the new guaranteed payments offering in Merchant. That does sound kind of new in the marketplace.

So can you just elaborate a bit on like which customers specifically is it most relevant for? And, just elaborate a bit more on kind of the sort of from two, like, how is it different from what you're offering them today? Thank you.

Stephanie Ferris -- President

Sure. So Lisa, the big competitive value prop and e-commerce are all about driving more authorizations and approvals to our end clients because the card does not present off rates are much lower than the card present. And as that drives meaningful revenue to our end customers. And we have been -- all that has been significantly enhancing our capabilities there.

We are really excited about guaranteed payments. We think it is an industry precedent-setting product for us. What we are able to do is use both our merchant acquiring data, as well as our issuing data, and our issuing relationships. Along with all the investments we've made in machine learning, artificial intelligence, and data broadly, and bringing together what is we believe best-in-class and no one else is done where we are able to increase authorization rates and guarantee the authorization rate increase.

And also at the same time releasing them from any chargeback liability. So historic [Inaudible] increases authorization rates, guarantee the authorization rate increase, and also at the same time with releasing them from any chargeback liability. So historically, a lot of merchants haven't been wanting wanted to lean into new potential payment models or they haven't been able to get the increased authorization rates up as high as we're able to get them. And if they did, they had to take on more potential fraudulent losses.

So with this product, they get both increased authorization, and approval rates with a guaranteed no fraud chargeback loss rate. So it's very, very significant. Who it would be relevant for? Everybody that's on the card-not-present space. So we're in pilot mode today.

We've obviously launched the project. We've seen 600 basis point improvements with the product immediately out to drive increased authorization rates. And as you can imagine, it's so much revenue for the end merchant. We're able to actually charge completely different fees for this capability, which most times doubles the amount we're charging for processing revenue.

We think it's groundbreaking and we're super excited about that.

Lisa Ellis -- MoffettNathanson -- Analyst

And so you'll be absorbing the chargeback liability. Is that how it will work? So you're charging significantly more, as you just highlighted. And then you'll be absorbing any chargeback liability that would normally flow through to the Merchant.

Stephanie Ferris -- President

Well, because of our capability, we've driven down the chargeback liability to be very nominal. But yes, that would be the view in terms of how we would do that. But we -- net is a really, really strong profitability model for us because of the way we've used all the data.

Lisa Ellis -- MoffettNathanson -- Analyst

Got it. OK. OK. And then, maybe my second question is a broader kind of recession business resilience question.

Can you just comment on how you think about if, in fact, we do see a broader macro slowdown more severe than what we're seeing now? How FISs business will react to that? I know we can all kind of go back and look at the former FIS back during the financial crisis, etc. Maybe comment a little bit on kind of what's different now and how you think about what pieces of your business, are more resilient in a downturn versus less so. Thank you.

Gary Norcross -- Chairman and Chief Executive Officer

Erik, why don't you take that one?

Erik Hoag -- Deputy Chief Financial Officer

Yeah. I'd like to. Thank you. Hey, Lisa.

So I think it depends on the nature and the depth of the recession. So that said, we've demonstrated during prior economic downturns that at a high level we feel really confident about the business and that we can deliver the top and bottom line growth. We feel good about the business, both from earnings and from a cash flow perspective. So banking and capital markets, are very resilient businesses, with long contract terms on average in excess of four years.

We've got monthly minimums, price escalators, and liquidated damages. And then, on the consumer side, consumer spending would obviously be impacted by an economic downturn. But the consumer does continue to spend. And while it may be more tilted toward essential spending, we feel like we're positioned very well like other companies.

Most companies right now -- we are experiencing some wage inflation and employee attrition, but we're dealing with that with existing operating levers that Woody mentioned in his prepared remarks. But broadly speaking, I would say that we expect FIS to continue to grow well during recessionary times.

Lisa Ellis -- MoffettNathanson -- Analyst

Thank you.

Operator

Thank you. One moment for our next question. That will come from the line of David Togut with Evercore ISI. Please go ahead.

David Togut -- Evercore ISI -- Analyst

Thank you. Good morning, Gary. And congratulations, Erik and Woody.

Gary Norcross -- Chairman and Chief Executive Officer

Good morning, David.

David Togut -- Evercore ISI -- Analyst

Good morning, Gary. For the second half of this year, what have you incorporated into your Merchant Solutions revenue growth from the global air travel, related rebound? Heritage Worldpay is very UK-centric, and there's been a lot of press about London Heathrow Airport limiting capacity as well as British Airways. So just very curious for your thoughts there.

Gary Norcross -- Chairman and Chief Executive Officer

OK. Do you want to take it?

Stephanie Ferris -- President

Yeah, I'm happy to take it. So, you're right. We have some strength in travel and airlines, British airlines. And, Heathrow is very immaterial in terms of its broad portfolio.

So you can certainly see the weakening of the pound impacting us overall in an FX standpoint. But travel and airlines have been obviously a rebounder for us in the last couple of quarters. We aren't seeing any concerns around the issues with the airlines and Heathrow, etc. It's not material to the portfolio at all.

So not expecting anything in the back half to be impacted by any of that.

Gary Norcross -- Chairman and Chief Executive Officer

Yeah, I would say, David, at the end of the day, we're kind of returning now to a more normalized environment. Really the strength of our balanced portfolio is travel and airlines growing faster than we thought going in throughout this year. Yes, we've got some other portfolios that are growing slower than we thought, but the balance of the portfolio is really strong. And that really kind of gets back to Lisa's question around the recession.

It's really around where consumer spending goes. But we do believe that travel and airlines are going to continue to be a strong piece of the book in the back half of the year and model that. We think there are some other industries that will continue to be under some stress. But we're confident with the strength of the overall portfolio.

We're very pleased with where the growth is, I mean, at 14%, constant currency on the quarter, and very pleased with where we're seeing it shape up for the full year.

David Togut -- Evercore ISI -- Analyst

Thank you. Just as my follow-up, I'm curious for your thoughts, Gary, about the bill proposed by Senator Dick Durbin and Richard Grassley to try to create more competition in the routing of credit card processing fees in the US for Visa and MasterCard. And in particular, I'm wondering whether you could repurpose the nice network combined with your merchant acquiring capability, to perhaps take over that routing function to the extent the merchant wants to route it away from Visa and MasterCard.

Gary Norcross -- Chairman and Chief Executive Officer

Look, it's a great question. I mean, we continue to monitor all the changes going on in Washington like everybody does. I mean, there are a lot of different bills that get put forward that could impact us in very different ways. Regulatory change is always a really big positive for us.

I've said that in the past that we typically always find ways to grow our revenue through that because our customers need assistance in implementing those regulations. So assuming there's a change there on credit routing, then obviously we'll look at ways to help our customers with that, help maximize their revenue and therefore us grow our revenue through that process. But we'll continue to watch it as it evolves and then we'll bring forward more information, as we know what the outcomes of some of these discussions might be.

David Togut -- Evercore ISI -- Analyst

Understood. Thanks so much.

Gary Norcross -- Chairman and Chief Executive Officer

Thank you.

Operator

Thank you. One moment for our next question. And that will come from the line of Dave Koning with Baird. Please go ahead.

Dave Koning -- Baird -- Analyst

Yeah. Hey, guys. Thanks. And congrats to Woody and Erik.

It was great working with you guys. And I guess, first of all, just when we look at margins, I think the first three quarters now, the way you're kind of setting this up, is margins to be kind of flat to down a little bit? Q4, though, looks like the implications is up 200 bps to 250 bps. And I know you talked to a little bit of the banking term fee. How big is that to margins or dollars, or whatever? How big is that? And maybe what's the difference in underlying margin expansion in Q4 relative to the first three quarters as well?

Erik Hoag -- Deputy Chief Financial Officer

Hey, Gary, I'll take this one. Hey, David. Good to good to hear from you. So a couple of things on fourth quarter margins from the third quarter to the fourth quarter, we expect margins to build, and build rather materially, as you just mentioned.

A couple of reasons for that. First, the first quarter is always the high watermark for margins. This is the period where we sell the lion's share of the revenue -- I'm sorry, the license revenue during the course of the year. The termination fee has been pushed from the third quarter to the fourth quarter, which is also driving growth.

And then, on the cost side, as we mentioned earlier on, we are pulling operating levers to ensure that some of the headwinds that we're experiencing with Russia and labor inflation are offset as well. So those are the predominant drivers for margin expansion in the back half of the year. It's one time highly accretive and profitable revenue with license. Its outsized termination fees are offset with cost actions.

Dave Koning -- Baird -- Analyst

Gotcha. Gotcha. Thanks. And maybe just as a follow-up question.

Interest expense, it looks like the Q4 implications are $115 million or so. Is that the right way to think about 2023? Just assume $115 a quarter, or should we think about I think you have a couple of billion coming through that's a rate that may be a little higher than that, as we look into next year.

Woody Woodall -- Chief Financial Officer

You got a couple of things there. You got one, we've refinanced the debt. So we've -- the $2.5 billion of debt that we issue will cover both the fourth quarter maturity and a March 23 maturity out there. The second we would have a maturity in June or July of 2023, we got to look at.

The real question, Dave, is how much incremental debt that we take on to buy back shares next year? Our assumption has been to maintain leverage at 2.9. If we do that, we take on some debt to buy back shares. So we're looking at the interest rate impact of that as well. So I would not look at it as just, $115 million is your jump up looking forward.

You got to think about that. Combined with the higher incremental shares, we're talking about buying back in 2023 as well.

Dave Koning -- Baird -- Analyst

Yeah. And then, think about that, the accretion from the buybacks on top --

Erik Hoag -- Deputy Chief Financial Officer

Yeah. That's right. That's exactly right.

Dave Koning -- Baird -- Analyst

Great. Thanks, guys.

Operator

Thank you. One moment for our next question. That will come from the line of Ashwin Shirvaikar with Citi. Please go ahead.

Ashwin Shirvaikar -- Citi -- Analyst

Thank you. Hey, guys, Stephanie, Woody, and Erik, congratulations.

Gary Norcross -- Chairman and Chief Executive Officer

Thank you, Ashwin.

Ashwin Shirvaikar -- Citi -- Analyst

I guess my first question is with regards to cross-selling and is something that you guys have always done within a business unit, obviously to be applied. But cross-selling across business units, as sort FIS becomes the company kind of was intended to be after that -- after the mega-merger. Can you talk about that, what kind of traction you're seeing is kind of looking at this top three global growth should add banking capabilities in relation to Merchant seemed like, it was interesting that? Is that anecdotal, or is it more broad-based?

Stephanie Ferris -- President

Yeah. Ashwin, great question. You played right into my hand. Thank you.

So we were hugely successful in driving revenue synergies out of the world transaction. And as I came back into the company was even more excited to look across the segments, see the demand, and hear the demand from customers. So we've actually coined an initiative that you're going to hear us start to talk about called amplify, where we do believe there's a huge amount of revenue and value to unlock by selling assets from existing segments into other segments. We've always done it for the last couple of years, but transparently we've been really trying to come out of the pandemic.

So there is a very large focus from me coming out of the president's chair, in terms of a look at how big that could be, you're seeing the large grocer do it, you're seeing the large retailer do it. Our assets resonate outside of their existing segments. Our banking assets specifically resonate very, very well, whether it's banking as a service, embedded finance, or how people want to deliver financial services to their end consumers, depending on if they're a grocer or an insurance company, or a retailer, is all changing. They want to offer capabilities at the point that the consumer is buying the merchandise, or taking the service.

We have the abilities and the capabilities to be able to do that. Where you can see us in terms of banking as a service and we need to provide it in a different model, needs to be with a different consumer engine, and a pricing capability. And that's what you're seeing a start to launch. So we couldn't be more excited about the opportunity really to sell the banking product and technology across the merchant segment.

As well as some lending and treasury and capabilities that we have in capital markets across as well. So you're going to hear us continue to really focus on this area. We think it's a big revenue and margin unlock for us as we think about the next couple of years.

Ashwin Shirvaikar -- Citi -- Analyst

Got it. Got it. Thank you for that. And then, the other question was, as you sort of look strategically, given private company valuations are potentially finally just kind of, coming back down to earth a bit.

Is that an opportunity to be more aggressive there? Follow on what you did with Payrix, and I ask that in the context of increased capital return versus M&A, but I think you can do both, if you can comment on that?

Gary Norcross -- Chairman and Chief Executive Officer

Yeah. Look, I'll start with that, Ashwin, the team wants to add on at all. I mean, we're -- we have consistently had mergers and acquisitions as a part of our overall strategy. We continue to evaluate things that make sense to your point in time.

Valuations continue to come down and continue to get more and more interesting. But at this point in time, given the dislocation in our share price, we still think fundamentally of returning our capital to our shareholders. The purchase of our own stock is the best use of cash at this moment. I mean, that's always been our default, as we continue to see where the market evolves.

If we do see something that we think can accelerate our growth, accelerate our profitability, accelerate our shareholder return, then obviously we'll look at that. But at this point, I think the team's very focused on driving the business. I mean, we've got record sales growth for the company. From a revenue standpoint, our revenues growing very, very strongly coming out of the pandemic.

We've got a good line of sight into that revenue growth and profitability, the amount of free cash flow, this generating approaching 95%. All of those things would suggest at this point in time we'll continue to default to our share repurchase. But that's your point is a salient one. I mean, as valuations continue to trend down, we'll continue to keep our aperture open and see if there's something that might make more sense.

But at this point in time, we're pretty comfortable with them with our approach and returning cash to shareholders.

Ashwin Shirvaikar -- Citi -- Analyst

Got it. Thank you, Gary.

Operator

Thank you. And today's final question. We'll come from the line of Ramsey El-Assal with Barclays. Please go ahead with your question.

Ramsey El-Assal -- Barclays -- Analyst

Thank you for squeezing me in here. I had a modeling question on interest expense in '23. Is the right way for us to look at that, to annualize the sort of implied fourth quarter 2022 number, obviously not factoring in any kind of debt refinancing or anything you need to do next year? But should we just annualize that fourth quarter number to kind of come up with the full year '23 number? Or is there any other sort of puts and takes there that I should consider?

Woody Woodall -- Chief Financial Officer

Yeah. We were talking about it a little earlier to answer Dave's question. I think, one, you can annualize the exit run rate as your first leg of the bridge. And then, the question is, if we maintain 2.9 times leverage through the course of '23, we would actually take on some debt to buy back shares.

Therefore, you would see actually incremental debt coming on and coming up over the course of '23 as well. As we continue to look at interest rate increases and what the Fed's doing there, we may look at not sticking right at that 2.9 times, but managing share repurchase with excess free cash flow versus taking on debt at the full levels. But right now, we still think that's still the right answer in terms of overall capital allocation and use of capital raising.

Ramsey El-Assal -- Barclays -- Analyst

Got it. Thanks. And apologize if I missed that before. I had a question also about the new modern banking platform wins.

And you call that one that was non-US. Could you talk about the opportunity in the pipeline outside the US in terms of the modern banking platform? How should we sort of frame that up looking forward?

Gary Norcross -- Chairman and Chief Executive Officer

Yeah, why don't I start on that one Ramsey, and Stephanie can add on? I meant when you think about it, there's a huge opportunity for us globally with the modern banking platform. I'll continue to say we're in the very early stages of cloud-native transformation in retail or banking, and so we continually govern that sales cycle in order to make sure that we can deliver and meet the demand that we have. So, we want to be very conscious about that. ANZ is a great win for us.

We've got a great position in the Australia-New Zealand market. We've got a lot of headcount in that market, very comfortable in dealing with it. But I will say over the next 10 years you're going to see the entire core banking enterprise move to cloud-based technologies. And so just getting started with the transformation, but it's going to be a global one and certainly, there's a huge opportunity for us outside the US as well as within the US as we continue to sell new customers in the US markets.

And as we've talked about in the past, where we will eventually want to start moving our back book, and our older technologies to this platform as well for our existing customers. So pretty excited and continue to be very, very excited about the future of the modern banking platform.

Ramsey El-Assal -- Barclays -- Analyst

Thanks so much. And Woody, best of luck on your next chapter. It's great working with you.

Woody Woodall -- Chief Financial Officer

Thank you, Ramsey. I appreciate that.

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 for delivering another strong quarter. 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: 0 minutes

Call participants:

Nate Rozof -- Investor Relations

Gary Norcross -- Chairman and Chief Executive Officer

Stephanie Ferris -- President

Woody Woodall -- Chief Financial Officer

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

Erik Hoag -- Deputy Chief Financial Officer

Rayna Kumar -- UBS -- Analyst

Darrin Peller -- Wolfe Research -- Analyst

Lisa Ellis -- MoffettNathanson -- Analyst

David Togut -- Evercore ISI -- Analyst

Dave Koning -- Baird -- Analyst

Ashwin Shirvaikar -- Citi -- Analyst

Ramsey El-Assal -- Barclays -- Analyst

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