Fidelity National Information Services (FIS) just released its first-quarter earnings for 2024, and the headlines are all about accelerating revenue growth and margin expansion. Investors are celebrating, analysts are applauding, and the company is confidently marching towards its Investor Day. But amidst this fanfare, a chilling truth lurks beneath the surface: FIS's recurring revenue growth, the very bedrock of its future success, tells a more unsettling story.

Let's rewind to FIS's Q4 2023 earnings call. Back then, the company was brimming with optimism, touting a 7% recurring revenue growth in its Banking segment. This strong performance, they claimed, was a testament to the effectiveness of their "Future Forward" strategy, a program designed to streamline operations and boost profitability. It seemed like FIS had finally found its footing after a period of uncertainty.

Fast forward to the Q1 2024 earnings call, and the narrative remains unchanged. FIS continues to emphasize its impressive recurring revenue growth, even adding a multi-year schedule in the appendix of its presentation to highlight its "resiliency." However, a closer look at the numbers reveals a troubling discrepancy. While FIS maintains its overall confidence in meeting its full-year outlook, it quietly acknowledges a deceleration in Banking's recurring revenue growth, projecting it to come in between 3% to 4% for the year.

Deceleration in Banking Recurring Revenue Growth

Why the sudden drop? The company attributes this shift to a "choppy" Q4, highlighting an exceptionally strong payments business and a favorable year-over-year comparison as the main culprits. But this explanation feels flimsy at best. The payments business, while undoubtedly a contributing factor, doesn't account for the entire 3-point swing. And relying on favorable comparisons for sustainable growth is a precarious strategy, akin to building a house on shifting sand.

Here's the hypothesis: FIS is deliberately downplaying the true extent of the deceleration in Banking's recurring revenue growth. This move is likely intended to maintain investor confidence and avoid scrutiny ahead of their Investor Day. By focusing on the overall positive trends and glossing over the specifics of recurring revenue, FIS is creating a smokescreen, obscuring the potential cracks in its foundation.

The consequences of this potential deception could be dire. Recurring revenue is the lifeblood of any subscription-based business, providing a predictable and sustainable source of income. A significant slowdown in recurring revenue growth could signal deeper underlying issues, such as waning client demand, increased competition, or a failure to effectively monetize new products. If left unaddressed, these problems could cripple FIS's long-term prospects, turning its current optimism into a bitter disappointment.

FIS Projected Revenue and EPS Growth

So, what does this mean for investors? The answer is simple: proceed with caution. Don't be swayed by the surface-level optimism and the promise of accelerating revenue. Dig deeper, scrutinize the numbers, and demand greater transparency from FIS regarding its recurring revenue performance. The company's Investor Day on May 7th will be a crucial opportunity to address these concerns and provide a clearer picture of its future. Until then, the "Ghost in the Machine" of FIS's recurring revenue growth will continue to haunt those who dare to look beyond the carefully crafted narrative.

"Fun Fact: Did you know that FIS processes over 12 billion transactions annually? That's more than 32 million transactions every single day, highlighting the company's massive scale and reach within the global financial ecosystem. But scale alone is not a guarantee of success. Sustainable growth requires a healthy foundation, and that foundation rests squarely on the shoulders of recurring revenue."