10-QPeriod: Q1 FY2004

Fidelity National Information Services, Inc. Quarterly Report for Q1 Ended Mar 31, 2004

Filed May 10, 2004For Securities:FIS

Summary

Certegy Inc. reported a strong first quarter ended March 31, 2004, with significant revenue and net income growth compared to the prior year. Revenues increased by 9.7% to $263.4 million, driven by a 3.5% rise in Card Services and an impressive 21.3% growth in Check Services. This top-line expansion, coupled with effective cost management, led to a substantial 69.6% increase in operating income to $35.5 million. Net income more than doubled, reaching $20.7 million, or $0.32 per diluted share, up from $12.2 million, or $0.18 per diluted share, in the same period last year. This performance was bolstered by strategic acquisitions of Game Financial Corporation and Crittson Financial Services LLC, which contributed to revenue growth and expanded the company's market position, particularly in the gaming and community banking sectors. The company also saw a notable increase in its cash position, with cash and cash equivalents rising to $46.5 million from $22.3 million at the end of the prior year. Despite an increase in interest expense due to recent debt financing and acquisitions, Certegy demonstrated robust operational execution. The company is well-positioned for continued growth, benefiting from industry trends and recent strategic moves, while maintaining a focus on expanding its Card Services and Check Services segments both domestically and internationally.

Key Highlights

  • 1Revenues increased by 9.7% to $263.4 million, driven by strong performance in both Card Services (3.5% growth) and Check Services (21.3% growth).
  • 2Net income surged by 69.4% to $20.7 million, and diluted Earnings Per Share (EPS) grew to $0.32 from $0.18.
  • 3Operating income saw a significant increase of 69.6% to $35.5 million, reflecting improved operational efficiency and revenue growth.
  • 4The company completed two strategic acquisitions, Game Financial Corporation and Crittson Financial Services LLC, on March 1, 2004, for $39.2 million, strengthening its market position and expanding its service offerings.
  • 5Cash and cash equivalents increased substantially to $46.5 million from $22.3 million at year-end 2003, indicating improved liquidity.
  • 6Operating expenses grew at a slower pace (3.9%) than revenues, indicating effective cost management.
  • 7The company continued to repurchase its common stock, demonstrating a commitment to shareholder returns.

Frequently Asked Questions

Certegy's revenue growth was primarily driven by a 21.3% increase in its Check Services segment, fueled by a strengthening economy, new customer acquisitions, and the acquisition of Game Financial. The Card Services segment also contributed with a 3.5% increase, supported by North American card issuing and merchant processing, despite a decline in international card issuing revenue due to the loss of a major Brazilian customer in the prior year.

The acquisitions of Game Financial and Crittson Financial Services, completed on March 1, 2004, for a combined $39.2 million, positively impacted the results. They contributed approximately $7 million in revenue for the quarter and strengthened Certegy's market position, particularly in the gaming industry (Game Financial) and as a processor for community banks and credit unions (Crittson).

The company experienced a significant decrease in international card issuing revenue, primarily due to the loss of its largest customer in Brazil in March 2003. However, the company has now anniversaried this loss and expects its international card business to deliver positive top-line growth for the remainder of the year. International Check Services revenue saw a 25.3% increase due to factors like the strengthening British pound and increased authorization volumes.

Certegy demonstrated effective cost management, with consolidated operating expenses increasing by 3.9%, which is significantly lower than the 9.7% revenue growth. This resulted in a substantial increase in operating income and improved operating margins, partly due to the absence of the significant 'other charges' recorded in the first quarter of 2003.