10-QPeriod: Q1 FY2005

Fidelity National Information Services, Inc. Quarterly Report for Q1 Ended Mar 31, 2005

Filed May 10, 2005For Securities:FIS

Summary

Fidelity National Information Services, Inc. (FIS) reported a strong first quarter for 2005, demonstrating significant year-over-year growth in both revenue and net income. Revenue increased by 9.7% to $262.5 million, driven by robust performance in both the Card Services and Check Services segments, with notable contributions from recent acquisitions and international expansion. Operating income saw an impressive 23.6% rise to $37.1 million, leading to a healthy expansion in operating margin to 14.1%. Net income attributable to shareholders grew by 28.0% to $23.2 million, or $0.37 per diluted share, up from $0.28 in the prior year period. This growth was supported by improved profitability in the Check Services segment, reduced check guarantee losses, and growth in the card issuing businesses. The company is actively managing its portfolio, including the planned sale of its non-strategic merchant acquiring business, which is being treated as a discontinued operation and contributed positively to net income. FIS continues to invest in its business while also returning value to shareholders through dividends and share repurchases.

Key Highlights

  • 1Consolidated revenues increased by 9.7% to $262.5 million in Q1 2005 compared to Q1 2004.
  • 2Operating income grew by 23.6% to $37.1 million, with the operating margin improving to 14.1%.
  • 3Net income rose by 28.0% to $23.2 million, translating to a 32.1% increase in diluted earnings per share to $0.37.
  • 4Card Services segment revenue increased by 11.0% to $154.0 million, driven by North American and international growth and recent acquisitions.
  • 5Check Services segment revenue increased by 7.8% to $108.5 million, boosted by the Game Financial acquisition and improved risk management.
  • 6The company is actively pursuing the sale of its merchant acquiring business, classified as a discontinued operation, which contributed $2.0 million to net income.
  • 7Share-based compensation expenses, due to the adoption of SFAS 123(R), reduced net income and EPS for Q1 2005 and 2004 but are expected to be a recurring charge.
  • 8The company repaid $24.3 million on its revolving credit facility in Q1 2005, demonstrating a commitment to deleveraging.

Frequently Asked Questions

Revenue growth was primarily driven by increases in both the Card Services and Check Services segments. Card Services benefited from growth in North American and international card issuing operations, as well as contributions from recent acquisitions (Crittson and CariCard). Check Services saw growth from its cash access operations, particularly from the Game Financial acquisition, and favorable currency trends.

The adoption of SFAS 123(R) (Share-Based Payment) required the company to recognize compensation costs for stock-based payments based on their fair values. This resulted in a reduction of income from continuing operations by $1.1 million and diluted earnings per share by $0.02 for the first quarter of 2005, and a similar impact for the prior year's comparable period. This is a new recurring expense that investors should monitor.

Certegy Inc. approved a plan to sell its merchant acquiring business in September 2004, classifying it as a discontinued operation. The company expects to reach a definitive agreement during the second quarter of 2005. The proceeds from the sale are anticipated to be used to pay down the revolving credit facility, although strategic acquisitions remain a possibility.

The company generates strong cash flows from operations which are used for reinvestment, dividends, and share repurchases. In the first quarter of 2005, Certegy repaid $24.3 million on its revolving credit facility, indicating a focus on reducing debt. The company also maintains a share repurchase program and paid a quarterly dividend of $0.05 per share.