10-QPeriod: Q3 FY2006

Fidelity National Information Services, Inc. Quarterly Report for Q3 Ended Sep 30, 2006

Filed November 9, 2006For Securities:FIS

Summary

Fidelity National Information Services, Inc. (FIS) reported significant growth in its third-quarter 2006 filing, driven primarily by the acquisition of Certegy Inc. in February 2006. Total assets more than doubled to $7.43 billion from $4.19 billion at the end of 2005, largely due to the integration of Certegy. Processing and services revenue also saw a substantial increase, reaching $1.08 billion for the quarter, up from $698.1 million in the prior year's comparable period. This growth reflects the combined entity's expanded market reach and service offerings in both Transaction Processing Services (TPS) and Lender Processing Services (LPS) segments. Despite the revenue uplift, the company's gross profit margin declined to 28.5% from 35.9% year-over-year, attributed to the lower-margin profile of Certegy's business and increased amortization from purchase accounting. Operating income increased to $169.5 million, but the operating margin compressed slightly. The company continues to manage a substantial debt load, with long-term debt standing at $2.84 billion, though it is actively exploring refinancing options. Overall, the filing indicates a company in a period of significant integration and expansion, with a strategic focus on consolidating its market position in financial and payment processing services.

Key Highlights

  • 1Total assets significantly increased to $7.43 billion as of September 30, 2006, up from $4.19 billion at December 31, 2005, largely due to the acquisition of Certegy Inc.
  • 2Processing and services revenues increased by approximately 55% to $1.08 billion for the three months ended September 30, 2006, compared to $698.1 million for the same period in 2005.
  • 3Gross profit margin decreased to 28.5% from 35.9% year-over-year, primarily due to the inclusion of Certegy's lower-margin businesses and purchase accounting amortization.
  • 4Operating income grew to $169.5 million for the three months ended September 30, 2006, from $123.7 million in the prior year, though operating margin saw a slight compression.
  • 5The company reported strong growth in its Transaction Processing Services (TPS) segment, with revenues increasing substantially due to the Certegy merger, while Lender Processing Services (LPS) saw more modest revenue growth.
  • 6Long-term debt remained substantial at $2.84 billion as of September 30, 2006, although the company is exploring refinancing options for its credit facilities.
  • 7The company is actively repurchasing its stock, with $2.83 million shares bought back during the nine-month period ended September 30, 2006, as part of a program to limit dilution.

Frequently Asked Questions

The primary driver of the substantial increase in FIS's total assets, which more than doubled to $7.43 billion from $4.19 billion, was the acquisition of Certegy Inc., which was completed on February 1, 2006. This acquisition significantly expanded the company's asset base.

The Certegy acquisition significantly boosted FIS's processing and services revenues, contributing substantially to the year-over-year increase. However, it also led to a decrease in the consolidated gross profit margin due to Certegy's typically lower-margin business model and the impact of purchase accounting amortization.

As of September 30, 2006, FIS had $2.84 billion in long-term debt. While this represents a significant leverage position, the company is actively engaged in refinancing efforts for its credit facilities, indicating a proactive approach to managing its debt structure.

FIS is committed to limiting stock dilution. The company has a share repurchase program in place, and during the nine months ended September 30, 2006, it repurchased approximately 2.83 million shares. Further share repurchases were authorized, indicating a strategy to offset the dilutive effects of equity awards.