10-QPeriod: Q1 FY2008

Fidelity National Information Services, Inc. Quarterly Report for Q1 Ended Mar 31, 2008

Filed May 9, 2008For Securities:FIS

Summary

Fidelity National Information Services, Inc. (FIS) reported its first quarter 2008 financial results, showcasing robust revenue growth driven by the acquisition of eFunds Corporation and solid organic expansion across its segments. Total revenues increased by 20.5% year-over-year to $1.29 billion, with eFunds contributing significantly to the Transaction Processing Services segment. Despite increased selling, general, and administrative expenses, largely due to eFunds integration costs and stock compensation, operating income saw a modest increase to $171.8 million. The company continues to advance its strategic plan, notably progressing with the spin-off of its Lender Processing Services (LPS) segment, which is expected to be completed in mid-2008. This move aims to create two more focused, publicly traded entities. FIS also reported progress in managing its debt, including the redemption of eFunds notes. The company's financial position remains solid, supported by strong operating cash flows, though it is navigating market risks associated with the mortgage industry.

Key Highlights

  • 1Total revenues for Q1 2008 grew 20.5% to $1.29 billion, significantly boosted by the eFunds acquisition which added $141.3 million.
  • 2Transaction Processing Services segment revenue increased 26.0% to $826.8 million, driven by eFunds and organic growth in International and Integrated Financial Solutions.
  • 3Lender Processing Services segment revenue grew 12.6% to $464.1 million, benefiting from market share gains and increased demand in appraisal and default services.
  • 4Operating income rose 8.1% to $171.8 million, though operating margin slightly decreased to 13.3% from 14.8% due to higher SG&A expenses.
  • 5Net earnings from continuing operations increased to $68.9 million ($0.35 per diluted share) from $56.4 million ($0.29 per diluted share) in the prior year.
  • 6The company is actively pursuing the spin-off of its Lender Processing Services segment, expected in mid-2008, with necessary regulatory filings completed.
  • 7FIS redeemed the eFunds Notes for $109.3 million and continues to manage its debt structure, including interest rate swaps to hedge variable interest rates.

Frequently Asked Questions

The acquisition of eFunds Corporation, completed in September 2007, significantly contributed to FIS's Q1 2008 results. It added approximately $141.3 million in revenue to the Transaction Processing Services segment and drove overall revenue growth by 20.5%. However, it also led to an increase in selling, general, and administrative expenses due to integration costs and accelerated stock compensation expense.

FIS announced plans in October 2007 to spin off the Lender Processing Services segment into a new publicly traded company, Lender Processing Services, Inc. The company has filed a Form 10 Registration Statement with the SEC and received a private letter ruling from the IRS confirming the tax-free nature of the spin-off for FIS and its shareholders. The spin-off is expected to be completed in mid-2008, contingent upon various conditions being met.

FIS reported total assets of $9.83 billion and total liabilities of $5.98 billion as of March 31, 2008. Long-term debt, excluding the current portion, stood at $3.91 billion. The company redeemed the eFunds Notes for $109.3 million and continues to use interest rate swaps to convert variable interest rate exposure on its credit facilities to fixed rates. Operating cash flows are expected to be sufficient to cover operating needs and debt service.

The filing mentions ongoing litigation, including class-action lawsuits related to the Driver's Privacy Protection Act and employee data theft, which have been settled or are in the process of final approval. A significant risk factor highlighted relates to the mortgage market, where increased foreclosures could lead to adverse regulatory consequences or litigation, such as the new Home Valuation Code of Conduct that could impact the appraisal management aspects of its business.