10-QPeriod: Q2 FY2010

Fidelity National Information Services, Inc. Quarterly Report for Q2 Ended Jun 30, 2010

Filed August 4, 2010For Securities:FIS

Summary

Fidelity National Information Services, Inc. (FIS) reported significant revenue growth in the first half of 2010, primarily driven by the acquisition of Metavante. Processing and services revenues increased by 55-56% year-over-year for both the three-month and six-month periods ending June 30, 2010. This acquisition also contributed to improved gross margins, which expanded by 420-470 basis points, reflecting successful synergy initiatives and cost-saving efforts. Despite increased selling, general, and administrative expenses due to integration costs, the company demonstrated stronger operating income and operating margins, particularly in the Financial Solutions Group (FSG) and Payment Solutions Group (PSG) segments. The company also highlighted a substantial debt load of approximately $5.6 billion post-recent financing activities, which necessitates careful management of cash flow for debt service. Looking ahead, FIS is navigating evolving regulatory landscapes, including the Dodd-Frank Act, which could impact interchange fees and network rules, and is managing risks associated with economic conditions and industry consolidation.

Financial Highlights

55 data points
Beta

Revenue

$1.27B

29.7% Gross Margin

Net Income

$89.90M

7.1% Net Margin

EPS (Diluted)

$0.23

Total Assets

$13.73B

Cash & Equivalents

$502.00M

Free Cash Flow

$146.80M

Financial Statements
Beta
Revenue$1.27B
Gross Profit$377.80M
SG&A Expenses$193.70M
Operating Expenses$1.09B
Operating Income$184.10M
Interest Expense$19.30M
Net Income$89.90M
EPS (Basic)$0.24
EPS (Diluted)$0.23
Shares Outstanding (Basic)376.50M
Shares Outstanding (Diluted)384.60M

Key Highlights

  • 1Significant revenue growth of 55-56% for the three and six months ended June 30, 2010, largely attributed to the Metavante acquisition.
  • 2Gross margin improvement of 420-470 basis points due to Metavante acquisition synergies and cost efficiencies.
  • 3Operating income increased substantially year-over-year, with operating margins improving in key segments like FSG and PSG.
  • 4Substantial increase in Selling, General, and Administrative (SG&A) expenses driven by Metavante integration costs and merger-related charges.
  • 5Company has a significant debt level, approximately $5.6 billion after recent financing activities, posing potential risks to financial flexibility.
  • 6The recently enacted Dodd-Frank Act introduces potential regulatory changes to interchange and network fees, the full impact of which is still uncertain.
  • 7Company continues to pay a quarterly dividend of $0.05 per common share.

Frequently Asked Questions

The primary driver for the substantial revenue increase in the first half of 2010 was the acquisition of Metavante, which was completed in October 2009. This acquisition added significant incremental revenues and contributed to the company's overall growth.

The Metavante acquisition has positively impacted profitability and margins. The company reported improved gross margins due to synergy initiatives and cost efficiencies realized from the integration. Operating income and margins also saw increases, particularly in the Financial Solutions Group and Payment Solutions Group segments.

A primary concern highlighted is the company's substantial debt level, which increased to approximately $5.6 billion following recent financing activities (Notes and Term Loan B). This high leverage could affect financial and operational flexibility, potentially limiting future borrowing capacity and reducing funds available for operations, acquisitions, and dividends. Additionally, the company faces risks from evolving economic conditions, industry consolidation, and regulatory changes such as the Dodd-Frank Act, which could impact revenue streams.

The report indicates that there have been no significant changes to the company's critical accounting policies, except for a change in revenue recognition related to ASC Subtopic 605-25, 'Revenue Recognition—Multiple-Element Arrangements,' which the company elected to adopt prospectively as of January 1, 2010.