01—Abstract
Summary
Summary of the 10-Q filed May 6, 2011. Cited figures are marked; the original filing is the authoritative source.
Fidelity National Information Services, Inc. (FIS) reported solid revenue growth in the first quarter of 2011, driven by acquisitions and increased demand for professional and processing services.
The company's overall revenue increased by 12.0% year-over-year, reaching $1,383.4 milliona. This growth was particularly strong in the International Solutions segment, which saw an 48.6% increase in revenue. Despite this top-line expansion, net earnings attributable to FIS common stockholders remained largely flat at $92.8 million compared to $93.6 million in the prior year, largely due to increased interest expense from a 2010 leveraged recapitalization and a $13.0 million charge related to unauthorized activities on the Sunrise prepaid card platform.
Management highlighted the company's strategic acquisitions, such as Capco, which broadened capabilities and contributed to revenue growth, though it also noted potential profit margin compression due to the higher proportion of professional services. The company continues to benefit from the trend towards electronic payments and the outsourcing model in the financial services industry. However, risks remain, including the potential impact of bank consolidation and regulatory changes like the Dodd-Frank Act, as well as ongoing investigations into the Sunrise platform incident.
02—Key points
Key Highlights
- Revenue increased by 12.0% to $1,383.4 million in Q1 2011 compared to Q1 2010, primarily driven by acquisitions (like Capco) and increased demand for professional and processing services.
- The International Solutions segment showed significant growth, with revenues up 48.6% to $268.1 million, boosted by Capco, credit card volumes in Brazil, and professional services.
- Net earnings attributable to FIS common stockholders were $92.8 million, a slight decrease from $93.6 million in Q1 2010, impacted by higher interest expenses and a $13.0 million charge related to unauthorized activities on the Sunrise prepaid card platform.
- Operating income increased by 14.1% to $213.9 million, and operating margin improved slightly to 15.5% from 15.2%, indicating efficient operational management despite increased expenses.
- The company's leverage recapitalization in 2010 significantly increased interest expense, which rose from $28.2 million in Q1 2010 to $68.0 million in Q1 2011, impacting overall profitability.
- A charge of $13.0 million was recorded in Selling, General and Administrative Expenses related to unauthorized activities on the Sunrise prepaid card platform, impacting the current quarter's results and prompting enhanced security measures.
- Despite a slight decrease in cash flow from operations to $260.2 million from $271.6 million, FIS maintains sufficient liquidity, with $384.1 million in cash and cash equivalents at quarter-end, expected to cover operating needs and debt obligations.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in Q1 FY2011, Fidelity National Information Services, Inc. kept $0.07.
- Revenue$1.38B100.0%
- Cost of revenue−$996.0M72.0%
- Gross profit$387.4M28.0%
- Operating costs−$173.5M12.5%
- Operating income$213.9M15.5%
- Interest, other & tax−$121.1M8.8%
- Net income$92.8M6.7%
04—Financials
Financial Highlights
Figures from 10-QQ1 FY2011filed May 6, 2011Financial Statements
Q1 FY2011 against Q1 FY2010
| Line item | Q1 FY2011Q1 FY2010 | Change |
|---|---|---|
| Revenue | $1.38B$1.24B | +12.0% |
| Gross Profit | $387.40M$344.60M | +12.4% |
| SG&A Expenses | $173.50M$157.20M | +10.4% |
| Operating Expenses | $1.17B$1.05B | +11.6% |
| Operating Income | $213.90M$187.40M | +14.1% |
| Interest Expense | $68.00M$28.20M | +141.1% |
| Net Income | $92.80M$93.60M | −0.9% |
| EPS (Basic) | $0.31$0.25 | +24.0% |
| EPS (Diluted) | $0.30$0.25 | +20.0% |
| Shares Outstanding (Basic) | 301.50M373.30M | −19.2% |
| Shares Outstanding (Diluted) | 308.70M379.90M | −18.7% |
05—Questions
Frequently Asked Questions
What are the primary drivers of FIS's revenue growth in Q1 2011?
FIS's revenue growth in Q1 2011 was driven by a combination of factors including incremental revenues from 2010 acquisitions, such as Capco, increased demand for professional services, and higher processing revenues from new client implementations and existing business.
What impact did the 2010 leveraged recapitalization have on FIS's financial results in Q1 2011?
The 2010 leveraged recapitalization resulted in significantly higher interest expense in Q1 2011 ($68.0 million) compared to Q1 2010 ($28.2 million) due to increased debt levels and higher interest rates. This also led to a lower weighted average number of shares outstanding, affecting earnings per share comparisons.
What was the $13.0 million charge mentioned in the report, and what is its implication?
The $13.0 million charge was related to unauthorized activities discovered on the company's Sunrise prepaid card platform. While the company has enhanced security and is cooperating with law enforcement, there's a risk that further investigation could uncover additional facts leading to further costs or liabilities. This event also led to the disclosure of some customer non-public information for a limited number of cardholders.
How is FIS managing its interest rate risk?
FIS manages its exposure to interest rate risk primarily through the use of fixed and variable rate debt and interest rate swaps. As of March 31, 2011, the company had entered into significant interest rate swap transactions to convert a portion of its variable rate debt to fixed rates, mitigating the impact of potential LIBOR increases. A 100 basis point increase in LIBOR was estimated to increase annual debt service by $1.7 million.
06—Continue