01—Abstract
Summary
Summary of the 10-Q filed August 4, 2011. Cited figures are marked; the original filing is the authoritative source.
Fidelity National Information Services, Inc. (FIS) reported solid revenue growth for the first six months of 2011, driven by acquisitions (notably Capco) and increased demand for professional and processing services.
Despite a significant increase in interest expense due to a 2010 leveraged recapitalization, the company demonstrated improved operating income and margins, largely due to revenue growth and effective expense management. The company's international segment, particularly in Brazil, and its Financial Solutions Group (FSG) were key contributors to this growth. While the Payment Solutions segment saw relatively flat revenue, its operating income remained strong.
Regulatory changes like the Dodd-Frank Act and Durbin Amendment present both challenges and opportunities, with FIS positioning itself to benefit from new debit transaction rules. Looking ahead, FIS continues to explore strategic acquisitions, though a potential bid for Misys was withdrawn.
The company maintains a strong focus on managing its debt, with cash flows from operations projected to cover operational needs and debt service. Investors should note the ongoing impact of the 2010 recapitalization on interest expenses and share count, as well as the company's strategic approach to navigating industry consolidation and evolving regulatory landscapes.
02—Key points
Key Highlights
- Revenue increased by 12.7% to $2,825.1 million for the first six months of 2011 compared to the prior year, driven by acquisitions and increased demand for services.
- Operating income rose significantly by 27.3% to $472.8 million for the first six months of 2011, reflecting revenue growth and improved operational efficiency.
- The Financial Solutions Group (FSG) and International Solutions Group (ISG) segments showed notable revenue and operating income growth, with ISG benefiting from foreign currency exchange rates.
- Despite a substantial increase in interest expense (up 186% for six months) due to the 2010 leveraged recapitalization, overall net earnings attributable to FIS common stockholders grew by 17.6% to $216.3 million for the first six months of 2011.
- The company's diluted EPS from continuing operations increased to $0.73 for the first six months of 2011, up from $0.50 in the prior year, even with a reduced weighted average share count.
- FIS is actively managing its market risks through interest rate swaps and foreign currency forward contracts, with a focus on hedging debt obligations and foreign-denominated transactions.
- The company reiterated its commitment to a quarterly dividend of $0.05 per common share and expects operational cash flows to adequately fund its requirements and debt obligations.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in Q2 FY2011, Fidelity National Information Services, Inc. kept $0.09.
- Revenue$1.41B100.0%
- Cost of revenue−$989.4M70.0%
- Gross profit$423.9M30.0%
- Operating costs−$169.3M12.0%
- Operating income$254.6M18.0%
- Interest, other & tax−$131.1M9.3%
- Net income$123.5M8.7%
04—Financials
Financial Highlights
Figures from 10-QQ2 FY2011filed August 4, 2011Financial Statements
Q2 FY2011 against Q2 FY2010
| Line item | Q2 FY2011Q2 FY2010 | Change |
|---|---|---|
| Revenue | $1.41B$1.27B | +11.2% |
| Gross Profit | $423.90M$377.80M | +12.2% |
| SG&A Expenses | $169.30M$193.70M | −12.6% |
| Operating Expenses | $1.16B$1.09B | +6.6% |
| Operating Income | $254.60M$184.10M | +38.3% |
| Net Income | $123.50M$89.90M | +37.4% |
| EPS (Basic) | $0.41$0.24 | +70.8% |
| EPS (Diluted) | $0.40$0.23 | +73.9% |
| Shares Outstanding (Basic) | 303.60M376.50M | −19.4% |
| Shares Outstanding (Diluted) | 310.90M384.60M | −19.2% |
05—Questions
Frequently Asked Questions
What is the primary driver of revenue growth in the first half of 2011?
Revenue growth in the first half of 2011 was primarily driven by incremental revenues from 2010 acquisitions, particularly Capco, increased demand for professional services, and higher processing revenues.
How has the 2010 leveraged recapitalization impacted the company's financial results?
The 2010 leveraged recapitalization resulted in significantly higher interest expense in 2011 compared to 2010, due to increased debt levels. This also led to a lower weighted average number of shares outstanding, which impacts earnings per share calculations.
What are the potential impacts of the Dodd-Frank Act and Durbin Amendment on FIS?
The Dodd-Frank Act and the Durbin Amendment, which caps debit transaction interchange fees for larger banks, could alter the volume or type of card-based transactions processed. FIS believes it is well-positioned to offset or capitalize on these shifts due to its multiple payment solutions and expects the Durbin Amendment's network exclusivity provisions to drive additional customers to its NYCE PIN debit network.
How is FIS managing its debt obligations and liquidity?
FIS has a syndicated credit agreement with significant committed capital and maintains substantial cash and cash equivalents. The company expects its cash flows from operations to be sufficient to cover operating expenses, debt service, and other cash requirements over the next twelve months. They also continue to pay a quarterly dividend of $0.05 per common share.
06—Continue