01—Abstract
Summary
Summary of the 10-Q filed November 4, 2011. Cited figures are marked; the original filing is the authoritative source.
Fidelity National Information Services (FIS) reported solid revenue growth in the nine months ended September 30, 2011, driven by acquisitions and increased demand for professional services and processing, although profit margins experienced some compression due to a higher mix of lower-margin professional services revenue.
The company's international segment, particularly in Brazil and Europe, showed notable growth, bolstered by a weaker US dollar, despite some challenges in specific European economies. Management highlighted strategic initiatives, including the acquisition of Capco and the ongoing shift towards electronic payments, which are expected to fuel future revenue streams. Despite a challenging economic environment, FIS demonstrated resilience with increased operating income driven by higher revenues and the absence of significant impairment charges seen in the prior year.
However, higher interest expenses due to increased debt from a 2010 recapitalization impacted net earnings. The company's financial position remains stable, with sufficient cash flow from operations to cover its requirements and ongoing dividend payments, though it continues to manage leverage and covenants associated with its credit facilities. Regulatory changes, such as the Durbin Amendment, present both potential risks and opportunities for FIS, with the company positioning itself to capitalize on shifts in payment transaction volumes.
02—Key points
Key Highlights
- Total revenue increased by 9.8% to $4.25 billion for the nine months ended September 30, 2011, compared to the same period in 2010, primarily due to acquisitions and increased demand for professional and processing services.
- Operating income grew by 36.8% to $749.2 million for the nine months ended September 30, 2011, compared to $547.6 million in the prior year, driven by revenue growth and the absence of significant impairment charges from 2010.
- The International Solutions Group (ISG) demonstrated strong revenue growth of 32.4% for the nine months, benefiting from credit card volumes in Brazil, European business expansion, and favorable foreign currency translation.
- Net earnings attributable to FIS common stockholders increased by 19.7% to $352.6 million for the nine months ended September 30, 2011, compared to $293.9 million in the prior year.
- Despite revenue growth, gross margin decreased slightly to 29.7% for the nine months ended September 30, 2011, from 30.8% in the prior year, primarily due to a higher proportion of lower-margin professional services revenue following acquisitions.
- Interest expense increased significantly by 85.9% for the nine months ended September 30, 2011, due to higher debt levels resulting from the 2010 leveraged recapitalization.
- The company maintained its quarterly dividend of $0.05 per common share and expects cash flows from operations to be sufficient to fund operational requirements and debt payments.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in Q3 FY2011, Fidelity National Information Services, Inc. kept $0.10.
- Revenue$1.40B100.0%
- Cost of revenue−$965.3M69.0%
- Gross profit$432.9M31.0%
- Operating costs−$159.7M11.4%
- Operating income$273.2M19.5%
- Interest, other & tax−$136.9M9.8%
- Net income$136.3M9.7%
04—Financials
Financial Highlights
Figures from 10-QQ3 FY2011filed November 4, 2011Financial Statements
Q3 FY2011 against Q3 FY2010
| Line item | Q3 FY2011Q3 FY2010 | Change |
|---|---|---|
| Revenue | $1.40B$1.37B | +2.3% |
| Gross Profit | $432.90M$469.90M | −7.9% |
| SG&A Expenses | $159.70M$138.90M | +15.0% |
| Operating Expenses | $1.13B$1.19B | −5.5% |
| Operating Income | $273.20M$176.10M | +55.1% |
| Net Income | $136.30M$110.40M | +23.5% |
| EPS (Basic) | $0.45$0.33 | +36.4% |
| EPS (Diluted) | $0.44$0.33 | +33.3% |
| Shares Outstanding (Basic) | 300.90M332.20M | −9.4% |
| Shares Outstanding (Diluted) | 306.80M339.20M | −9.6% |
05—Questions
Frequently Asked Questions
How did the acquisition of Capco impact FIS's financial results?
The acquisition of Capco, completed in December 2010, broadened FIS's capabilities in strategic and business transformation consulting. It contributed to increased revenues, particularly in professional services, and boosted the International Solutions Group (ISG) segment. However, the higher proportion of lower-margin professional services revenue from Capco led to some profit margin compression in both the Financial Solutions Group (FSG) and ISG segments.
What is the impact of the Durbin Amendment on FIS?
The Durbin Amendment mandates a cap on debit transaction interchange fees for large banks. FIS believes it is competitively positioned to offset or capitalize on potential shifts in payment transaction volumes due to this regulation. The company also anticipates that compliance requirements for network exclusivity could drive additional customers to its NYCE PIN debit network.
How has FIS's debt structure and interest expense changed?
FIS incurred significantly higher interest expenses in the nine-month period ended September 30, 2011, compared to the prior year, primarily due to increased overall debt levels resulting from the leveraged recapitalization completed in 2010. This recapitalization involved repurchasing $2.5 billion of common stock funded by new debt. As a result, weighted-average shares outstanding decreased, but interest expense on the new debt notably increased.
What is the outlook for revenue growth and profitability?
FIS expects continued investment in new technology by banks and is well-positioned for market recovery. While revenue is growing, driven by acquisitions and the shift to electronic payments, profit margins are under pressure from a higher mix of professional services revenue. The company is focused on managing costs and capital expenditures prudently while navigating evolving revenue trends and economic conditions.
06—Continue