01—Abstract
Summary
Summary of the 10-Q filed August 2, 2013. Cited figures are marked; the original filing is the authoritative source.
Fidelity National Information Services, Inc. (FIS) reported mixed financial results for the second quarter and first half of 2013.
While overall revenue saw a modest increase year-over-year, driven by acquisitions, increased processing volumes, and demand for professional services, the company experienced a decline in operating income, particularly in the three-month period. This was largely attributed to increased selling, general, and administrative expenses, notably a significant charge related to contingent payments for the Capco acquisition and higher information security spending. Despite these headwinds, the company highlighted continued growth in its international segment, despite unfavorable foreign currency impacts.
FIS also addressed ongoing regulatory scrutiny regarding its information security and risk management functions, noting that while a recent report led to client inquiries, no significant business has been lost to date. The company reaffirmed its commitment to substantial investments in security and reiterated its expectation that operational cash flow will be sufficient to meet its financial obligations, including ongoing dividend payments.
02—Key points
Key Highlights
- Total revenue for the three months ended June 30, 2013, increased by 3.8% to $1.51 billion, and by 4.2% to $2.99 billion for the six-month period, compared to the prior year.
- Operating income decreased in the three-month period (down 12.4% to $247.6 million) but saw a slight increase in the six-month period (up 3.5% to $522.7 million) due to increased SG&A expenses, including a $43.9 million charge for Capco contingent payments.
- The company invested over $100 million in Risk and Information Security over the past 18 months due to growing global cyber-attack threats.
- International Solutions Group (ISG) revenue grew, with notable increases in Brazil, European consulting, and expanded presence in Asia and Latin America, although impacted by foreign currency headwinds.
- FIS successfully completed debt refinancing activities in April 2013, increasing its revolving loan capacity to $2.0 billion.
- The company continues to pay a quarterly dividend of $0.22 per share, with a new payment scheduled for September 30, 2013.
- The company is facing ongoing patent infringement litigation with CheckFree Corporation and CashEdge, Inc. (Fiserv) and a new lawsuit from DataTreasury Corporation, though FIS believes it has strong defenses for the latter.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in Q2 FY2013, Fidelity National Information Services, Inc. kept $0.07.
- Revenue$1.51B100.0%
- Cost of revenue−$1.03B68.2%
- Gross profit$481.3M31.8%
- Operating costs−$232.6M15.4%
- Operating income$248.7M16.4%
- Interest, other & tax−$143.9M9.5%
- Net income$104.8M6.9%
04—Financials
Financial Highlights
Figures from 10-QQ2 FY2013filed August 2, 2013Financial Statements
Q2 FY2013 against Q2 FY2012
| Line item | Q2 FY2013Q2 FY2012 | Change |
|---|---|---|
| Revenue | $1.51B$1.46B | +3.8% |
| Gross Profit | $481.30M$476.10M | +1.1% |
| SG&A Expenses | $232.60M$193.40M | +20.3% |
| Operating Expenses | $1.26B$1.17B | +7.6% |
| Operating Income | $248.70M$282.70M | −12.0% |
| Net Income | $104.80M$150.60M | −30.4% |
| EPS (Basic) | $0.36$0.51 | −29.4% |
| EPS (Diluted) | $0.36$0.50 | −28.0% |
| Shares Outstanding (Basic) | 289.90M292.70M | −1.0% |
| Shares Outstanding (Diluted) | 294.30M298.30M | −1.3% |
05—Questions
Frequently Asked Questions
What drove the year-over-year changes in revenue and operating income?
Revenue increased due to higher termination fees, incremental revenues from acquisitions (like Capco), increased processing volumes, and demand for professional services. However, operating income for the three-month period decreased significantly due to a substantial increase in selling, general, and administrative expenses, primarily driven by a $43.9 million charge related to contingent payments for the Capco acquisition and increased information security spending.
How is FIS addressing cybersecurity threats and regulatory scrutiny?
FIS has invested over $100 million in Risk and Information Security over the past 18 months. The company is subject to ongoing examinations by federal regulatory agencies regarding its information security and risk management functions. While a recent confidential report led to client inquiries, FIS stated that no significant new or existing business has been lost to date and it is actively addressing findings and monitoring potential impacts.
What is the impact of the Durbin Amendment on FIS?
The Durbin Amendment, which caps debit transaction interchange fees for larger banks, had an insignificant impact on FIS thus far. While it has the potential to alter transaction volumes, FIS believes it is competitively positioned to offset or capitalize on any shifts with its multiple payment solutions. The network exclusivity provisions favorably impacted transaction volumes in its NYCE PIN debit network in 2012.
Are there any significant legal proceedings that could materially impact FIS?
FIS is involved in patent infringement litigation with CheckFree Corporation and CashEdge, Inc. (subsidiaries of Fiserv), and a new lawsuit from DataTreasury Corporation. While the company believes it has strong defenses for the DataTreasury lawsuit, the outcome of these legal matters, including potential patent invalidation reviews and stays, remains uncertain, and an estimate of possible loss cannot be made at this time.
06—Continue