10-QPeriod: Q3 FY2013

Fidelity National Information Services, Inc. Quarterly Report for Q3 Ended Sep 30, 2013

Filed November 1, 2013For Securities:FIS

Summary

Fidelity National Information Services, Inc. (FIS) reported solid performance for the nine months ended September 30, 2013, with a 4.3% increase in processing and services revenue to $4.49 billion, driven by acquisitions, increased processing volumes, and demand for professional services. The company demonstrated improved profitability, with gross margin increasing to 32.5% and operating margin to 18.7% for the nine-month period, reflecting a shift towards higher-margin revenue streams and operational efficiencies. International segments also showed growth on a constant currency basis, despite a stronger U.S. dollar impacting reported figures. The company continues to navigate regulatory changes, including the Durbin Amendment, and manage potential risks associated with cybersecurity and patent litigation, while actively engaging with regulators and clients regarding information security. While the company faces challenges such as industry consolidation and potential impacts from cybersecurity threats and ongoing patent litigation, it remains strategically focused on investing in information security and adapting its solutions to evolving market trends. The company's proactive approach to managing market risks, including interest rate and foreign currency fluctuations through hedging strategies, positions it to maintain its growth trajectory. Management expresses confidence in the company's ability to capitalize on market recovery and technological investments.

Financial Highlights

55 data points
Beta

Revenue

$1.50B

33.7% Gross Margin

Net Income

$172.30M

11.5% Net Margin

EPS (Diluted)

$0.59

Total Assets

$14.49B

Cash & Equivalents

$811.60M

Free Cash Flow

$279.50M

Financial Statements
Beta
Revenue$1.50B
Gross Profit$504.90M
SG&A Expenses$187.20M
Operating Expenses$1.18B
Operating Income$317.70M
Net Income$172.30M
EPS (Basic)$0.60
EPS (Diluted)$0.59
Shares Outstanding (Basic)289.20M
Shares Outstanding (Diluted)293.20M

Key Highlights

  • 1Processing and services revenues increased by 4.3% year-over-year to $4.49 billion for the first nine months of 2013.
  • 2Gross margin improved to 32.5% and operating margin to 18.7% for the nine-month period ended September 30, 2013, indicating enhanced profitability.
  • 3The company's international business showed growth across major regions, demonstrating global reach despite unfavorable foreign currency impacts.
  • 4FIS is actively managing interest rate and foreign currency risks through hedging strategies and interest rate swaps.
  • 5The company is investing in information security and risk management, addressing findings from regulatory examinations and client inquiries.
  • 6FIS repurchased approximately 2.7 million shares of common stock for $124.9 million during the third quarter of 2013, underscoring a commitment to shareholder returns.
  • 7The company is navigating significant legal matters, including patent infringement lawsuits, for which an estimate of loss is not yet determinable.

Frequently Asked Questions

Revenue growth is primarily driven by incremental revenues from recent acquisitions, increased processing volumes, higher termination fees, and growing demand for professional and consulting services. The company also benefits from the ongoing trend of financial institutions migrating to outsourced models and the evolution of the payment market towards electronic transactions, including new services like mobile banking and electronic bill presentment/payment.

FIS actively manages market risks by utilizing derivative financial instruments, including interest rate swaps and foreign currency forward exchange contracts. These instruments are used to manage interest rate exposure on debt obligations and foreign currency risks arising from international operations. The company aims to minimize volatility in its results of operations and cash flows.

Key challenges include cybersecurity threats and potential security breaches that could compromise sensitive information and disrupt operations. The company is also subject to ongoing regulatory scrutiny regarding information security, risk management, and internal audit functions, with a confidential report issued in May 2013 prompting client inquiries. Additionally, FIS is involved in patent infringement lawsuits where the outcome and potential financial impact are currently indeterminable.

The Durbin Amendment, which caps debit transaction interchange fees, has had an insignificant impact on FIS to date. The network exclusivity provisions have favorably impacted transaction volumes in its NYCE PIN debit network. However, the company acknowledges that ongoing monitoring of market participant actions and potential legal challenges to these regulations could affect future transaction volumes. FIS may incur capital investments to modify solutions to comply with these regulations.