01—Abstract
Summary
Summary of the 10-Q filed November 1, 2013. Cited figures are marked; the original filing is the authoritative source.
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 billiona, driven by acquisitions, increased processing volumes, and demand for professional services.
The company demonstrated improved profitability, with gross margin increasing to 32.5%b 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.
02—Key points
Key Highlights
- Processing and services revenues increased by 4.3% year-over-year to $4.49 billion for the first nine months of 2013.
- Gross margin improved to 32.5% and operating margin to 18.7% for the nine-month period ended September 30, 2013, indicating enhanced profitability.
- The company's international business showed growth across major regions, demonstrating global reach despite unfavorable foreign currency impacts.
- FIS is actively managing interest rate and foreign currency risks through hedging strategies and interest rate swaps.
- The company is investing in information security and risk management, addressing findings from regulatory examinations and client inquiries.
- FIS 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.
- The company is navigating significant legal matters, including patent infringement lawsuits, for which an estimate of loss is not yet determinable.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in Q3 FY2013, Fidelity National Information Services, Inc. kept $0.11.
- Revenue$1.50B100.0%
- Cost of revenue−$995.1M66.3%
- Gross profit$504.9M33.7%
- Operating costs−$187.2M12.5%
- Operating income$317.7M21.2%
- Interest, other & tax−$145.4M9.7%
- Net income$172.3M11.5%
04—Financials
Financial Highlights
Figures from 10-QQ3 FY2013filed November 1, 2013Financial Statements
Q3 FY2013 against Q3 FY2012
| Line item | Q3 FY2013Q3 FY2012 | Change |
|---|---|---|
| Revenue | $1.50B$1.44B | +4.4% |
| Gross Profit | $504.90M$468.10M | +7.9% |
| SG&A Expenses | $187.20M$180.20M | +3.9% |
| Operating Expenses | $1.18B$1.15B | +2.9% |
| Operating Income | $317.70M$287.90M | +10.4% |
| Net Income | $172.30M$86.80M | +98.5% |
| EPS (Basic) | $0.60$0.30 | +100.0% |
| EPS (Diluted) | $0.59$0.29 | +103.4% |
| Shares Outstanding (Basic) | 289.20M292.40M | −1.1% |
| Shares Outstanding (Diluted) | 293.20M297.90M | −1.6% |
05—Questions
Frequently Asked Questions
What are the main drivers of revenue growth for FIS?
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.
How is FIS managing its financial risks, such as interest rate and currency fluctuations?
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.
What are the key challenges or risks facing FIS as outlined in the report?
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.
How are regulatory changes, like the Durbin Amendment, impacting FIS?
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.
06—Continue