01—Abstract
Summary
Summary of the 10-Q filed May 7, 2014. Cited figures are marked; the original filing is the authoritative source.
Fidelity National Information Services, Inc. (FIS) reported for the first quarter of 2014 continued revenue growth, primarily driven by increased demand for professional and consulting services, along with contributions from recent acquisitions and international expansion.
Despite a slight decrease in gross profit margin due to a shift in revenue mix towards lower-margin professional services, the company managed to increase operating income and net earnings attributable to FIS common stockholders compared to the prior year period. Management highlighted strategic investments in technology solutions, particularly in mobile banking and payments, and noted positive trends in the financial services industry favoring outsourcing and digital transformation, areas where FIS holds strong market positions. The company also successfully reduced its interest expense due to debt refinancing activities and maintained effective controls.
Key financial indicators show a 2.9% increase in processing and services revenues to $1.52 billiona, with diluted EPS from continuing operations rising to $0.53 from $0.50 in the prior year. While international operations saw growth, they were impacted by a stronger U.S. dollar.
The company reaffirmed its commitment to returning capital to shareholders through dividends and share repurchases, with a significant portion of its share repurchase authorization remaining. Despite ongoing litigation risks, particularly patent infringement cases, FIS maintains a solid liquidity position and expects to meet its financial obligations through operational cash flows and existing credit facilities.
02—Key points
Key Highlights
- Revenue increased by 2.9% to $1.52 billion for the three months ended March 31, 2014, compared to $1.48 billion in the prior year period, driven by professional services, acquisitions, and international growth.
- Diluted EPS from continuing operations attributable to FIS common stockholders increased to $0.53 from $0.50 in the prior year period.
- Gross profit margin slightly decreased from 31.8% to 30.9% due to a shift in revenue mix towards professional services.
- Operating income grew to $283.7 million from $275.1 million, with operating margin remaining stable at 18.7%.
- Interest expense decreased due to debt refinancing activities completed in the first half of 2013.
- The company repurchased $175.0 million in stock during the quarter under a new $2.0 billion authorization.
- International operations showed growth across major regions, though impacted by an unfavorable foreign currency impact due to a stronger U.S. dollar.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in Q1 FY2014, Fidelity National Information Services, Inc. kept $0.10.
- Revenue$1.52B100.0%
- Cost of revenue−$1.04B68.7%
- Gross profit$475.9M31.3%
- Operating costs−$189.8M12.5%
- Operating income$286.1M18.8%
- Interest, other & tax−$131.6M8.7%
- Net income$154.5M10.2%
04—Financials
Financial Highlights
Figures from 10-QQ1 FY2014filed May 7, 2014Financial Statements
Q1 FY2014 against Q1 FY2013
| Line item | Q1 FY2014Q1 FY2013 | Change |
|---|---|---|
| Revenue | $1.52B$1.48B | +2.9% |
| Gross Profit | $475.90M$470.00M | +1.3% |
| SG&A Expenses | $189.80M$194.90M | −2.6% |
| Operating Expenses | $1.23B$1.20B | +2.6% |
| Operating Income | $286.10M$275.10M | +4.0% |
| Net Income | $154.50M$144.10M | +7.2% |
| EPS (Basic) | $0.54$0.50 | +8.0% |
| EPS (Diluted) | $0.53$0.49 | +8.2% |
| Shares Outstanding (Basic) | 288.00M291.00M | −1.0% |
| Shares Outstanding (Diluted) | 291.90M295.50M | −1.2% |
05—Questions
Frequently Asked Questions
What were the primary drivers of revenue growth in the first quarter of 2014?
Revenue growth was primarily driven by increased demand for professional and consulting services, incremental revenues from acquisitions made in 2013, and growth in international operations across Europe, Latin America, and Asia. Mobile banking and payments solutions also contributed to the positive trend.
How did the shift in revenue mix affect the company's profitability?
The company experienced a slight decrease in its gross profit margin from 31.8% to 30.9%. This was primarily attributed to a change in the revenue mix, with a higher proportion of revenue coming from professional services, which generally have a lower gross margin percentage compared to other services, and a reduction in termination fees and license revenue.
What is the company's outlook on its international business, and what are the key risks?
FIS expects continued growth in its international business, benefiting from new large-scale outsourcing clients and opportunities in developing countries driven by financial inclusion policies and middle-class growth. However, the company faces risks related to foreign currency fluctuations, particularly a stronger U.S. Dollar negatively impacting reported revenues and operating income, as observed in the first quarter of 2014.
What are the significant legal proceedings impacting FIS?
FIS is involved in two notable patent infringement lawsuits: 'CheckFree Corporation and CashEdge, Inc. v. Metavante Corporation and Fidelity National Information Services, Inc.' and 'DataTreasury Corporation v. Fidelity National Information Services, Inc. et. al.'. Both cases involve allegations of patent infringement related to financial and payment processing technologies. The company is actively defending itself, utilizing covered business method (CBM) post-grant reviews and motions to stay proceedings. An estimate of potential loss for these matters cannot be made at this time.
06—Continue