10-QPeriod: Q2 FY2014

Fidelity National Information Services, Inc. Quarterly Report for Q2 Ended Jun 30, 2014

Filed August 7, 2014For Securities:FIS

Summary

Fidelity National Information Services, Inc. (FIS) reported solid financial performance for the second quarter and first half of 2014, demonstrating continued revenue growth driven by its consulting, enterprise risk, and digital banking solutions. The company's global reach is expanding, with notable growth in Europe, Asia, and Latin America, despite some unfavorable foreign currency impacts. The strategic focus on migrating clients to outsourced models and leveraging its Capco brand for IT consulting appears to be paying off, contributing to increased operating income. FIS is actively managing its financial structure, evidenced by debt refinancing that has reduced interest expenses. The company also continues its share repurchase program, signaling confidence in its financial health and commitment to shareholder returns through dividends. While the decline in check processing presents a headwind, FIS is mitigating this through efficiency actions and new market solutions. The company remains vigilant regarding cybersecurity and regulatory environments, which are key areas of focus and investment.

Financial Highlights

55 data points
Beta

Revenue

$1.60B

31.7% Gross Margin

Net Income

$178.80M

11.2% Net Margin

EPS (Diluted)

$0.62

Total Assets

$14.44B

Cash & Equivalents

$793.70M

Free Cash Flow

$217.10M

Financial Statements
Beta
Revenue$1.60B
Gross Profit$506.60M
SG&A Expenses$196.90M
Operating Expenses$1.29B
Operating Income$309.70M
Net Income$178.80M
EPS (Basic)$0.63
EPS (Diluted)$0.62
Shares Outstanding (Basic)285.50M
Shares Outstanding (Diluted)289.20M

Key Highlights

  • 1Total processing and services revenues increased by 5.7% to $1,599.1 million for the three months ended June 30, 2014, and by 4.3% to $3,119.4 million for the six months ended June 30, 2014, compared to the prior year periods.
  • 2Operating income saw a significant increase, up 24.5% to $309.7 million for the three months and 13.6% to $595.8 million for the six months ended June 30, 2014, driven by revenue growth and a reduction in SG&A expenses.
  • 3Selling, general, and administrative (SG&A) expenses decreased by approximately 15.5% for the three-month period and 9.8% for the six-month period, largely due to a one-time charge related to the Capco acquisition in the prior year.
  • 4Net earnings attributable to FIS increased to $178.8 million for the three-month period ($0.62 diluted EPS) and $333.3 million for the six-month period ($1.15 diluted EPS), compared to $104.8 million ($0.36 diluted EPS) and $248.9 million ($0.84 diluted EPS) respectively in the prior year.
  • 5The International Solutions Group (ISG) continues to show strong growth, with revenues up for both the three- and six-month periods, driven by expansion in Europe, Asia, and Latin America, though partially offset by unfavorable foreign currency impacts.
  • 6FIS continues to return capital to shareholders through dividends, increasing its quarterly dividend to $0.24 per share, and maintains a significant capacity under its share repurchase program.
  • 7The company is proactively managing interest rate risk through interest rate swaps, which has contributed to a reduction in interest expense due to debt refinancing activities in the prior year.

Frequently Asked Questions

Revenue growth was primarily driven by increased demand for professional and consulting services, incremental revenues from acquisitions completed in 2013, and growth in international operations, particularly in Europe, Asia, and Latin America. Solutions like enterprise risk and compliance, community core banking, and digital banking also contributed to the growth.

FIS is benefiting from the trend of financial institutions migrating to outsourced models to improve profitability. The company positions its integrated solutions and outsourced services to address this trend, generating multi-year recurring revenue streams that help stabilize results against economic fluctuations. They are also focusing on large global financial institutions, integrating Capco's consulting services with their technology and outsourcing solutions.

FIS manages interest rate risk through a mix of fixed and variable rate debt and utilizes interest rate swaps to convert variable rate debt to fixed rate, which has helped reduce interest expense following debt refinancing. For foreign currency risk, FIS uses foreign currency forward contracts to manage volatility arising from international operations, although a stronger US dollar presented some unfavorable impacts on reported revenues during the period.

Key challenges include the continued decline in check processing volumes, which negatively impacts related businesses. The company also faces competitive pressures and the need to adapt solutions to technological changes. Cybersecurity threats are a constant concern, requiring ongoing strategic investment. Additionally, consolidation within the banking industry presents both opportunities and risks, depending on how systems are integrated post-merger.