01—Abstract
Summary
Summary of the 10-Q filed August 7, 2014. Cited figures are marked; the original filing is the authoritative source.
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.
02—Key points
Key Highlights
- Total 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.
- Operating 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.
- Selling, 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.
- Net 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.
- The 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.
- FIS 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.
- The 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.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in Q2 FY2014, Fidelity National Information Services, Inc. kept $0.11.
- Revenue$1.60B100.0%
- Cost of revenue−$1.09B68.3%
- Gross profit$506.6M31.7%
- Operating costs−$196.9M12.3%
- Operating income$309.7M19.4%
- Interest, other & tax−$130.9M8.2%
- Net income$178.8M11.2%
04—Financials
Financial Highlights
Figures from 10-QQ2 FY2014filed August 7, 2014Financial Statements
Q2 FY2014 against Q2 FY2013
| Line item | Q2 FY2014Q2 FY2013 | Change |
|---|---|---|
| Revenue | $1.60B$1.51B | +5.7% |
| Gross Profit | $506.60M$481.30M | +5.3% |
| SG&A Expenses | $196.90M$232.60M | −15.3% |
| Operating Expenses | $1.29B$1.26B | +2.0% |
| Operating Income | $309.70M$248.70M | +24.5% |
| Net Income | $178.80M$104.80M | +70.6% |
| EPS (Basic) | $0.63$0.36 | +75.0% |
| EPS (Diluted) | $0.62$0.36 | +72.2% |
| Shares Outstanding (Basic) | 285.50M289.90M | −1.5% |
| Shares Outstanding (Diluted) | 289.20M294.30M | −1.7% |
05—Questions
Frequently Asked Questions
What are the main drivers of revenue growth for FIS in this period?
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.
What is the company's strategy regarding the shift to outsourced models in the financial services industry?
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.
How is FIS managing its financial risks, particularly interest rate and foreign currency fluctuations?
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.
What are the key challenges or headwinds FIS is facing?
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.
06—Continue