01—Abstract
Summary
Summary of the 10-Q filed May 4, 2016. Cited figures are marked; the original filing is the authoritative source.
Fidelity National Information Services, Inc. (FIS) reported its first quarter 2016 results following the significant acquisition of SunGard on November 30, 2015.
The company's financial performance was heavily influenced by this acquisition, with consolidated revenues increasing substantially year-over-year. However, the integration of SunGard, along with purchase accounting adjustments and higher amortization expenses, led to a decrease in reported operating income and earnings per share compared to the prior year period. Investors should note the strategic rationale behind the SunGard acquisition, which aims to broaden FIS's solution portfolio and expand its reach into new market segments within financial services.
Despite the near-term impacts of integration costs and accounting adjustments, FIS highlighted continued growth in key areas like digital solutions, card production for EMV adoption, and international markets. The company's recurring revenue model provides a degree of stability, and management expects significant cost synergies from the SunGard integration to materialize by the end of 2017. While facing macroeconomic challenges impacting professional services revenue, FIS remains focused on capitalizing on industry trends such as digital transformation, mobile payments, and the ongoing migration to EMV chip technology.
02—Key points
Key Highlights
- Consolidated revenues increased significantly in Q1 2016, primarily driven by the acquisition of SunGard on November 30, 2015. This acquisition expanded FIS's offerings and client base, particularly in wealth management and treasury services.
- Reported operating income and diluted earnings per share decreased in Q1 2016 compared to Q1 2015 due to factors including higher amortization of acquired intangible assets and integration-related expenses stemming from the SunGard acquisition.
- The company is actively integrating SunGard and anticipates realizing approximately $200 million in annual run-rate cost savings by the end of 2017, though one-time severance and other costs are expected.
- Processing and services revenues showed growth across both the Integrated Financial Solutions (IFS) and Global Financial Solutions (GFS) segments, with IFS benefiting from EMV card rollouts and digital solutions, while GFS saw contributions from global trading and software license renewals.
- The Corporate and Other segment experienced a significant operating loss increase, largely due to purchase accounting adjustments for deferred revenue, divestitures, and integration costs associated with SunGard.
- Cash flow from operations saw a substantial increase in Q1 2016 compared to Q1 2015, primarily due to cash generated from the SunGard acquisition.
- FIS noted continued demand for its solutions in international markets, with growth observed in Europe and Asia on a constant currency basis, partially offset by unfavorable foreign currency impacts due to a stronger U.S. Dollar.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in Q1 FY2016, Fidelity National Information Services, Inc. kept $0.03.
- Revenue$2.18B100.0%
- Cost of revenue−$1.55B71.2%
- Gross profit$628.0M28.8%
- Operating costs−$444.0M20.4%
- Operating income$184.0M8.4%
- Interest, other & tax−$129.0M5.9%
- Net income$55.0M2.5%
04—Financials
Financial Highlights
Figures from 10-QQ1 FY2016filed May 4, 2016Financial Statements
Q1 FY2016 against Q1 FY2015
| Line item | Q1 FY2016Q1 FY2015 | Change |
|---|---|---|
| Revenue | $2.18B$1.55B | +40.3% |
| Gross Profit | $628.00M$485.00M | +29.5% |
| SG&A Expenses | $444.00M$270.00M | +64.4% |
| Operating Expenses | $2.00B$1.34B | +49.0% |
| Operating Income | $184.00M$215.00M | −14.4% |
| Net Income | $55.00M$111.00M | −50.5% |
| EPS (Basic) | $0.17$0.39 | −56.4% |
| EPS (Diluted) | $0.17$0.39 | −56.4% |
| Shares Outstanding (Basic) | 324.00M283.00M | +14.5% |
| Shares Outstanding (Diluted) | 327.00M287.00M | +13.9% |
05—Questions
Frequently Asked Questions
How did the SunGard acquisition impact FIS's financial results in the first quarter of 2016?
The SunGard acquisition significantly boosted consolidated revenues in Q1 2016. However, it also led to higher costs, including increased amortization of intangible assets and integration expenses. This resulted in a decrease in operating income and diluted earnings per share compared to the prior year period, despite the revenue growth.
What are the key revenue drivers for FIS, and are there any headwinds mentioned?
Key revenue drivers include recurring technology and processing services, consulting, and software licenses. The company is seeing growth in digital solutions (internet and mobile banking), card production for EMV adoption, and international markets. A primary headwind mentioned is the slowdown in the global economy, which impacts professional services revenue, and unfavorable foreign currency impacts from a stronger U.S. Dollar.
What is FIS's strategy regarding cost savings and synergies following the SunGard acquisition?
FIS is actively integrating the SunGard business and aims to achieve significant cost savings. The company has a target of $200 million in annual synergy run-rate savings by the end of 2017, which will be realized through reductions in administration and technology expenses. Some one-time costs are expected during this integration period.
How is FIS addressing the shift towards digital banking and mobile payments?
FIS is focused on enabling its clients to deliver integrated banking experiences across various channels, including mobile and internet banking. The company continues to invest in and develop these integrated solutions. While acknowledging the growth and competitive landscape of mobile payments, FIS believes its infrastructure and client relationships position it well to maintain and grow payment volumes.
06—Continue