01—Abstract
Summary
Summary of the 10-Q filed August 2, 2016. Cited figures are marked; the original filing is the authoritative source.
Fidelity National Information Services, Inc. (FIS) reported its second-quarter 2016 results, which were significantly impacted by the acquisition of SunGard completed in late 2015.
The company experienced substantial revenue growth driven by the inclusion of SunGard's operations, particularly in its Global Financial Solutions (GFS) and Integrated Financial Solutions (IFS) segments. However, this growth was partially offset by the ongoing slowdown in the global economy impacting professional services revenue and the effects of purchase accounting adjustments, specifically the reduction of deferred revenue to fair value. While the company saw increased revenue and Adjusted EBITDA in its key segments, overall operating income and net earnings were lower compared to the prior year.
This decline is attributed to higher costs associated with integrating SunGard, including amortization of acquired intangible assets and severance expenses. Despite these integration costs and macroeconomic headwinds, FIS continues to focus on strategic investments in areas like digital banking, mobile payments, and EMV card technology, positioning itself to capitalize on industry trends and evolving customer needs.
02—Key points
Key Highlights
- Significant revenue increase driven by the SunGard acquisition, contributing to substantial growth in both IFS and GFS segments.
- Overall revenue for the six months increased to $4.49 billion from $3.14 billion in the prior year, largely due to SunGard's integration.
- Operating income declined to $467 million from $502 million year-over-year for the six-month period, impacted by increased integration costs and amortization expenses.
- Net earnings attributable to FIS common stockholders decreased to $176 million ($0.54 per diluted share) for the six months ended June 30, 2016, compared to $351 million ($1.23 per diluted share) in the prior year.
- The company is actively managing integration costs from the SunGard acquisition, aiming for $200 million in annual synergy savings by the end of 2017.
- Investments continue in key growth areas such as digital banking, mobile payments, and EMV card solutions to address evolving market demands and competitive pressures.
- Foreign currency headwinds were present, with a stronger U.S. dollar negatively impacting reported revenues, though the company expects minimal net foreign currency impact on operating income for the remainder of 2016.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in Q2 FY2016, Fidelity National Information Services, Inc. kept $0.05.
- Revenue$2.31B100.0%
- Cost of revenue−$1.60B69.4%
- Gross profit$705.0M30.6%
- Operating costs−$422.0M18.3%
- Operating income$283.0M12.3%
- Interest, other & tax−$162.0M7.0%
- Net income$121.0M5.2%
04—Financials
Financial Highlights
Figures from 10-QQ2 FY2016filed August 2, 2016Financial Statements
Q2 FY2016 against Q2 FY2015
| Line item | Q2 FY2016Q2 FY2015 | Change |
|---|---|---|
| Revenue | $2.31B$1.59B | +45.2% |
| Gross Profit | $705.00M$517.00M | +36.4% |
| SG&A Expenses | $422.00M$230.00M | +83.5% |
| Operating Expenses | $2.02B$1.30B | +55.5% |
| Operating Income | $283.00M$287.00M | −1.4% |
| Net Income | $121.00M$240.00M | −49.6% |
| EPS (Basic) | $0.37$0.85 | −56.5% |
| EPS (Diluted) | $0.37$0.84 | −56.0% |
| Shares Outstanding (Basic) | 325.00M281.00M | +15.7% |
| Shares Outstanding (Diluted) | 329.00M284.00M | +15.8% |
05—Questions
Frequently Asked Questions
How has the SunGard acquisition impacted FIS's financial performance in the second quarter of 2016?
The SunGard acquisition, completed in late 2015, significantly boosted FIS's revenue, particularly in the IFS and GFS segments, due to the addition of SunGard's operations and client base. However, the acquisition also brought increased costs related to integration, severance, and amortization of acquired intangible assets, which negatively impacted operating income and net earnings compared to the prior year period.
What are the main factors affecting FIS's profitability in the current reporting period?
Profitability is being affected by several factors. The primary drag on operating income and net earnings stems from the significant integration costs and expenses associated with the SunGard acquisition, including acquired intangible asset amortization and severance costs. Additionally, a general slowdown in the global economy is impacting revenue from professional services. Purchase accounting adjustments, specifically the reduction of deferred revenue to fair value, also reduced reported revenue.
How is FIS addressing the challenges posed by macroeconomic conditions and integration costs?
FIS is focused on realizing significant cost savings from the SunGard integration, targeting $200 million in annual synergy run-rate savings by the end of 2017. They are also strategically investing in high-growth areas like digital and mobile banking, and EMV solutions to counter the impact of the broader economic slowdown and leverage industry trends. The company aims to mitigate the impact of declining check processing volumes through efficiency actions and new market solutions.
What is FIS's outlook on foreign currency impacts?
For the six months ended June 30, 2016, FIS experienced an unfavorable foreign currency impact primarily due to a stronger U.S. Dollar against currencies like the Brazilian Real and British Pound Sterling. However, the company anticipates minimal net foreign currency impact on its operating income for the remainder of 2016.
06—Continue