10-QPeriod: Q2 FY2016

Fidelity National Information Services, Inc. Quarterly Report for Q2 Ended Jun 30, 2016

Filed August 2, 2016For Securities:FIS

Summary

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.

Financial Highlights

54 data points
Beta

Revenue

$2.31B

30.6% Gross Margin

Net Income

$121.00M

5.2% Net Margin

EPS (Diluted)

$0.37

Total Assets

$26.38B

Cash & Equivalents

$765.00M

Free Cash Flow

$399.00M

Financial Statements
Beta
Revenue$2.31B
Gross Profit$705.00M
SG&A Expenses$422.00M
Operating Expenses$2.02B
Operating Income$283.00M
Net Income$121.00M
EPS (Basic)$0.37
EPS (Diluted)$0.37
Shares Outstanding (Basic)325.00M
Shares Outstanding (Diluted)329.00M

Key Highlights

  • 1Significant revenue increase driven by the SunGard acquisition, contributing to substantial growth in both IFS and GFS segments.
  • 2Overall revenue for the six months increased to $4.49 billion from $3.14 billion in the prior year, largely due to SunGard's integration.
  • 3Operating income declined to $467 million from $502 million year-over-year for the six-month period, impacted by increased integration costs and amortization expenses.
  • 4Net 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.
  • 5The company is actively managing integration costs from the SunGard acquisition, aiming for $200 million in annual synergy savings by the end of 2017.
  • 6Investments continue in key growth areas such as digital banking, mobile payments, and EMV card solutions to address evolving market demands and competitive pressures.
  • 7Foreign 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.

Frequently Asked Questions

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.

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.

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.

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.