10-QPeriod: Q3 FY2016

Fidelity National Information Services, Inc. Quarterly Report for Q3 Ended Sep 30, 2016

Filed November 2, 2016For Securities:FIS

Summary

Fidelity National Information Services, Inc. (FIS) reported solid revenue growth for the nine months ended September 30, 2016, largely driven by the significant acquisition of SunGard in late 2015. Processing and services revenues saw a substantial increase, reflecting the integration of SunGard's offerings and continued organic growth in areas like debit payments and EMV card production. While the company experienced increased costs and expenses, including those related to the SunGard integration and higher amortization due to acquired intangible assets, operating income showed a modest increase year-over-year. Investors should note the impact of purchase accounting adjustments on revenue and the strategic focus on expanding into institutional and wholesale financial services markets. The company is navigating a challenging macroeconomic environment, with a slowdown in professional services revenue, but its recurring revenue model provides stability. FIS is actively managing its balance sheet, with a significant debt load from the SunGard acquisition, and continues to return capital to shareholders through dividends. The company is also investing in information security solutions, both for its own operations and as a growth opportunity by offering these services to clients.

Financial Highlights

55 data points
Beta

Revenue

$2.31B

33.9% Gross Margin

Net Income

$185.00M

8.0% Net Margin

EPS (Diluted)

$0.56

Total Assets

$26.13B

Cash & Equivalents

$701.00M

Free Cash Flow

$482.00M

Financial Statements
Beta
Revenue$2.31B
Gross Profit$782.00M
SG&A Expenses$384.00M
Operating Expenses$1.91B
Operating Income$398.00M
Net Income$185.00M
EPS (Basic)$0.57
EPS (Diluted)$0.56
Shares Outstanding (Basic)326.00M
Shares Outstanding (Diluted)330.00M

Key Highlights

  • 1Processing and services revenues increased significantly by 44% for the nine-month period ended September 30, 2016, largely due to the SunGard acquisition.
  • 2Adjusted EBITDA for the Global Financial Solutions (GFS) segment grew substantially by 159.6% year-over-year, indicating strong performance and synergy realization from the SunGard acquisition.
  • 3The company incurred significant integration and severance costs related to the SunGard acquisition, impacting Selling, General, and Administrative (SG&A) expenses and overall operating margins.
  • 4Increased interest expense was noted due to higher outstanding debt resulting from financing the SunGard acquisition.
  • 5FIS continues to invest in growth areas such as EMV card rollouts, debit payments, and risk and compliance solutions, alongside developing capabilities in mobile and digital banking.
  • 6Despite revenue growth, gross profit and operating income margins saw a decrease in the nine-month period due to higher acquired intangible asset amortization expense from the SunGard acquisition.
  • 7Cash flow from operations more than doubled year-over-year, primarily due to cash generated by the acquired SunGard business.

Frequently Asked Questions

The SunGard acquisition, completed in November 2015, was the primary driver of revenue growth for FIS in the first nine months of 2016. Processing and services revenues saw a significant increase, and the Global Financial Solutions segment, which now includes SunGard's operations, experienced substantial growth in Adjusted EBITDA. However, the acquisition also led to increased costs, including amortization of intangible assets, integration and severance expenses, and higher interest expenses due to increased debt.

FIS has financed the SunGard acquisition with debt, resulting in a significant increase in its long-term debt. The company's liquidity is supported by cash generated from operations and its revolving credit facility. While specific debt repayment strategies are not detailed in this section, management stated that cash flows from operations over the next twelve months are expected to be sufficient to fund operating cash requirements, capital expenditures, and mandatory debt service. The company also refinanced debt in August 2016 to increase liquidity and extend debt maturities.

FIS acknowledges the continued decline in check usage as a percentage of total payments, which negatively impacts its check warranty and item-processing businesses. The company has focused on mitigating these impacts through cost and fraud efficiency actions, as well as developing new market solutions. While the trend is expected to continue, FIS has managed to observe a modest slowdown in the decline and has been successful in mitigating the majority of the impacts to date.

FIS is focused on several key trends including the migration of financial institutions to outsourced technology solutions, the shift from traditional branch banking to digital banking, the growth of mobile payments, the industry-wide transition to EMV cards, and ongoing consolidation in the banking industry. The company is strategically investing in solutions that address these trends, such as integrated banking experiences, faster payment solutions, EMV card processing capabilities, and risk and compliance solutions. While these trends present opportunities, they also carry risks, such as increased competition in mobile payments and potential revenue loss due to banking consolidation.