01—Abstract
Summary
Summary of the 10-Q filed July 31, 2018. Cited figures are marked; the original filing is the authoritative source.
Fidelity National Information Services, Inc. (FIS) reported mixed results for the three and six months ended June 30, 2018, compared to the same periods in 2017.
Overall revenues saw a decrease, largely attributed to the divestiture of consulting businesses (Capco and PS&E) in 2017 and a decline in the institutional and wholesale business, alongside lower license fees and card production. Despite the revenue dip, the company demonstrated improved operational efficiency and profitability in key segments. The Integrated Financial Solutions (IFS) segment showed revenue growth driven by increased volumes in banking, wealth, and digital solutions, coupled with strong Adjusted EBITDA margin expansion.
The Global Financial Solutions (GFS) segment experienced a revenue decline due to the prior year's divestitures, but improved its Adjusted EBITDA margin through cost management. Net earnings attributable to FIS common stockholders significantly increased year-over-year for both the three and six-month periods, benefiting from tax reform and cost control measures. The company also reported robust cash flow from operations and maintained its capital return plans through dividends and share repurchases.
02—Key points
Key Highlights
- Total revenues decreased by 6.7% for the three-month period and 5.3% for the six-month period compared to 2017, primarily due to business divestitures and declines in specific business lines.
- Net earnings attributable to FIS common stockholders increased substantially, with diluted EPS rising to $0.64 for Q2 2018 (vs. $0.42 in Q2 2017) and $1.18 for H1 2018 (vs. $0.81 in H1 2017).
- The Integrated Financial Solutions (IFS) segment reported revenue growth of 3.4% for the quarter and 2.9% for the half-year, with a notable increase in Adjusted EBITDA margin.
- The Global Financial Solutions (GFS) segment saw revenue decline but improved its Adjusted EBITDA margin by 370 basis points for the quarter and 500 basis points for the half-year, indicating successful cost management post-divestiture.
- Cash flow from operations significantly increased by $295 million for the six-month period, largely due to lower income tax payments resulting from tax reform and improved receivables collection.
- The company actively returned capital to shareholders, with $200 million in share repurchases during the quarter under a $4.0 billion authorization and a quarterly dividend of $0.32 per common share.
- The company's effective tax rate decreased significantly due to the U.S. federal income tax rate reduction from 35% to 21% enacted in late 2017.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in Q2 FY2018, Fidelity National Information Services, Inc. kept $0.10.
- Revenue$2.11B100.0%
- Cost of revenue−$1.41B67.1%
- Gross profit$692.0M32.9%
- Operating costs−$339.0M16.1%
- Operating income$353.0M16.8%
- Interest, other & tax−$141.0M6.7%
- Net income$212.0M10.1%
04—Financials
Financial Highlights
Figures from 10-QQ2 FY2018filed July 31, 2018Financial Statements
Q2 FY2018 against Q2 FY2017
| Line item | Q2 FY2018Q2 FY2017 | Change |
|---|---|---|
| Revenue | $2.11B$2.26B | −6.7% |
| Cost of Revenue | $1.41B— | — |
| Gross Profit | $692.00M$738.00M | −6.2% |
| SG&A Expenses | $339.00M$368.00M | −7.9% |
| Operating Income | $353.00M$370.00M | −4.6% |
| Net Income | $212.00M$139.00M | +52.5% |
| EPS (Basic) | $0.64$0.42 | +52.4% |
| EPS (Diluted) | $0.64$0.42 | +52.4% |
| Shares Outstanding (Basic) | 329.00M330.00M | −0.3% |
| Shares Outstanding (Diluted) | 333.00M334.00M | −0.3% |
05—Questions
Frequently Asked Questions
What is the primary reason for the reported decrease in overall revenue?
The decrease in revenue for both the three- and six-month periods ending June 30, 2018, compared to 2017, was primarily driven by the sale of consulting businesses (Capco and PS&E) in prior periods, a decline in the institutional and wholesale business due to lower license fees, and a reduction in license and one-time professional services revenue in international banking solutions. There was also a decline in the card production business.
How has the recent tax reform impacted FIS's financial results?
The reduction in the U.S. federal income tax rate from 35% to 21% due to the tax reform enacted in December 2017 significantly lowered the company's effective tax rate. For the six months ended June 30, 2018, the effective tax rate was 17% compared to 43% in the prior year. This tax benefit also contributed to the substantial increase in net earnings and cash flow from operations.
What is the outlook for the company's key segments, IFS and GFS?
The Integrated Financial Solutions (IFS) segment shows a positive trend with revenue growth and improved Adjusted EBITDA margins, driven by increased volumes in banking, wealth, and digital solutions. The Global Financial Solutions (GFS) segment, while experiencing revenue decline due to divestitures, has successfully improved its Adjusted EBITDA margins through effective cost management and a favorable revenue mix shift, indicating resilience and operational efficiency.
How is FIS managing its capital and returning value to shareholders?
FIS continues to return capital through regular quarterly dividends, with $0.32 per share paid in June 2018. Additionally, the company repurchased $200 million of its common stock in the April 2018 period as part of a larger $4.0 billion authorization, demonstrating a commitment to shareholder value. Cash flow from operations has been strong, providing resources for these capital allocation strategies.
06—Continue