10-QPeriod: Q1 FY2019

Fidelity National Information Services, Inc. Quarterly Report for Q1 Ended Mar 31, 2019

Filed April 30, 2019For Securities:FIS

Summary

Fidelity National Information Services, Inc. (FIS) reported a slight decrease in revenue for the first quarter of 2019 compared to the same period in 2018, primarily driven by the unwinding of its Brazilian Venture and the divestiture of certain business units. However, gross profit and operating income saw increases due to favorable revenue mix, cost management initiatives, and strategic outsourcing trends benefiting the Integrated Financial Solutions (IFS) segment. The most significant development is the pending acquisition of Worldpay, announced on March 17, 2019, which is expected to close in the third quarter of 2019. This transformative deal positions FIS as a global leader in payments technology. While the acquisition is a key strategic move, investors should be aware of the numerous risks and integration challenges detailed in the filing, including potential regulatory hurdles, the complexity of combining two large organizations, and the significant increase in debt that will result.

Financial Highlights

55 data points
Beta

Revenue

$2.06B

32.9% Gross Margin

Net Income

$148.00M

7.2% Net Margin

EPS (Diluted)

$0.45

Total Assets

$24.07B

Cash & Equivalents

$576.00M

Free Cash Flow

$257.00M

Financial Statements
Beta
Revenue$2.06B
Cost of Revenue$1.38B
Gross Profit$676.00M
SG&A Expenses$361.00M
Operating Income$315.00M
Net Income$148.00M
EPS (Basic)$0.46
EPS (Diluted)$0.45
Shares Outstanding (Basic)323.00M
Shares Outstanding (Diluted)326.00M

Key Highlights

  • 1Revenue for Q1 2019 decreased by 0.5% year-over-year to $2,057 million, impacted by divestitures and foreign currency headwinds.
  • 2Gross profit increased by 3.7% to $676 million, and gross profit margin improved to 32.9% due to favorable revenue mix and cost management.
  • 3Operating income rose by 7.1% to $315 million, with operating margin improving to 15.3%, reflecting improved profitability.
  • 4The company announced a significant merger agreement with Worldpay on March 17, 2019, aiming to close in Q3 2019, creating a leading global payments technology company.
  • 5Integrated Financial Solutions (IFS) segment revenue grew 6.4% to $1,129 million, with Adjusted EBITDA increasing 10.6% to $499 million.
  • 6Global Financial Solutions (GFS) segment revenue decreased 6.9% to $863 million, largely due to the Brazilian Venture unwind, though Adjusted EBITDA saw a modest increase.
  • 7Cash flow from operations decreased to $294 million from $354 million in the prior year, primarily due to lower net earnings and working capital timing.

Frequently Asked Questions

The primary strategic focus highlighted is the pending acquisition of Worldpay, announced on March 17, 2019. This acquisition is expected to create a leading global provider of financial technology solutions, particularly in the payments sector. The company is also continuing to invest in modernization, innovation, and integrated solutions.

The unwinding of the Brazilian Venture, completed on December 31, 2018, and the subsequent commercial agreement with Banco Bradesco, led to an annualized reduction in reported revenue of approximately $225 million. This had a notable impact on the Global Financial Solutions (GFS) segment's revenue in the first quarter of 2019.

The key risks include the possibility that the transaction may not be completed, that anticipated synergies may not be realized, difficulties in integration, customer or employee loss, potential unforeseen liabilities, regulatory approvals, and the substantial increase in debt and related interest expenses. The filing also emphasizes that the combined entity will face increased complexity and operational challenges.

FIS is actively migrating its server compute to its FIS cloud, with a goal to reach 65% by the end of 2019 and 80% by the end of 2021. Concurrently, it is consolidating data centers, having closed 10 in 2018 and planning to close approximately 20 more by 2021. These initiatives are expected to enhance security, increase flexibility and speed of service delivery, and reduce costs, with savings exceeding $100 million annually as of year-end 2018 from the program inception, and an additional $150 million anticipated from future consolidations.