01—Abstract
Summary
Summary of the 10-Q filed April 30, 2019. Cited figures are marked; the original filing is the authoritative source.
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.
02—Key points
Key Highlights
- Revenue for Q1 2019 decreased by 0.5% year-over-year to $2,057 million, impacted by divestitures and foreign currency headwinds.
- Gross profit increased by 3.7% to $676 million, and gross profit margin improved to 32.9% due to favorable revenue mix and cost management.
- Operating income rose by 7.1% to $315 million, with operating margin improving to 15.3%, reflecting improved profitability.
- The 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.
- Integrated Financial Solutions (IFS) segment revenue grew 6.4% to $1,129 million, with Adjusted EBITDA increasing 10.6% to $499 million.
- Global 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.
- Cash flow from operations decreased to $294 million from $354 million in the prior year, primarily due to lower net earnings and working capital timing.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in Q1 FY2019, Fidelity National Information Services, Inc. kept $0.07.
- Revenue$2.06B100.0%
- Cost of revenue−$1.38B67.1%
- Gross profit$676.0M32.9%
- Operating costs−$361.0M17.5%
- Operating income$315.0M15.3%
- Interest, other & tax−$167.0M8.1%
- Net income$148.0M7.2%
04—Financials
Financial Highlights
Figures from 10-QQ1 FY2019filed April 30, 2019Financial Statements
Q1 FY2019 against Q1 FY2018
| Line item | Q1 FY2019Q1 FY2018 | Change |
|---|---|---|
| Revenue | $2.06B$2.07B | −0.4% |
| Cost of Revenue | $1.38B$1.41B | −2.3% |
| Gross Profit | $676.00M$652.00M | +3.7% |
| SG&A Expenses | $361.00M$358.00M | +0.8% |
| Operating Income | $315.00M$294.00M | +7.1% |
| Net Income | $148.00M$182.00M | −18.7% |
| EPS (Basic) | $0.46$0.55 | −16.4% |
| EPS (Diluted) | $0.45$0.54 | −16.7% |
| Shares Outstanding (Basic) | 323.00M330.00M | −2.1% |
| Shares Outstanding (Diluted) | 326.00M334.00M | −2.4% |
05—Questions
Frequently Asked Questions
What is the primary strategic focus for FIS in the first quarter of 2019?
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.
How did the unwinding of the Brazilian Venture impact the financial results?
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.
What are the key risks associated with the pending Worldpay acquisition?
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.
How is FIS managing its data center strategy and what are the expected benefits?
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.
06—Continue