Fidelity National Information Services (NYSE: FIS), a leading global provider of technology services to financial institutions, today announced consolidated financial results for the third quarter of 2008.
Consolidated revenue increased 25.4% to $893.8 million, including approximately $142.8 million in revenue from eFunds, which FIS acquired in September 2007. Excluding eFunds, organic revenue increased 9.4% over the comparable 2007 quarter. GAAP net earnings from continuing operations totaled $0.24 per share, compared to $0.68 per share in the third quarter of 2007, which included an after-tax gain of $0.58 from the sale of Covansys stock.
Non-GAAP adjusted net earnings from continuing operations for the third quarter of 2008 totaled $0.42 per share, compared to $0.31 in the prior year, an increase of 35.5%. Adjusted EBITDA increased 27.9% to $228.9 million compared to $179.0 million in the third quarter of 2007. The EBITDA margin improved to 25.6% compared to 25.1% in the prior-year quarter and increased sequentially from 23.1% in the second quarter of 2008. Pro forma free cash flow (cash from operations, adjusted for merger and integration costs, less capital expenditures) increased to $118.2 million in the third quarter of 2008. Pro forma free cash flow for the first nine months of 2008 totaled $209.3 million, or 102% of adjusted net earnings, compared with $41.5 million in the same period in the prior year.
"FIS has achieved consistent improvement in organic revenue growth, EBITDA margin and free cash flow throughout 2008, and we are very pleased with these results," stated William P. Foley, II, executive chairman of FIS. "Despite the increasingly challenging economic environment, we are reaffirming our previously communicated earnings guidance."
"FIS is executing to plan, despite persistent challenges in the marketplace," added Lee A. Kennedy, president and chief executive officer. "We continue to focus on the goals that we established early in the year, including driving higher organic revenue growth through market share gains and cross sales, reducing our overall cost structure, completing the eFunds integration, reducing capital exprket share gains and cross sales, reducing our overall cost structure, completing the eFunds integration, reducing capital expenditures and improving cash flow. We are making solid progress on each of these initiatives, as demonstrated by the strong results across all business lines."
FIS' operating results are presented in accordance with generally accepted accounting principles ("GAAP") and on an adjusted pro forma basis, which management believes may provide more meaningful comparisons with respect to our current operations between the periods presented. The adjusted results exclude the after-tax impact of merger and acquisition and integration expenses, LPS spin-off related costs, debt restructuring and other charges, gains (losses) on the sale of certain non-strategic assets and acquisition related amortization.
Divestitures and Discontinued Operations
During the first half of 2008, FIS completed the sale of two non-strategic businesses, FIS Credit Services and Certegy Gaming Services. The company also exited a small operation that provided services to the residential homebuilding market. On July 2, 2008, FIS completed the spin-off of Lender Processing Services, Inc., (NYSE: LPS - News). These businesses are reported as discontinued operations for the periods presented.
On October 13, 2008, FIS completed the previously announced sale of Certegy Australia, Ltd., and will report this business as a discontinued operation beginning in the fourth quarter of 2008. Certegy Australia provides retail lending services to consumers.
Consolidated third quarter revenue increased 25.4% to $893.8 million (including eFunds revenue of $142.8 million) compared to $712.8 million (including eFunds revenue of $26.6 from the acquisition date of September 12, 2007) in the prior year quarter. Excluding eFunds revenue from both periods, revenue increased 9.4% to $751.0 million, driven by 25.5% growth in International, 9.0% growth in Integrated Financial Solutions and 3.7% growth in Enterprise Solutions. Termination fees totaled $1.7 million in the third quarter of 2008, compared to $3.0 million in the third quarter of 2007.
The strong performance in International was driven by growth in FIS' core bank processing operation in Germany, new customer implementations, the company's Brazilian card processing joint venture and favorable currency rates, which benefitted revenue by $13.6 million. The increase in Integrated Financial Solutions was due to growth in core processing services, ebusiness solutions, card marketing programs and a $5.6 million year-to-date adjustment for pass-through interchange revenue. Excluding the interchange adjustment, Integrated Financial Solutions revenue increased approximately 7.2%.
Enterprise Solutions revenue, excluding eFunds, increased 3.7% to $240.1 million compared to the prior-year quarter and increased 5.6% compared to the second quarter of 2008. Increased software license sales and outsourced technology revenue more than offset a $6.9 million decline in retail check risk management revenue.
Adjusted EBITDA increased 27.9% to $228.9 million. The adjusted EBITDA margin increased 50 basis points to 25.6% compared to the third quarter of 2007, and increased 250 basis points compared to 23.1% in the second quarter of 2008. The improvement was driven by increasing profitability in the company's International business, efficiency gains and higher software license fees.
Corporate overhead expense totaled $23.7 million in the third quarter of 2008, compared to $15.6 million in the third quarter of 2007. The increase was driven by higher incentive compensation accruals and stock option expense.
During the quarter, FIS retired $200 million of secured 4.75% fixed rate notes. As of September 30, 2008, the company had $238.5 million in cash and cash equivalents and $2.6 billion in outstanding debt, of which $2.1 billion has been swapped to fixed interest rates. The effective interest rate on FIS total debt at September 30, 2008, was 5.5%.
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