Metavante Technologies (NYSE:MV) today reported third quarter 2008 revenue of $424.5 million, up 4 percent compared to $406.9 million in the third quarter of 2007.
Organic growth was 4 percent, driven by higher transaction volumes in the payment businesses.
Segment operating income for the third quarter of 2008 was $123.3 million, an increase of 11 percent compared to the third quarter of 2007. Segment operating margin for the third quarter of 2008 improved to 29 percent, an increase of 1.8 percentage points compared to the third quarter of 2007.
Net income for the third quarter of 2008 was $35.1 million, or $0.29 per share. Cash net income for the third quarter of 2008 was $41.6 million, or $0.35 per share. Cash provided by operating activities for the first nine months of 2008 was $220.7 million. Free cash flow for the first nine months of 2008 was $123.5 million. Comparison of these financial metrics to prior year results is not meaningful due to the significantly different capital structure of the company prior to the separation from Marshall & Ilsley Corporation in November 2007.
Commenting on the results, Frank R. Martire, president and chief executive officer, said, "We again demonstrated the strength of our business model and our ability to execute by delivering solid financial results. The combination of organic revenue growth and diligent cost discipline allowed us to improve profitability while continuing to invest in new technologies and product enhancements."
Cash net income (including per share amounts) and free cash flow are non-GAAP financial measures. These measures should not be considered substitutes for GAAP measures. See the attachments to this release under "Non-GAAP Financial Measures" for an explanation of these measures and reconciliations to GAAP financial measures.
Financial Solutions Group (FSG)
Metavante'sFinancial Solutions Group (FSG) offers a comprehensive suite of technology and business services that are critical to a financial institution's ability to attract, expand, and service existing and prospective customers.
FSG's third quarter 2008 revenue was $167.5 million, an increase of 1 percent compared to $166.5 million in the third quarter of 2007. FSG's revenue for the first nine months of 2008 was $495.8 million, an increase of 5 percent compared to $473.8 million for the first nine months of 2007.
Segment operating income for the third quarter of 2008 was $41.2 million compared to $36.7 million in the third quarter of 2007. The increase in segment operating income was primarily due to revenue mix, which more than offset price compression and increased investment in product development. Segment operating margin was 24.6 percent in the third quarter of 2008 compared to 22.0 percent in the third quarter of 2007.
Payment Solutions Group (PSG)
Metavante'sPayment Solutions Group (PSG) offers one of the industry's most comprehensive suites of payment products and services, including credit, debit and prepaid debit card management, a national payments network in NYCE, as well as specialized solutions to facilitate government and healthcare payments.
PSG's third quarter 2008 revenue was $256.9 million, an increase of 7 percent compared to $240.4 million in the third quarter of 2007. PSG's revenue for the first nine months of 2008 was $778.1 million, an increase of 9 percent compared to $716.1 million for the first nine months of 2007.
Segment operating income for the third quarter of 2008 was $82.1 million compared to $74.0 million in the third quarter of 2007. The increase in segment operating income was driven by the benefit of cost actions taken in the Image business in the fourth quarter of 2007 and operating leverage in other business units. Segment operating margin was 32.0 percent in the third quarter of 2008 compared to 30.8 percent in the third quarter of 2007.
Corporate/other expenses in the third quarter of 2008 were $33.9 million. This includes $4.8 million of unrealized losses on equity warrants in Temenos Group AG and higher professional services expenses.
Interest expense in the third quarter of 2008 was $19.6 million higher than the third quarter of 2007 as a result of borrowings incurred in connection with the separation from Marshall & Ilsley Corporation in November 2007.
The effective tax rate in the third quarter of 2008 was 38.1 percent compared to 37.3 percent in the third quarter of 2007. The increase in the effective tax rate is primarily due to the expiration of the research and development tax credit for federal tax purposes.
The full year 2008 effective tax rate, however, is expected to be approximately 37%, consistent with the company's previous guidance. This expectation reflects the October 2008 extension of the research and development tax credit for federal purposes.
The company now expects to be at the high end of its organic revenue growth guidance range and to exceed the diluted earnings per share and diluted cash earnings per share guidance ranges.
Commenting on the outlook, Martire added, "As we close in on another successful year in 2008 and begin the planning process for 2009, we remain focused on two things: helping our clients navigate a tough economic environment and achieving optimal financial performance for Metavante. For our clients, we will respond quickly to their tactical business needs, provide consistent service delivery, and continue to proactively develop technology that will enable their strategic and competitive objectives. For Metavante, we will sell aggressively, drive cost productivity, and build contingency plans that allow us to adapt to various rates of growth. The combined strength of a high recurring revenue business model, our diverse and loyal client base, and our exceptionally capable team gives me confidence that we can continue to deliver solid performance even in this economic down cycle."
The company's guidance ranges provided in April 2008 and its current outlook are outlined below:
April 2008 Guidance Current Outlook
Organic revenue growth 4% to 6% approximately 6%
Diluted earnings per share $1.15 to $1.20 greater than $1.20
Diluted cash earnings per share $1.36 to $1.41 greater than $1.41
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