Fis (NYSE:FIS), one of the world's largest global providers dedicated to banking and payments technologies, today reported financial results for the quarter ended September 30, 2010.
GAAP revenue in the third quarter of 2010 was $1.37 billion, compared to $828.7 million in the third quarter of 2009. GAAP net earnings from continuing operations attributable to common stockholders totaled $134.3 million, or $0.40 per diluted share, compared to $66.6 million, or $0.34 per diluted share, in the prior year quarter.
Adjusted revenue in the third quarter of 2010 increased 3.3% to $1.29 billion compared to pro forma revenue of $1.25 billion in the third quarter of 2009. Adjusted EBITDA increased 14.7% to $426.6 million, compared to pro forma adjusted EBITDA of $371.9 million in the 2009 quarter. The adjusted EBITDA margin expanded 320 basis points to 33.1%. Adjusted net earnings from continuing operations totaled $176.7 million or $0.52 per diluted share compared to adjusted net earnings from continuing operations of $89.2 million, or $0.46 per share, in the third quarter of 2009. Adjusted free cash flow increased to $220.4 million compared to adjusted free cash flow of $132.8 million in the prior year quarter. Definitions of non-GAAP financial measures and reconciliations of non-GAAP measures to related GAAP measures are provided in subsequent sections of the press release narrative and supplemental schedules.
"We are very encouraged by the positive momentum in top-line growth. Our discussions with clients continue to trend towards solutions that support their growth initiatives and expansion strategies," stated Frank Martire, president and chief executive officer of FIS. Martire continued, "On October 1, we celebrated the one-year anniversary of the combination of FIS and Metavante. We have made significant progress towards completing the integration, while remaining focused on serving our clients and executing our business plan."
Third Quarter Highlights and Recent Developments
A summary of FIS' recent key business developments and strategic initiatives include:
* The migration of Banco Bradesco's 14 million bankcard portfolio to the FIS proprietary Base2000 card processing platform, which was completed on October 2
* The signing of a memorandum of understanding ("MOU") with Banco Bradesco to continue the joint venture in Brazil
* A definitive agreement to acquire Capco, a global business and technology consultancy dedicated solely to the financial services industry
* The commencement of a process to pursue strategic alternatives for FIS' item processing and remittance services subsidiary in Brazil, Fidelity National Participacoes Ltda. (formerly known as Proservvi Empreendimentos e Servicos Ltda.)
* Completion of a $2.5 billion recapitalization including the repurchase of 86.2 million shares at $29 per share
Acquisitions and Discontinued Operations
On October 1, 2009, FIS completed the acquisition of Metavante Technologies, Inc. The transaction was treated as a purchase and the results of Metavante are included in the consolidated results of FIS beginning October 1, 2009. For comparative purposes, in accordance with management's desire to improve the understanding of the company's operating performance, the supplemental information provided below assumes the merger was completed on January 1, 2009 and combines Metavante's results with FIS's historical results on a pro forma basis.
During the third quarter of 2010, FIS determined that it will pursue strategic alternatives for its item processing and remittance services subsidiary in Brazil, Fidelity National Participacoes Ltda., and intensify its focus on expanding its card processing operation in the region. The results of Fidelity National Participacoes Ltda. are reported as discontinued operations for all periods presented, along with the previously disclosed ClearPar business divestiture (revenues and expenses from discontinued operations are collapsed and classified as a separate line item on the income statement).
The following segment information is presented on an adjusted pro forma basis, which management believes provides meaningful comparisons between the periods presented. Reconciliations of non-GAAP measures to related GAAP measures are provided in the attached schedules and in the Investor Relations section of the FIS Web site, www.fisglobal.com.
* Financial Solutions revenue increased 10.5% to $485.5 million compared to $439.3 million in the 2009 quarter, driven by growth in professional services, software license sales and account processing revenue. Financial Solutions EBITDA increased 16.9% to $218.8 million, while the margin improved 250 basis points to 45.1% compared to 42.6% in the prior year quarter.
* Payment Solutions revenue of $600.6 million declined 1.9% compared to $612.2 million in the 2009 quarter as growth in electronic payment solutions was offset by lower item processing and retail check activity. Payment Solutions EBITDA increased 2.3% to $230.9 million, and the margin increased 150 basis points to 38.4% compared to 36.9% in the prior year.
* International Solutions revenue increased 2.3% to $199.4 million in U.S. dollars compared to $194.9 million in the 2009 quarter. The growth was driven by increased payment volumes in Brazil and Asia Pacific. Software and professional services revenue was comparable to prior year. International EBITDA decreased 4.1% to $46.5 million. The reported EBITDA margin was 23.3%, compared to 24.9% in the prior year quarter.
* Corporate overhead, which included a $10 million pre-tax benefit related to the favorable resolution of a legal matter, totaled $69.6 million, compared to $89.5 million in the prior year quarter. Interest expense, net of interest income, was $60.9 million compared to $31.8 million in the 2009 quarter. The increase in interest expense was due to the recapitalization completed in the third quarter of 2010.
Cash and cash equivalents totaled $389.4 million as of September 30, 2010. FIS began the quarter with approximately $3.0 billion in debt and incurred an additional $2.5 billion related to the leveraged recapitalization. The company subsequently repaid approximately $400 million resulting in debt outstanding of approximately $5.1 billion as of September 30. Capital expenditures in the third quarter of 2010 totaled $93.1 million, compared to $90.7 million in pro forma capital expenditures in the prior year.
FIS anticipates 2010 adjusted revenue to be at the high end of its guidance for 1% to 3% growth in constant currency. The company anticipates adjusted earnings per share from continuing operations of $1.95 to $1.99 in 2010, which is consistent with previous guidance of $1.91 to $2.01 per share, and expects to generate adjusted free cash flow in excess of $700 million. FIS is projecting average diluted shares of 353 million for the full year, and 307 million in the fourth quarter.
"We are very pleased with the solid third quarter results and our financial performance through the first nine months of the year. We remain focused on our client relationships, growing the business and further extending our market leadership," Martire added.