FIS™ (NYSE:FIS), the world's largest global provider dedicated to banking and payments technologies, today reported financial results for the quarter ended March 31, 2011.
Revenue from continuing operations increased 12.0% to $1.38 billion in the first quarter of 2011, compared to $1.24 billion in the first quarter of 2010. GAAP net earnings from continuing operations attributable to common stockholders totaled $96.1 million, or $0.31 per diluted share, in the first quarter of 2011, compared to $97.1 million, or $0.26 per diluted share, in the prior year quarter.
Adjusted revenue growth was 11.2% in the first quarter of 2011, and organic revenue growth was 6.2%. EBITDA increased 0.9% to $368.3 million in the first quarter of 2011, compared to adjusted EBITDA of $365.1 million in the first quarter of 2010. EBITDA margin was 26.6% in the first quarter of 2011, compared to 29.4%, as adjusted, in the prior year quarter. The current year quarter reflects strong growth in lower margin businesses, including professional services and Capco, as well as approximately $7.0 million of integration and severance costs that are included in the current period. In addition, the Company incurred a loss of approximately $13.0 million associated with the Sunrise prepaid card platform in the first quarter of 2011, as described later in this press release.
Adjusted net earnings from continuing operations totaled $137.7 million, or $0.45 per diluted share, compared to $156.5 million, or $0.41 per diluted share, in the first quarter of 2010. Integration and severance costs and the Sunrise prepaid loss reduced first quarter 2011 adjusted earnings by approximately $0.01 and $0.03 per share, respectively. Free cash flow totaled $188.6 million compared to free cash flow of $241.3 million, as adjusted, in the 2010 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.
"Excellent growth in Financial Solutions and International Solutions drove the strong top-line pe-line perong top-line performance," stated Frank Martire, president and chief executive officer of FIS. "We are very pleased with the progress we are making in driving higher organic revenue growth, which we believe will drive sustainable earnings growth and value for our shareholders."
Acquisitions and Discontinued Operations
On December 2, 2010, FIS completed the acquisition of Capco. Operating results from Capco are reported prospectively from the date of acquisition and are included in the Financial Solutions and International Solutions segments, based on geography, while non-allocated overhead is included in the Corporate segment.
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, (revenues and expenses from discontinued operations are collapsed and classified as a separate line item on the income statement).
The following is a discussion of first quarter results by segment:
* Financial Solutions:
First quarter 2011 Financial Solutions revenue increased 13.6% to $503.7 million compared to $443.5 million in the 2010 quarter, driven by growth in professional services, increased processing revenues, including new client implementations, and the addition of Capco's North American operations. Financial Solutions revenue increased 7.1% on an organic basis. Financial Solutions EBITDA increased 4.6% to $195.1 million compared to $186.5 million in the first quarter of 2010. The EBITDA margin was 38.7% compared to 42.1% in the prior year quarter, reflecting continuing strong growth in professional services and the addition of Capco.
* Payment Solutions:
First quarter 2011 Payment Solutions revenue totaled $614.5 million compared to $618.8 million in the 2010 quarter as growth in electronic payment services, card production and output solutions was offset by lower item processing and retail check activity. Additionally, consolidation of our merchant processing platforms resulted in utilization of the net method to account for certain merchant interchange fees. Payment Solutions revenue increased 4.5%, excluding the check related businesses, which totaled $113.0 million and $122.2 million in the first quarters of 2011 and 2010, respectively, and the $16.6 million unfavorable impact of the gross-to-net accounting mentioned above. Payment Solutions EBITDA was $219.3 million compared to $229.5 million in the 2010 quarter, and the EBITDA margin was 35.7% compared to 37.1% in the prior year quarter, reflecting growth in lower margin businesses, reduced license revenue, and approximately $4.0 million of integration and severance costs that are included in the current period.
* International Solutions:
International Solutions revenue increased 48.6% to $268.1 million compared to $180.4 million in the 2010 quarter. The growth was driven by increased payment volumes in Brazil, growth in professional services, higher license revenue and the addition of Capco's international operations. International Solutions revenue increased 27.5% on an organic basis. International Solutions EBITDA increased 44.2% to $48.9 million compared to $33.9 million in the first quarter of 2010. The EBITDA margin was 18.2% compared to 18.8% in the prior year quarter, reflecting a higher proportion of professional services, including Capco, in the current year.
Corporate expense totaled $95.0 million in the first quarter 2011, compared to $84.8 million in the prior year quarter. Included in the current year quarter is a loss of approximately $13.0 million related to the Sunrise prepaid card platform, as described below.
Net interest expense totaled $68.0 million in the first quarter of 2011 compared to $28.2 million in the 2010 quarter. The increase was due primarily to the recapitalization completed in the third quarter of 2010.
The effective tax rate in the first quarter of 2011 was 35% compared to 37% in the first quarter of 2010.
Balance Sheet and Cash Flow
Cash and cash equivalents totaled $384.1 million as of March 31, 2011. Debt outstanding declined to approximately $5.0 billion as of March 31, 2011. Capital expenditures totaled $71.6 million in the first quarter of 2011, compared to $58.2 million in capital expenditures in the prior year quarter.
Free cash flow totaled $188.6 million in the first quarter of 2011 compared to adjusted free cash flow of $241.3 million in the 2010 quarter. The decline in free cash flow was primarily due to the timing of interest payments associated with the debt incurred as part of the August 2010 leveraged recapitalization and annual incentive payments.
FIS incurred a loss of approximately $13.0 million, or $0.03 per share, during the first quarter of 2011 related to unauthorized activities involving one client and 22 prepaid card accounts on its Sunrise platform. The Company has identified that 7,170 prepaid accounts may have been at risk and that three individual cardholders' non-public information may have been disclosed as a result of the unauthorized activities. FIS worked with the impacted clients to take appropriate action, including blocking and reissuing cards for the affected accounts. The Company has taken steps to further enhance security and continues to work with Federal law enforcement officials on this matter.
FIS reiterated its full year outlook for 2011 as follows:
* Revenue growth of 9% to 11% (4% to 6% organic revenue growth);
* EBITDA growth of 7% to 9%, reflecting a higher proportion of professional services revenue;
* Adjusted net earnings per share from continuing operations of $2.24 to $2.34;
* Free cash flow is expected to approximate adjusted net earnings in 2011.