FIS™ (NYSE:FIS), the world's largest provider of banking and payments technology, today reported financial results for the quarter ended June 30, 2012.
Revenue from continuing operations increased 3.1% to $1.46 billion in the second quarter of 2012, compared to $1.41 billion in the second quarter of 2011. GAAP net earnings from continuing operations attributable to common stockholders totaled $155.8 million, or $0.52 per diluted share, in the second quarter of 2012, compared to $126.6 million, or $0.41 per diluted share, in the prior year quarter.
Organic revenue growth, which adjusts for the impact of acquisitions and foreign currency, was 5.1%. EBITDA increased 7.7% to $437.8 million in the second quarter of 2012, compared to $406.5 million in the second quarter of 2011. EBITDA margin increased 120 basis points to 30.0% compared to the second quarter of 2011.
Net earnings from continuing operations, as adjusted, totaled $198.1 million, or $0.66 per diluted share, compared to $167.7 million, or $0.54 per diluted share, in the second quarter of 2011. Free cash flow, which included a $28 million payment to the Brazil joint venture partner, totaled $178.2 million compared to $185.0 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 pleased with the continued organic growth, margin expansion and double-digit increase in earnings per share," stated Frank Martire, chairman and chief executive officer of FIS. As always, we are focused on serving our clients, executing our business strategy and increasing value to our shareholders."
The following is a discussion of second quarter results by segment:
• Financial Solutions:
Second quarter 2012 Financial Solutions revenue increased 9.1% to $563.4 million compared to $516.5 million in the 2011 quarter and increased 7.8% on an organic basis, driven by growth in processing revenue, global commercial services, professional services and consulting revenues. Financial Solutions EBITDA increased 3.2% to $215.0 million compared to $208.3 million in the second quarter of 2011. The EBITDA margin was 38.2% compared to 40.3% in the prior year quarter. The decline was driven primarily by a change in revenue mix and higher costs associated with ongoing enhancements to information security.
• Payment Solutions:
Second quarter 2012 Payment Solutions revenue increased 0.4% to $606.1 million compared to $603.6 million in the 2011 quarter, driven by growth in electronic transactions, which was partially offset by declining check volumes. Payment Solutions revenue increased 2.7%, excluding the check related businesses, which totaled $108.9 million and $119.6 million in the second quarters of 2012 and 2011, respectively. Payment Solutions EBITDA increased 8.6% to $249.6 million compared to $229.9 million in the 2011 quarter. The EBITDA margin increased 310 basis points to 41.2% compared to the prior year quarter, reflecting continued transaction growth and an ongoing focus on cost management.
• International Solutions:
International Solutions revenue decreased 1.9% to $287.3 million compared to $293.0 million in the 2011 quarter and increased 10.0% on an organic basis driven by growth across all major regions, including Europe. International Solutions EBITDA increased 3.4% to $63.3 million compared to $61.2 million in the second quarter of 2011, and the EBITDA margin increased 110 basis points to 22.0% compared to the prior year quarter.
Corporate expense, as adjusted, totaled $90.1 million in the second quarter 2012, compared to $92.9 million in the prior year quarter.
Net interest expense totaled $56.6 million in the second quarter of 2012 compared to $65.8 million in the 2011 quarter. The decrease was due primarily to lower borrowing costs.
The effective tax rate declined to 29% in the second quarter of 2012 compared to 32% in the second quarter of 2011 and 34% in the first quarter of 2012. The decrease in the effective tax rate is attributable to a favorable resolution in the second quarter of 2012 of certain tax positions taken by the company. FIS anticipates an effective tax rate of approximately 33% for full year 2012.
Balance Sheet and Cash Flow
Cash and cash equivalents totaled $533.8 million as of June 30, 2012. Debt outstanding totaled approximately $4.9 billion as of June 30, 2012.
Net cash provided by operating activities totaled $258.8 million in the second quarter of 2012 compared to $263.3 million in the second quarter of 2011. The decrease was due primarily to a payment of approximately $28 million to our Brazil joint venture partner. Capital expenditures totaled $90.6 million in the second quarter of 2012, compared to $68.0 million in capital expenditures in the prior year quarter. The increase was primarily related to additional investments in information security. Free cash flow, excluding settlement activity related to the payments businesses, totaled $178.2 million in the second quarter of 2012 compared to $185.0 million in the 2011 quarter.
FIS repurchased approximately 1.5 million shares during the quarter at a total cost of approximately $50 million. Approximately $950 million remains under the existing authorization.
Sale of Healthcare Benefit Solutions Business
On June 25, 2012, FIS announced that it had reached a definitive agreement to sell its Healthcare Benefit Solutions business. The transaction is expected to be completed during the third quarter of 2012.
In accordance with generally accepted accounting principles, the Healthcare Benefit Solutions business is classified as a discontinued operation for all periods presented. The related reclassification reduced adjusted earnings per share from continuing operations by approximately $0.02 in the second quarter of 2012.
The Company expects to receive after-tax proceeds of approximately $220 million in conjunction with the transaction. Depending on reinvestment of the net proceeds, FIS expects the sale to reduce full year 2012 earnings from continuing operations by up to $0.07 per share, and expects no material impact to adjusted earnings per share in 2013.
In addition, FIS anticipates that it will incur an after-tax GAAP loss of approximately $55 million, or $0.19 per share, upon completion of the sale in the third quarter.
The Company updated its full year 2012 outlook for earnings from continuing operations to $2.45 to $2.55 per share, as adjusted, which represents approximately 10% to 15% growth in comparable earnings per share of $2.22 from continuing operations, as adjusted, in 2011. The change to the Company's previous 2012 guidance of $2.47 to $2.57 per share from continuing operations, as adjusted, reflects a $0.07 per share reduction related to the reclassification of the Healthcare Benefit Solutions business as a discontinued operation and a $0.05 per share benefit related to the lower anticipated effective tax rate. FIS reiterated its previous outlook for organic revenue growth, EBITDA growth and margin expansion for full year 2012 as follows:
• Organic revenue growth of 3% to 5%
• EBITDA growth of 5% to 7%, as adjusted
• Margin expansion of 40 to 80 basis points, as adjusted