• Revenue of $1.46 billion, up 3.1%; organic growth of 5.1%;
• Margin expansion of 120 basis points;
• EPS from continuing operations of $0.66, as adjusted, up 22.2%;
• Updates full year outlook for EPS from continuing operations to $2.45 to $2.55, as adjusted.
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.
Use of Non-GAAP Financial Information
Generally Accepted Accounting Principles (GAAP) is the term used to refer to the standard framework of guidelines for financial accounting. GAAP includes the standards, conventions, and rules accountants follow in recording and summarizing transactions and in the preparation of financial statements. In addition to reporting financial results in accordance with GAAP, the Company has provided non-GAAP financial measures, which it believes are useful to help investors better understand its financial performance, competitive position and prospects for the future. These non-GAAP measures include organic revenue, adjusted earnings before interest, taxes and depreciation and amortization (EBITDA), adjusted net earnings and free cash flow. Organic revenue includes reported revenue plus pre-acquisition revenue for companies acquired during the applicable reporting periods. Organic revenue excludes the impact of foreign currency fluctuation in 2012. Adjusted EBITDA (2012 comparative data) excludes accelerated vesting of certain stock options and restricted stock grants and costs related to a non-compete and change in role payment. Adjusted net earnings (2012 comparative data) exclude the after-tax impact of acquisition related amortization, debt refinancing costs, accelerated vesting of certain stock options and restricted stock grants and for a non-compete and change in role payment and the anticipated loss related to the sale of the company’s healthcare business. Adjusted net earnings (2011 comparative data) exclude the after-tax impact of acquisition related amortization. Free cash flow is GAAP operating cash flow less capital expenditures and excludes the net change in settlement assets and obligations.
Any non-GAAP measures should be considered in context with the GAAP financial presentation and should not be considered in isolation or as a substitute for GAAP net earnings. Further, FIS’ non-GAAP measures may be calculated differently from similarly titled measures of other companies. Reconciliations of these non-GAAP measures to related GAAP measures are provided in the attached schedules and in the Investor Relations section of the FIS Website.
Conference Call and Webcast
FIS will host a call with investors and analysts to discuss second quarter 2012 results on Tuesday, July 17, 2012 beginning at 5:00 pm. Eastern daylight time. To register for the live event and to access a supplemental slide presentation, go to the Investor Relations section at fisglobal.com and click on “News and Events.” A webcast replay will be available on FIS’ Investor Relations website, and a telephone replay will be available through July 31, 2012, by dialing 800-475-6701 (USA) or 320-365-3844 (International). The access code will be 251811. To access a PDF version of this release and accompanying financial tables, go to investor.fisglobal.com/.
FIS (NYSE: FIS) is the world’s largest global provider dedicated to banking and payments technologies. With a long history deeply rooted in the financial services sector, FIS (fisglobal.com) serves more than 14,000 institutions in over 100 countries. Headquartered in Jacksonville, Fla., FIS employs more than 32,000 people worldwide and holds leadership positions in payment processing and banking solutions, providing software, services and outsourcing of the technology that drives financial institutions. First in financial technology, FIS tops the annual FinTech 100 list, is 425 on the Fortune 500 and is a member of Standard & Poor’s 500® Index.
This news release and today’s conference call contain “forward-looking statements” within the meaning of the U.S. federal securities laws. Statements that are not historical facts, including statements about revenue, organic revenue, earnings before interest, taxes, depreciation and amortization (“EBITDA”), earnings per share and margin expansion, as well as other statements about our expectations, hopes, intentions, or strategies regarding the future, are forward-looking statements. These statements relate to future events and our future results, and involve a number of risks and uncertainties. Forward-looking statements are based on management’s beliefs, as well as assumptions made by, and information currently available to, management. Any statements that refer to beliefs, expectations, projections or other characterizations of future events or circumstances and other statements that are not historical facts are forward-looking statements.
Actual results, performance or achievement could differ materially from those contained in these forward-looking statements. The risks and uncertainties that forward-looking statements are subject to include without limitation:
• changes and conditions in general economic, business and political conditions, including the possibility of intensified international hostilities, acts of terrorism, and changes and conditions in either or both the United States and international lending, capital and financial markets;
• the effect of legislative initiatives or proposals, statutory changes, governmental or other applicable regulations and/or changes in industry requirements, including privacy regulations;
• the adequacy of our cash flow and earnings and other conditions which may affect our ability to pay our quarterly dividend at the planned level;
• the effects of our leverage which may limit the funds available to make acquisitions and invest in our business, pay dividends and repurchase shares;
• the risks of reduction in revenue from the elimination of existing and potential customers due to consolidation in or new laws or regulations affecting the banking, retail and financial services industries or due to financial failures or other setbacks suffered by firms in those industries;
• changes in the growth rates of the markets for core processing, card issuer, and transaction processing services;
• failures to adapt our services and products to changes in technology or in the marketplace;
internal or external security breaches of our systems, including those relating to the theft of personal information and computer viruses affecting our software or platforms, and the reactions of customers, card associations and others to any such events;
• the reaction of our current and potential customers to the regulatory letter we received about information security and to any future communications about such topics from our regulators;
• the failure to achieve some or all of the benefits that we expect from acquisitions;
• our potential inability to find suitable acquisition candidates or finance such acquisitions, which depends upon the availability of adequate cash reserves from operations or of acceptable financing terms and the variability of our stock price, or difficulties in integrating past and future acquired technology or business’ operations, services, clients and personnel;
• competitive pressures on product pricing and services including the ability to attract new, or retain existing, customers;
• an operational or natural disaster at one of our major operations centers;
• completion of the sale of our healthcare business and reinvestment of the net proceeds;
• and other risks detailed in “Risk Factors” and other sections of the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2011 and other filings with the SEC.
Other unknown or unpredictable factors also could have a material adverse effect on our business, financial condition, results of operations and prospects. Accordingly, readers should not place undue reliance on these forward-looking statements. These forward-looking statements are inherently subject to uncertainties, risks and changes in circumstances that are difficult to predict. Except as required by applicable law or regulation, we do not undertake (and expressly disclaim) any obligation and do not intend to publicly update or review any of these forward-looking statements, whether as a result of new information, future events or otherwise.
Mary Waggoner, Senior Vice President FIS Investor Relations
T: 904.438.6282 - E: mary.waggoner[.]fisglobal.com.