• Revenue of $1.51 billion; up 4% for the quarter and year to date;
• Adjusted EPS from continuing operations of 71 cents, up 8% for the quarter and 11% year to date.
Revenue increased 3.8% to $1.51 billion from $1.46 billion in the second quarter of 2012. GAAP net earnings from continuing operations attributable to common stockholders totaled $91 million, or $0.31 per diluted share. These results included debt refinancing costs and an adjustment related to the December 2010 acquisition of Capco, FIS’ global consulting business, which totaled $0.26 per share. In the prior-year quarter, GAAP net earnings from continuing operations were $156 million, or $0.52 per diluted share.
Second quarter revenue increased 3.7% on an organic basis compared to the second quarter of 2012, which excludes the impact of acquisitions and foreign currency. Non-GAAP adjusted net earnings from continuing operations attributable to common stockholders increased to $209 million, up 5.5% from $198 million in the second quarter of 2012. Adjusted net earnings per diluted share increased 7.6% to $0.71 from $0.66 in the prior-year quarter.
For the six months ended June 30, 2013, FIS posted revenue of $2.99 billion, a 4.2% increase from $2.87 billion in the prior-year period. GAAP net earnings from continuing operations attributable to common stockholders totaled $239 million, or $0.81 per diluted share. This included $0.24 per share in debt refinancing costs and the aforementioned Capco adjustment, which were partially offset by a gain resulting from the purchase of the remaining interest in shares of mFoundry. GAAP net earnings from continuing operations for the prior-year period were $0.83 per share and included $0.08 per share in debt refinancing costs, charges for accelerated vesting of certain equity grants and other compensation costs.
In the first half of 2013, FIS reported a 4.2% increase in organic revenue, a 10.3% increase in adjusted net earnings from continuing operations and a 10.8% increase in adjusted net earnings per share from continuing operations compared to the prior-year period.
“We are pleased with our financial results through the first half of 2013, which are in line with our expectations,” said Frank Martire, chairman and CEO of FIS. “We remain focused on delivering strategic value to our clients, executing our global business strategy and driving higher returns for our shareholders.”
Organic revenue growth, which excludes the impact of acquisitions and foreign currency, was 3.7% in the second quarter of 2013. EBITDA increased 2.8% to $450 million in the second quarter, as adjusted, from $438 million in the 2012 quarter. EBITDA margin was 29.8% versus 30.0% in the prior-year quarter, reflecting a less favorable revenue mix and higher information security costs.
Organic revenue growth for the first half of 2013 was 4.2%. EBITDA increased 5.5% to $878 million, as adjusted, and the EBITDA margin expanded 40 basis points to 29.4%.
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.
The following discusses second quarter results by segment:
• Financial Solutions: Revenue increased 4.2% to $587 million from $563 million a year earlier and rose 2.7% on an organic basis, driven by growth in eBanking solutions, global commercial services and consulting. Higher termination fees also contributed to second quarter results. Financial Solutions EBITDA increased 7.5% to $231 million from $215 million a year ago. EBITDA margin expanded 120 basis points to 39.4%.
• Payment Solutions: Revenue increased 2.8% to $623 million from $606 million in the 2012 quarter, reflecting growth in output solutions, bill payment services and card loyalty programs. Higher termination fees also contributed to the latest quarter’s results. Excluding the check-related businesses, revenue increased 4.2%. Revenue from the check-related businesses totaled $105 million and $109 million in the second quarters of 2013 and 2012, respectively. EBITDA rose 5.3% to $263 million from $250 million a year earlier. EBITDA margin expanded 100 basis points to 42.2%.
• International Solutions: Revenue increased 5.6% to $304 million from $287 million in the 2012 quarter. Revenue increased 7.9% on an organic basis, excluding an unfavorable currency impact of $7 million. These results were driven by strong growth in Latin America, including the Brazilian card joint venture, consulting services in Europe and new client implementations in Asia. EBITDA increased 2.7% to $65 million from $63 million in the prior-year quarter. EBITDA margin was 21.4% compared to 22.0% in the prior-year quarter, reflecting a less favorable revenue mix.
• Corporate/Other: Corporate costs, as adjusted, were $109 million in the second quarter 2013, up from $90 million in the prior year quarter. The increase reflected higher investments associated with information security, risk management and increased healthcare costs. Interest expense, net of interest income, declined to $49 million in the most recent quarter from $57 million in the year-ago quarter. The effective tax rate was approximately 30% in the second quarter, up from 29% a year earlier. Both periods reflect the favorable resolution of certain tax matters.
Balance Sheet and Cash Flow
Cash and cash equivalents totaled $653 million as of June 30, 2013. Debt outstanding totaled approximately $4.8 billion.
Net cash provided by operations decreased to $157 million for the second quarter of 2013 compared to $259 million in the 2012 quarter. Net cash provided by operations, as adjusted, totaled $199 million for the quarter. Capital expenditures totaled $83 million compared to $91 million in the prior-year quarter. Free cash flow was $115 million for the most recent quarter, down from $178 million in the 2012 quarter, reflecting higher tax payments in the current year.
FIS repurchased approximately 2.8 million common shares at a total cost of approximately $125 million in the second quarter at an average cost of $44.25 per share. The company repurchased approximately 5.5 million shares in the first six months of 2013, at a total cost of approximately $225 million. Approximately $424 million remains under the existing share repurchase authorization.
FIS’ outlook for full-year 2013:
• Reported revenue growth of 4% to 6% ; 3% to 5% organic growth;
• EPS from continuing operations of $2.77 to $2.87, as adjusted, an increase of 11 to 15% compared to $2.50 per share in 2012;
• Free cash flow is expected to approximate adjusted net earnings.
FIS will host a webcast on July 30 to discuss second quarter 2013 results beginning at 8:30 am. EDT. To listen to the live event and to access a supplemental slide presentation, go to the Investor Relations section 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 August 13 by dialing 800.475.6701 (U.S.) or 320.365.3844 (International). The access code is 296797. To access a .PDF version of this release and accompanying financial tables, go to investor.fisglobal.com/.
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 (adjusted EBITDA), adjusted EBITDA margin, 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 2013.
Adjusted EBITDA (2013 comparative data) excludes adjustments related to the December 2010 acquisition of Capco.
Adjusted EBITDA (2012 comparative data) excludes charges for payments and accelerated vesting of stock option and restricted stock grants associated with the departure or change in role of certain company executives.
Adjusted net earnings (2013 comparative data) exclude the after-tax impact of acquisition-related amortization, a net benefit related to a gain on the mFoundry acquisition, debt issuance and refinancing costs and adjustments related to the Capco acquisition.
Adjusted net earnings (2012 comparative data) exclude the after-tax impact of acquisition-related amortization, debt refinancing costs and charges for payments and accelerated vesting of stock option and restricted stock grants associated with the departure or change in role of certain company executives.
Free cash flow is GAAP operating cash flow less capital expenditures and excludes the net change in settlement assets and obligations. Free cash flow also excludes the premium related to the early redemption of senior notes.
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, fisglobal.com.
FIS (fisglobal.com) 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 serves more than 14,000 institutions in over 100 countries. Headquartered in Jacksonville, Fla., FIS employs more than 35,000 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 434 on the Fortune 500 and is a member of Standard & Poor’s 500® Index.
This news release and today’s webcast contain “forward-looking statements” within the meaning of the U.S. federal securities laws. Statements that are not historical facts, including statements about future 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 in general economic, business and political conditions, including the possibility of intensified international hostilities, acts of terrorism, and changes 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 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 our products and services;
• failures to adapt our products and services 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, government regulators and others to any such events;
• the reaction of our current and potential customers to communications from us or our regulators regarding information security, risk management, internal audit or other matters;
• competitive pressures on pricing related to our products and services including the ability to attract new, or retain existing, customers;
• an operational or natural disaster at one of our major operations centers;
• 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, 2012 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, SVP, FIS Investor Relations
P: 904-438-6282 - E: mary.waggoner[.]fisglobal.com.