• Revenue of $1.44 billion, up 13.4%; organic growth of 5.8%
• EPS of $0.55, as adjusted, up 17.0%
• Free cash flow of $195 million.
Revenue from continuing operations increased 13.4% to $1.44 billion in the second quarter of 2011, compared to $1.27 billion in the second quarter of 2010. GAAP net earnings from continuing operations attributable to common stockholders totaled $129.3 million, or $0.42 per diluted share, in the second quarter of 2011, compared to $94.9 million, or $0.25 per diluted share, in the prior year quarter.
Adjusted revenue growth was 13.0% in the second quarter of 2011, and organic revenue growth was 5.8%. EBITDA increased 5.9% to $414.5 million, compared to EBITDA of $391.5 million, as adjusted, in the second quarter of 2010. EBITDA margin was 28.8% in the second quarter of 2011, compared to 30.7%, as adjusted, in the prior year quarter. The current year quarter reflects strong growth in lower margin services revenue, the addition of Capco and approximately $5.0 million of integration, severance and merger and acquisition costs that are included in the current period.
Adjusted net earnings from continuing operations totaled $171.7 million, or $0.55 per diluted share, compared to $181.0 million, or $0.47 per diluted share, in the second quarter of 2010. Integration, severance and merger and acquisition costs reduced second quarter 2011 adjusted earnings by approximately $0.01 per share. Free cash flow increased to $195.3 million compared to free cash flow of $107.5 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.
“We are pleased with the continued revenue momentum and the strong growth in earnings per share,” commented Frank Martire, president and chief executive officer of FIS. “These results reflect our ongoing focus on expanding client relationships, driving operational excellence and further extending our market leadership position.”
The following is a discussion of second quarter results by segment:
• Financial Solutions:
Second quarter 2011 Financial Solutions revenue increased 12.7% to $516.5 million compared to $458.3 million in the 2010 quarter, driven by growth in account processing, higher services revenue, and the addition of Capco’s North American operations. Financial Solutions revenue increased 5.2% on an organic basis. Financial Solutions EBITDA increased 3.5% to $208.3 million compared to $201.3 million in the second quarter of 2010. The EBITDA margin was 40.3% compared to 43.9% in the prior year quarter, reflecting strong growth in lower margin services revenue and the addition of Capco.
• Payment Solutions:
Second quarter 2011 Payment Solutions revenue totaled $632.0 million compared to $630.6 million in the 2010 quarter. The consolidation of our merchant processing platforms resulted in utilization of the net method to account for certain merchant interchange fees which negatively impacted year-over-year comparisons by $17.8 million. In addition, declining check usage negatively impacted revenue growth by $1.2 million. Payment Solutions revenue increased 4.1% excluding the impact of the gross-to-net accounting mentioned above and the check related businesses. Payment Solutions EBITDA increased 2.9% to $238.9 million in the second quarter of 2011 compared to EBITDA of $232.2 million in the 2010 quarter. The EBITDA margin improved to 37.8% compared to 36.8% in the prior year quarter.
• International Solutions:
International Solutions revenue increased 57.8% to $293.0 million compared to $185.7 million in the 2010 quarter. The growth was driven by higher payment volumes in Brazil, increased license revenue and the addition of Capco’s international operations. International Solutions revenue increased 25.2% on an organic basis. International Solutions EBITDA increased 44.3% to $61.2 million compared to $42.4 million in the second quarter of 2010. The EBITDA margin was 20.9% compared to 22.8% in the prior year quarter, reflecting the addition of Capco.
Corporate expense totaled $93.9 million in the second quarter 2011, compared to $84.4 million in the prior year quarter. Net interest expense totaled $65.8 million compared to $19.3 million in the prior year quarter due primarily to the recapitalization completed in the third quarter of 2010. The effective tax rate declined to 32.0% in the second quarter of 2011 compared to 37.0% in the prior year, reflecting a one-time benefit in the current year quarter.
Balance Sheet and Cash Flow
Cash and cash equivalents totaled $427.3 million as of June 30, 2011. Debt outstanding declined to approximately $4.9 billion as of June 30, 2011. Capital expenditures totaled $68.0 million in the second quarter of 2011, compared to $76.0 million in capital expenditures in the prior year quarter.
Free cash flow totaled $195.3 million in the second quarter of 2011 compared to adjusted free cash flow of $107.5 million in the 2010 quarter.
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 consulting and 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.
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 adjusted revenue, organic revenue, adjusted earnings before interest, taxes and depreciation and amortization (EBITDA), adjusted net earnings, free cash flow and adjusted free cash flow. Adjusted revenue (2010 comparative data) excludes the impact of deferred revenue purchase accounting. Organic revenue (2011 and 2010 comparative data) 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 2011 and the impact of deferred revenue purchase accounting in 2010. Adjusted EBITDA (2010 comparative data) excludes the impact of merger and acquisition and integration expenses, accelerated stock compensation charges associated with merger and acquisition activity, deferred revenue purchase accounting and certain other costs. Adjusted net earnings (2010 comparative data) exclude the after-tax impact of merger and acquisition and integration expenses, accelerated stock compensation charges associated with merger and acquisition activity, acquisition related amortization, deferred revenue purchase accounting and certain other costs. Adjusted net earnings (2011 comparative data) exclude the after-tax impact of acquisition related amortization. Adjusted free cash flow (2010 comparative data) is GAAP operating cash flow less capital expenditures and acquisition related cash items. Free cash flow (2011 comparative data) is GAAP operating cash flow less capital expenditures. 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.
Conference Call and Webcast
FIS will host a call with investors and analysts to discuss second quarter 2011 results on Tuesday, July 19, 2011 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 August 2, 2011, by dialing 800-475-6701 (USA) or 320-365-3844 (International). The access code will be 163692. To access a PDF version of this release and accompanying financial tables, go to investor.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 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. FIS is ranked 426 on the Fortune 500, is a member of Standard & Poor’s 500® Index and consistently holds a leading ranking in the annual FinTech 100 list.
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 per share, margin expansion and cash flow, 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 effects of our substantial leverage which may limit the funds available to make acquisitions and invest in our business; 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 future events; 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; 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, 2010 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.
For More Information:
Mary Waggoner, SVP, FIS Investor Relations
P: 904.854.3282 / E: mary.waggoner[.]fisglobal.com.