• Revenue of $1.44 billion, up 2.8%; organic growth of 5.0%;
• International organic revenue growth accelerated to 11.9%;
• EPS from continuing operations of $0.63, as adjusted;
• $100 million in share repurchases; 3.1 million shares.
FIS™, the world’s largest provider of banking and payments technology, today reported a 2.8% increase in revenue for the quarter ended September 30, 2012. GAAP net earnings from continuing operations attributable to common stockholders rose 3.1% and increased 6.4% per diluted share.
Third quarter revenue increased 5.0% on an organic basis, excluding the impact of acquisitions and foreign currency. FIS has posted organic growth approaching 5.0% or better in seven of the last eight quarters. On a non-GAAP basis, net earnings from continuing operations attributable to common stockholders increased 1.1% to $187.5 million, or $0.63 per diluted share in the third quarter of 2012, up 5.0% compared to the year-ago quarter.
“It was another very strong quarter for our company,” stated Frank Martire, chairman and chief executive officer of FIS. “We continue to execute our business strategy and are well positioned to deliver our full year financial targets.”
Revenue increased 2.8% to $1.44 billion in the third quarter of 2012, compared to $1.40 billion in the third quarter of 2011. GAAP net earnings from continuing operations attributable to common stockholders totaled $147.8 million, or $0.50 per diluted share, in the third quarter of 2012, compared to $143.4 million, or $0.47 per diluted share, in the prior-year quarter.
For the nine months ended September 30, 2012, FIS reported revenue of $4.3 billion, a 3.4% increase compared to the year-ago period. GAAP net earnings from continuing operations attributable to common stockholders totaled $395.1 million, representing an 8.7% increase compared to the prior-year period, up 12.7% per diluted share.
Year to date, FIS has repurchased $251 million of common stock, including $100 million in the third quarter. “Our strong cash flow and disciplined capital management have enabled us to return $427 million to our shareholders through dividends and share repurchases through the first nine months of the year,” Martire noted.
Organic revenue growth, which adjusts for the impact of acquisitions and foreign currency, remained strong at 5.0%, with growth in International Solutions accelerating to 11.9%. EBITDA increased 2.8% to $442.2 million in the third quarter of 2012, compared to $430.2 million in the third quarter of 2011. EBITDA margin of 30.8% was comparable to the prior-year quarter.
Net earnings from continuing operations, as adjusted, increased to $187.5 million in the third quarter of 2012, or $0.63 per diluted share, compared to $185.5 million, or $0.60 per diluted share, in the third quarter of 2011. Free cash flow totaled $193.2 million compared to $193.1 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.
For the first nine months of 2012, FIS reported a 5.1% increase in organic revenue, an 11.4% increase in adjusted net earnings from continuing operations, and a 15.2% increase in adjusted net earnings per share from continuing operations. EBITDA margin expanded 90 basis points to 29.6% compared to the prior- year period.
The following is a discussion of third quarter results by segment:
Third quarter 2012 Financial Solutions revenue increased 8.1% to $565.7 million compared to $523.2 million in the 2011 quarter and rose 7.0% on an organic basis, driven by growth in processing revenue, consulting revenue and global commercial services. Financial Solutions EBITDA was $224.4 million compared to $224.0 million in the third quarter of 2011. The EBITDA margin was 39.7% compared to 42.8% in the prior-year quarter. The decline was driven primarily by higher investments associated with information security and a change in revenue mix, including lower license revenue coupled with strong growth in services and consulting revenues.
Third quarter 2012 Payment Solutions revenue totaled $576.1 million compared to $575.7 million in the 2011 quarter. Revenue growth was negatively impacted by the deconversion of a large debit issuing client which offset strong growth in bill payment and network solutions. Payment Solutions revenue increased 1.6%, excluding the check related businesses, which totaled $106.9 million and $114.0 million in the third quarters of 2012 and 2011, respectively. Payment Solutions EBITDA increased 6.1% to $234.6 million compared to $221.1 million in the 2011 quarter. The EBITDA margin increased 230 basis points to 40.7% compared to the prior-year quarter, reflecting the benefits of ongoing expense management.
International Solutions revenue decreased 0.7% to $295.5 million compared to $297.7 million in the 2011 quarter and increased 11.9% on an organic basis driven by growth across all major regions. International Solutions EBITDA increased 6.6% to $71.4 million compared to $67.0 million in the third quarter of 2011, and the EBITDA margin expanded 170 basis points to 24.2% compared to the prior-year quarter.
Corporate expense, as adjusted, totaled $88.2 million in the third quarter 2012, compared to $81.9 million in the prior-year quarter. The increase was due in part to higher investments associated with information security.
Net interest expense totaled $54.0 million in the third quarter of 2012 compared to $60.5 million in the 2011 quarter. The decrease was due primarily to lower borrowing rates and lower debt outstanding.
The effective tax rate increased to 34% in the third quarter of 2012 compared to 30% in the third quarter of 2011 and 29% in the second quarter of 2012. The effective tax rates in both prior periods were reduced by the favorable resolution 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 $576.6 million as of September 30, 2012. Debt outstanding totaled approximately $4.5 billion as of September 30, 2012.
Net cash provided by operating activities totaled $255.4 million in the third quarter of 2012 compared to $275.5 million in the third quarter of 2011. Capital expenditures totaled $70.7 million in the third quarter of 2012, compared to $82.1 million in capital expenditures in the prior-year quarter. Free cash flow, which excludes settlement activity related to the payments businesses, totaled $193.2 million in the third quarter of 2012 compared to $193.1 million in the 2011 quarter.
FIS repurchased approximately 3.1 million shares in the third quarter at a total cost of approximately $100 million. Year to date, FIS has repurchased 8.3 million shares at a total cost of approximately $251 million. Approximately $850 million remains under the existing share repurchase authorization.
Sale of Healthcare Benefit Solutions Business
On August 15, 2012, FIS completed the sale of its Healthcare Benefit Solutions business in an all-cash transaction valued at approximately $335 million (approximately $220 million after tax). The Company incurred an after-tax GAAP loss of approximately $56 million related to the sale, which is included in discontinued operations. The Healthcare Benefit Solutions business is classified as a discontinued operation for all periods presented in accordance with GAAP.
The Company reiterated its full year 2012 outlook as follows:
• Organic revenue growth of 3% to 5%
• EBITDA growth of 5% to 7%, as adjusted
• EBITDA margin expansion of 40 to 80 basis points, as adjusted
• EPS from continuing operations of $2.45 to $2.55, as adjusted (+10% to 15% compared to full year 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 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. 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 third quarter 2012 results on Monday, November 5, 2012 beginning at 5:00 pm. Eastern Standard 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 November 19, 2012, by dialing 800-475-6701 (USA) or 320-365-3844 (International). The access code will be 266164. 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. 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, risk management and internal audit following the security breach we experienced in early 2011 and to any future communications about such topics from our regulators or from us;
• 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, 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.
For More Information:
Ellyn Raftery, Chief Marketing Officer, FIS Global Marketing and Communications
P: 904.438.6083, E: ellyn.raftery[.]fisglobal.com.
Mary Waggoner, SVP, FIS Investor Relations
P: 904.438.6282, E: mary.waggoner[.]fisglobal.com.