FIS 2022 Form 10-K Summary
Business context and reporting period. Fidelity National Information Services, Inc. (FIS; NYSE: FIS) provides financial technology and transaction-processing services through Banking Solutions, Merchant Solutions, Capital Market Solutions, and Corporate and Other. This is the annual report for the fiscal year ended December 31, 2022, not a standalone fourth-quarter report; the filing was signed February 27, 2023. Amounts below are in U.S. dollars.
Financial performance and position
| Metric | 2022 | 2021 |
|---|---|---|
| Revenue | $14.528 billion | $13.877 billion |
| Gross profit / margin | $5.708 billion / 39% | $5.195 billion / 37% |
| Operating income (loss) | $(16.119) billion | $1.055 billion |
| Net income (loss) attributable to FIS common stockholders | $(16.720) billion; $(27.68) per diluted share | $417 million; $0.67 per diluted share |
| Cash from operations | $3.939 billion | $4.810 billion |
| Capital expenditures | Approximately $1.390 billion | Approximately $1.251 billion |
| Cash and cash equivalents at year-end | $2.188 billion | $2.010 billion |
| Debt outstanding | Approximately $20.1 billion | — |
The 2022 net loss and operating loss principally reflect a $17.6 billion goodwill impairment in Merchant Solutions; the impairment was non-cash. FIS reported $6.195 billion of segment Adjusted EBITDA, compared with $6.117 billion in 2021. This non-GAAP segment measure excludes specified items and is not equivalent to GAAP operating income.
Year-end available liquidity was $3.653 billion, including $2.188 billion cash and $1.465 billion of undrawn revolving-credit capacity. Debt had a 2.6% weighted-average interest rate, with 65% fixed-rate and 35% variable-rate exposure, including swap effects. A 100-basis-point increase in rates on variable-rate debt was estimated to add $75 million to annual interest expense. Management said cash and operating cash flows should fund operating needs, capital expenditures and mandatory debt service for the next 12 months and the foreseeable future.
Material changes versus 2021
- Revenue increased 5%; foreign-exchange movements, primarily a stronger U.S. dollar, were a headwind.
- Operating results swung from $1.055 billion of income to a $16.119 billion loss, primarily because asset impairments rose to $17.709 billion, including the Merchant goodwill charge.
- Operating cash flow fell $871 million to $3.939 billion, reflecting lower net earnings and settlement timing, partly offset by working capital.
- Banking revenue rose 5% to $6.706 billion, while Adjusted EBITDA declined 1% to $2.854 billion and margin fell 230 basis points to 42.6%.
- Merchant revenue rose 6% to $4.773 billion, but Adjusted EBITDA was approximately flat at $2.258 billion and margin fell 300 basis points to 47.3%.
- Capital Markets revenue increased 5% to $2.763 billion; Adjusted EBITDA rose 8% to $1.375 billion and margin improved 140 basis points to 49.8%.
- FIS repurchased approximately 21 million shares for $1.8 billion in 2022, versus approximately 15 million shares for $2.0 billion in 2021.
Outlook, management commentary and risks
- Management expected 2023 revenue growth to be substantially slower than in 2022 and margins to compress, citing weaker macroeconomic conditions, inflation, higher interest rates, foreign-exchange impacts and competitive pressure. Management expected longer-term improvement as conditions recover and planned actions take effect.
- Merchant growth slowed in the second half of 2022, especially in the fourth quarter. FIS cited pressure in small and medium-sized businesses and U.K. enterprise revenue, and expected these trends to continue into 2023. The filing identifies non-traditional payment competitors as a further risk to Merchant revenue and margins.
- FIS announced on February 13, 2023, its plan to spin off Merchant into a separate public company, targeted within 12 months. Completion is conditional, including on board approval, tax-related determinations, SEC registration and regulatory approvals; timing and completion are not assured. FIS cited potential transaction costs, dis-synergies and higher interest expense from replacing some lower-coupon FIS debt with higher-coupon Merchant debt.
- Future Forward targets $1.25 billion of cash savings by year-end 2024, before expected effects of the proposed spin-off: $600 million in operating-expense savings run-rate, $300 million in capital-expense savings run-rate, and $350 million of cumulative savings from reducing or eliminating certain acquisition, integration and transformation costs. Achievement and timing are uncertain.
- Key risks include cybersecurity and service interruptions, regulatory and privacy compliance, competitive and pricing pressure, economic and transaction-volume weakness, foreign-currency and interest-rate exposure, client consolidation, merchant chargebacks, and execution of platform modernization and the proposed spin-off. Goodwill was $34.3 billion at year-end; the Merchant reporting unit’s carrying value equaled estimated fair value after impairment, leaving it exposed to further impairment if assumptions deteriorate.
- FIS recorded $121 million of additional 2022 impairments related to real estate, a non-strategic business and software assets. It disclosed ordinary-course litigation and potential Brazilian tax claims of approximately $45 million across 38 claims; management said a liability was not probable and recorded no liability for those claims.
- The board approved a $0.52 quarterly dividend beginning in 2023. Management said it planned to redirect excess cash flow from share repurchases toward debt reduction in 2023.
Most important facts for investors to verify
- Review the assumptions and valuation sensitivity behind the $17.6 billion Merchant goodwill impairment, and monitor whether further impairment is required.
- Track 2023 organic and currency-adjusted revenue, Merchant small-business trends, segment margins, and the realization and costs of Future Forward savings.
- Confirm progress, financing terms, tax treatment, one-time costs and ongoing dis-synergies for the proposed Merchant spin-off; it is not assured to close.
- Assess debt maturities, refinancing costs, variable-rate exposure, liquidity available after settlement-related balances, and management’s planned debt reduction.
- Note that operating cash flow declined despite revenue growth, and compare future cash generation with capital spending, dividends and debt service.
- Confirm reported controls and audit status: KPMG gave unqualified opinions on the financial statements and internal control over financial reporting, and management concluded controls were effective as of year-end 2022.