FIS 2021 Form 10-K Summary
Business context and period. Fidelity National Information Services, Inc. (FIS) provides technology and processing services to merchants, banks and capital-markets firms. This annual report covers the fiscal year ended December 31, 2021; comparisons are with fiscal 2020 unless noted. FIS reports Merchant, Banking, Capital Markets, and Corporate and Other segments. Amounts below are in U.S. dollars.
Financial performance
| Metric | 2021 | 2020 |
|---|---|---|
| Revenue | $13.877 billion | $12.552 billion |
| Gross profit / margin | $5.195 billion / 37% | $4.204 billion / 33% |
| Operating income / margin | $1.055 billion / 8% | $552 million / 4% |
| Net earnings attributable to FIS common stockholders | $417 million | $158 million |
| Diluted earnings per share | $0.67 | $0.25 |
| Cash flow from operations | $4.810 billion | $4.442 billion |
| Capital expenditures | $1.251 billion | $1.129 billion |
| Adjusted EBITDA | $6.117 billion | $5.260 billion |
Adjusted EBITDA is a non-GAAP performance measure; FIS defines it to exclude interest, taxes, depreciation and amortization, and certain costs and items it considers non-operational. Operating cash flow increased $368 million, primarily reflecting higher operating income, partly offset by working-capital and settlement timing.
Segment results: Merchant revenue was $4.496 billion (+19%) and Adjusted EBITDA was $2.262 billion, with a 50.3% margin. Banking revenue was $6.396 billion (+8%) and Adjusted EBITDA was $2.874 billion, with a 44.9% margin. Capital Markets revenue was $2.624 billion (+8%) and Adjusted EBITDA was $1.271 billion, with a 48.4% margin. Corporate and Other revenue was $361 million (-10%); its Adjusted EBITDA loss widened to $290 million.
Debt, liquidity and capital allocation
- Year-end debt was approximately $20.4 billion, including short-term borrowings. FIS reported a 0.9% effective weighted-average interest rate; 62% of debt was fixed-rate and 38% variable-rate.
- Available liquidity was $3.375 billion: $2.010 billion of cash and cash equivalents and $1.365 billion of undrawn revolving-credit capacity. Some cash is held abroad or relates to settlement activity.
- In March 2021, FIS issued $5.5 billion of U.S.-dollar notes and used proceeds in part to refinance debt. The transactions included redemption or repurchase of $5.1 billion of notes and a $528 million loss on extinguishment of debt. Management said the refinancing is expected to reduce ongoing interest expense.
- FIS repurchased approximately 15 million shares for $2.0 billion in 2021; about 85 million shares remained authorized for repurchase at year-end. Dividends declared were $1.56 per share for 2021.
Changes, outlook and notable items
- Revenue increased 11%, supported by higher Merchant payment volumes as economies reopened, Banking sales and volumes, Capital Markets recurring revenue, and favorable foreign-exchange effects. Fourth-quarter COVID-related restrictions and weakness in travel, airlines and restaurants continued to weigh on transaction activity.
- Net income and operating margins improved year over year. The 2021 effective tax rate rose to 47% from 36%, including the effect of remeasuring U.K. deferred tax liabilities following an enacted U.K. corporate tax-rate increase.
- Platform modernization generated $202 million of asset impairments and $183 million of incremental amortization in 2021, as FIS shortened useful lives or accelerated amortization for certain software and deferred contract-cost assets. Management said modernization will add near-term costs but is intended to improve efficiency over time.
- Other income and expense included a $225 million gain on the sale of FIS’s Cardinal Holdings interest and $218 million of net gains on certain equity investments, partly offset by the $528 million debt-extinguishment loss.
- FIS acquired Payrix in December 2021 for a purchase price of $777 million; the provisional allocation included $620 million of goodwill. Management reported that Worldpay revenue and expense synergies had exceeded original targets by year-end.
- Management expected to reach its target leverage by the end of the second quarter of 2022 and said existing cash and expected operating cash flows should fund foreseeable operating needs, capital expenditures and mandatory debt service. The filing does not provide a clear numeric revenue or earnings forecast for 2022.
- In January 2022, the Board approved a 21% increase in the quarterly dividend to $0.47 per share and stated an intention to increase the annual dividend by approximately 20% per year over the next several years. Future dividends remain subject to Board discretion and debt-agreement restrictions.
Risks and contingencies
- COVID-19 variants, renewed restrictions and uncertain recovery could affect payment volumes, client financial health, liquidity and forecasts. FIS said elevated merchant credit exposure had normalized; COVID-related chargeback losses had not materially affected liquidity, but future losses could not be reasonably estimated.
- Cybersecurity incidents, service interruptions, fraud, payment-network rules, privacy laws and extensive financial-services regulation could lead to losses, fines, service restrictions, client attrition or higher compliance costs.
- Goodwill was $53.3 billion, or 64% of total assets, and intangible assets were $11.5 billion at year-end. No 2021 impairment was identified, but Merchant goodwill was considered at risk of future impairment under prolonged adverse economic conditions.
- FIS was involved in ordinary-course litigation. It stated that pending or threatened actions were not likely to materially adversely affect its consolidated financial position. Brazilian tax claims of approximately $41 million were not accrued because FIS did not consider a loss probable. The Reliance Trust class-action settlement of $39.8 million was approved and paid in 2021.
- Auditors issued unqualified opinions on the financial statements and internal controls; management also concluded internal control over financial reporting was effective as of December 31, 2021.
Investor verification priorities
- Reconcile GAAP earnings and operating margin with Adjusted EBITDA and the substantial amortization, impairment and other excluded costs.
- Track debt reduction against management’s stated leverage target, refinancing benefits, variable-rate exposure and near-term maturities.
- Assess whether Merchant payment volumes recover and whether chargebacks, merchant defaults or pandemic-related disruption create losses.
- Monitor platform-modernization spending, asset write-downs and execution, as well as the assumptions supporting goodwill valuations.
- Verify realization of Worldpay synergies and the economics and integration progress of Payrix.
- Review the sustainability of share repurchases and planned dividend growth relative to cash generation, debt covenants and investment needs.