FIS Q3 2022 10-Q Summary
Business context and period. Fidelity National Information Services, Inc. (FIS) provides technology and transaction-processing services through Banking Solutions, Merchant Solutions, Capital Market Solutions, and Corporate and Other. This unaudited report covers the quarter and nine months ended September 30, 2022; comparisons are with the corresponding 2021 periods unless otherwise noted. Amounts are in U.S. dollars.
Key financial results
| Metric | Q3 2022 | Q3 2021 | Nine months 2022 | Nine months 2021 |
|---|---|---|---|---|
| Revenue | $3.604 billion | $3.507 billion | $10.814 billion | $10.205 billion |
| Gross profit / margin | $1.456 billion / 40% | $1.329 billion / 38% | $4.190 billion / 39% | $3.774 billion / 37% |
| Operating income / margin | $462 million / 13% | $138 million / 4% | $993 million / 9% | $600 million / 6% |
| Net earnings attributable to FIS common stockholders | $249 million | $158 million | $646 million | $126 million |
| Diluted EPS | $0.41 | $0.26 | $1.06 | $0.20 |
| Adjusted EBITDA | $1.575 billion | $1.585 billion | $4.591 billion | $4.412 billion |
| Cash provided by operating activities | Not presented as a standalone quarter figure | Not presented as a standalone quarter figure | $2.798 billion | $3.697 billion |
Margins and earnings. Q3 revenue increased 3%; nine-month revenue increased 6%. Higher gross profit and operating income reflected revenue growth and lower impairment and intangible-amortization expense versus the prior-year periods. Q3 operating income also benefited from substantially lower impairments than the 2021 quarter ($17 million versus $202 million). Net interest expense was $76 million in Q3, up from $46 million, primarily reflecting higher rates. The nine-month effective tax rate was 25%, compared with 66% in 2021, when a one-time U.K. deferred-tax remeasurement affected the comparison.
Segments and material changes
- Banking: Q3 revenue rose 4% to $1.680 billion, while Adjusted EBITDA fell 3% to $721 million and margin declined to 42.9% from 46.1%. Management cited inflation, lower pandemic-related revenue, and onboarding costs for large contracts.
- Merchant: Q3 revenue rose 2% to $1.180 billion, but Adjusted EBITDA fell 7% to $560 million and margin declined to 47.4% from 51.7%. Higher card-not-present activity, including Payrix, supported revenue; currency headwinds, inflation, and investment in e-commerce and Payrix sales channels weighed on profitability.
- Capital Markets: Q3 revenue increased 3% to $671 million and Adjusted EBITDA increased 4% to $330 million; margin improved to 49.3% from 48.4%, reflecting sales momentum and expense management.
- Corporate and Other: Q3 Adjusted EBITDA loss narrowed to $36 million from $73 million. Revenue declined 11%, partly due to a non-core business divestiture and client attrition in non-strategic businesses.
Cash flow, liquidity, and debt
Nine-month operating cash flow was $2.798 billion, down $899 million, primarily due to settlement timing. Capital expenditures were $1.083 billion versus $877 million in 2021. Cash, cash equivalents, and restricted cash totaled $4.241 billion at September 30; balance-sheet cash and equivalents were $1.932 billion. FIS reported available liquidity of $4.846 billion, including $2.914 billion of revolver capacity. Management said cash and operating cash flow should fund operating needs, capital expenditures, and mandatory debt service for the next 12 months and foreseeable future.
Total debt outstanding was reported as $18.9 billion, with a weighted-average interest rate of 2.0%; 72% was fixed-rate and 28% variable-rate, including swap effects. The company issued $2.5 billion of USD senior notes in July, using proceeds to repay commercial paper. A 100-basis-point increase in rates on variable-rate debt was estimated to raise annual interest expense by $60 million. The balance sheet showed $2.422 billion of short-term borrowings and $16.494 billion of long-term debt including its current portion.
Outlook, risks, and unusual items
- No revised quantitative earnings or revenue guidance is stated in the provided filing text. Management expects inflation, slower growth and longer sales cycles to adversely affect results; a stronger U.S. dollar and higher interest rates are also expected to pressure revenue and earnings.
- FIS expects near-term costs from multi-year platform modernization, while anticipating improved operating efficiency over time. Modernization-related accelerated amortization and impairment charges continued in 2022.
- The company expected approximately $1.8 billion of share repurchases during 2022, including $1.3 billion completed in the first nine months. It planned to continue quarterly dividends and stated an intention to increase the annual dividend approximately 20% per year over the next several years; future payments remain subject to board discretion and other constraints.
- Foreign-currency translation reduced goodwill by $2.327 billion from year-end 2021 to $51.014 billion. Management’s September interim assessment found no goodwill impairment, but warned that macroeconomic conditions and further effects on Merchant could lead to future impairment.
- Other notable items include $104 million of nine-month impairments in 2022, primarily related to real estate, a non-strategic business, and software; and $684 million of cash proceeds from settlement of cross-currency swaps. Nine-month net earnings comparisons also reflect unusual prior-year items, including a $528 million debt-extinguishment loss and a $225 million gain on the Cardinal Holdings sale.
- Contingencies include approximately $45 million of potential Brazilian tax claims for which FIS said a liability was not probable and therefore was not recorded. FIS also disclosed potential merchant chargeback losses but said a reasonable estimate could not be made. Cybersecurity, payment fraud, merchant defaults, client consolidation, competition, and economic and currency volatility are identified risks.
Investor facts to verify
- Whether operating cash flow rebounds from the settlement-timing-driven decline, and how capital spending affects cash generation.
- Whether Banking and Merchant margins recover as onboarding, inflation, foreign-exchange, and growth investments evolve.
- Debt refinancing and maturity needs, exposure to variable rates, and the effects of further rate or currency movements.
- Progress and costs of platform modernization, and whether goodwill or other assets require future impairment.
- Actual share repurchases and dividend payments relative to stated plans, alongside developments in chargeback and other contingencies.