FIS Q1 2024 Form 10-Q Summary
Reporting period: Three months ended March 31, 2024. FIS provides financial technology and processing services to financial institutions, businesses and developers. The January 31 sale of a majority interest in Worldpay Merchant Solutions changed the company’s reported perimeter: Worldpay’s pre-sale results are presented as discontinued operations, and FIS now reports Banking Solutions, Capital Market Solutions and Corporate and Other.
Financial performance
| Metric | Q1 2024 | Q1 2023 |
|---|---|---|
| Continuing-operations revenue | $2.467 billion | $2.397 billion |
| Gross profit / margin | $915 million / 37% | $828 million / 35% |
| Operating income / margin | $361 million / 15% | $311 million / 13% |
| Adjusted EBITDA | $975 million | $900 million |
| Net earnings from continuing operations attributable to FIS | $17 million | $96 million |
| Net earnings attributable to FIS, including discontinued operations | $724 million | $140 million |
| Diluted EPS, continuing / discontinued / total | $0.03 / $1.22 / $1.25 | $0.16 / $0.07 / $0.24 |
| Operating cash flow from continuing operations | $206 million | $291 million |
| Capital expenditures | $202 million | $193 million |
Revenue rose 3%, led by recurring growth in Banking and Capital Markets. Gross and operating margins improved year over year. Continuing-operations results included a $174 million debt-extinguishment loss, $14 million in asset impairments, and an $86 million equity-method loss from FIS’s retained Worldpay stake. Reported total earnings were dominated by $707 million of after-tax discontinued-operations income, including a $991 million tax benefit related primarily to the sale; they should not be read as recurring operating earnings.
Segments and period comparisons
- Banking: Revenue was $1.684 billion, up 2%; Adjusted EBITDA was $745 million, up 11%, with margin expanding to 44.3% from 40.8%. Management cited recurring payment-volume growth, cost savings and favorable revenue mix.
- Capital Markets: Revenue was $706 million, up 7%; Adjusted EBITDA was $335 million, up 5%. Margin declined to 47.4% from 48.2%, which management attributed to revenue mix. Recurring revenue growth reflected new sales and migration toward SaaS.
- Corporate and Other: Revenue was $77 million, down 12%; Adjusted EBITDA loss widened to $105 million from $91 million. Results reflected the wind-down of non-strategic businesses and higher corporate costs, including Worldpay-sale dis-synergies, partly offset by savings.
Prior-period comparisons reflect discontinued-operations and segment reclassifications. Banking and Capital Markets recurring revenue increased; prior-year pandemic-program revenue was lower in 2024 following the end of those programs.
Sale, cash, debt and capital allocation
- FIS sold 55% of Worldpay Merchant Solutions to GTCR-managed funds for a transaction valuing the business at $18.5 billion, including $1.0 billion of contingent consideration. FIS retained 45% and accounts for it under the equity method. Net closing proceeds exceeded $12 billion, subject to estimated closing adjustments, debt restructuring fees, taxes and transaction costs.
- Q1 investing cash flow included $12.795 billion of sale proceeds and $3.137 billion of cash divested with the business. FIS used sale proceeds to repay commercial paper and other debt and to repurchase shares.
- At March 31, cash and cash equivalents were $3.329 billion; available liquidity was $7.8 billion, including $4.5 billion of revolving-credit capacity. Debt was $11.2 billion, with a 2.9% effective weighted-average interest rate. FIS reported no variable-rate borrowings and said all debt was fixed rate.
- Q1 continuing-operations operating cash flow fell to $206 million from $291 million, primarily due to working-capital timing. Cash-flow comparisons include discontinued operations separately.
- FIS repurchased 21.1 million shares for approximately $1.419 billion in Q1. It intends to repurchase approximately $4.0 billion of shares in 2024, including Q1 repurchases. About 34 million shares remained authorized for repurchase at quarter-end.
- A regular quarterly dividend of $0.36 per share was payable June 24, 2024. The company said it expects to maintain investment-grade debt ratings and believes available cash and operating cash flows are sufficient for requirements over the next 12 months and foreseeable future.
Outlook, commentary and risks
- The filing provides no specific quarterly or full-year revenue or earnings guidance. Management said lengthy sales cycles and inflationary labor and other costs had adversely affected results and could continue to do so; economic uncertainty and inflation have slowed revenue growth. Debt reduction from sale proceeds is expected to lower future interest expense.
- Management targets longer-term improvement in revenue growth and margins, subject to economic conditions and planned cost savings. It expects continued investment in software and property and equipment, and identifies approximately $22.5 billion of remaining performance obligations, excluding anticipated renewals not yet contractually committed.
- Worldpay sale accounting remains subject to post-closing price adjustments and other purchase-agreement provisions, which could change the recorded sale loss and estimated tax impact. FIS’s retained stake generated a loss in the first two months after closing; future earnings may differ from expectations.
- Key stated risks include economic and interest-rate uncertainty, inflation, foreign-exchange movements, banking-industry consolidation, competition and technology change, cybersecurity and operational incidents, regulatory requirements, and possible sale-related dis-synergies. FIS disclosed securities and shareholder matters relating to prior Merchant Solutions disclosures and Brazilian tax claims with approximately $45 million of potential exposure; the company said it did not consider the claims liability probable and had not recorded a liability.
Important facts for investors to verify
- How Worldpay closing adjustments, contingent consideration and related taxes affect final sale proceeds and the $466 million pretax disposal loss.
- Whether the retained 45% Worldpay investment becomes profitable and what ongoing transition-service costs, income and dis-synergies result.
- Progress on the planned $4.0 billion 2024 repurchase, alongside debt reduction, liquidity and the dividend.
- Whether recurring growth and segment margins continue, and whether working-capital timing reverses the Q1 operating-cash-flow decline.
- Developments in the disclosed shareholder litigation and Brazilian tax matters, as well as cybersecurity, regulatory and other risks.