FIS 2023 Form 10-K Summary
Reporting period: Fiscal year ended December 31, 2023. FIS provides financial technology and processing services, principally to financial institutions. Following the January 31, 2024 sale of a majority interest in Worldpay Merchant Solutions, that business is presented as discontinued operations for all periods shown; continuing operations comprise Banking, Capital Markets, and Corporate and Other.
Financial performance
| Metric | 2023 | 2022 | Change |
|---|---|---|---|
| Continuing-operations revenue | $9.821 billion | $9.719 billion | Up 1% |
| Gross profit / margin | $3.676 billion / 37% | $3.503 billion / 36% | Margin up 1 percentage point |
| Operating income / margin | $1.467 billion / 15% | $1.218 billion / 13% | Income up 20% |
| Net earnings from continuing operations attributable to FIS | $503 million | $608 million | Down 17% |
| Net loss attributable to FIS, including discontinued operations | $(6.654) billion | $(16.720) billion | Loss narrowed |
| Operating cash flow, continuing and discontinued operations | $4.335 billion | $3.939 billion | Up $396 million |
- Continuing-operations revenue was supported by recurring growth in Banking and Capital Markets. Banking revenue rose 2% to $6.733 billion; Capital Markets rose 5% to $2.766 billion. Corporate and Other revenue fell 31% to $322 million.
- Segment Adjusted EBITDA was $2.928 billion for Banking, $1.390 billion for Capital Markets, and $(346) million for Corporate and Other. Banking’s margin was 43.5%, flat year over year; Capital Markets’ margin declined 0.6 percentage points to 50.3%.
- Interest expense, net increased to $621 million from $281 million, mainly reflecting higher rates on variable-rate debt. Effective tax rate was 24%, versus 35%.
- Cash and cash equivalents available outside discontinued operations were $440 million at year-end. Total liquidity was $3.053 billion, including $2.613 billion of revolving credit capacity. Debt was approximately $19.1 billion, with a 3.5% effective weighted-average interest rate.
- Capital expenditures, including continuing and discontinued operations, were approximately $1.122 billion, down from $1.390 billion. FIS paid $1.231 billion of dividends and repurchased about 9 million shares for $0.5 billion in 2023.
Material changes and unusual items
- FIS recorded a $6.8 billion Worldpay goodwill impairment in 2023 and a $1.9 billion valuation allowance against assets held for sale. Worldpay had also incurred a $17.6 billion goodwill impairment in 2022. These charges drove the large consolidated net losses; they are associated with discontinued operations rather than continuing-operations earnings.
- Worldpay generated $4.859 billion of 2023 revenue and $2.257 billion of operating cash flow, but its results are excluded from continuing-operations revenue and segment results.
- On January 31, 2024, FIS sold a 55% interest in Worldpay for a transaction enterprise value of $18.5 billion, including $1.0 billion of contingent consideration, and retained a non-controlling 45% stake. Closing net cash proceeds exceeded $12 billion, subject to post-closing adjustments. FIS expects its share of Worldpay earnings to be reported as equity-method investment earnings.
- Operating cash flow improved primarily from working-capital gains, partly offset by settlement timing. The cash-flow statement includes discontinued operations, so it is not directly comparable to continuing-operations earnings.
Outlook, management commentary, and risks
- Management reiterated a Future Forward target of $1.0 billion in cash savings exiting 2024, with more than 75% expected to be run-rate savings. At year-end 2023, reported annualized run-rate savings exceeded $550 million, including over $370 million of operating expense savings and about $180 million of capital expense savings.
- FIS intends to use Worldpay sale proceeds to retire debt, repurchase shares, and for general corporate purposes while maintaining investment-grade ratings. It stated an intention to retire approximately $9 billion of debt during 2024 and to repurchase at least approximately $3.5 billion of shares by year-end 2024.
- The Board approved a quarterly dividend of $0.36 per share beginning in 2024. Future dividends and repurchases remain subject to Board discretion, business needs, and debt covenants. Management said available cash and operating cash flows should fund operating needs, capital expenditures, and mandatory debt service for the next 12 months and foreseeable future.
- Management cited slower economic growth, persistent inflation, higher interest costs, and lengthening sales cycles—particularly for large Banking deals—as pressures on results. It expects planned debt reduction to reduce interest expense, but gave no specific continuing-operations revenue or earnings guidance in the provided filing text.
- Key risks include cyberattacks and service interruptions, privacy and regulatory compliance costs, intense competition and technology change, client consolidation and pricing pressure, foreign-exchange and interest-rate exposure, execution of cost savings and the Worldpay separation, and substantial debt. FIS reported no cybersecurity incident that had materially affected or was reasonably likely to materially affect the company.
- Shareholder securities litigation and derivative demands concern disclosures and matters relating to the former Merchant Solutions business; FIS intends to defend the litigation. The filing also describes Brazilian tax claims with potential aggregate exposure of approximately $45 million, for which the company has recorded no liability because it considers a loss not probable. Management said pending litigation was not expected to materially affect consolidated financial position.
Important facts for investors to verify
- Whether the planned debt repayment and at least approximately $3.5 billion of 2024 share repurchases are completed as described, and the resulting leverage and interest expense.
- Worldpay sale true-ups, any additional gain or loss, realization of contingent consideration, and performance of FIS’s retained 45% investment and commercial arrangements.
- Progress toward the $1.0 billion Future Forward savings target and whether savings improve continuing-operations margins without disrupting operations.
- Underlying recurring revenue, cash conversion, and segment margins, taking account of the separation and reclassification of Worldpay and other businesses.
- Developments in the securities litigation, derivative demands, Brazilian tax matters, and other contingencies, as well as cybersecurity incidents and regulatory actions.