Fidelity National Information Services, Inc. — Q1 2022 Form 10-Q
Reporting period: Three months ended March 31, 2022; comparisons are with Q1 2021. FIS provides financial technology and processing services through Merchant Solutions, Banking Solutions, Capital Market Solutions, and Corporate and Other. Amounts below are in U.S. dollars; financial statement amounts are in millions unless stated otherwise.
Financial performance
| Metric | Q1 2022 | Q1 2021 |
|---|---|---|
| Revenue | $3,492 | $3,223 |
| Gross profit / margin | $1,250 / 36% | $1,105 / 34% |
| Operating income / margin | $157 / 4% | $99 / 3% |
| Net earnings (loss) attributable to FIS common stockholders | $120 | $(373) |
| Diluted EPS | $0.20 | $(0.60) |
| Operating cash flow | $896 | $836 |
| Capital expenditures | $412 | $298 |
Revenue rose 8%, while gross profit increased 13%. Operating income improved despite $58 million of asset impairments, primarily for real estate assets following office-space reductions. Net earnings comparisons are heavily affected by Q1 2021’s $528 million debt-extinguishment loss; Q1 2022 other income included $41 million of gains on certain equity investments. Net interest expense fell to $43 million from $74 million.
Adjusted EBITDA, a non-GAAP/segment performance measure, was $1.418 billion versus $1.308 billion. Its reconciliation includes substantial exclusions, including $650 million of purchase-accounting amortization and $190 million of acquisition, integration and other costs in Q1 2022.
Segment results
| Segment | Revenue (change) | Adjusted EBITDA (change) | Margin |
|---|---|---|---|
| Merchant Solutions | $1,112 (+15%) | $522 (+16%) | 47.0%, up 0.3 percentage points |
| Banking Solutions | $1,645 (+7%) | $697 (+5%) | 42.4%, down 0.9 percentage points |
| Capital Market Solutions | $658 (+5%) | $308 (+7%) | 46.8%, up 0.6 percentage points |
| Corporate and Other | $77 (−16%) | $(109), versus $(98) | Not stated |
Merchant growth reflected higher card-present and card-not-present volumes, including Payrix. Banking growth came primarily from recurring revenue and completed implementations; its margin faced wage inflation and onboarding costs for large outsourcing contracts. Capital Markets benefited from new outsourced-services sales and operating leverage. Unfavorable currency movements weighed on revenue across the company.
Cash, debt and liquidity
At March 31, 2022, cash and cash equivalents were $1.547 billion; available liquidity was $3.527 billion, including $1.980 billion of revolver capacity. The cash-flow statement reports $3.701 billion of cash, cash equivalents and restricted cash, including merchant float. Total debt outstanding was $19.2 billion, with a 1.0% weighted-average interest rate. Debt comprised $2.682 billion of short-term borrowings and $16.538 billion of long-term debt including current maturities. The company reported a 5.5-year weighted-average debt maturity; 64% of debt was fixed rate.
Operating cash flow increased $60 million year over year, primarily from higher operating income and working-capital timing, partly offset by settlement timing. Cash and cash equivalents on the balance sheet declined from $2.010 billion at year-end 2021. FIS stated it expects cash, cash flow from operations and borrowing capacity to fund operating needs, capital expenditures and mandatory debt service over the next 12 months and foreseeable future.
FIS paid a quarterly dividend of $0.47 per share in March 2022, a 21% increase from the prior quarterly rate. Management said it plans annual dividend increases of approximately 20% over the next several years, subject to board discretion and other constraints. It expected to repurchase approximately $3 billion of shares in 2022, primarily in the second half, and said about 85 million shares remained authorized for repurchase at quarter-end.
Material changes, outlook and risks
- Platform modernization: Accelerated amortization of software and deferred contract costs reduced gross profit; the filing cites $78 million of incremental amortization in the quarter. Management expects near-term modernization costs, with anticipated longer-term operational efficiencies.
- Acquisition: Payrix, acquired in December 2021 for $777 million, contributed to Merchant Solutions growth. Its purchase-price allocation remained provisional at quarter-end.
- Operating environment: Management said pandemic effects on spending and transaction volumes could continue in 2022, with timing and magnitude uncertain. It also cited inflation, interest rates, geopolitical conflict, supply-chain disruption and foreign-exchange movements as potential pressures.
- Contingencies: FIS disclosed approximately $41 million of potential Brazilian tax claims and recorded no liability because loss was not considered probable. It also said future merchant chargeback losses could be significant but could not be reasonably estimated. The balance-sheet liability under the Tax Receivable Agreement was $405 million; a January 2022 call option resulted in fixed cash payments of $186 million.
- Other risks: Key exposures include cybersecurity and service interruptions, merchant defaults and chargebacks, client and banking-industry consolidation, competition, successful integration of acquisitions, and possible goodwill impairment. FIS reported no goodwill impairment in its March 2022 interim assessment, but noted future economic developments could affect the assessment.
- Guidance: The provided filing text does not state a specific quarterly or full-year earnings or revenue guidance figure. It does include the capital-return expectations described above.
Investor facts to verify
- Whether Merchant transaction-volume growth and Payrix contributions continue, and how currency movements affect reported results.
- Whether Banking Solutions margins recover as large outsourcing contracts are onboarded and wage and other cost pressures evolve.
- The size and timing of platform-modernization costs, accelerated amortization and any resulting efficiency gains.
- Debt maturities, variable-rate exposure, liquidity needs and the ability to fund planned dividends and approximately $3 billion of 2022 repurchases.
- Developments in Brazilian tax claims, merchant chargeback exposure, and the Tax Receivable Agreement payments.
- Whether macroeconomic, geopolitical, cybersecurity or client-consolidation risks materially affect transaction volumes, customers or FIS’s financial estimates.