Jacksonville, Fla. – Fidelity National Information Services, Inc. (NYSE:FIS), a leading global provider of technology services to financial institutions, today announced financial results for the first quarter of 2008. First quarter results include the divestiture of certain businesses which are reported as discontinued operations for all periods presented.
Consolidated revenue increased 20.5% to $1.3 billion, including approximately $141.3 million in revenue from eFunds, which was acquired in September 2007. Excluding eFunds, revenue increased 7.3% over the comparable 2007 quarter, driven by 12.6% growth in Lender Processing Services and 4.5% growth in Transaction Processing
Services. GAAP net earnings totaled $70.5 million, and net earnings per diluted share totaled $0.36, including $0.01 from discontinued operations.
Adjusted EBITDA increased 14.8% to $312.3 million compared to $272.0 million in the first quarter of 2007. Adjusted net earnings (formerly referred to as “cash earnings”) totaled $0.57 per diluted share compared to $0.54 in the prior-year quarter. Adjusted net earnings from continuing operations totaled $0.56 per diluted share compared to $0.52 per diluted share in the prior year.
“While FIS achieved solid revenue growth in the first quarter, earnings came in at the low end of our guidance, primarily due to lower-than-expected software and professional services revenue,” stated William P. Foley, II, executive chairman for FIS. “In anticipation of continued economic weakness and the challenges faced by the financial services industry, we are taking a slightly more cautious view towards revenue growth in 2008. As a result, we have taken measures to reduce costs in order to achieve our previously provided earnings guidance.”
FIS updated its outlook for 2008 revenue to reflect growth of 13% to 16% (5% to 8% excluding eFunds) over comparable revenue of $4.8 billion in 2007. The company’s previously issued guidance was revenue growth of 14% to 16% (6% to 8% excluding eFunds). Management reiterated its outlook for full year adjusted net earnings of $2.73 to $2.83 per diluted share.
Consistent with prior guidance, this updated guidance excludes pre-tax eFunds integration expense of approximately $25 million, up-front costs associated with the spinoff of Lender Processing Services, as well as incremental operating expense for the proposed stand-alone entity. Also excluded is an estimated pre-tax restructuring charge of approximately $15 million to $20 million, which the company expects to record in the second quarter of 2008 in connection with various cost reduction initiatives.
Divestitures and Discontinued Operations
FIS recently completed the sale of two non-strategic businesses, including FIS Credit Services and Certegy Gaming Services’ quasi-credit card cash advance, debit and casino ATM operations. These sales are not expected to impact FIS’ future earnings. The company also established a plan to exit a small operation that provides services to the residential homebuilding market. These businesses have been accounted for as discontinued operations in the first quarter of 2008 and for all periods presented, along with Property Insight which was sold in the third quarter of 2007. Information pertaining to historical revenue and earnings per diluted share is provided in the attachments to this press release.
FIS’ operating results are presented in accordance with generally accepted accounting principles (“GAAP”) and on an adjusted pro forma basis, which management believes provides more meaningful comparisons between the periods presented. The adjusted results exclude the after-tax impact of merger and acquisition and integration expenses, certain stock compensation charges, debt restructuring and other charges, gains (losses) on the sale of certain non-strategic assets and acquisition related amortization.
Segment Information
Transaction Processing Services (TPS), which provides core processing and payment technology solutions to financial institutions, generated revenue of $826.8 million in the quarter (including $141.3 million from eFunds) compared to $656.0 million in the prior-year period, an increase of 26.0%. Adjusted EBITDA increased 22.3% to $195.5 million. The adjusted EBITDA margin was 23.6% compared to 24.4% in the first quarter of 2007. The decline in margin was driven by a change in revenue mix, including a decline in higher margin software license sales and professional services revenue compared to the prior-year quarter.
Excluding eFunds, TPS revenue increased 4.5% to $685.5 million driven by 17.0% growth in International to $161.7 million and 4.9% growth in Integrated Financial Solutions to $297.6 million. Enterprise Solutions revenue declined 3.4% to $226.6 million, as a result of lower software license sales, professional services revenues and lower retail check volume compared to the 2007 quarter.
Lender Processing Services (LPS), which provides core processing, information and outsourced solutions to mortgage lenders and servicers, generated revenue of $464.1 million, a 12.6% increase compared to the prior-year quarter, driven by 18.3% growth in Information Services. The strong results are attributable to growth in FIS’ default and appraisal services. Mortgage Processing revenue declined $6.7 million, or 7.4%, to $84.3 million compared to the first quarter of 2007, due to a decrease in software and maintenance revenue, and the previously announced deconversion of a customer portfolio in the fourth quarter of 2007. Lender Processing Services’ adjusted EBITDA increased 12.0% to $148.4 million. The adjusted EBITDA margin of 32.0% was comparable to the prior-year quarter.
Corporate expense, as adjusted, increased $8.9 million to $35.3 million in the first quarter of 2008, resulting from higher stock option expense and the addition of eFunds.
The effective tax rate was 36.6%.
Free Cash Flow
Free cash flow from operations (net cash provided by operating activities minus additions to property and equipment and capitalized software) was $78.7 million. Working capital and other adjustments to cash totaled approximately $26.4 million, driven primarily by continued strong revenue growth in default services.
Net free cash flow, which excludes the after-tax impact of non-operating items, including merger and integration costs, costs associated with the spin-off of Lender Processing Services and other acquisition and investment related activities, was $127.3 million.
Status of Lender Processing Services Spin-Off
On March 27, 2008, Lender Processing Services, Inc. (LPS) filed a Form 10 with the Securities and Exchange Commission. On April 14, 2008, FIS received a formal private letter ruling from the Internal Revenue Service that the spin-off of Lender Processing Services will be tax-free to FIS as well as to LPS and FIS shareholders. The company expects to complete the distribution to shareholders by mid-2008.
Use of Non-GAAP Financial Information
FIS reports several non-GAAP measures, including earnings before interest, taxes, depreciation and amortization (“EBITDA”) and adjusted net earnings. The adjusted results exclude the after-tax impact of merger and acquisition and integration expenses, certain stock compensation charges, debt restructuring and other costs, gains (losses) on the sale of certain non-strategic assets and acquisition related amortization. Any non-GAAP measures should be considered in context with the GAAP financial presentation and should not be considered in isolation or as a substitute for GAAP net earnings. A reconciliation of these non-GAAP measures to related GAAP measures is included in the attachments to this release.
Conference Call and Webcast
FIS will host a call with investors and analysts to discuss first quarter 2008 results on Thursday, April 24, 2008, beginning at 5:00 p.m. Eastern daylight time. To register for the event and to access supplemental materials, go to the Investor Relations section at www.fidelityinfoservices.com and click on “Events and Multimedia.” Those wishing to participate via the telephone may do so by calling 800-230-1093 (USA) or 612-288-0337 (International). The webcast replay will be available on FIS’ Investor Relations website. The telephone replay will be available through May 1, 2008, by dialing 800-475-6701 (USA) or 320-365-3844 (International). The access code will be 917569.
To access a PDF version of this release and accompanying financial tables, go to www.investor.fidelityinfoservices.com.
About Fidelity National Information Services
Fidelity National Information Services, Inc. (NYSE:FIS) is a leading provider of core processing for financial institutions; card issuer and transaction processing services; mortgage loan processing and mortgage-related information products; and outsourcing services to financial institutions, retailers, mortgage lenders and real estate professionals. FIS has processing and technology relationships with 41 of the top 50 global banks, including nine of the top 10. Approximately 50 percent of all U.S. residential mortgages are processed using FIS software. FIS is a member of Standard and Poor’s (S&P) 500® Index and has been ranked the number one overall financial technology provider in the world by American Banker and the research firm Financial Insights in the annual FinTech 100 rankings. Headquartered in Jacksonville, Fla., FIS maintains a strong global presence, serving more than 9,000 financial institutions in more than 80 countries worldwide. For more information on Fidelity National Information Services, please visit www.fidelityinfoservices.com.
Forward-Looking Statements
This press release contains forward-looking statements that involve a number of risks and uncertainties. Statements that are not historical facts, including statements about our beliefs and expectations, are forward-looking statements. Forward-looking statements are based on management's beliefs, as well as assumptions made by, and information currently available to, management. Because such statements are based on expectations as to future economic performance and are not statements of fact, actual results may differ materially from those projected. We undertake no obligation to update any forward-looking statements, whether as a result of new information, future events or otherwise. The risks and uncertainties which forward-looking statements are subject to include, but are not limited to: risks associated with the proposed spin-off ofthe Lender Processing Services (LPS) segment by FIS, including the ability of FIS to contribute certain LPS assets and liabilities to the entity to be spun off, the ability of LPS to obtain debt on acceptable terms and exchange that debt with certain holders of the FIS debt, obtaining government approvals, obtaining FIS Board of Directors approval, market conditions for the spin-off, and the risk that the spin-off will not be beneficial once accomplished, including as a result of unexpected dis-synergies resulting from the separation or unfavorable reaction from customers, rating agencies or other constituencies; changes in general economic, business and political conditions, including changes in the financial markets; the effects of our substantial leverage (both at FIS prior to the spin-off and at the separate companies after the spin-off), which may limit the funds available to make acquisitions and invest in our business; the risks of reduction in revenue from the elimination of existing and potential customers due to consolidation in the banking, retail and financial services industries; failures to adapt our services to changes in technology or in the marketplace; adverse changes in the level of real estate activity, which would adversely affect certain of our businesses; our potential inability to find suitable acquisition candidates or difficulties in integrating acquisitions; significant competition that our operating subsidiaries face; the possibility that our acquisition of EFD/eFunds may not be accretive to our earnings due to undisclosed liabilities, management or integration issues, loss of customers, the inability to achieve targeted cost savings, or other factors; and other risks detailed in the “Statement Regarding Forward-Looking Information,” “Risk Factors” and other sections of the Company’s Form 10-K and other filings with the Securities and Exchange Commission.
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