Jacksonville, Fla. – Fidelity National Information Services, Inc. (NYSE:FIS), a leading global provider of technology services to financial institutions, today announced consolidated financial results for the second quarter of 2008.
Consolidated revenue increased 19.0% to $1.3 billion, including approximately $137.2 million in revenue from eFunds, which FIS acquired in September 2007. Excluding eFunds, consolidated revenue increased 6.8% over the comparable 2007 quarter, driven by 8.2% growth in the Lender Processing Services segment and 6.6% growth in Transaction Processing Services segment. GAAP net earnings totaled $71.9 million, and net earnings from continuing operations totaled $0.38 per diluted share.
Adjusted EBITDA increased 13.0% to $331.5 million compared to $293.3 million in the second quarter of 2007. The EBITDA margin was 24.8% compared to 26.1% in the prior-year quarter. Margins were negatively impacted by revenue mix, declines in certain mortgage origination services and higher corporate expense. Adjusted net earnings from continuing operations totaled $0.66 per diluted share compared to $0.57 per diluted share in the prior year, an increase of 15.8%.
“FIS delivered solid revenue and earnings growth, despite continued economic volatility,” stated William P. Foley, II, executive chairman of FIS. “The strong performance by both businesses demonstrates the strength of our operating models and the advantages that come from diverse revenue streams and a broadly distributed customer base.”
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.
Divestitures and Discontinued Operations
During the first half of 2008, FIS completed the sale of two non-strategic businesses, FIS Credit Services and Certegy Gaming Services. The company also exited a small operation that provided services to the residential homebuilding market. Information pertaining to historical revenue and earnings per diluted share is provided in the attachments to the company’s first quarter 2008 press release dated April 22, 2008, which is posted on FIS’ website www.fidelityinfoservices.com.
On July 2, 2008, FIS successfully completed the spin-off of Lender Processing Services, Inc., (NYSE:LPS) and on July 14, 2008, the company announced that it reached an agreement to sell the operating assets of Certegy Australia, Ltd. FIS anticipates reporting both businesses as discontinued operations beginning in the third quarter of 2008. For comparative purposes, Exhibit F of this press release presents the operating results of LPS as discontinued operations, consistent with the manner in which FIS expects to report results in future periods.
Segment Information
The following discussion, together with Exhibits A through E of the press release, provides information for the Transaction Processing Services segment and the Lender Processing Services segment as historically reported by FIS. Exhibit F of this press release recasts results for FIS (stand-alone TPS) for the three months ended June 30, 2008 and 2007 in a manner consistent with future reporting periods. Lender Processing Services, Inc. has provided additional segment information in a separate press release dated August 5, 2008. Both companies distributed information regarding previously reported periods in separate Form 8-K filings on August 1, 2008.
Transaction Processing Services (TPS), which provides core processing and payment technology solutions to financial institutions, generated revenue of $867.2 million in the quarter (including $137.2 million from eFunds) compared to $684.8 million in the prior-year period, an increase of 26.6%.
Excluding eFunds, TPS revenue increased 6.6% to $730.0 million driven by strong growth in International, which rose 34.2% to $192.3 million, and Integrated Financial Solutions which increased 4.5% to $310.6 million. Termination fees totaled $1.6 million in the second quarter of 2008 compared to $10.6 million in the second quarter of 2007. Excluding eFunds and termination fees, TPS revenue increased 8.0%.
The strong performance in International was fueled by growth in core bank processing and related services, the company’s Brazilian card processing joint venture and favorable currency rates. IFS reported solid growth, despite the previously referenced $9.0 million reduction in termination fees. Excluding the impact of these fees from both years, IFS revenue increased 7.9% compared to the prior-year quarter.
Enterprise Solutions revenue, excluding eFunds, totaled $227.4 million reflecting a 7.3% decline compared to the prior-year quarter revenue of $245.2 million. The decrease is primarily attributable to a significant customer implementation which generated revenue of $11.2 million in the prior-year quarter, as previously referenced by the company. Revenue in the company’s retail check risk management business declined $6.1 million from the prior year quarter and also adversely impacted Enterprise Solutions’ comparative growth rate.
Transaction Processing Services adjusted EBITDA increased 26.0% to $216.1 million. The adjusted EBITDA margin was 24.9% compared to 25.1% in second quarter of 2007, and increased sequentially over the 23.6% margin realized in the first quarter of 2008.
The Lender Processing Services segment (LPS), which provides integrated technology and services to the mortgage industry, generated revenue of $471.8 million, or 8.2% above the prior-year period, driven primarily by continued strong growth in default services. Lender Processing Services’ adjusted EBITDA increased 5.7% to $150.9 million, and the adjusted EBITDA margin was 32.0% compared to 32.9% in the prior-year quarter.
Consolidated corporate expense, as adjusted, increased $11.7 million to $39.3 million in the second quarter of 2008, primarily due to higher incentive compensation accruals and stock option expense. FIS’ consolidated effective tax rate was 35.4% in the second quarter and 36.0% for the first six months of 2008.
Update on Review of Strategic Initiatives
On August 2, 2007, FIS announced a plan to review strategic alternatives for its retail check risk management business. Subsequently, on April 24, 2008, FIS announced the sale of Certegy Gaming Services, Inc., which was a part of that business. On July 14, 2008, FIS announced the sale of the operating assets of Certegy Australia, which was also a part of the check risk management business. Upon further review, FIS has determined that it will not pursue the sale of the remaining point-of-sale check risk management business at this time.
Outlook
FIS (on a post-spin basis) reported adjusted net earnings of $0.28 per diluted share and $0.36 per diluted share in the first and second quarters of 2008, respectively. Due to a lower than expected effective tax rate, the company anticipates full year 2008 adjusted net earnings to approximate $1.51 to $1.57 per diluted share, compared to previous guidance of $1.48 to $1.54 per diluted share based on an expected tax rate of 35.0% in the second half of the year. This compares to adjusted net earnings of $1.23 per diluted share in 2007 as presented at the company’s May 28, 2008, investor meeting. The $1.23 per diluted share in 2007 reconciles to $0.99 per diluted share when accounting for LPS as a discontinued operation, as presented in Exhibit B of the Form 8-K filed on August 1, 2008.
Lender Processing Services, Inc. provided full year earnings guidance in a separate press release dated August 5, 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 and LPS will host a joint call with investors and analysts to discuss second quarter 2008 results on Tuesday, August 5, 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 800-762-4832 (USA) or 480-248-5088 (International). The webcast replay will be available on FIS’ Investor Relations website. The telephone replay will be available through August 12, 2008, by dialing 800-475-6701 (USA) or 320-365-3844 (International). The access code will be 953904. To access a PDF version of this release and accompanying financial tables, go to http://www.investor.fidelityinfoservices.com.
About Fidelity National Information Services, Inc.
Fidelity National Information Services, Inc. (NYSE: FIS), a Fortune 500 company, is a leading provider of core processing for financial institutions; card issuer and transaction processing services; and outsourcing services to financial institutions and retailers. FIS has processing and technology relationships with 40 of the top 50 global banks, including nine of the top 10. FIS is a member of Standard and Poor's (S&P) 500(R) 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 13,000 financial institutions in more than 80 countries worldwide. For more information on Fidelity National Information Services, please visit www.fidelityinfoservices.com.
About Lender Processing Services, Inc.
Lender Processing Services, Inc. (NYSE: LPS) is a leading provider of integrated technology and services to the mortgage industry. LPS offers solutions that span the mortgage continuum, including lead generation, origination, servicing, portfolio retention and default, augmented by the company’s award-winning customer support and professional services. Approximately 50 percent of all U.S. mortgages are serviced using LPS’ Mortgage Servicing Package (MSP). In fact, many of the nation’s top servicers rely on MSP, including seven of the top 10 and 16 of the top 20. LPS also offers proprietary mortgage and real estate data and analytics for the mortgage and capital markets industries. For more information about LPS, please visit www.lpsvcs.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: changes in general economic, business and political conditions, including changes in the financial markets; the effects of our substantial leverage 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; 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.
FIS 2nd Quarter Earnings Release Schedules