Fidelity National Information Services, Inc. (FIS) on Q1 2024 Results - Earnings Call Transcript
Operator: Good day. Thank you for standing by and welcome to the FIS First Quarter 2024 Earnings Conference Call. All participants are in a listen-only mode. Please note there will be no Q&A following the speakers' prepared remarks. I would now like to hand the call over to George Mihalos, Senior Vice President and Head of Investor Relations. Please go ahead. George Mihalos: Good afternoon, everyone, and thank you for joining us today for the FIS first quarter 2024 earnings conference call. This call is being webcasted. Today's news release, corresponding presentation and webcast are all available on our website at fisglobal.com. On the call with me today are Stephanie Ferris, our CEO and President; and James Kehoe, our CFO. Stephanie will begin the call with a strategic and operational update, followed by James, who will review our financials. Turning to Slide 3. Today's remarks will contain forward-looking statements. These statements are subject to risks and uncertainties as described in the press release and other filings with the SEC. The Company undertakes no obligation to update any forward-looking statements whether as a result of new information, future events or otherwise, except as required by law. Please refer to the safe harbor language. Also, throughout this conference call, we will be presenting non-GAAP information, including adjusted EBITDA, adjusted net earnings, adjusted net earnings per share and free cash flow. These are important financial performance measures for the Company, but are not financial measures as defined by GAAP. Reconciliation of our non-GAAP information to the GAAP financial information is presented in our earnings release. And with that, I'll turn it over to Stephanie. Stephanie Ferris: Thank you, George, and thank you, everyone for joining us this afternoon. I'm pleased to report that 2024 is off to a very strong start. We are outperforming on our financial commitments to shareholders, experiencing solid new sales momentum and leveraging our strong capital position to aggressively return capital to shareholders while also investing for growth. The decisive actions we took in 2023 through our Future Forward strategy are resonating across the enterprise and improving operational and financial outcomes. This is the fifth consecutive quarter where we've exceeded our financial outlook with broad-based outperformance across revenue, adjusted EBITDA and adjusted EPS. While still early, we are confident in achieving our 2024 outlook for revenue and adjusted EBITDA, and we are meaningfully raising our EPS outlook to reflect a sustainable lower tax rate and a higher EMI contribution from our Worldpay stake. Momentum is building across our new sales pipeline, as our solutions continue to resonate with clients. We saw strong new sales growth in the first quarter with good demand across digital banking, payments and risk compliance solutions. We expect the strong new sales activity to continue over the remainder of the year. Moving on to capital allocation. We are once again increasing our share repurchase target for the year by $500 million. We now expect to repurchase a total of $4 billion in 2024. During the quarter, we returned $1.6 billion to shareholders, including $1.4 billion through repurchases, and we [indiscernible] highly synergistic tuck-in M&A opportunities to [further strengthen] our business. Before turning it over for an in-depth discussion on our first quarter financial performance and updated 2024 outlook, I'd like to remind everyone that tomorrow we will be hosting an Investor Day, where we will be showcasing our corporate strategy, providing segment deep dives and introducing medium term financial targets. We hope you can join us in-person in New York City or via the webcast. And with that, I'll turn it over to James. James? James Kehoe: Thank you, Stephanie, and hello, everyone. We are very pleased with our performance in the first quarter and our successful cash management and tax initiatives have allowed us to meaningfully raise our full-year EPS outlook. On a continuing operations basis, adjusted revenue growth accelerated to 3% compared to flat in the fourth quarter of 2023. The adjusted EBITDA margin expanded by 200 basis points year-over-year, primarily reflecting cost optimization initiatives, which boosted margins in the Banking segment. Adjusted EPS from continuing operations was $1.10 in the quarter, up 53% compared to the prior year, and up 24% on a normalized basis. On a total company basis, including one-month of discontinued operations, revenue was $2.9 billion with adjusted EPS of $1.33. Beginning in February 2024, our 45% interest in Worldpay is reported on the EMI line of the income statement. Moving now to our balance sheet and cash flow metrics. After paying down debt with the Worldpay proceeds, our total debt at the end of the quarter was $11.2 billion with a leverage ratio of 2.7x. We repurchased approximately $1.4 billion of shares resulting in over $1.6 billion of capital return to shareholders during the first quarter. Additionally, we are once again increasing our share repurchase target for the year by $500 million to $4 billion in total. We will deploy this incremental $500 million over the course of the fourth quarter of 2024, benefiting 2025 EPS. On a continuing operations basis, we generated free cash flow of $95 million in the first quarter with a free cash flow conversion rate of 18%. Free cash flow was negatively impacted by a number of factors which are temporary in nature, including the delay of prior year tax payments through the first quarter of 2024, and the timing of TSA reimbursements from Worldpay. Overall, these temporary items amounted to $195 million or 36 points of negative impact. Adjusting for these items, free cash flow conversion would have been approximately 54% compared to 40% in the first quarter of 2023. Importantly, these temporary items were already factored into our full-year cash conversion target of 85% to 90%, and we are confident that we will achieve this target. Turning now to our segment results on Slide 8. Adjusted revenue growth was 3% in line with our expectations and recurring revenue growth was a steady 5%, broadly in line with the trends we saw during 2023. One quick note on backlog. While we will continue to provide backlog data in our quarterly 10-Q filings, we will no longer be focusing on backlog during our earnings presentation. As you already know, backlog does not appropriately capture underlying growth from existing clients such as account and transaction growth. Last quarter, we provided you with increased disclosure around our recurring and non-recurring revenue streams within the Banking segment. And building on that transparency, we have now added a schedule in the appendix, highlighting the resiliency of our recurring revenue growth across a multi-year period. Compared to backlog, recurring revenue growth is a more meaningful predictor of sustainable future revenue growth, and we will be increasingly focused on this measure as a key indicator of the underlying strength of the business. Moving on to segment performance. Banking adjusted revenue growth was at the high-end of our outlook range and accelerated to 2% in the quarter compared to flat in the fourth quarter of 2023. Adjusted EBITDA margin expanded by an impressive 350 basis points, primarily driven by cost initiatives and favorable revenue mix. Banking recurring revenue grew a healthy 4%, representing continued steady growth. Other non-recurring revenue grew 9% with strong year-over-year growth in license fee revenue more than offsetting declines in pandemic-related revenue. Professional services revenue declined 14%, reflecting a difficult year-over-year comparison in project revenue related to a large client. Turning now to Capital Markets. Adjusted revenue growth was 6%, an improvement from 1% growth in the fourth quarter led by strong recurring revenue growth. Excluding the impact from acquisitions, adjusted revenue increased 5%. Adjusted EBITDA margin contracted 80 basis points during the quarter, primarily reflecting less favorable revenue mix and for the year, we continue to expect modest margin expansion. Capital Markets recurring revenue grew by a strong 9% in the quarter, whereas other non-recurring revenue was flat and professional services declined 4%. Turning now to our full-year outlook on Slide 9. Our first quarter operational performance gives us great confidence in meeting our full-year outlook. However, given that it is so early in the year, for now, we are reiterating our full-year outlook for revenue and adjusted EBITDA. We are raising our full-year adjusted EPS outlook by $0.22 to $4.88 to $4.98 as we drive broad base favorability across taxes, interest expense, depreciation and EMI. Let's walk through the key changes on Slide 10. We continue to project total reported revenue of $10.1 billion to $10.15 billion with adjusted revenue growth of 4% to 4.5%. We expect the Banking segment to grow between 3% to 3.5% and we anticipate capital markets revenue growth of 6.5% to 7%. We continue to forecast year-over-year margin expansion of 20 basis points to 40 basis points for the full-year, implying an expected moderation in the margin expansion relative to the first quarter's 200 basis points. Over the past few months, we've been very focused on optimizing our cash management, taxes and capital structure, and these initiatives are driving $0.22 of favorability compared to our original EPS guidance. We are now in a position to reduce our tax rate projection to around 14.5% from over 17% previously. This contributes approximately $0.14 and the lower tax rate is sustainable going forward. More to follow on this at Investor Day. We are also reducing our depreciation and amortization projections by $5 million to $10 million compared to our prior outlook, and we now anticipate full-year interest expense of $320 million to $325 million, an improvement of $25 million reflecting strong execution in quickly deploying the Worldpay proceeds to maximize returns. Lastly, we have raised our 11-month Worldpay EMI contribution by $15 million to $20 million, mostly reflecting their strong start to the year. As a result, we are raising our full-year EPS outlook to a range of $4.88 to $4.98, growing more than 45% on a continuing operations basis. On a normalized basis, we now expect adjusted EPS to grow 10% to 12%, including a high single-digit negative impact from the synergies. Let's now move to our second quarter outlook on Slide 11. We are forecasting another quarter of accelerating revenue growth, margin expansion, and strong earnings growth. We are projecting adjusted revenue growth of 3% to 4% with Banking Solutions at 2% to 2.5% and Capital Markets at 7% to 8%. We expect banking revenue growth to accelerate over the course of the year, reflecting easier year-over-year revenue comparisons and the favorable impact from stronger new sales over the second half of 2023. We expect steady capital markets adjusted revenue growth over the remainder of the year in line with our second quarter outlook. We are projecting adjusted EBITDA of $980 million to $995 million, which translates to year-over-year margin expansion of 80 basis points to 100 basis points. Continuing operations adjusted EPS is projected to increase 59% to 64% to $1.21 to $1.25. In summary, we expect the favorable first quarter trends to continue into the second quarter and we are confident in our full-year outlook. Let me now wrap up on Slide 12. In closing, we are very encouraged by our first quarter results, delivering our fifth straight quarter of outperformance. We are raising our full-year EPS outlook by $0.22, an increase of 4.5%, and we are reaffirming our revenue and adjusted EBITDA targets. We are confident in our full-year outlook and are well on track to deliver accelerating revenue growth and expanding margins in 2024. Lastly, we returned over $1.6 billion of capital to our shareholders in the quarter and increased our 2024 share repurchase target by $500 million to $4 billion. With that, we will be concluding today's call and we look forward to speaking with you and taking your questions at tomorrow's Investor Day. Have a good evening. Q - : Operator: This concludes today's conference call. Thank you for participating. You may now disconnect.
Fidelity National Information Services (NYSE:FIS) Surpasses EPS Estimates
- Fidelity National Information Services (NYSE:FIS) reported an EPS of $1.40, beating the estimated $1.36 and showcasing a strong upward trend in earnings.
- Despite a slight revenue shortfall, FIS's revenue grew year-over-year, indicating a positive growth trajectory in the company's revenue stream.
- FIS's strategic moves, including the separation of Worldpay, align with its Future Forward strategy, aiming to streamline operations and focus on core business areas.
On February 11, 2025, Fidelity National Information Services (NYSE:FIS) reported earnings per share (EPS) of $1.40, surpassing the estimated $1.36. This performance highlights FIS's ability to exceed market expectations, as it also outperformed the Zacks Consensus Estimate of $1.35 per share. This marks a significant improvement from the $0.94 per share reported in the same quarter last year, showcasing a strong upward trend in earnings.
FIS's revenue for the quarter was approximately $2.6 billion, slightly below the estimated $2.63 billion. This represents a 1.27% shortfall from the Zacks Consensus Estimate. However, it is an increase from the $2.51 billion reported in the same quarter the previous year, indicating growth in the company's revenue stream. Despite the revenue miss, FIS's consistent ability to surpass EPS estimates over the past four quarters demonstrates its robust financial performance.
The company operates in the Financial Transaction Services industry and has made significant strides in executing its Future Forward strategy. In 2024, FIS completed the separation of Worldpay and sold a 55% stake in its Worldpay Merchant Solutions business to private equity funds managed by GTCR. This strategic move is part of FIS's efforts to streamline operations and focus on core business areas, as highlighted by CEO Stephanie Ferris.
FIS's financial metrics provide further insight into its market valuation. The company has a price-to-earnings (P/E) ratio of 44.20, indicating how the market values its earnings. Its price-to-sales ratio is 3.62, reflecting the market's valuation of its revenue. Additionally, the enterprise value to sales ratio is 3.69, offering a perspective on its overall valuation relative to sales. These figures suggest a strong market confidence in FIS's future growth prospects.
Despite a low debt-to-equity ratio of 0.10, indicating a relatively low level of debt compared to equity, FIS's current ratio of 0.85 may suggest potential liquidity concerns in meeting short-term obligations. However, the company's earnings yield of 2.26% and enterprise value to operating cash flow ratio of 10.31 provide a positive outlook on its earnings and cash flow relative to its enterprise value.
Fidelity National Information Services (NYSE:FIS) Surpasses EPS Estimates
- Fidelity National Information Services (NYSE:FIS) reported an EPS of $1.40, beating the estimated $1.36 and showcasing a strong upward trend in earnings.
- Despite a slight revenue shortfall, FIS's revenue grew year-over-year, indicating a positive growth trajectory in the company's revenue stream.
- FIS's strategic moves, including the separation of Worldpay, align with its Future Forward strategy, aiming to streamline operations and focus on core business areas.
On February 11, 2025, Fidelity National Information Services (NYSE:FIS) reported earnings per share (EPS) of $1.40, surpassing the estimated $1.36. This performance highlights FIS's ability to exceed market expectations, as it also outperformed the Zacks Consensus Estimate of $1.35 per share. This marks a significant improvement from the $0.94 per share reported in the same quarter last year, showcasing a strong upward trend in earnings.
FIS's revenue for the quarter was approximately $2.6 billion, slightly below the estimated $2.63 billion. This represents a 1.27% shortfall from the Zacks Consensus Estimate. However, it is an increase from the $2.51 billion reported in the same quarter the previous year, indicating growth in the company's revenue stream. Despite the revenue miss, FIS's consistent ability to surpass EPS estimates over the past four quarters demonstrates its robust financial performance.
The company operates in the Financial Transaction Services industry and has made significant strides in executing its Future Forward strategy. In 2024, FIS completed the separation of Worldpay and sold a 55% stake in its Worldpay Merchant Solutions business to private equity funds managed by GTCR. This strategic move is part of FIS's efforts to streamline operations and focus on core business areas, as highlighted by CEO Stephanie Ferris.
FIS's financial metrics provide further insight into its market valuation. The company has a price-to-earnings (P/E) ratio of 44.20, indicating how the market values its earnings. Its price-to-sales ratio is 3.62, reflecting the market's valuation of its revenue. Additionally, the enterprise value to sales ratio is 3.69, offering a perspective on its overall valuation relative to sales. These figures suggest a strong market confidence in FIS's future growth prospects.
Despite a low debt-to-equity ratio of 0.10, indicating a relatively low level of debt compared to equity, FIS's current ratio of 0.85 may suggest potential liquidity concerns in meeting short-term obligations. However, the company's earnings yield of 2.26% and enterprise value to operating cash flow ratio of 10.31 provide a positive outlook on its earnings and cash flow relative to its enterprise value.
Fidelity National Information Services’ Shares Down 24% Since Q3 Miss Announcement
Fidelity National Information Services, Inc. (NYSE:FIS) shares are down around 24% since the company’s reported Q3 results on Thursday. Q3 EPS came in at $1.74, worse than the Street estimate of $1.76. Revenue was $3.6 billion, compared to the Street estimate of $3.61 billion.
The company is going through a transition that takes time. It is a structurally slower growing, lower profitability business vs. peers with more international exposure and thus hurt more by FX and inflation costs, making margin more vulnerable. According to the analyst at Oppenheimer, cost cuts are a temporary fix, and slower than market peer growth likely reignites market share loss conversations and investment needs, while banking growth slows.
For Q4/22, the company expects EPS to be in the range of $1.66-$1.72, compared to the Street estimate of $2.07, and revenue in the range of $3.656-3.706 billion, compared to the Street estimate of $3.81 billion.
Fidelity National Information Services’ Price Target Lowered to $114 at RBC Capital
RBC Capital analysts lowered their price target to $114 from $141 on Fidelity National Information Services, Inc. (NYSE:FIS) ahead of their upcoming meeting tomorrow with the company’s new CFO Erik Hoag.
Incorporating a more challenging backdrop in the UK (15% of revenues), strengthening Dollar, higher interest costs & D&A, and a new lower share price embedded in their buyback model, the analysts lowered their 2022/2023 estimates.
Based on the above assumptions, the analysts’ 2022/2023 revenue, adjusted EBITDA and adjusted EPS moved to $14.57 billion/$6.46 billion/$6.96 and $15.34 billion/$6.87 billion/$7.60 from $14.69 billion/$6.53 billion/$7.04 and $15.61 billion/$6.98 billion/$7.85, respectively. Their 2022 and 2023 adjusted EPS are now approximately 1.5% and 3.4% lower than the Street estimates.
Fidelity National Information Services’ Price Target Lowered to $114 at RBC Capital
RBC Capital analysts lowered their price target to $114 from $141 on Fidelity National Information Services, Inc. (NYSE:FIS) ahead of their upcoming meeting tomorrow with the company’s new CFO Erik Hoag.
Incorporating a more challenging backdrop in the UK (15% of revenues), strengthening Dollar, higher interest costs & D&A, and a new lower share price embedded in their buyback model, the analysts lowered their 2022/2023 estimates.
Based on the above assumptions, the analysts’ 2022/2023 revenue, adjusted EBITDA and adjusted EPS moved to $14.57 billion/$6.46 billion/$6.96 and $15.34 billion/$6.87 billion/$7.60 from $14.69 billion/$6.53 billion/$7.04 and $15.61 billion/$6.98 billion/$7.85, respectively. Their 2022 and 2023 adjusted EPS are now approximately 1.5% and 3.4% lower than the Street estimates.
Fidelity National Information Services Share Price Drops 7% Despite Better Than Expected Q4 Results
Fidelity National Information Services, Inc. (NYSE:FIS) share price dropped more than 7% on Tuesday despite the company’s reported Q4 beat. Adjusted EPS came in at $1.92, compared to the consensus estimate of $1.90. Revenue was $3.67 billion, $40 million below the consensus estimate. Organic revenue grew around 11% year-over-year, accelerating from 10% in Q3, with particular strength in Capital Markets, while Merchant & Banking both missed analysts’ expectations.
Although Omicron impacted Q4 results, January trends are beginning to show signs of a rebound, but difficult comps in the Banking segment in Q1/22 results in a slower start to the year.
