FIS™ (NYSE: FIS), the world’s largest provider of banking and payments technology solutions, and a global leader in consulting and outsourcing solutions, today reported third quarter revenue increased 7 percent to $1.6 billion from $1.5 billion a year earlier. GAAP net earnings from continuing operations attributable to common stockholders was $152 million, or $0.53 per diluted share, compared to $175 million, or $0.60 per diluted share in the prior year quarter.
Third quarter 2014 revenue increased 5 percent on an organic basis, which excludes the impact of acquisitions and changes in foreign currency, from the prior year quarter. Non-GAAP adjusted net earnings from continuing operations attributable to common stockholders increased to $229 million in the third quarter 2014 from $218 million in the prior year quarter. Adjusted net earnings per diluted share increased 8 percent to $0.80 per share from $0.74 per share in the third quarter 2013. Third quarter 2014 non-GAAP adjusted net earnings from continuing operations excludes costs pertaining to acquisition-related purchase amortization of $0.13 per share, refinancing activities of $0.09 per share, and acquisition, integration, and severance of $0.06 per share. Adjusted EBITDA increased to $488 million in the third quarter 2014, up 4 percent from $470 million in the prior year quarter, while adjusted EBITDA margin was 30.4 percent compared to 31.3 percent in the prior year quarter.
“It was another solid quarter of growth for FIS demonstrating the strength and consistency of our business model,” said Frank Martire, chairman and chief executive officer of FIS. “Strong cash flow generation and disciplined capital allocation enabled us to return more cash to shareholders.”
“These results reflect our focus on business execution to deliver strategic value to our clients and drive profitable growth,” commented Gary Norcross, president and chief operating officer of FIS. “We continue to build on our market leadership position and are optimistic about the opportunities ahead for FIS.”
For the nine months ended September 30, 2014, GAAP revenue increased 5 percent to $4.7 billion, from $4.5 billion in the prior year period. GAAP net earnings from continuing operations attributable to common stockholders increased to $488 million, or $1.69 per diluted share, from $416 million, or $1.41 per diluted share, in the prior year period.
Non-GAAP adjusted net earnings from continuing operations attributable to common stockholders increased to $646 million in the first nine months of 2014, from $610 million in the prior year period. Adjusted net earnings per diluted share increased 8 percent to $2.23 from $2.07 in the first nine months of 2013.
Definitions of non-GAAP financial measures and reconciliations of non-GAAP measures to related GAAP measures are provided in subsequent sections of the press release narrative and supplemental schedules.
The following is a review of third quarter 2014 results by segment:
Revenue increased 9 percent to $633 million, from $579 million in the third quarter 2013 and increased 6 percent on an organic basis, driven by growth in consulting and professional services, risk and compliance solutions, and mobile banking. Adjusted EBITDA increased 5 percent to $251 million from $239 million in the third quarter 2013, while adjusted EBITDA margin was 39.6 percent compared to 41.4 percent a year earlier reflecting lower termination fees and a less favorable revenue mix.
Revenue increased 2 percent to $615 million from $602 million in the third quarter 2013, reflecting growth in network solutions, debit processing, and software license sales. Adjusted EBITDA increased to $262 million from $255 million in the third quarter of 2013, while adjusted EBITDA margin increased to 42.7 percent from 42.4 percent a year earlier.
Revenue increased 12 percent to $358 million from $320 million in the third quarter 2013 and increased 9 percent on an organic basis. Adjusted EBITDA grew to $82 million from $81 million in the third quarter of 2013. Adjusted EBITDA margin was 22.9 percent compared to 25.3 percent a year earlier, reflecting lower license sales and increased investment in the global financial institutions market.
Corporate costs totaled $108 million in the third quarter 2014 compared to $106 million in the prior year quarter. Interest expense, net of interest income, decreased to $38 million from $44 million in the third quarter 2013, reflecting lower costs resulting from debt refinancing. The effective tax rate was 31.2 percent in the third quarter of 2014.
Balance Sheet and Cash Flow
Cash and cash equivalents totaled $612 million as of September 30, 2014, while debt outstanding totaled $5.0 billion.
Net cash provided by operations was $208 million and adjusted cash flow from operations was $287 million in the third quarter of 2014. Capital expenditures totaled $86 million resulting in free cash flow of $201 million in the third quarter 2014.
FIS repurchased 2.7 million common shares at a total cost of $150 million in the third quarter 2014 and 8.7 million shares at a total cost of $475 million in the first nine months of 2014. Approximately $1.5 billion remained under the existing share repurchase authorization as of September 30, 2014. The company paid shareholder dividends of $68 million in the third quarter 2014 and $206 million in the first nine months of 2014.
FIS is reiterating its full year 2014 organic revenue and EBITDA growth rates while narrowing its EPS range as follows:
Organic revenue growth of 4.5 to 6.5 percent
EBITDA, as adjusted, growth of 4.5 to 6.5 percent
EPS from continuing operations of $3.06 to $3.12, as adjusted, an increase of 9 to 11 percent
Free cash flow is expected to approximate adjusted net earnings
FIS will host a webcast on October 30, 2014, to discuss third quarter 2014 results beginning at 8:30 a.m. ET. To listen to the live event and to access a supplemental slide presentation, go to the Investor Relations section at www.fisglobal.com and click on “News and Events.” A webcast replay will be available on FIS’ Investor Relations Web site, and a telephone replay will be available through November 13, 2014 by dialing 800.475.6701 (U.S.) or 320.365.3844 (International). The access code is 338359. To access a .PDF version of this release and accompanying financial tables, go to www.investor.fisglobal.com.
Use of Non-GAAP Financial Information
Generally Accepted Accounting Principles (GAAP) is the term used to refer to the standard framework of guidelines for financial accounting. GAAP includes the standards, conventions, and rules accountants follow in recording and summarizing transactions and in the preparation of financial statements. In addition to reporting financial results in accordance with GAAP, the Company has provided non-GAAP financial measures, which it believes are useful to help investors better understand its financial performance, competitive position and prospects for the future. For these reasons, management also uses these measures in part to assess its performance.
These non-GAAP measures include organic revenue, adjusted revenue, EBITDA, adjusted EBITDA and adjusted EBITDA margin, adjusted cash flow from operations, adjusted net earnings (including per share amounts) and free cash flow.
Organic revenue includes reported revenue (adjusted revenue for 2014) plus pre-acquisition revenue for companies acquired during the applicable reporting periods. Organic revenue excludes the impact of foreign currency fluctuation in 2014.
Adjusted revenue (2014) includes reported revenue and is increased by $9 million for a negotiated contract cash settlement for the extinguishment of certain contractual minimums with a reseller. Although the 2014 cash settlement has no contractual performance obligation, under GAAP the cash settlement revenue is amortized in this circumstance over the remaining relationship with the reseller.
EBITDA is earnings from continuing operations before interest, taxes, depreciation and amortization.
Adjusted EBITDA (2014 comparative data) includes the contract cash settlement revenue and excludes certain acquisition, integration and severance costs.
Adjusted EBITDA (2013 comparative data) excludes adjustments related to the 2010 acquisition of Capco.
Adjusted net earnings (2014 comparative data) excludes the after-tax impact of certain acquisition, integration, severance and refinancing costs as well as acquisition-related amortization and includes the after-tax impact of adjusted revenue.
Adjusted net earnings (2013 comparative data) excludes the after-tax impact of acquisition related amortization, a net benefit related to a gain on the mFoundry acquisition, debt issuance and refinancing costs and adjustments related to the Capco acquisition.
Adjusted net earnings per diluted share, or adjusted EPS, is equal to adjusted net earnings divided by weighted average diluted shares outstanding.
Adjusted cash flow from operations (2014 comparative data) is GAAP cash flow from operations as adjusted for the net change in settlement assets and obligations, and excludes certain payments for contingent purchase price and incentive compensation programs associated with the 2010 acquisition of Capco and the premium paid related to the early redemption of senior notes.
Adjusted cash flow from operations (2013 comparative data) is GAAP cash flow from operations as adjusted for the net change in settlement assets and obligations and excludes the premium paid related to the early redemption of senior notes.
Free cash flow is adjusted operating cash flow less capital expenditures. Free cash flow does not represent our residual cash flow available for discretionary expenditures, since we have mandatory debt service requirements and other non-discretionary expenditures that are not deducted from the measure.
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. Further, FIS’ non-GAAP measures may be calculated differently from similarly titled measures of other companies. Reconciliations of these non-GAAP measures to related GAAP measures are provided in the attached schedules and in the Investor Relations section of the FIS Web site, www.fisglobal.com