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Fidelity National (FIS) Q3 Earnings Miss on Higher Interest Costs
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Fidelity National Information Services, Inc. (FIS - Free Report) reported third-quarter 2023 adjusted earnings per share (EPS) from continuing operations of 94 cents, which lagged the Zacks Consensus Estimate by 40.9%. The bottom line fell 7% year over year.
Revenues amounted to $2,489 million, which rose 3% year over year. The organic revenue growth was recorded at 4% in the quarter under review. Yet, the top line missed the consensus mark by 31.9%.
The quarterly results suffered a blow due to an elevated interest expense level. Nevertheless, higher recurring revenues as well as strong contributions from the Banking Solutions and Capital Market Solutions businesses partly offset the negatives.
Fidelity National Information Services, Inc. Price, Consensus and EPS Surprise
The cost of revenues dipped 0.7% year over year to $1,523 million in the third quarter. Selling, general and administrative expenses of $484 million inched up 0.8% year over year. Interest expense more than doubled year over year.
Adjusted earnings before interest, tax, depreciation and amortization (EBITDA) of $1,070 million advanced 5% year over year. The adjusted EBITDA margin of Fidelity National improved 70 basis points (bps) year over year to 43% in the quarter under review.
Segmental Update
The agreement, inked this July by FIS, to divest a majority stake in the Worldpay Merchant Solutions business to private equity funds managed by GTCR remains on track to get completed in the first quarter of 2024, subject to regulatory nod and other customary closing conditions. As announced earlier, operating results from the unit are presented as discontinued operations from the third quarter of 2023.
Therefore, the three operating segments of Fidelity National are currently as follows:
Banking Solutions’ revenues were recorded at $1,756 million in the third quarter, which grew 3% year over year and surpassed the Zacks Consensus Estimate of $1,726 million as well as our estimate of $1,719.8 million. The organic revenue growth was 3%. The unit’s performance was aided by higher recurring revenues. Adjusted EBITDA margin improved 120 bps year over year to 44.6% on the back of cost efficiencies.
Revenues from Capital Market Solutions’ revenues improved 7% year over year to $677 million in the quarter under review but fell short of the consensus mark of $690 million and our estimate of $680 million. The organic revenue growth was recorded at 6% in the third quarter. Solid growth in organic recurring revenues aided the unit’s quarterly performance. Adjusted EBITDA margin of 49% deteriorated 80 bps year over year due to the timing of operating costs.
The Corporate and Other segment’s revenues dropped 29% year over year to $56 million, lower than the Zacks Consensus Estimate of $58 million and our estimate of $60 million. The business suffered due to divestitures of non-strategic businesses. Adjusted EBITDA loss was $45 million in the quarter under review.
Financial Update (As of Sep 30, 2023)
Fidelity National exited the third quarter with cash and cash equivalents of $466 million, which grew 2.2% from the figure at 2022 end. Total assets of $53.2 billion dropped 16% from the 2022-end level.
Long-term debt, excluding the current portion, was $12.7 billion, down 10.3% from the figure as of Dec 31, 2022. The current portion of long-term debt totaled $1,320 million while short-term borrowings amounted to $4,595 million.
Total equity of $19.5 billion fell 28.4% from the 2022-end figure.
FIS generated net cash from operations of $1,091 million in the third quarter, which advanced 24.3% year over year. Free cash flows were recorded at $907 million, which climbed 32.6% year over year.
Dividend Update
Fidelity National paid out dividends of $308 million to its shareholders in the third quarter.
Capital Deployment Targets
Management unveiled plans to pursue share buybacks of around $500 million in the fourth quarter of 2023. Additionally, it keeps an eye on returning a minimum of $3.5 billion to its shareholders through share buybacks by 2024 end. FIS reaffirms its aim to achieve a dividend payout ratio of 35%.
Update on Enterprise Transformation Program
FIS has achieved annualized run-rate Future Forward cash savings of more than $220 million as of Sep 30, 2023. The company reiterates its aim to achieve cash savings, post-separation of the Merchant Solutions business, of $1 billion by 2024 end.
2023 Guidance Introduced for Continuing Operations
Management anticipates revenues to lie within $9,810-$9,840 million for this year. The midpoint of the outlook indicates an improvement of 1.1% from the 2022 figure of $9,719 million.
Corporate and Other revenues are estimated to lie within $200-$225 million.
Adjusted EBITDA is projected between $3,930 million and $3,970 million, the midpoint of which suggests a 0.3% dip from the 2022 figure of $3,961 million.
Net interest expense is forecasted to lie within $630-$645 million.
Adjusted EPS from continuing operations is estimated to lie in the $3.30-$3.40 band for 2023.
Of the other Business Services sector industry players that have reported third-quarter results so far, the bottom-line results of Mastercard Incorporated (MA - Free Report) , Global Payments Inc. (GPN - Free Report) and Trane Technologies plc (TT - Free Report) beat the respective Zacks Consensus Estimate.
Mastercard reported third-quarter 2023 adjusted earnings of $3.39 per share, which beat the Zacks Consensus Estimate by 5.6%. The bottom line improved 26% year over year. It reported net revenues of $6,533 million, which rose 14% year over year in the quarter under review. The top line outpaced the consensus mark by a whisker.
Gross dollar volume (representing the aggregated dollar amount of purchases made and cash disbursements obtained from Mastercard-branded cards) advanced 11% on a local-currency basis to $2.3 trillion in the third quarter. Cross-border volumes (a key measure that tracks spending on cards beyond the issuing country) improved 21% on a local currency basis. MA’s clients issued 3.3 billion Mastercard and Maestro-branded cards as of Sep 30, 2023.
Global Payments’ third-quarter 2023 adjusted EPS of $2.75 outpaced the Zacks Consensus Estimate by 1.5%. The bottom line improved 10.9% year over year. Adjusted net revenues of $2,232.4 million rose 8.5% year over year in the third quarter. The top line beat the consensus mark by 0.4%. The adjusted operating income of GPN advanced 9.6% year over year to $1,019.5 million in the third quarter.
The adjusted operating margin of 45.7% improved 50 bps year over year. Adjusted revenues of the Merchant Solutions segment amounted to $1,728 million, which grew 19.2% year over year in the third quarter. Adjusted operating income of the Issuer Solutions unit was $246.6 million, up 8.7% year over year.
Trane Technologies posted adjusted EPS of $2.79, surpassing the Zacks Consensus Estimate by 4.9%. This represents 22.9% year-over-year growth in the bottom line. Its revenues also saw substantial growth, rising 11.7% compared with the previous year, and reaching $4.9 billion. The top line exceeded the consensus estimate by 2.1%. The Americas segment’s adjusted operating income was $750.6 million, up 19.3% year over year.
Organic revenues in the segment grew 11% year over year to $3.9 billion. The EMEA segment’s adjusted operating income was $118.4 million, up 37% year over year. The Asia Pacific segment’s adjusted operating income of $82.6 million improved 9% year over year, while organic revenues in the unit declined 1% year over year to $376.3 million.
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Fidelity National (FIS) Q3 Earnings Miss on Higher Interest Costs
Fidelity National Information Services, Inc. (FIS - Free Report) reported third-quarter 2023 adjusted earnings per share (EPS) from continuing operations of 94 cents, which lagged the Zacks Consensus Estimate by 40.9%. The bottom line fell 7% year over year.
Revenues amounted to $2,489 million, which rose 3% year over year. The organic revenue growth was recorded at 4% in the quarter under review. Yet, the top line missed the consensus mark by 31.9%.
The quarterly results suffered a blow due to an elevated interest expense level. Nevertheless, higher recurring revenues as well as strong contributions from the Banking Solutions and Capital Market Solutions businesses partly offset the negatives.
Fidelity National Information Services, Inc. Price, Consensus and EPS Surprise
Fidelity National Information Services, Inc. price-consensus-eps-surprise-chart | Fidelity National Information Services, Inc. Quote
Q3 Performance
The cost of revenues dipped 0.7% year over year to $1,523 million in the third quarter. Selling, general and administrative expenses of $484 million inched up 0.8% year over year. Interest expense more than doubled year over year.
Adjusted earnings before interest, tax, depreciation and amortization (EBITDA) of $1,070 million advanced 5% year over year. The adjusted EBITDA margin of Fidelity National improved 70 basis points (bps) year over year to 43% in the quarter under review.
Segmental Update
The agreement, inked this July by FIS, to divest a majority stake in the Worldpay Merchant Solutions business to private equity funds managed by GTCR remains on track to get completed in the first quarter of 2024, subject to regulatory nod and other customary closing conditions. As announced earlier, operating results from the unit are presented as discontinued operations from the third quarter of 2023.
Therefore, the three operating segments of Fidelity National are currently as follows:
Banking Solutions’ revenues were recorded at $1,756 million in the third quarter, which grew 3% year over year and surpassed the Zacks Consensus Estimate of $1,726 million as well as our estimate of $1,719.8 million. The organic revenue growth was 3%. The unit’s performance was aided by higher recurring revenues. Adjusted EBITDA margin improved 120 bps year over year to 44.6% on the back of cost efficiencies.
Revenues from Capital Market Solutions’ revenues improved 7% year over year to $677 million in the quarter under review but fell short of the consensus mark of $690 million and our estimate of $680 million. The organic revenue growth was recorded at 6% in the third quarter. Solid growth in organic recurring revenues aided the unit’s quarterly performance. Adjusted EBITDA margin of 49% deteriorated 80 bps year over year due to the timing of operating costs.
The Corporate and Other segment’s revenues dropped 29% year over year to $56 million, lower than the Zacks Consensus Estimate of $58 million and our estimate of $60 million. The business suffered due to divestitures of non-strategic businesses. Adjusted EBITDA loss was $45 million in the quarter under review.
Financial Update (As of Sep 30, 2023)
Fidelity National exited the third quarter with cash and cash equivalents of $466 million, which grew 2.2% from the figure at 2022 end. Total assets of $53.2 billion dropped 16% from the 2022-end level.
Long-term debt, excluding the current portion, was $12.7 billion, down 10.3% from the figure as of Dec 31, 2022. The current portion of long-term debt totaled $1,320 million while short-term borrowings amounted to $4,595 million.
Total equity of $19.5 billion fell 28.4% from the 2022-end figure.
FIS generated net cash from operations of $1,091 million in the third quarter, which advanced 24.3% year over year. Free cash flows were recorded at $907 million, which climbed 32.6% year over year.
Dividend Update
Fidelity National paid out dividends of $308 million to its shareholders in the third quarter.
Capital Deployment Targets
Management unveiled plans to pursue share buybacks of around $500 million in the fourth quarter of 2023. Additionally, it keeps an eye on returning a minimum of $3.5 billion to its shareholders through share buybacks by 2024 end. FIS reaffirms its aim to achieve a dividend payout ratio of 35%.
Update on Enterprise Transformation Program
FIS has achieved annualized run-rate Future Forward cash savings of more than $220 million as of Sep 30, 2023. The company reiterates its aim to achieve cash savings, post-separation of the Merchant Solutions business, of $1 billion by 2024 end.
2023 Guidance Introduced for Continuing Operations
Management anticipates revenues to lie within $9,810-$9,840 million for this year. The midpoint of the outlook indicates an improvement of 1.1% from the 2022 figure of $9,719 million.
Corporate and Other revenues are estimated to lie within $200-$225 million.
Adjusted EBITDA is projected between $3,930 million and $3,970 million, the midpoint of which suggests a 0.3% dip from the 2022 figure of $3,961 million.
Net interest expense is forecasted to lie within $630-$645 million.
Adjusted EPS from continuing operations is estimated to lie in the $3.30-$3.40 band for 2023.
Zacks Rank
Fidelity National currently carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Other Business Services Sector Releases
Of the other Business Services sector industry players that have reported third-quarter results so far, the bottom-line results of Mastercard Incorporated (MA - Free Report) , Global Payments Inc. (GPN - Free Report) and Trane Technologies plc (TT - Free Report) beat the respective Zacks Consensus Estimate.
Mastercard reported third-quarter 2023 adjusted earnings of $3.39 per share, which beat the Zacks Consensus Estimate by 5.6%. The bottom line improved 26% year over year. It reported net revenues of $6,533 million, which rose 14% year over year in the quarter under review. The top line outpaced the consensus mark by a whisker.
Gross dollar volume (representing the aggregated dollar amount of purchases made and cash disbursements obtained from Mastercard-branded cards) advanced 11% on a local-currency basis to $2.3 trillion in the third quarter. Cross-border volumes (a key measure that tracks spending on cards beyond the issuing country) improved 21% on a local currency basis. MA’s clients issued 3.3 billion Mastercard and Maestro-branded cards as of Sep 30, 2023.
Global Payments’ third-quarter 2023 adjusted EPS of $2.75 outpaced the Zacks Consensus Estimate by 1.5%. The bottom line improved 10.9% year over year. Adjusted net revenues of $2,232.4 million rose 8.5% year over year in the third quarter. The top line beat the consensus mark by 0.4%. The adjusted operating income of GPN advanced 9.6% year over year to $1,019.5 million in the third quarter.
The adjusted operating margin of 45.7% improved 50 bps year over year. Adjusted revenues of the Merchant Solutions segment amounted to $1,728 million, which grew 19.2% year over year in the third quarter. Adjusted operating income of the Issuer Solutions unit was $246.6 million, up 8.7% year over year.
Trane Technologies posted adjusted EPS of $2.79, surpassing the Zacks Consensus Estimate by 4.9%. This represents 22.9% year-over-year growth in the bottom line. Its revenues also saw substantial growth, rising 11.7% compared with the previous year, and reaching $4.9 billion. The top line exceeded the consensus estimate by 2.1%. The Americas segment’s adjusted operating income was $750.6 million, up 19.3% year over year.
Organic revenues in the segment grew 11% year over year to $3.9 billion. The EMEA segment’s adjusted operating income was $118.4 million, up 37% year over year. The Asia Pacific segment’s adjusted operating income of $82.6 million improved 9% year over year, while organic revenues in the unit declined 1% year over year to $376.3 million.