Fidelity National Information Services, Inc. (FIS), an electronic payment processor announced third quarter earnings that marginally beat the Zacks Consensus Estimate by a penny.
The company benefited from cost-cutting efforts and operating efficiency gains which offset lower software license and professional service revenue in the quarter. Besides, margin expanded in the quarter with double-digit growth in earnings. However, revenue declined from the year ago period due to weak economic conditions.
Earnings on a non GAAP basis came in at 46 cents per share, up 12.2% from 41 cents per share in the year-ago period due primarily to margin expansion across all major business lines. Operating margin improved to 16.0% from 13.6% in the year-ago period. EBITDA margin increased 250 basis points year over year to 27.7% in the quarter. Moreover, lower effective tax rate of 34.4% compared to 34.9% in the year-ago quarter contributed to the growth.
Consolidated revenue from continuing operations of $850.7 million declined 3.8% in dollar terms and 1.9%, excluding a $16.8 million unfavorable impact of foreign currency from $884.0 million reported in the third quarter of 2008.
The decline in revenue primarily related to lower payment transaction volumes and reduced spending on software and professional services which led to lower license and professional services revenue in the quarter. Moreover, the prior year quarter benefited from nonrecurring interchange adjustments and card marketing revenue.
Segment-wise, Financial Solutions revenue declined 7.3% year over year to $278.2 million due to lower software license and professional services revenue. However, EBITDA margin improved 260 basis points from last year to 45.5%. Payment Solutions revenue declined 5.0% to $369.5 million due to ongoing weakness in consumer spending and lower item processing volumes. EBITDA margin increased 220 basis points to 29.3%.
International Solutions revenue increased 4.1% to $203.5 million in U.S. dollars, and 12.7% in constant currency due to strong services revenue and increased volumes in EMEA and the Asia Pacific region. There was an improvement of 710 basis points in EBITDA margin to 21.1% on account of improved core processing, payments and BPO operations as well as higher software sales, which was more than offset by a $3.7 million unfavorable currency impact.
Free cash flow of $132.8 million rose 12% year over year in the quarter and exited the quarter with $205.6 million in cash and cash equivalents. The company repaid $153.7 million of debt during the quarter, reducing total outstanding debt to $2.1 billion. Capital expenditures totaled $49.4 million in the quarter, compared to $48.2 million spent in the year-ago period. The company will pay a regular quarterly dividend of $0.05 per share payable in Dec 2009.
Fidelity – Metavante Deal
Fidelity acquired Metavante Technologies for $2.94 billion bringing two of the largest core and transaction processing service providers together. Metavante’s operations will be included in the company’s results prospectively, beginning in the fourth quarter.
The company plans cost synergy of $260 million. Year to date, FIS achieved approximately $32 million in combined cost savings including $21 million in the third quarter and expects savings of $60 – $65 million from the Metavante deal for full fiscal 2009. The acquisition is expected to be accretive to earnings in 2010. Total debt outstanding increased to $3.4 billion in conjunction with the acquisition of Metavante in the current quarter.
Fourth Quarter Outlook Flat
The company indicated no improvement in the fourth quarter or early 2010 and expects revenue growth to remain challenging due to difficult credit mark et conditions. Management expects fourth quarter to be flat compared to the year-ago quarter. The company expects to provide further details at its Analyst Day to be held in December this year.
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