Fidelity National Information Services Inc. (FIS), an electronic payment processor, announced fourth-quarter 2009 earnings that marginally beat the Zacks Consensus Estimate by a penny. However, earnings on a non-GAAP basis came in at 44 cents per share, down 6.4% from 47 cents per share in the year-ago period.
 
Current-quarter results include three months of operations from Metavante Technologies, which Fidelity acquired on October 1, 2009. For comparative purposes, the results assume that the merger was completed on January 1, 2008 and reflect adjustments consistent with 2009 adjusted results. In addition, Fidelity completed the sale of its ClearPar automated syndicated loan trade settlement business on January 1, 2010. The results of ClearPar are reported as discontinued operations.
 
Fidelity benefited from cost-cutting efforts and operating efficiency gains, as well as higher revenue in the international solutions segment. As a result, operating margin improved to 22.6% from 20.4% in the year-ago period. The EBITDA margin increased 240 basis points year over year to 29.5% in the quarter, driven by acquisition-related cost synergies and ongoing expense management across all operating segments.
 
Consolidated adjusted revenue from continuing operations (which excludes a $15 million negative impact to deferred revenue from purchase accounting) of $1.32 billion, increased 2.7% from $1.28 billion reported in the fourth quarter of 2008. Excluding a $29.3 million favorable foreign currency impact, consolidated revenue increased 0.4%.
 
Revenue by Segment
 
According to segments, Financial Solutions revenue declined 1.3% year over year to $452.5 million due to lower professional services revenue, partially offset by sales increases in global commercial services and software. However, EBITDA margin improved 80 basis points from the last year to 43.7%.
 
Payment Solutions revenue declined 1.0% to $629.6 million, as growth in debit and network solutions was more than offset by reduced termination fees and lower item processing, prepaid card and retail check activity. EBITDA margin increased 500 basis points to 34.8%.
 
International Solutions revenue increased 24.0% to $232.3 million in U.S. dollars, and 8.4% in constant currency. Core processing revenue increased 6.4%, driven by increased software sales and strong services revenue, while payments revenue increased 9.7%, driven by organic account growth across all regions. The EBITDA margin improved 960 basis points to 27.5% due to increased software sales, improved operating leverage in payment and processing services and ongoing cost management activity.
 
Balance Sheet
 
Fidelity exited the quarter with $430.9 million in cash and cash equivalents versus $205.6 million in the previous quarter. Total debt at quarter-end was to $3.25 billion. The company generated $209.4 million in cash from operations versus $197.9 million generated in the year-ago quarter. Capital expenditures totaled $66.8 million in the quarter, compared to $51.6 million spent in the previous quarter. Due to a higher capex, quarterly free cash flow of $142.6 million slid 2.5% year over year.
 
Fidelity also announced that its Board of Directors had approved a three-year repurchase program under which the company may buy back up to 15 million shares. The company will pay the regular quarterly dividend of 5 cents per share in March 2010.
 
2010 Guidance Reaffirmed
 
Fidelity has reiterated its 2010 guidance provided at its Analyst Day on December 7, 2009. Management expects a 2% to 4% growth in adjusted revenues (1% to 3% growth in constant currency). The company expects adjusted EBITDA margin expansion of at least 300 basis points. Fidelity expects adjusted earnings per diluted share of $1.91 to $2.01, which is an increase of 17% to 23% compared to $1.63 in 2009. Adjusted free cash flow is expected to be more than $750 million.
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