FIS - FIS Reports Second Quarter 2023 Results

• Increased second quarter revenue 1% on a GAAP basis and 2% on an organic basis to $3.7 billion
• Generated second quarter GAAP Diluted Earnings (Loss) Per Share of $(11.14) and Adjusted EPS of $1.55

FIS ^® (NYSE:FIS), a global leader in financial services technology, today reported its second quarter 2023 results.

“We are very pleased with the solid business performance we delivered by exceeding our financial targets for the second quarter, raising our full-year guidance, and accelerating our previously announced separation plan to create two highly focused global companies with greater strategic flexibility,” said FIS CEO and President Stephanie Ferris. “These positive results are reflective of both continued operational execution by the business, as well as the success of our Future Forward enterprise transformation program. As we enter the next chapter of FIS, I'm excited for us to drive greater focus on delivering innovative, next-generation financial technology and software solutions to our clients, and a more simplified, streamlined operational focus for our colleagues and shareholders.”

Second Quarter 2023

On a GAAP basis, consolidated revenue increased 1% as compared to the prior-year period to approximately $3.7 billion. Net earnings (loss) attributable to common stockholders were $(6,596) million or $(11.14) per diluted share. The Company recorded a non-cash goodwill impairment charge of $6.8 billion related to the Merchant Solutions reporting unit in the quarter.

On an organic basis, consolidated revenue increased 2% as compared to the prior-year period primarily due to recurring revenue growth from processing volumes and professional services in Banking, increased Merchant volumes and continued strength in Capital Markets. Adjusted EBITDA margin contracted by 160 basis points (bps) over the prior-year period to 41.4%. Adjusted net earnings were approximately $921 million, and Adjusted EPS decreased by 10% as compared to the prior-year period to $1.55 per diluted share.

Operating Segment Information

• Banking Solutions:
  Second quarter revenue increased by 1% on a GAAP basis and 2% on an organic basis as compared to the prior-year period to $1.7 billion primarily due to higher recurring revenue from processing volumes and professional services. Adjusted EBITDA margin contracted by 200 basis points as compared to the prior-year period to 42.5% primarily driven by revenue mix.

• Merchant Solutions:
  Second quarter revenue increased by 1% on a GAAP basis and 1% on an organic basis as compared to the prior-year period to $1.3 billion primarily due to ongoing eCommerce strength and increased volumes. Adjusted EBITDA margin expanded by 120 basis points to 48.3% primarily due to revenue mix and cost efficiencies. In the quarter, global volume increased 6% on a reported basis, and 6% on a constant currency basis, as compared to the prior-year period to $591 billion. US volume increased 5%, and transactions increased 5% as compared to the prior-year period.

Additional Merchant Disclosure

• Capital Market Solutions:
  Second quarter revenue increased by 6% on a GAAP basis, and 7% on an organic basis as compared to the prior-year period to $672 million primarily due to strong recurring revenue growth. Adjusted EBITDA margin expanded by 100 basis points over the prior-year period to 50.2% primarily due to strong contribution margins from revenue growth.

• Corporate and Other:
  Revenue decreased by 43% as compared to the prior-year period to $60 million primarily due to the divestitures of non-strategic businesses. Adjusted EBITDA loss was $143 million, including $161 million of corporate expenses.

Balance Sheet and Cash Flows

As of June 30, 2023, debt outstanding totaled $19.5 billion. Second quarter net cash provided by operating activities was $1.1 billion, and free cash flow was $953 million. In the quarter, the Company returned $309 million of capital to shareholders through dividends paid. The Company remains committed to maintaining a targeted dividend payout ratio of 35% of adjusted net earnings.

Update on Enterprise Transformation Program (Future Forward)

As of June 30, 2023, the Company achieved annualized run-rate Future Forward cash savings of over $315 million exiting the quarter, including over $175 million of operational expense savings and over $140 million of capital expense savings. In light of the recently announced Worldpay separation, the Company is updating its target post-separation cash savings exiting 2024 from $1.25 billion to $1.0 billion, of which over two-thirds represents annualized run-rate savings. This $1.0 billion represents an expected retention of 80% of the original program's total commitment prior to the effects of the Worldpay separation.

Update on Pending Separation of Worldpay Merchant Solutions Business

On July 6, 2023, the Company announced an acceleration of its previously announced separation plan to create two highly focused global companies with greater strategic flexibility. FIS signed a definitive agreement to sell a 55% stake in its Worldpay Merchant Solutions business to private equity funds managed by GTCR in a transaction valuing Worldpay at up to $18.5 billion, including $1.0 billion of consideration contingent on the returns realized by GTCR exceeding certain thresholds. Based on the valuation, including estimated selling price adjustments and fair value of contingent consideration, the Company incurred a non-cash goodwill impairment charge of $6.8 billion related to the Merchant Solutions reporting unit due to its estimated fair value being less than its carrying value.

The Worldpay transaction is expected to close by Q1 2024, subject to regulatory approvals and other customary closing conditions. Following the closing of this transaction, FIS' ownership interest in Worldpay will be reported as income from minority interest.

Third Quarter and Full-Year 2023 Guidance

The Company plans to present the operating results and cash flows of the Worldpay Merchant Solutions business as discontinued operations for all periods presented beginning Q3 2023. As a result, revenue for the Worldpay Merchant Solutions business will be incorporated into "Discontinued operations, net of tax" rather than included within "Revenue" on our Statement of Earnings (Loss). Excluding the impact of the planned discontinued operations presentation, the Company is updating its third quarter and full-year guidance on a pre-discontinued operations basis.

Webcast

FIS will sponsor a live webcast of its earnings conference call with the investment community beginning at 8:30 a.m. (EDT) on Wednesday, August 2, 2023. To access the webcast, go to the Investor Relations section of FIS’ homepage, www.fisglobal.com . A replay will be available after the conclusion of the live webcast.

About FIS

FIS is a leading provider of technology solutions for financial institutions and businesses of all sizes and across any industry globally. We enable the movement of commerce by unlocking the financial technology that powers the world’s economy. Our employees are dedicated to advancing the way the world pays, banks and invests through our trusted innovation, system performance and flexible architecture. We help our clients use technology in innovative ways to solve business-critical challenges and deliver superior experiences for their customers. Headquartered in Jacksonville, Florida, FIS is a member of the Fortune 500® and the Standard & Poor’s 500® Index.

To learn more, visit www.fisglobal.com . Follow FIS on Facebook, LinkedIn and Twitter (@FISGlobal).

FIS 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 in the United States. 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, we have provided certain non-GAAP financial measures.

These non-GAAP measures include constant currency revenue, organic revenue growth, adjusted EBITDA, adjusted EBITDA margin, adjusted net earnings, adjusted EPS, and free cash flow. These non-GAAP measures may be used in this release and/or in the attached supplemental financial information.

We believe these non-GAAP measures help investors better understand the underlying fundamentals of our business. As further described below, the non-GAAP revenue and earnings measures presented eliminate items management believes are not indicative of FIS’ operating performance. The constant currency and organic revenue growth measures adjust for the effects of exchange rate fluctuations, while organic revenue growth also adjusts for acquisitions and divestitures and excludes revenue from Corporate and Other, giving investors further insight into our performance. Finally, free cash flow provides further information about the ability of our business to generate cash. For these reasons, management also uses these non-GAAP measures in its assessment and management of FIS’ performance.

Constant currency revenue represents reported operating segment revenue excluding the impact of fluctuations in foreign currency exchange rates in the current period.

Organic revenue growth is constant currency revenue, as defined above, for the current period compared to an adjusted revenue base for the prior period, which is adjusted to add pre-acquisition revenue of acquired businesses for a portion of the prior year matching the portion of the current year for which the business was owned, and subtract pre-divestiture revenue for divested businesses for the portion of the prior year matching the portion of the current year for which the business was not owned, for any acquisitions or divestitures by FIS. When referring to organic revenue growth, revenues from our Corporate and Other segment, which is comprised of revenue from non-strategic businesses, are excluded.

Adjusted EBITDA reflects net earnings (loss) before interest, other income (expense), taxes, equity method investment earnings (loss), and depreciation and amortization, and excludes certain costs and other transactions that management deems non-operational in nature, or that otherwise improve the comparability of operating results across reporting periods by their exclusion. This measure is reported to the chief operating decision maker for purposes of making decisions about allocating resources to the segments and assessing their performance. For this reason, adjusted EBITDA, as it relates to our segments, is presented in conformity with Accounting Standards Codification 280, Segment Reporting, and is excluded from the definition of non-GAAP financial measures under the Securities and Exchange Commission's Regulation G and Item 10(e) of Regulation S-K.

Adjusted EBITDA margin reflects adjusted EBITDA, as defined above, divided by revenue.

Adjusted net earnings excludes the impact of certain costs and other transactions which management deems non-operational in nature or that otherwise improve the comparability of operating results across reporting periods by their exclusion. These include, among others, the impact of acquisition-related purchase accounting amortization and equity method investment earnings (loss), both of which are recurring.

Adjusted EPS reflects adjusted net earnings, as defined above, divided by weighted average diluted shares outstanding.

Free cash flow reflects net cash provided by operating activities, adjusted for the net change in settlement assets and obligations and excluding certain transactions that are closely associated with non-operating activities or are otherwise non-operational in nature and not indicative of future operating cash flows, 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 measures. 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, including footnotes describing the adjustments, are provided in the attached schedules and in the Investor Relations section of the FIS website, www.fisglobal.com .

Forward-Looking Statements

This earnings release and today’s webcast contain “forward-looking statements” within the meaning of the U.S. federal securities laws. Statements that are not historical facts, including statements about anticipated financial outcomes, including any earnings guidance or projections, projected revenue or expense synergies or dis-synergies, business and market conditions, outlook, foreign currency exchange rates, deleveraging plans, expected dividends and share repurchases of the Company, the Company’s sales pipeline and anticipated profitability and growth, plans, strategies and objectives for future operations, strategic value creation, risk profile and investment strategies, any statements regarding future economic conditions or performance and any statements with respect to the previously announced pending sale of a 55% equity stake in the Worldpay Merchant Solutions business ("pending Worldpay transaction"), the expected financial and operational results of the Company, and expectations regarding the Company’s business or organization after the pending Worldpay transaction, as well as other statements about our expectations, beliefs, intentions, or strategies regarding the future, or other characterizations of future events or circumstances, are forward-looking statements. These statements may be identified by words such as “expect,” “anticipate,” “intend,” “plan,” “believe,” “will,” “should,” “could,” “would,” “project,” “continue,” “likely,” and similar expressions, and include statements reflecting future results or guidance, statements of outlook and various accruals and estimates. These statements relate to future events and our future results and involve a number of risks and uncertainties. Forward-looking statements are based on management’s beliefs as well as assumptions made by, and information currently available to, management.

Actual results, performance or achievement could differ materially from these forward-looking statements. The risks and uncertainties to which forward-looking statements are subject include the following, without limitation:

• changes in general economic, business and political conditions, including those resulting from COVID-19 or other pandemics, a recession, intensified international hostilities, acts of terrorism, increased rates of inflation or interest, changes in either or both the United States and international lending, capital and financial markets or currency fluctuations;
• the risk of losses in the event of defaults by merchants (or other parties) to which we extend credit in our card settlement operations or in respect of any chargeback liability, either of which could adversely impact liquidity and results of operations;
• the risk that acquired businesses will not be integrated successfully or that the integration will be more costly or more time-consuming and complex than anticipated;
• the risk that cost savings and synergies anticipated to be realized from acquisitions may not be fully realized or may take longer to realize than expected;
• the risks of doing business internationally;
• the effect of legislative initiatives or proposals, statutory changes, governmental or applicable regulations and/or changes in industry requirements, including privacy and cybersecurity laws and regulations;
• the risks of reduction in revenue from the elimination of existing and potential customers due to consolidation in, or new laws or regulations affecting, the banking, retail and financial services industries or due to financial failures or other setbacks suffered by firms in those industries;
• changes in the growth rates of the markets for our solutions;
• the amount, declaration and payment of future dividends is at the discretion of our Board of Directors and depends on, among other things, our investment opportunities, results of operations, financial condition, cash requirements, future prospects, and other factors that may be considered relevant by our Board of Directors, including legal and contractual restrictions;
• the amount and timing of any future share repurchases is subject to, among other things, our share price, our other investment opportunities and cash requirements, our results of operations and financial condition, our future prospects and other factors that may be considered relevant by our Board of Directors and management;
• failures to adapt our solutions to changes in technology or in the marketplace;
• internal or external security or privacy breaches of our systems, including those relating to unauthorized access, theft, corruption or loss of personal information and computer viruses and other malware affecting our software or platforms, and the reactions of customers, card associations, government regulators and others to any such events;
• the risk that implementation of software, including software updates, for customers or at customer locations or employee error in monitoring our software and platforms may result in the corruption or loss of data or customer information, interruption of business operations, outages, exposure to liability claims or loss of customers;
• the risk that partners and third parties may fail to satisfy their legal obligations and risks associated with managing pension cost, cybersecurity issues, IT outages and data privacy;
• uncertainties as to the timing of the consummation of the pending Worldpay transaction or whether such sale will be completed;
• risks associated with the impact, timing or terms of the pending Worldpay transaction;
• risks associated with the expected benefits and costs of the pending Worldpay transaction, including the risk that the expected benefits of the pending Worldpay transaction or any contingent purchase price will not be realized within the expected timeframe, in full or at all;
• the risk that conditions to the pending Worldpay transaction will not be satisfied and/or that the pending Worldpay transaction will not be completed within the expected timeframe, on the expected terms or at all;
• the risk that any consents or regulatory or other approvals required in connection with the pending Worldpay transaction will not be received or obtained within the expected timeframe, on the expected terms or at all;
• the risk that the financing intended to fund the pending Worldpay transaction may not be obtained;
• the risk that the costs of restructuring transactions and other costs incurred in connection with the pending Worldpay transaction will exceed our estimates or otherwise adversely affect our business or operations;
• the impact of the pending Worldpay transaction on our businesses and the risk that the pending Worldpay transaction may be more difficult, time-consuming or costly than expected, including the impact on our resources, systems, procedures and controls, diversion of management’s attention and the impact on relationships with customers, governmental authorities, suppliers, employees and other business counterparties;
• the reaction of current and potential customers to communications from us or regulators regarding information security, risk management, internal audit or other matters;
• the risk that policies and resulting actions of the current administration in the U.S. may result in additional regulations and executive orders, as well as additional regulatory and tax costs;
• competitive pressures on pricing related to the decreasing number of community banks in the U.S., the development of new disruptive technologies competing with one or more of our solutions, increasing presence of international competitors in the U.S. market and the entry into the market by global banks and global companies with respect to certain competitive solutions, each of which may have the impact of unbundling individual solutions from a comprehensive suite of solutions we provide to many of our customers;
• the failure to innovate in order to keep up with new emerging technologies, which could impact our solutions and our ability to attract new, or retain existing, customers;
• an operational or natural disaster at one of our major operations centers;
• failure to comply with applicable requirements of payment networks or changes in those requirements;
• fraud by merchants or bad actors; and
• other risks detailed elsewhere in the "Risk Factors" and other sections of our Annual Report on Form 10-K for the fiscal year ended December 31, 2022, in our Quarterly Reports on Form 10-Q and in our other filings with the Securities and Exchange Commission.

Other unknown or unpredictable factors also could have a material adverse effect on our business, financial condition, results of operations and prospects. Accordingly, readers should not place undue reliance on these forward-looking statements. These forward-looking statements are inherently subject to uncertainties, risks and changes in circumstances that are difficult to predict. Except as required by applicable law or regulation, we do not undertake (and expressly disclaim) any obligation and do not intend to publicly update or review any of these forward-looking statements, whether as a result of new information, future events or otherwise.