FIS Reports Third Quarter 2023 Results, Increases Full-Year Outlook and Announces Plans to Resume Share Repurchases in the Fourth Quarter of 2023

Business Wire 7-Nov-2023 7:00 AM

• The Company now presents the operating results of the Worldpay Merchant Solutions business as discontinued operations
• Third quarter GAAP Diluted Earnings Per Share for continuing operations of $0.44 and Adjusted EPS of $0.94
• Including discontinued operations, third quarter GAAP Diluted Earnings (Loss) Per Share of $(0.76), including a $1.5 billion non-cash charge related to the Worldpay Merchant Solutions business, and Adjusted EPS of $1.65
• Continuing operations revenue increased 3% on a GAAP basis and 4% on an organic basis to $2.5 billion; continuing operations adjusted EBITDA margin expanded 70 basis points (bps) to 43.0%
• Announces increase to 2023 outlook, including discontinued operations, and introduces outlook for continuing operations
• Announces plans to repurchase approximately $500 million of shares in the fourth quarter of 2023, as part of broader goal to repurchase at least $3.5 billion of shares by year end 2024
• Pending Worldpay transaction on track for expected close date in Q1 2024

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

"This quarter's results demonstrate continued positive momentum of the business as we delivered on our financial commitments for the third consecutive quarter, increased our full-year outlook on a consolidated basis, and remain on track to close the pending Worldpay transaction in Q1 2024," said FIS CEO and President Stephanie Ferris. "I am pleased to announce that we plan to resume share repurchases in the fourth quarter of 2023, ahead of the transaction close, reflecting our confidence in the business and our strengthening financial position. I remain proud of our team members and the essential role they are playing to drive the future of FIS forward for both clients and shareholders."

Financial Reporting Considerations for Pending Worldpay Transaction

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. The Worldpay transaction is expected to close in Q1 2024, subject to regulatory approvals and other customary closing conditions.

Effective this quarter, the Company began accounting for the assets and liabilities of the Worldpay Merchant Solutions business as held for sale and its operating results as discontinued operations. The Company also stopped recording depreciation and amortization of the long-lived assets held for sale beginning July 5, 2023.

Unless otherwise noted, all results are presented on a continuing operations basis and exclude the results of the Company's Worldpay Merchant Solutions business that is now classified as discontinued operations.

Capital Allocation Update

The Company remains committed to shareholder returns and plans to repurchase approximately $500 million of shares in the fourth quarter of 2023, as part of its broader goal to repurchase at least $3.5 billion of shares by year end 2024. Additionally, the Company continues to target a dividend payout ratio of 35% of adjusted net earnings, excluding net earnings (loss) attributable to the Worldpay Merchant Solutions business non-controlling interest that will be retained post-separation.

Third Quarter 2023 Financial Results

On a GAAP basis, excluding $1.2 billion of revenue classified as discontinued operations, revenue increased 3% as compared to the prior year period to approximately $2.5 billion. GAAP net earnings attributable to common stockholders for continuing operations were $260 million or $0.44 per diluted share. Including discontinued operations, GAAP net earnings (loss) attributable to common stockholders were $(449) million or $(0.76) per diluted share.

On an organic basis, revenue increased 4% as compared to the prior-year period to approximately $2.5 billion. Adjusted EBITDA margin expanded by 70 basis points (bps) over the prior-year period to 43.0%. Adjusted net earnings for continuing operations were approximately $560 million, and adjusted EPS decreased by 7% as compared to the prior-year period to $0.94 per diluted share primarily reflecting higher interest costs. Including discontinued operations, adjusted net earnings were approximately $982 million and adjusted EPS decreased 5% as compared to the prior-year period to $1.65 per diluted share primarily reflecting higher interest costs.

Operating Segment Information

• Banking Solutions: Third quarter revenue increased by 3% on a GAAP basis and 3% on an organic basis as compared to the prior-year period to $1.8 billion reflecting organic recurring revenue growth of 7%, which was aided by approximately 4 percentage points of benefit associated with the servicing of federally funded pandemic relief programs. Adjusted EBITDA margin expanded by 120 basis points as compared to the prior-year period to 44.6% primarily driven by cost efficiencies.

• Capital Market Solutions: Third quarter revenue increased by 7% on a GAAP basis and 6% on an organic basis as compared to the prior-year period to $677 million primarily due to strong organic recurring revenue growth of 8%. Adjusted EBITDA margin contracted by 80 basis points over the prior-year period to 49.0% primarily due to the timing of operating expenses.

• Corporate and Other: Revenue decreased by 29% as compared to the prior-year period to $56 million primarily due to the divestitures of non-strategic businesses. Adjusted EBITDA loss was $45 million, including $68 million of corporate expenses.

Discontinued Operations (Worldpay Merchant Solutions)

Third quarter revenue increased by 1% on a GAAP basis and decreased 1% on an organic basis as compared to the prior-year period to $1.2 billion. Adjusted EBITDA increased 2% to $562 million. Adjusted EBITDA margin expanded by 30 basis points as compared to the prior-year period to 46.8%, reflecting continued Future Forward savings.

Balance Sheet and Cash Flows (Total Company, Including Discontinued Operations)

As of September 30, 2023, debt outstanding totaled $18.7 billion. Third quarter net cash provided by operating activities was $1.1 billion, and free cash flow was $907 million. In the quarter, the Company returned $308 million of capital to shareholders through dividends paid.

Update on Enterprise Transformation Program (Future Forward)

As of September 30, 2023, on a continuing operations basis, the Company achieved annualized run-rate Future Forward cash savings of over $220 million exiting the quarter, including over $150 million of operational expense savings and approximately $70 million of capital expense savings. In light of the pending Worldpay separation, the Company is reiterating its target post-separation cash savings exiting 2024 of $1.0 billion, of which over two-thirds represents annualized run-rate savings.

Full-Year 2023 Outlook

The Company now presents the operating results of the Worldpay Merchant Solutions business as discontinued operations for all periods presented beginning Q3 2023. As a result, the Worldpay Merchant Solutions business is incorporated into "Discontinued operations, net of tax" rather than included within each line item of the income statement. From a total Company perspective prior to reflecting this change, the Company has raised its outlook range as follows:

The Company is now introducing its full-year 2023 outlook for continuing operations, which excludes the impact from discontinued operations for both revenue and adjusted EBITDA.

Webcast

FIS will sponsor a live webcast of its earnings conference call with the investment community beginning at 8:30 a.m. (EDT) on Tuesday, November 7, 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 and from discontinued operations, 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, 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 which is 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. Free cash flow as presented in this earnings release includes cash flow from discontinued operations, which our management will not be able to freely access following the Worldpay separation.

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 outlook 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 outlook, 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;
• the reaction of current and potential customers to communications from us or regulators regarding information security, risk management, internal audit or other matters;
• 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 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.

Free cash flow reflects adjusted cash flows from operations less capital expenditures (additions to property and equipment and additions to software, excluding capital spend related to the construction of our new headquarters). Free cash flow does not represent our residual cash flows available for discretionary expenditures, since we have mandatory debt service requirements and other non-discretionary expenditures that are not deducted from the measure. Free cash flow as presented in this earnings release includes cash flows from discontinued operations, which our management will not be able to freely access following the Worldpay separation.