Earnings

FIS Q4 Driven By Banks’ Shift To Digital And (New) Payments Infrastructure

FIS Earnings

Fidelity National Information Services (FIS) reported results that beat on the bottom line, and missed Wall Street expectations slightly on the top line, driven by banks’ continuing need to modernize their payments infrastructure and embrace digital offerings.

Adjusted Q4 earnings of $1.60 bested consensus by 2 pennies; revenues of $2.17 billion, which were up 3.2 percent on an organic basis, missed consensus by about $50 million.

Breaking down the numbers a bit, and as presented in supplemental materials disclosed by the company in tandem with earnings, the Integrated Financial Solutions segment comprised the majority of activity, with revenues of $1.1 billion, up 2.5 percent on an organic basis year over year. Payments grew the fastest within this segment, with 5.2 percent growth year over year to $408 million. Corporate and banking solutions was up 1.5 percent to $500 million.

Similarly, banking and payments represented the fastest growing contributor to the Global Financial Solutions segment, up 10.7 percent to $460 million, driven by demand in North America for digital solutions.

During the earnings call after results were announced, Gary Norcross, CEO, said that the company is seeing more demand for software-as-a-service deployments, and stated that the company’s “mass enablement strategy is accelerating product penetration within our markets, using an innovative and faster deployment model. This transformative approach leverages our investments in data center and solution modernization and is a key growth initiative, generating more than $10 million of new revenue in 2018.”

The Integrated Financial Solutions segment should accelerate growth by 100 basis points this year, he said.  He stated that a number of larger banks — unnamed on the call — have been using FIS as a provider of digital services, focusing in part on omnichannel offerings.

Software-as-a-service deployment sales were up 25 percent within the Global Financial Services division, said the executive, while payment transaction volumes were strong in Latin America.

As for the company’s own operating environment, Norcross stated that “currently, more than 55 percent of our North American distributed systems portfolio is running in our cloud environment, well ahead of the 50 percent target that we announced at the start of 2018. By year end, we expect this percentage to increase to over 65 percent on a global basis.”

Asked on the call by analysts about the impact of consolidation  in the financial industry — such as through the recent deals between Fiserv and First Data — Norcross seemed to hint that deals may be in in the offing. “We think that the market’s going to continue to need to consolidate, scale is going to be a key contributor to be able to compete and grow and certainly historically FIS has participated in those inorganic activities,” he said. “We will always look for opportunities that center around our three main verticals, whether it’s retail banking, payments or institutional or wholesale.”

He said at another point during the call that FIS would “think about payments and we think about institutional and wholesale and there’s a number of opportunities within each of those areas that could make sense from a strategy viewpoint. Of course, they would have to be actionable,” he added.

Sales growth for Fidelity National, management said on the call, should come as larger institutions examine their total cost of ownership, and examining the legacy systems in place.

“You see $20 billion institutions, $100 billion institutions now looking for ways to leverage our investment and scale around technology and modernization,” he said.

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