FIDELITY NATIONAL INFORMATION SERVICES, INC. Unless stated otherwise or the context otherwise requires, all references to
"FIS," "we," "our," "us," the "Company" or the "registrant" are to
The following discussion should be read in conjunction with Item 1. Condensed Consolidated Financial Statements (Unaudited) and the Notes thereto included elsewhere in this report. The statements contained in this Form 10-Q or in our other documents or in oral presentations or other management statements that are not purely historical are forward-looking statements within the meaning of theU.S. federal securities laws. Statements that are not historical facts, including statements about anticipated financial outcomes, including any earnings guidance or projections of the Company, projected revenue or expense synergies, business and market conditions, outlook, foreign currency exchange rates, deleveraging plans, expected dividends and share repurchases, the Company's sales pipeline and anticipated profitability and growth, 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. In many cases, forward-looking statements can be identified by terminology such as "may," "will," "should," "expect," "plan," "anticipate," "believe," "estimate," "predict," "potential," or "continue," or the negative of these terms and other comparable terminology. 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 those contained in 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 theU.S. and international lending, capital and financial markets or currency fluctuations; •the outbreak or recurrence of the novel coronavirus and any related variants ("COVID-19") and measures to reduce its spread, including the impact of governmental or voluntary actions such as business shutdowns and stay-at-home orders in certain geographies; •the duration, including any recurrence, of the COVID-19 pandemic and its impacts, including reductions in consumer and business spending, and instability of the financial markets in heavily impacted areas across the globe; •the economic and other impacts of COVID-19 on our clients which affect the sales of our solutions and services and the implementation of such solutions; •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, the duration and impact of the COVID-19 pandemic, 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; 23
--------------------------------------------------------------------------------
Table of Contents
•internal or external security 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 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 theU.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 theU.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 endedDecember 31, 2021 , in our Quarterly Reports on Form 10-Q and in our other filings with theSecurities 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 our 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 our forward-looking statements, whether as a result of new information, future events or otherwise.
Overview
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 inJacksonville, Florida , FIS is a member of the Fortune 500® and theStandard & Poor's 500® Index. We have grown both organically and through acquisitions. Organic growth has been driven by a number of factors, including growth of our customers' businesses, our internal development of new solutions that enhance our client offerings, and our sales and marketing efforts to expand our customer base and addressable markets. Acquisitions have contributed additional solutions and services that complement or enhance our offerings, diversify our client base, expand our geographic coverage, and provide entry into new and attractive adjacent markets that align with our strategic objectives. We continue to strategically allocate resources to both organic and inorganic growth initiatives to enhance the long-term value of our business. FIS reports its financial performance based on the following segments: Banking Solutions ("Banking"), Merchant Solutions ("Merchant"), Capital Market Solutions ("Capital Markets") and Corporate and Other. A description of our segments is included in Note 12 to the consolidated financial statements. Revenue by segment and the Adjusted EBITDA of our segments are discussed below in Segment Results of Operations. Amounts in tables below may not sum or calculate due to rounding.
Business Trends and Conditions
Our revenue is primarily derived from a combination of technology and processing services, transaction fees, professional services and software license fees. While we are a global company and do business around the world, the majority of our revenue is generated by clients in theU.S. The majority of our international revenue is generated by clients in theU.K. ,Germany ,Australia ,Brazil andCanada . In addition, the majority of our revenue has historically been recurring and has been provided under multi-year Banking and Capital Markets contracts that contribute relative stability to our revenue stream. These 24
--------------------------------------------------------------------------------
Table of Contents
services, in general, are considered critical to our clients' operations. Although Merchant has a lesser percentage of multi-year contracts, substantially all of our Merchant revenue is recurring, derived from transaction processing fees that fluctuate with the number or value of transactions processed, among other variable measures associated with consumer activity. Professional services revenue is typically non-recurring, though recognition often occurs over time rather than at a point in time. Sales of software licenses are typically non-recurring with point-in-time recognition and are less predictable. TheU.S. andEurope , the two largest geographic areas for our businesses, are experiencing slower economic growth and higher rates of inflation than in recent years. In 2022, we began to experience lengthening sales cycles. We have also experienced increased wages and benefits costs compared to 2021, which management believes is in part due to inflation and in part due to competitive job markets for the skilled employees who support our businesses. We have experienced increases in non-labor-related costs compared to 2021 as well. Given the nature of our varied businesses, the magnitude of future effects of slower economic growth, including elongated sales cycles, and inflation are difficult to predict, although they are expected to adversely affect our results of operations. In 2022, the strengthening of theU.S. dollar has had, and is expected to continue to have, a negative impact on our revenue and earnings, and rising interest rates have also had, and are expected to continue to have, a negative impact on our earnings. The distribution of vaccines against COVID-19 curtailed the impact of the pandemic in 2021 in many of the larger countries in which we do business, but the timing of a complete recovery remains uncertain as new variants of COVID-19 continue to impact consumer spending. In the fourth quarter of 2021, some governmental restrictions were re-imposed based upon a resurgence of variants of COVID-19 in many areas of theU.S. andEurope , which resulted in an adverse impact on payment volumes and transactions over those anticipated following the easing of restrictions in the prior two quarters. These changes in spending affected our business, results of operations and financial condition throughout 2021; however, the impact has lessened substantially in the first nine months of 2022. The magnitude and duration of any further impacts is not possible to predict. We continue to assist financial institutions in migrating to outsourced integrated technology solutions to improve their profitability and address increasing and ongoing regulatory requirements. As a provider of outsourced solutions, we benefit from multi-year recurring revenue streams, which help moderate the effects of broader year-to-year economic and market changes that otherwise might have a larger impact on our results of operations. We believe our integrated solutions and outsourced services are well-positioned to address this outsourcing trend across the markets we serve. Over the last five years, we have moved over 80% of our server compute, primarily inNorth America , to our FIS cloud located in our strategic data centers. This allows us to further enhance security for our clients' data and increases the flexibility and speed with which we can provide solutions and services to our clients, at lesser cost. We have also completed our data center consolidation program in 2021. Following the successful modernization of our IT infrastructure and consolidation of our data centers, we are now accelerating the modernization of our strategic applications and sunsetting of our redundant platforms. Our multi-year platform modernization initiative is designed to create a componentized, cloud-native set of capabilities that can be consumed by clients as end-to-end business applications or as individual components. Although our platform modernization will result in additional near-term costs, we expect it will result in improvements in our operational efficiencies over time. We continue to invest in modernization, innovation and integrated solutions and services to meet the demands of the markets we serve and compete with global banks, financial and other technology providers, and emerging technology innovators. We invest both organically and through investment opportunities in companies building complementary technologies in the financial services space. Our internal efforts in research and development activities have related primarily to the modernization of our proprietary core systems in each of our segments, design and development of next-generation digital and innovative solutions and development of processing systems and related software applications and risk management platforms. We expect to continue our practice of investing an appropriate level of resources to maintain, enhance and extend the functionality of our proprietary systems and existing software applications, to develop new and innovative software applications and systems to address emerging technology trends in response to the needs of our clients, and to enhance the capabilities of our outsourcing infrastructure. In addition, we are investing in the development of new solutions and venture opportunities throughFIS Impact Ventures . This group prioritizes development of, and investment in, next-generation technology and innovation.
Since the beginning of the pandemic, the Company has taken several actions related to the health and safety of its employees while maintaining business continuity, including implementing its comprehensive Pandemic Plan. The Pandemic
25--------------------------------------------------------------------------------
Table of Contents
Plan includes site-specific plans as well as travel restrictions, medical response protocols, work-from-home strategies and enhanced cleaning within our locations and a comprehensive internal and external communication strategy.
Consumer preference continues to shift from traditional branch banking services to digital banking solutions, and our clients seek to provide a single integrated banking experience through their branch, mobile, internet and voice banking channels. The COVID-19 pandemic has resulted in accelerating digitization of banking and payment services by requiring, in many cases, banks and bank customers to transact through digital channels. We have been providing our large regional banking customers in theU.S. with Digital One, an integrated digital banking platform, and are now adding functionality and offering Digital One to our community bank clients to provide a consistent, omnichannel experience for consumers of banking services across self-service channels like mobile banking and online banking, as well as supporting channels for bank staff operating in bank branches and contact centers. The uniform customer experience extends to support a broad range of financial services including opening new accounts, servicing of existing accounts, money movement, and personal financial management, as well as other consumer, small business and commercial banking capabilities. Digital One is integrated into several of the core banking platforms offered by FIS and is also offered to customers of non-FIS core banking systems. We anticipate consolidation within the banking industry will continue, primarily in the form of merger and acquisition activity among financial institutions, which we believe would broadly be detrimental to the profitability of the financial technology industry. However, consolidation resulting from specific merger and acquisition transactions may be beneficial to our business. When consolidations of financial institutions occur, merger partners often operate systems obtained from competing service providers. The newly formed entity generally makes a determination to migrate its core and payments systems to a single platform. When a financial institution processing client is involved in a consolidation, we may benefit by their expanding the use of our services if such services are chosen to survive the consolidation and to support the newly combined entity. Conversely, we may lose revenue if we are providing services to both entities, or if a client of ours is involved in a consolidation and our services are not chosen to support the newly combined entity. It is also possible that larger financial institutions resulting from consolidation may have greater leverage in negotiating terms or could decide to perform in-house some or all of the services that we currently provide or could provide. We seek to mitigate the risks of consolidations by offering other competitive services to take advantage of specific opportunities at the surviving company. We continue to see demand in the payments market for innovative solutions that will deliver faster, more convenient payment options in mobile channels, internet applications, in-store cards, and the growing area of cryptocurrencies. The payment processing industry is adopting new technologies, developing new solutions and services, evolving new business models, and being affected by new market entrants and by an evolving regulatory environment. As merchants and financial institutions respond to these changes by seeking services to help them enhance their own offerings to consumers, including the ability to accept card-not-present ("CNP") payments in eCommerce and mobile environments as well as contactless cards and mobile wallets at the point of sale, FIS believes that payment processors will seek to develop additional capabilities in order to serve clients' evolving needs. To facilitate this expansion, we believe that payment processors will need to enhance their technology platforms so they can deliver these capabilities and differentiate their offerings from other providers. We believe that these market changes present both an opportunity and a risk for us, and we cannot predict which emerging technologies or solutions will be successful. However, FIS believes that payment processors, like FIS, that have scalable, integrated business models, provide solutions across the payment processing value chain and utilize broad distribution capabilities will be best positioned to enable emerging alternative electronic payment technologies. Further, FIS believes that its depth of capabilities and breadth of distribution will enhance its position as emerging payment technologies are adopted by merchants and other businesses. FIS' ability to partner with non-financial institution enterprises, such as mobile payment providers and internet, retail and social media companies, continues to create attractive growth opportunities as these new entrants seek to become more active participants in the development of alternative electronic payment technologies and to facilitate the convergence of retail, online, mobile and social commerce applications. Globally, attacks on information technology systems continue to grow in frequency, complexity and sophistication. This is a trend we expect to continue. Such attacks have become a point of focus for individuals, businesses and governmental entities. The objectives of these attacks include, among other things, gaining unauthorized access to systems to facilitate financial fraud, disrupt operations, cause denial of service events, corrupt data, and steal non-public information. These circumstances present both a threat and an opportunity for FIS. As part of our business, we electronically receive, process, store and transmit a wide range of confidential information, including sensitive customer information and personal consumer data. We also operate payment, cash access and prepaid card systems. FIS remains focused on making strategic investments in information security to protect our clients and our information systems. These investments include both capital expenditures and operating expense related to hardware, software, personnel and consulting services. We also participate in industry and governmental initiatives to improve information security for our 26
--------------------------------------------------------------------------------
Table of Contents
clients. Through the expertise we have gained with this ongoing focus and involvement, we have developed fraud, security, risk management and compliance solutions to target this growth opportunity in the financial services industry.
Critical Accounting Policies and Estimates
There have been no significant changes to our critical accounting policies as disclosed in our Annual Report on Form 10-K for the year endedDecember 31, 2021 . For discussion regarding the impact of the COVID-19 pandemic on our critical and significant accounting estimates subject to risk and uncertainties, see Notes 1, 4 and 8 to the consolidated financial statements.
Related-Party Transactions
We are a party to certain historical related party agreements as discussed in Note 10 to the consolidated financial statements.
Consolidated Results of Operations - Comparisons of three- and nine-month
periods ended
Three months ended September 30, Nine months ended September 30,
$ % $ %
2022 2021 Change Change 2022 2021 Change Change
(In millions) (In millions)
Revenue $ 3,604 $ 3,507 $ 97 3 % $ 10,814 $ 10,205 $ 609 6 %
Cost of revenue (2,148) (2,178) 30 (1) (6,624) (6,431) (193) 3
Gross profit 1,456 1,329 127 10 4,190 3,774 416 11
Gross profit margin 40 % 38 % 39 % 37 %
Selling, general and
administrative expenses (977) (989) 12 (1) (3,093) (2,972) (121) 4
Asset impairments (17) (202) 185 NM (104) (202) 98 NM
Operating income $ 462 $ 138 324 235 $ 993 $ 600 393 66
Operating margin 13 % 4 % 9 % 6 %
NM = Not meaningful
Revenue
Revenue for the three and nine months ended September 30, 2022 , increased
primarily due to the ramp-up of recent new client wins in Banking, increased
Merchant volumes and strong new sales in Capital Markets driving recurring
revenue growth. Revenue was negatively impacted by unfavorable foreign currency
movements, primarily related to a stronger U.S. Dollar versus the British Pound
Sterling and Euro. See Segment Results of Operations below for more detailed
explanation.
Cost of Revenue, Gross Profit and Gross Profit Margin
Cost of revenue for the three months endedSeptember 30, 2022 , decreased due to lower intangible asset amortization resulting primarily from foreign currency movements, partially offset by cost inflation, contributing to higher gross profit and gross profit margin. Cost of revenue for the nine month period increased due to the revenue variances noted above, cost inflation and higher incremental amortization expense associated with shortened estimated useful lives and accelerated amortization methods for certain software and deferred contract cost assets resulting from the Company's platform modernization initiatives, partially offset by lower intangible asset amortization resulting primarily from foreign currency movements. Gross profit for the nine months endedSeptember 30, 2022 , increased primarily due to revenue variances noted above. Gross profit margin for the nine months endedSeptember 30, 2022 , increased primarily due to revenue growth in the Merchant segment and lower intangible asset amortization resulting primarily from foreign currency movements, partially offset by higher incremental amortization expense associated with shortened estimated useful lives and accelerated amortization methods for certain software and deferred contract cost assets resulting from the Company's platform modernization initiatives and by cost inflation.
Selling, General and Administrative Expenses
27--------------------------------------------------------------------------------
Table of Contents
Selling, general and administrative expenses for the three months endedSeptember 30, 2022 , decreased primarily due to lower acquisition, integration and other costs, partially offset by incremental Payrix-related expenses. Selling, general and administrative expenses for the nine months endedSeptember 30, 2022 , increased primarily due to higher compensation and Payrix-related expenses. The 2021 nine-month period included accelerated stock compensation expense recorded associated with the establishment of the Qualified Retirement Equity Program that modified our existing stock compensation plans as described in Note 9 to the consolidated financial statements.
Asset Impairments
For the three months endedSeptember 30, 2022 , the Company recorded$17M of impairments primarily related to certain software rendered obsolete by the Company's Platform modernization initiatives. For the nine months endedSeptember 30, 2022 , the Company also recorded impairments of$58 million related primarily to real estate-related assets as a result of office space reductions and$29 million related primarily to a non-strategic business. For the three and nine months endedSeptember 30, 2021 , the Company recorded impairment of certain software and deferred contract cost assets resulting from the aforementioned Company's Platform modernization initiatives.
Operating Income and Operating Margin
The change in operating income for the three and nine months endedSeptember 30, 2022 , resulted from the revenue and cost variances noted above. The operating margin for the three and nine months endedSeptember 30, 2022 , benefited from lower asset impairments and intangible asset amortization compared to prior-year periods.
Total Other Income (Expense), Net
Three months ended September 30, Nine months ended September 30,
$ % $ %
2022 2021 Change Change 2022 2021 Change Change
Other income (expense): (In millions) (In millions)
Interest expense, net $ (76) $ (46) $ (30) 65 % $ (166) $ (169) $ 3 (2) %
Other income (expense),
net (41) 110 (151) NM 51 (58) 109 NM
Total other income
(expense), net $ (117) $ 64 (181) NM $ (115) $ (227) 112 NM
NM = Not meaningful
The increase in interest expense, net during the three months ended September
30, 2022 , was primarily due to higher interest rates on our debt, offset in part
by increased interest income and lower outstanding debt throughout the three
months ended September 30, 2022 . The decrease in interest expense, net during
the nine months ended September 30, 2022 , was primarily due to increased
interest income, offset in part by increased interest expense on refinanced
senior notes and our variable rate instruments.
Other income (expense), net includes the net change in fair value of the
CVR-related preferred stock and CVR liability of $14 million and $(3) million
for the three months ended and $63 million and $12 million for the nine months
ended September 30, 2022 and 2021, respectively (see Note 4 to the consolidated
financial statements). Other income (expense), net also includes net gains on
equity security investments without readily determinable fair values of $5
million and $126 million for the three months and $52 million and $214 million
for the nine months ended September 30, 2022 and 2021, respectively (see Note 4
to the consolidated financial statements). Other income (expense), net for the
nine months ended September 30, 2021 , also includes gain on the sale of our
equity ownership interest in Cardinal Holdings of approximately $225 million and
loss on extinguishment of debt of approximately $528 million relating to tender
premiums, make-whole amounts, and fees; the write-off of unamortized bond
discounts and debt issuance costs; and losses on related derivative instruments.
The foregoing loss resulted from the debt refinancing activity we undertook in
the first quarter of 2021 (see Note 6 to the consolidated financial statements),
which substantially reduced our ongoing interest expense on the refinanced
principal. This loss was partially offset by fair value adjustments on certain
non-operating assets and liabilities and foreign currency transaction
remeasurement gains.
28--------------------------------------------------------------------------------
Table of Contents
Provision (Benefit) for Income Taxes
Three months ended September 30, Nine months ended September 30,
$ % $ %
2022 2021 Change Change 2022 2021 Change Change
(In millions) (In millions)
Provision (benefit)
for income taxes $ 91 $ 41 $ 50 NM $ 223 $ 246 $ (23) NM
Effective tax rate 26 % 20 % 25 % 66 %
NM = Not meaningful
The increase in the effective tax rate for the three months ended September 30,
2022 , was primarily due to relative earnings over the comparable 2021 period.
The decrease in the effective tax rate for the nine months ended September 30,
2022 , was primarily due to the one-time net remeasurement of certain deferred
tax liabilities during the second quarter of 2021 due to the increase in the
U.K. corporate statutory tax rate from 19% to 25% effective April 1, 2023 ,
enacted on June 10, 2021 .
Segment Results of Operations - Comparisons of three- and nine-month periods
ended
FIS reports its financial performance based on the following segments: Banking
Solutions, Merchant Solutions, Capital
Market Solutions, and Corporate and Other.
Adjusted EBITDA is defined as net earnings (loss) before net interest expense,
net other income (expense), income tax provision (benefit), equity method
investment earnings (loss), 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 FASB ASC Topic
280, Segment Reporting. The items affecting the segment profit measure generally
include purchase price amortization of acquired intangible assets as well as
acquisition, integration and certain other costs and asset impairments. Adjusted
EBITDA also excludes incremental and direct costs resulting from the COVID-19
pandemic. These costs and adjustments are recorded in the Corporate and Other
segment for the periods discussed below. Adjusted EBITDA for the respective
segments excludes the foregoing costs and adjustments. Financial information,
including details of Adjusted EBITDA, for each of our segments is set forth in
Note 12 to the consolidated financial statements.
Banking Solutions
Three months ended September 30, Nine months ended September 30,
$ % $ %
2022 2021 Change Change 2022 2021 Change Change
(In millions) (In millions)
Revenue $ 1,680 $ 1,610 $ 70 4 % $ 4,988 $ 4,729 $ 259 5 %
Adjusted EBITDA $ 721 $ 742 (21) (3) $ 2,155 $ 2,129 $ 26 1
Adjusted EBITDA margin 42.9 % 46.1 % 43.2 % 45.0 %
Adjusted EBITDA margin
basis points change (320) (180)
Three months ended
Revenue increased due to recurring revenue contributing 4% to growth, driven by the recent ramp-up of several large contracts which overcame a 2% reduction due to decline in pandemic-related revenue, and to timing of non-recurring software license sales contributing 2% to growth. Revenue was negatively impacted by foreign currency movements, contributing (2%) to growth primarily related to a strongerU.S. Dollar versus the Euro and the British Pound Sterling.
Adjusted EBITDA and adjusted EBITDA margin decreased primarily due to cost inflation, a reduction in pandemic-related revenue as compared to the prior-year period, and recent onboarding of several large outsourcing contracts.
29--------------------------------------------------------------------------------
Table of Contents
Nine months ended
Revenue increased primarily due to recurring revenue contributing 5% to growth, driven by the recent ramp-up of several large contracts which overcame a 1% reduction due to decline in pandemic-related revenue, and non-recurring revenue contributing 1% to growth. Revenue was negatively impacted by foreign currency movements, contributing (1%) to growth primarily related to a strongerU.S. Dollar versus the Euro and the British Pound Sterling.
Adjusted EBITDA increased primarily due to the revenue impacts noted above. Adjusted EBITDA margin decreased primarily due to cost inflation, a reduction in pandemic-related revenue as compared to the prior-year period, and recent onboarding of several large outsourcing contracts.
Merchant Solutions
Three months ended September 30, Nine months ended September 30,
$ % $ %
2022 2021 Change Change 2022 2021 Change Change
(In millions) (In millions)
Revenue $ 1,180 $ 1,161 $ 19 2 % $ 3,595 $ 3,303 $ 292 9 %
Adjusted EBITDA $ 560 $ 600 (40) (7) $ 1,696 $ 1,639 57 3
Adjusted EBITDA margin 47.4 % 51.7 % 47.2 % 49.6 %
Adjusted EBITDA margin
basis points change (430) (240)
Three months ended
Revenue increased primarily due to higher card-not-present volumes, including those related to our recent Payrix acquisition, contributing 6% to growth. Revenue was negatively impacted by unfavorable foreign currency movements, contributing (4%) to growth primarily related to a strongerU.S. Dollar versus the British Pound Sterling. Adjusted EBITDA and adjusted EBITDA margin decreased primarily due to the foreign currency movements referenced above, inflationary cost pressures and accelerated investment in e-commerce and Payrix sales channels to capitalize on developing secular growth trends.
Nine months ended
Revenue increased primarily due to the global economic recovery from the COVID-19 pandemic, with higher card-present volumes contributing 5% to growth and card-not-present volumes, including those related to our recent Payrix acquisition, contributing 7% to growth. Revenue was negatively impacted by unfavorable foreign currency movements, contributing (3%) to growth primarily related to a strongerU.S. Dollar versus the British Pound Sterling. Adjusted EBITDA increased primarily due to the revenue impacts noted above. Adjusted EBITDA margin decreased primarily due to the foreign currency movements referenced above, inflationary cost pressures and accelerated investment in e-commerce and Payrix sales channels to capitalize on developing secular growth trends. Capital Market Solutions Three months ended September 30, Nine months ended September 30, $ % $ % 2022 2021 Change Change 2022 2021 Change Change (In millions) (In millions) Revenue$ 671 $ 654 $ 17 3 %$ 1,992 $ 1,908 $ 84 4 % Adjusted EBITDA$ 330 $ 316 14 4$ 955 $ 897 58 6 Adjusted EBITDA margin 49.3 % 48.4 % 48.0 % 47.0 % Adjusted EBITDA margin basis points change 90 100 30
--------------------------------------------------------------------------------
Table of Contents
Three months ended
Revenue increased primarily due to recurring revenue contributing 8% to growth from strong new sales momentum partially offset by lower non-recurring revenue contributing (2%). Revenue was also negatively impacted by unfavorable foreign currency movements, contributing (3%) to growth primarily related to a strongerU.S. Dollar versus the British Pound Sterling.
Adjusted EBITDA increased primarily due to the revenue impacts noted above. Adjusted EBITDA margin increased primarily due to continued expense management and operating leverage.
Nine months ended
Revenue increased primarily due to recurring revenue contributing 7% to growth from strong new sales momentum partially offset by lower non-recurring revenue contributing (1%). Revenue was also negatively impacted by unfavorable foreign currency movements, contributing (2%) to growth primarily related to a strongerU.S. Dollar versus the British Pound Sterling. Adjusted EBITDA increased primarily due to the revenue impacts noted above. Adjusted EBITDA margin increased primarily due to continued expense management and operating leverage. Corporate and Other Three months ended September 30, Nine months ended September 30, $ % $ % 2022 2021 Change Change 2022 2021 Change Change (In millions) (In millions) Revenue $ 73$ 82 $ (9) (11) %$ 239 $ 265 $ (26) (10) % Adjusted EBITDA$ (36) $ (73) 37 (51)$ (215) $ (253) 38 (15)
The Corporate and Other segment results consist of selling, general and administrative expenses and depreciation and intangible asset amortization not otherwise allocated to the reportable segments. Corporate and Other also includes operations from certain non-strategic businesses.
Three months ended
Revenue decreased due to a divestiture of a non-core business in the third quarter of 2022, as well as client attrition in our non-strategic businesses.
Adjusted EBITDA increased primarily due to foreign currency movements impacting corporate and infrastructure expenses, related to a strongerU.S. Dollar versus the British Pound Sterling and Indian Rupee.
Nine months ended
Revenue decreased primarily due to a divestiture of a non-core business in the third quarter of 2022, as well as client attrition in our non-strategic businesses.
Adjusted EBITDA increased primarily due to foreign currency movements impacting corporate and infrastructure expenses related to a strongerU.S. Dollar versus the British Pound Sterling and Indian Rupee.
Liquidity and Capital Resources
Cash Requirements
Our ongoing cash requirements include operating expenses, income taxes, tax
receivable obligations, mandatory debt service payments, capital expenditures,
stockholder dividends, regulatory requirements, working capital and timing
differences in settlement-related assets and liabilities, and may include
discretionary debt repayments, share repurchases and business acquisitions. Our
principal sources of funds are cash generated by operations and borrowings,
including the capacity under our
31--------------------------------------------------------------------------------
Table of Contents
Revolving Credit Facility, the
As ofSeptember 30, 2022 , the Company had$4,846 million of available liquidity, including$1,932 million of cash and cash equivalents and$2,914 million of capacity available under its Revolving Credit Facility. Approximately$1,189 million of cash and cash equivalents is held by our foreign entities, including amounts related to regulatory requirements. The majority of our domestic cash and cash equivalents relates to settlement payables and net deposits-in-transit, which are typically settled within a few business days. Debt outstanding totaled$18.9 billion , with an effective weighted average interest rate of 2.0%. We believe that our current level of cash and cash equivalents plus cash flows from operations will be sufficient to fund our operating cash requirements, capital expenditures and mandatory debt service payments for the next 12 months and the foreseeable future. We currently expect to continue to pay quarterly dividends. InJanuary 2022 , the Board of Directors approved a quarterly dividend increase of 21% to$0.47 per share beginning with the first quarter of 2022. Consistent with our capital allocation strategy, we plan to increase our annual dividend approximately 20% per year over the next several years, as compared to approximately 10% per year increases in recent years, to gradually increase our dividend payout ratio beginning with the quarterly dividend payable inMarch 2022 . However, the amount, declaration and payment of future dividends is at the discretion of the Board of Directors and depends on, among other things, our investment opportunities (including potential mergers and acquisitions), results of operations, financial condition, cash requirements, future prospects, the duration and impact of the COVID-19 pandemic, and other factors that may be considered relevant by our Board of Directors, including legal and contractual restrictions. Additionally, the payment of cash dividends may be limited by covenants in certain debt agreements. A regular quarterly dividend of$0.47 per common share is payable onDecember 23, 2022 , to shareholders of record as of the close of business onDecember 9, 2022 . InJanuary 2021 , our Board of Directors approved a new share repurchase program under which it authorized the Company to repurchase up to 100 million shares of our common stock at management's discretion from time to time on the open market or in privately negotiated transactions and through Rule 10b5-1 plans. The new share repurchase program has no expiration date and may be suspended for periods, amended or discontinued at any time. Under the new share repurchase program, approximately 71.5 million shares remained available for repurchase as ofSeptember 30, 2022 . During 2022, we expect to repurchase shares worth approximately$1.8 billion , including$1.3 billion of shares repurchased in the nine months endedSeptember 30, 2022 . Cash Flows from Operations Cash flows from operations were$2,798 million and$3,697 million for the nine-month periods endedSeptember 30, 2022 and 2021, respectively. Our net cash provided by operating activities consists primarily of net earnings, adjusted to add back depreciation and amortization and other non-cash items. Cash flows from operations decreased$899 million in the 2022 nine-month period primarily due to settlement timing.
Capital Expenditures and Other Investing Activities
Our principal capital expenditures are for software (purchased and internally developed) and additions to property and equipment. We invested approximately$1,083 million and$877 million in capital expenditures (excluding other financing obligations for certain hardware and software) during the nine-month periods endedSeptember 30, 2022 and 2021, respectively. We expect to continue investing in property and equipment, purchased software and internally developed software to support our business. During the nine-month period endedSeptember 30, 2022 , we received approximately$684 million of net cash reflected as investing activities due to the settlement of existing cross-currency interest rate swaps. See Note 7 to the consolidated financial statements. We received approximately$367 million of cash during the nine months endedSeptember 30, 2021 , for the net proceeds from the sale of our equity ownership interest inCardinal Holdings .
Financing
For more information regarding the Company's debt and financing activity see Note 6 to the consolidated financial statements.
32--------------------------------------------------------------------------------
Table of Contents
Contractual Obligations
There were no material changes in our contractual obligations through the nine
months ended
Recent Accounting Pronouncements
No new accounting pronouncement issued or effective during the fiscal year had or is expected to have a material impact on our consolidated financial statements or disclosures.
© Edgar Online, source
