Fidelity National Information Services, Inc. (FIS)

FIS 
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Fidelity National Information Services (FIS)

Q3 2010 Earnings Call

October 26, 2010 8:30 am ET

Executives

Gary Norcross - Chief Operating Officer and Corporate Executive Vice President

Frank Martire - Chief Executive Officer, President, Director and Member of Executive Committee

Mary Waggoner - Senior Vice President of Investor Relations

Michael Hayford - Chief Financial Officer and Corporate Executive Vice President

Analysts

Brett Huff - Stephens Inc.

Greg Smith - Duncan-Williams, Inc.

Bryan Keane - Crédit Suisse AG

Tien-Tsin Huang - JP Morgan Chase & Co

David Parker - Lazard Capital Markets LLC

David Koning - Robert W. Baird & Co. Incorporated

John Williams

Ashwin Shirvaikar - Citigroup Inc

James Kissane - BofA Merrill Lynch

Glenn Greene - Oppenheimer & Co. Inc.

Presentation

Operator

Ladies and gentlemen, thank you for standing by. Welcome to the FIS Third Quarter Earnings Call. [Operator Instructions] I'd now like to the conference over to our host, Mary Waggoner. Please go ahead.

Mary Waggoner

Thank you, Brea, and thank you for joining us today this morning. For those who have not already done so, I would like to remind you to register for our annual Investor Day, which is scheduled on Monday, December 6, at the New York Stock Exchange. Now we will proceed with the third quarter earnings report.

Today's release and supplemental slide presentation have been posted to our website at www.fisglobal.com. A webcast replay of the audio portion of this call will also be available on the website shortly after the call. Joining us this morning are Frank Martire, President and Chief Executive Officer; Gary Norcross, Chief Operating Officer; and Mike Hayford, Chief Financial Officer.

Frank will lead today's discussion with the third quarter highlights and an overview of the recently announced Capco acquisition. Gary will follow with the operations review. And Mike will conclude with the detailed financial report.

Please refer to the Safe Harbor language on Page 2 of the presentation. Today's discussion will contain forward-looking statements. These statements are subject to risks and uncertainties as described in the press release and other filings with the SEC. The company undertakes no obligation to update any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law.

As always, our discussion will pertain to results from continuing operations. In addition, today's comments will also include references to non-GAAP results in order to provide more meaningful comparisons between the periods presented. Reconciliations between GAAP and non-GAAP results are provided in the attachments to the press release. Unless otherwise stated, reference on this call to revenue and EBITDA growth rates will be on a pro forma basis to include results from Metavante in all periods.

The presentation will begin with Slide 4. I will now turn the call over to Frank Martire.

Frank Martire

Thanks, Mary. Good morning, everyone, and thank you for joining us on today's call. October 1 marked the one-year anniversary of the merger between FIS and Metavante. By all measures, the combination has exceeded my expectation. The team has done an outstanding job of staying focused on serving our clients while delivering on our commitment to create value for shareholders. We are very proud of the manner which our employees have come together as one company. It has been impressive to say the least and speaks to the high quality of our management and employees.

I'll begin today's business review with a summary of financial results, followed by key developments during the quarter and an overview of the pending Capco acquisition. Third quarter revenue increased 3.3% to $1.3 billion, driven by excellent results in Financial Solutions, which grew 10.5% compared to the third quarter of 2009. The strong performance was driven primarily by high discretionary spending, strong demand for integration services and growth in existing base. This is our fourth consecutive quarter of top line growth, and we are very encouraged by the increase in momentum and renewed confidence in buying decisions.

The EBITDA margin expanded 320 basis points to 33.1% in the quarter, and adjusted earnings came in at $0.52 per share. Free The cash flow was again strong at $220 million. The integration is progressing on schedule, and we are confident that we will achieve the targeted cost savings.

There were a number of key developments in the third quarter. Each of which will drive long-term benefits for our company. In early August, we completed the $2.5 billion leverage recapitalization and share repurchase plan. We also announced the signing of our Memorandum of Understanding with Banco Bradesco to continue the joint venture in Brazil. Most importantly, I am pleased to report that we successfully converted Bradesco's $14 million bank card portfolio to our platform in early October. Our respective teams did an outstanding job bringing the project to completion. And we are now providing card processing and backlog support for Bradesco's credit card portfolios. We are very excited about the growth prospects for the joint venture and the opportunity to further expand our card processing operations.

Separately, as noted in this morning's press release, we are reviewing strategic alternatives for the Proservvi business in Brazil, which FIS acquired in 2006. Gary will talk more about this business later in the call.

And last, we announced the definitive agreement to acquire Capco, a global business and technology consulting company. Capco, which focuses solely on the financial service industry, will significantly strengthen our consulting service capabilities and provide a strategic extension of our core and payment processing solution. Capco has relationships with many of the largest banks in the world and is highly respected as far as thought leadership, deep domain expertise and client-centric approach. The transaction supports our domestic and international growth strategy and position us to further expand our foot print across large U.S. and global financial institutions.

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