8-K: FIS Reports Mixed 2023 Results, Boosts Share Repurchase Program and Provides 2024 Outlook

FIS announced its fourth quarter and full-year 2023 results, including a $500 million increase to its share repurchase program and provided its 2024 outlook.

Summary

• FIS reported its fourth quarter and full-year 2023 financial results, with GAAP diluted earnings per share from continuing operations at $0.11 for the quarter and $0.85 for the full year.
• Adjusted EPS for continuing operations was $0.94 for the quarter and $3.37 for the full year.
• The company's full-year GAAP results were significantly impacted by a $6.8 billion non-cash goodwill impairment charge related to the Merchant Solutions business.
• FIS has increased its share repurchase goal to at least $4.0 billion by the end of 2024, up from $3.5 billion.
• The company is targeting a dividend payout ratio of 35% of adjusted net earnings, excluding equity method investment earnings.
• For the full year 2023, revenue increased 1% on a GAAP basis to approximately $9.8 billion, and adjusted revenue increased 3%.
• The company is projecting accelerated revenue growth, expanding adjusted EBITDA margins, and year-over-year adjusted EPS growth for 2024.
• FIS completed the sale of a 55% stake in its Worldpay Merchant Solutions business on January 31, 2024, and will report its 45% ownership under the 'Equity method investment earnings (loss)' line of the income statement starting in Q1 2024.
• The company achieved over $550 million in annualized run-rate Future Forward cash savings exiting 2023 and is targeting $1.0 billion in total cash savings exiting 2024.

Sentiment

Score: 6

Explanation: The sentiment is mixed. While the company is showing positive momentum with cost savings and increased share repurchases, the significant goodwill impairment and decrease in adjusted EPS temper the overall outlook. The forward guidance is positive, but the current results are not stellar.

Positives

• FIS exceeded its Future Forward expectations in 2023, leading to an increased operational expense savings goal for 2024.
• The company increased its share repurchase program by $500 million, demonstrating confidence in the business and commitment to shareholder returns.
• FIS is projecting accelerated revenue growth, expanding adjusted EBITDA margins, and year-over-year adjusted EPS growth for 2024.
• The company achieved significant cost savings through its Future Forward program, exceeding $550 million in annualized run-rate savings exiting 2023.
• The completion of the Worldpay transaction allows FIS to focus on its core business and strategic flexibility.

Negatives

• Full-year 2023 GAAP results were significantly impacted by a $6.8 billion non-cash goodwill impairment charge related to the Merchant Solutions business.
• Adjusted EPS for continuing operations decreased by 4% in the fourth quarter and 11% for the full year, primarily due to higher interest costs.
• The company's adjusted EBITDA margin contracted by 40 basis points for the full year to 40.4%.
• Fourth quarter revenue decreased 1% on a GAAP basis compared to the prior year.
• Full-year revenue increased only 1% on a GAAP basis compared to the prior year.

Risks

• The company faces risks related to general economic conditions, including potential recessions and changes in interest rates.
• There are risks associated with integrating acquired businesses and realizing cost savings and synergies.
• The company is exposed to risks related to international operations, legislative changes, and cybersecurity.
• FIS faces competitive pressures from new technologies and competitors in the financial services industry.
• The company's future performance is subject to various risks and uncertainties, including the impact of the Worldpay separation.

Future Outlook

FIS is projecting accelerated revenue growth, expanding adjusted EBITDA margins, and year-over-year adjusted EPS growth for 2024. The adjusted EPS outlook reflects 2 months of EMI contribution for the first quarter and 11 months of EMI contribution for the full-year.

Management Comments

• FIS CEO and President Stephanie Ferris stated that the 2023 results and 2024 outlook reflect the continued positive momentum of the business.
• Stephanie Ferris also mentioned that the company delivered on its financial commitments for the fourth consecutive quarter and successfully closed the Worldpay transaction.
• She expressed pleasure with the outperformance on Future Forward expectations and the increase in the share repurchase goal.
• She also mentioned that a comprehensive deep-dive into FIS' corporate strategy will be provided at the upcoming Investor Day in New York City on May 7th.

Industry Context

This announcement reflects a trend in the financial technology sector where companies are focusing on core business segments and cost efficiencies. The divestiture of a majority stake in Worldpay is a strategic move to streamline operations and enhance focus on core financial technology solutions. The increased share repurchase program signals confidence in the company's future performance and commitment to shareholder value.

Comparison to Industry Standards

• FIS's adjusted EBITDA margin of 40.4% for the full year is comparable to other large financial technology companies, but there is room for improvement.
• Companies like Global Payments (GPN) and PayPal (PYPL) have reported varying EBITDA margins, with some exceeding 40% and others falling below.
• The share repurchase program is a common practice among mature tech companies to return capital to shareholders, similar to actions taken by companies like IBM and Oracle.
• The focus on cost savings through the Future Forward program is a response to industry-wide pressures to improve profitability and efficiency, similar to initiatives undertaken by other large tech firms.
• The divestiture of Worldpay is a strategic move to focus on core business, similar to other companies that have divested non-core assets to improve focus and profitability.

Stakeholder Impact

• Shareholders will benefit from the increased share repurchase program and continued dividend payments.
• Employees may be impacted by ongoing cost-saving initiatives and restructuring efforts.
• Customers will likely see continued investment in technology and service improvements.
• Suppliers and creditors will be impacted by the company's financial performance and strategic direction.

Next Steps

• FIS will provide a comprehensive deep-dive into its corporate strategy at its Investor Day in New York City on May 7th.
• The company will continue to execute its Future Forward program to achieve $1.0 billion in total cash savings exiting 2024.
• FIS will report its 45% ownership of the Worldpay Merchant Solutions business under the 'Equity method investment earnings (loss)' line of the income statement starting in Q1 2024.

Key Dates

Keywords

financial services technology, share repurchase, earnings, EBITDA, Worldpay, Future Forward, cost savings, revenue growth, adjusted EPS, dividend