FIS builds momentum in Q3 2023 amid Worldpay sale

FIS builds momentum in Q3 2023 amid Worldpay sale

FIS has reported its Q3 2023 results, with the company reaching the top end of its targets amid its ongoing cost-cutting programme. 

The company has changed how it is reporting to reflect the sale of a 55% stake of its Merchant Solutions division to once again operate independently as Worldpay, with this now shown as discontinued operations. However, for continuing operations, FIS reported a 3% YoY revenue increase on a GAAP basis, and 4% on an organic basis, to $2.5bn in Q3 2023. It also reported a 43% EBITDA margin for continuing operations in the quarter – a 70 bps improvement on the same period last year.

The positive results, along with the announcement that the company was resuming its share repurchase programme in Q4, was met with a good investor response, with FIS’s share price rising following the announcement.

FIS delineates results ahead of Worldpay split
FIS quarterly revenue and adjusted EBITDA margin, 2020-2023

FIS Q3 results prompt increase in FY 2023 projections

FIS has also increased its full-year 2023 guidance on the news, when including discontinued operations, as well as breaking this out without Worldpay for the first time. 

This sees the company project revenue of $14.6bn-14.65bn for the year, including Worldpay, up from its prior range of $14.5bn-14.63bn. It has also raised its adjusted EBITDA margin for the year from 41.6-42% up to 41.8-42%.

Without Worldpay, FIS is now projecting FY 2023 revenue of $9.81bn-9.84bn, with an adjusted EBITDA margin of 40.06-40.35%. This would represent a YoY revenue increase of between 0.6% and 0.9%, compared to a 4% rise the previous year.

The company has also continued to see gains from its cost-cutting Future Forward initiative, which saw annualised run rate savings of more than $220m at the end of Q3, including $150m operational expense savings. It is on track to achieve post-Worldpay savings of $1bn by the end of 2024.

FIS raises full-year 2023 guidance amid Worldpay sale
FIS full-year revenue and adjusted EBITDA margin, 2018-2022 and 2023E

Banking drives FIS growth without Worldpay

Looking at the remaining segments at FIS, banking solutions remains the company’s largest segment, seeing a 3% YoY revenue increase for Q3 on both a GAAP and organic basis to $1.8bn. However, the previous equivalent quarter was still seeing gains from federal pandemic relief programmes, making this growth stronger than it appears on face value. 

Ongoing cost efficiencies also helped improve the division’s adjusted EBITDA margin, which increased 120 bps to 44.6%.

FIS reported several key wins in this segment, including the selection of its enterprise platform to modernise Provident Bank and the selection of its digital platform by Origin Bank. The company also reports over 190 of its clients have adopted FedNow, up from 116 in Q2. 

Capital Market Solutions, meanwhile, saw the largest growth, at 7% on a GAAP basis and 8% on an organic basis, although the segment remains smaller, at $677m revenue, and operating expenses saw adjusted EBITDA contract 80 bps to 49%.

Corporate and other, meanwhile, saw a 29% drop in revenue to $56m as FIS divested non-strategic business, and saw an adjusted EBITDA loss of $45m.

FIS Q3 23 results rise as Merchant Solutions set to be spun off
FIS quarterly revenue by business segment, 2019-2023

FIS provides update on Worldpay sale

FIS also provided an update on Worldpay, which is being spun out into an independent company with the sale of a 55% stake to private equity player GTCR. The division reported $1.2bn revenue, a 1% YoY increase on a GAAP basis or 1% decrease on an organic basis, while its adjusted EBITDA margin increased by 30 bps to 46.8%. 

The company also confirmed that the transaction is on track to close in Q1 2024 as planned, and is now expected to yield FIS net proceeds in excess of $12bn, up from its previous projection of $11.7bn. 

It is also expected to have an ongoing beneficial impact on operating costs. FIS expects the sale to reduce the company’s gross debt to around $10bn, resulting in significantly lower interest payments in future quarters, as well as reducing the company’s future tax rate.

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