QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2023
Or
☐
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from
to
Commission File No. 001-16427
_______________________________________________
Fidelity National Information Services, Inc.
(Exact name of registrant as specified in its charter)
Georgia
37-1490331
(State or other jurisdiction of incorporation or organization)
(I.R.S. Employer Identification No.)
347 Riverside Avenue
Jacksonville
Florida
32202
(Address of principal executive offices)
(Zip Code)
(904) 438-6000
(Registrant’s telephone number, including area code)
(Former Name or Former Address, if Changed Since Last Report)
Securities registered pursuant to Section 12(b) of the Act:
Trading
Name of each exchange
Title of each class
Symbol(s)
on which registered
Common Stock, par value $0.01 per share
FIS
New York Stock Exchange
0.750% Senior Notes due 2023
FIS23A
New York Stock Exchange
1.100% Senior Notes due 2024
FIS24A
New York Stock Exchange
0.625% Senior Notes due 2025
FIS25B
New York Stock Exchange
1.500% Senior Notes due 2027
FIS27
New York Stock Exchange
1.000% Senior Notes due 2028
FIS28
New York Stock Exchange
2.250% Senior Notes due 2029
FIS29
New York Stock Exchange
2.000% Senior Notes due 2030
FIS30
New York Stock Exchange
3.360% Senior Notes due 2031
FIS31
New York Stock Exchange
2.950% Senior Notes due 2039
FIS39
New York Stock Exchange
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes☒ No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer
☒
Accelerated filer
☐
Non-accelerated filer
☐
Smaller reporting company
☐
Emerging growth company
☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act) YES ☐ NO ☒
As of April 28, 2023, 592,436,518 shares of the Registrant’s Common Stock were outstanding.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
Unless stated otherwise or the context otherwise requires, all references to "FIS," "we," "our," "us," the "Company" or the "registrant" are to Fidelity National Information Services, Inc., a Georgia corporation, and its subsidiaries.
(1) Basis of Presentation
The unaudited financial information included in this report includes the accounts of FIS and its subsidiaries prepared in accordance with U.S. generally accepted accounting principles and the instructions to Form 10-Q and Article 10 of Regulation S-X. All adjustments considered necessary for a fair presentation have been included. This report should be read in conjunction with the Company's Annual Report on Form 10-K for the year ended December 31, 2022.
The preparation of these consolidated financial statements in conformity with United States ("U.S.") generally accepted accounting principles ("GAAP") and the related rules and regulations of the U.S. Securities and Exchange Commission ("SEC" or "Commission") requires our management to make estimates, judgments and assumptions that affect the reported amounts of assets and liabilities and the related disclosure of contingent assets and liabilities as of the date of the consolidated financial statements and the reported amounts of revenue and expenses during the reported periods. The inputs into management's critical and significant accounting estimates consider the economic impact of higher rates of inflation and slower economic growth. These estimates may change as new events occur and additional information is obtained. Future actual results could differ materially from these estimates. To the extent that there are differences between these estimates, judgments and assumptions and actual results, our consolidated financial statements will be affected.
Certain reclassifications have been made in the 2022 consolidated financial statements to conform to the classifications used in 2023. On the consolidated statements of comprehensive earnings, we reclassified the Change in fair value of net investment hedges from Foreign currency translation adjustments into its own classification. On the consolidated statements of cash flows, we reclassified Settlement of net investment hedges cross-currency interest rate swaps from Other investing activities to its own classification and Payments on tax receivable agreement from Other financing activities into its own classification.
FIS reports its financial performance based on the following segments: Banking Solutions, Merchant Solutions, Capital Market Solutions, and Corporate and Other. The Company regularly assesses its portfolio of assets and reclassified certain businesses from Capital Market Solutions to Banking Solutions and to the Corporate and Other Segment in the quarter ended March 31, 2023, and recast all prior-period segment information presented. See Note 10 for more information regarding our segments and the related reclassification.
Amounts in tables in the financial statements and accompanying footnotes may not sum or calculate due to rounding.
(2) Acquisitions
Virtus Acquisition
On January 2, 2020, FIS acquired a majority interest in Virtus Partners ("Virtus"), previously a privately held company that provides high-value managed services and technology to the credit and loan market. The acquisition was accounted for as a business combination. FIS acquired a 70% voting and financial interest in Virtus with 30% interest retained by the founders of Virtus ("Founders"). The agreement between FIS and the Founders provided FIS with a call option to purchase, and the Founders with a put option requiring FIS to purchase, all of the Founders' retained interest in Virtus at a redemption value determined pursuant to performance goals stated in the agreement, exercisable at any time after two years and three years, respectively, following the acquisition date. In January 2023, the Founders exercised their put option, and as a result, FIS paid the $173 million redemption value, recorded as a financing activity in the consolidated statement of cash flows, and now owns 100% of Virtus.
(3) Revenue
Disaggregation of Revenue
In the following tables, revenue is disaggregated by primary geographical market and type of revenue. The tables also include a reconciliation of the disaggregated revenue with the Company's reportable segments. Prior-period amounts have been reclassified to conform to the new reportable segment presentation as discussed in Note 10.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
Contract Balances
The Company recognized revenue of $318 million and $310 million during the three months ended March 31, 2023 and 2022, respectively, that was included in the corresponding deferred revenue balance at the beginning of the periods.
Transaction Price Allocated to the Remaining Performance Obligations
As of March 31, 2023, approximately $22.5 billion of revenue is estimated to be recognized in the future primarily from the Banking Solutions and Capital Market Solutions segments' remaining unfulfilled performance obligations, which are primarily comprised of recurring account- and volume-based processing services. This excludes the amount of anticipated recurring renewals not yet contractually obligated. The Company expects to recognize approximately 30% of the Banking Solutions and Capital Market Solutions segments' remaining performance obligations over the next 12 months, approximately another 22% over the next 13 to 24 months, and the balance thereafter.
As permitted by ASC 606, Revenue from Contracts with Customers, the Company has elected to exclude from this disclosure an estimate for the Merchant Solutions segment, as its contracts either have an original duration of one year or less or contain variable consideration that is allocated entirely to the day of performance under its stand-ready performance obligations comprised of a series of distinct daily services. The aggregate fixed consideration portion of customer contracts with an initial contract duration greater than one year is not material.
The Company records restricted cash in captions other than Cash and cash equivalents in the consolidated balance sheets. The reconciliation between Cash and cash equivalents in the consolidated balance sheets and Cash, cash equivalents and restricted cash per the consolidated statements of cash flows is as follows (in millions):
March 31, 2023
December 31, 2022
Cash and cash equivalents on the consolidated balance sheets
$
1,871
$
2,188
Merchant float (in Settlement assets)
2,471
2,625
Total Cash and cash equivalents and restricted cash per the consolidated statements of cash flows
$
4,342
$
4,813
Settlement Assets
The principal components of the Company's settlement assets on the consolidated balance sheets are as follows (in millions):
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
Intangible Assets, Software and Property and Equipment
The following table provides details of Intangible assets, Software and Property and equipment as of March 31, 2023, and December 31, 2022 (in millions):
March 31, 2023
December 31, 2022
Cost
Accumulated depreciation and amortization
Net
Cost
Accumulated depreciation and amortization
Net
Intangible assets
$
18,362
$
9,831
$
8,531
$
18,260
$
9,304
$
8,956
Software
$
6,635
$
3,413
$
3,222
$
6,607
$
3,369
$
3,238
Property and equipment
$
2,394
$
1,556
$
838
$
2,381
$
1,519
$
862
As of March 31, 2023, Intangible assets, net of amortization, includes $8,305 million of customer relationships and $226 million of trademarks and other intangible assets. Amortization expense with respect to Intangible assets was $496 million and $557 million for the three months ended March 31, 2023 and 2022, respectively.
Depreciation expense for property and equipment was $57 million and $73 million for the three months ended March 31, 2023 and 2022, respectively.
Amortization expense with respect to software was $251 million and $287 million for the three months ended March 31, 2023 and 2022, respectively. During the three months ended March 31, 2023 and 2022, the Company recorded $16 million and $62 million, respectively, of incremental software amortization expense resulting from the Company's platform modernization. Platform modernization includes sunsetting certain technology platforms, which resulted in shortened estimated useful lives and accelerated amortization methods primarily impacting the associated assets over approximately three years, beginning in the third quarter of 2021.
Impairments
For the three months ended March 31, 2022, the Company also recorded $58 million of impairments primarily related to real estate-related assets as a result of office space reductions.
Goodwill
Changes in goodwill during the three months ended March 31, 2023, are summarized below (in millions). Prior-period amounts have been reclassified to conform to the new reportable segment presentation as discussed in Note 10.
Capital
Corporate
Banking
Merchant
Market
And
Solutions
Solutions
Solutions
Other
Total
Balance, December 31, 2022
$
12,536
$
17,460
$
4,260
$
20
$
34,276
Foreign currency adjustments
8
123
17
—
148
Balance, March 31, 2023
$
12,544
$
17,583
$
4,277
$
20
$
34,424
We assess goodwill for impairment on an annual basis during the fourth quarter or more frequently if circumstances indicate potential impairment. We evaluated if events and circumstances as of March 31, 2023, indicated potential impairment of our reporting units. We performed a qualitative assessment by examining factors most likely to affect our reporting units' fair values, including the impact of recent U.S. bank failures. The factors examined involve significant use of management judgment and included, among others, (1) forecast revenue, growth rates, operating margins, and capital expenditures used to calculate estimated future cash flows, (2) future economic and market conditions and (3) FIS' market capitalization. Based on our interim impairment assessment as of March 31, 2023, we concluded that it remained more likely than not that the fair value continues to exceed the carrying amount for each of our reporting units; therefore, goodwill was not impaired.
It is reasonably possible, however, that macroeconomic conditions, including rates of economic growth, inflation and interest, and foreign currency movements, or other events could have a material impact on one or more of the estimates and assumptions used to evaluate goodwill impairment and could result in future goodwill impairment.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
The total carrying amount of goodwill as of March 31, 2023, and December 31, 2022, is net of accumulated impairment charges of $17.7 billion. Of this amount, $17.6 billion relates to the Merchant Solutions reporting unit which was impaired during the fourth quarter of 2022, and $94 million relates to non-strategic businesses within Corporate and Other which were impaired during the fourth quarter of 2020.
Visa Europe and Contingent Value Rights
As part of the Worldpay acquisition, the Company acquired certain assets and liabilities related to the June 2016 Worldpay Group plc (Legacy Worldpay) disposal of its ownership interest in Visa Europe to Visa Inc. As part of the disposal, Legacy Worldpay received proceeds from Visa Inc. in the form of cash ("cash consideration") and convertible preferred stock ("preferred stock"), the value of which may be reduced by losses incurred relating to ongoing interchange-related litigation involving Visa Europe. The preferred stock becomes convertible into Visa Inc. Class A common stock ("common stock") in stages as determined by Visa Inc. in accordance with the relevant transaction documents pertaining to the aforementioned disposal of the Visa Europe ownership interest. The preferred stock becomes fully convertible no later than 2028 (subject to a holdback to cover any pending claims). Also in connection with the disposal and pursuant to the terms of an amendment executed on September 17, 2020, the Company will pay the former Legacy Worldpay owners 90% of the net-of-tax proceeds from the disposal, known as contingent value rights, which is recorded as a liability ("CVR liability") on the consolidated balance sheets.
The Company has elected the fair value option under ASC 825, Financial Instruments ("ASC 825"), for measuring its preferred stock asset and CVR liability. The fair value of the preferred stock was $71 million and $55 million at March 31, 2023, and December 31, 2022, respectively, recorded in Other noncurrent assets on the consolidated balance sheets. The fair value of the CVR liability was $361 million and $342 million at March 31, 2023, and December 31, 2022, respectively, recorded in Other noncurrent liabilities on the consolidated balance sheets. Pursuant to ASC 825, the Company remeasures the fair value of the preferred stock and CVR liability each reporting period. The net change in fair value was $(3) million and $25 million for the three months ended March 31, 2023 and 2022, respectively, recorded in Other income (expense), net on the consolidated statements of earnings (loss).
Equity Security Investments
The Company holds various equity securities without readily determinable fair values that primarily represent strategic investments made by the Company as well as investments obtained through acquisitions. Such investments totaled $395 million and $393 million at March 31, 2023, and December 31, 2022, respectively, and are included within Other noncurrent assets on the consolidated balance sheets. The Company accounts for these investments at cost, less impairment, and adjusts the carrying values for observable price changes from orderly transactions for identical or similar investments of the same issuer. These adjustments are generally considered Level 2-type fair value measurements. The Company records gains and losses on these investments, realized and unrealized as well as impairment losses, as Other income (expense), net on the consolidated statements of earnings (loss) and recorded net gains of $(2) million and $41 million for the three months ended March 31, 2023 and 2022, respectively, related to these investments.
(5) Deferred Contract Costs
Origination and fulfillment costs from contracts with customers capitalized as of March 31, 2023, and December 31, 2022, consisted of the following (in millions):
March 31, 2023
December 31, 2022
Contract costs on implementations in progress
$
216
$
250
Contract origination costs on completed implementations, net
636
579
Contract fulfillment costs on completed implementations, net
257
251
Total Deferred contract costs, net
$
1,109
$
1,080
Amortization of deferred contract costs on completed implementations was $91 million and $96 million during the three months ended March 31, 2023 and 2022, respectively.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
The Company recorded $3 million and $16 million during the three months ended March 31, 2023 and 2022, respectively, of incremental amortization expense related to deferred contract costs resulting from the Company's platform modernization.
(6) Debt
Long-term debt as of March 31, 2023, and December 31, 2022, consisted of the following (in millions):
March 31, 2023
Weighted
Average
Interest
Interest
March 31,
December 31,
Rates
Rate (1)
Maturities
2023
2022
Fixed Rate Notes
Senior USD Notes
0.6% - 5.6%
3.9%
2024 - 2052
$
8,659
$
9,409
Senior Euro Notes
0.6% - 3.0%
1.6%
2023 - 2039
6,256
6,154
Senior GBP Notes
2.3% - 3.4%
6.6%
2029 - 2031
1,144
1,119
Revolving Credit Facility (2)
6.0%
2026
556
280
Incremental Revolving Credit Facility (3)
2023
—
—
Other (4)
(571)
(622)
Total long-term debt, including current portion
16,044
16,340
Current portion of long-term debt
(2,139)
(2,133)
Long-term debt, excluding current portion
$
13,905
$
14,207
(1)The weighted average interest rate includes the impact of interest rate swaps and excludes the impact of cross-currency interest rate swaps (see Note 7).
(2)Interest on the Revolving Credit Facility is generally payable at LIBOR plus an applicable margin of up to 1.625% plus an unused commitment fee of up to 0.225%, each based upon the Company's corporate credit ratings. The weighted average interest rate on the Revolving Credit Facility excludes fees.
(3)Interest on the Incremental Revolving Credit Facility is generally payable at a rate, at the option of the Company, equal to the Term SOFR Rate plus 0.10% plus a margin of up to 1.625% or equal to the Base Rate plus a margin of up to 0.625%, in either case plus an unused commitment fee of up to 0.225%.
(4)Other includes financing obligations for certain hardware and software, the fair value of interest rate swaps (see Note 7), unamortized non-cash bond discounts and unamortized debt issuance costs.
Short-term borrowings as of March 31, 2023, and December 31, 2022, consisted of the following (in millions):
March 31, 2023
Weighted
Average
Interest
March 31,
December 31,
Rate
Maturities
2023
2022
Euro-commercial paper notes ("ECP Notes")
3.0
%
Up to 183 days
$
1,924
$
2,054
U.S. commercial paper notes ("USCP Notes")
5.4
%
Up to 397 days
2,044
1,701
Other
—
42
Total Short-term borrowings
$
3,968
$
3,797
As discussed further in Note 7, the Company is a party to interest rate swaps that convert a portion of its fixed-rate debt to variable-rate debt. These interest rate swaps are designated as fair value hedges of its fixed rate debt. The Company has also entered into cross currency interest rate swaps under which it agrees to pay interest in U.S. dollars in exchange for receiving interest in a foreign currency. Although these cross currency interest rate swaps are entered into as net investment hedges of its investments in certain of its non-U.S. subsidiaries, and not for the purpose of hedging interest rates, the benefit or cost of such hedges is reflected in interest expense in the consolidated statement of earnings. As of March 31, 2023, the weighted average interest rate of the Company's outstanding debt was 3.7%, including the impact of interest rate swaps but excluding the impact of cross-currency interest rate swaps. Including the impact of cross-currency interest rate swaps on interest expense, the weighted average interest rate of the Company's outstanding debt was 3.0%.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
The following summarizes the aggregate maturities of our long-term debt, including other financing obligations for certain hardware and software, based on stated contractual maturities, excluding the fair value of the interest rate swaps (see Note 7) and net unamortized non-cash bond discounts of $(552) million as of March 31, 2023 (in millions):
Total
2023 remaining period
$
1,392
2024
1,311
2025
1,448
2026
1,261
2027
2,416
Thereafter
8,865
Total principal payments
16,693
Debt issuance costs, net of accumulated amortization
(97)
Total long-term debt
$
16,596
There are no mandatory principal payments on the Revolving Credit Facility or the Incremental Revolving Credit Facility, and any balance outstanding on the Revolving Credit Facility or the Incremental Revolving Credit Facility will be due and payable at each such facility's scheduled maturity date, which occur on March 2, 2026 and December 15, 2023, respectively.
Senior Notes
On March 1, 2023, FIS repaid an aggregate principal amount of $750 million in Senior USD Notes, on their due date, pursuant to the related indenture.
On December 3, 2022, FIS repaid an aggregate principal amount of €1.0 billion in Senior Euro Notes, on their due date, pursuant to the related indenture.
On July 13, 2022, FIS completed the issuance and sale of Senior USD Notes with an aggregate principal amount of $2.5 billion with interest rates ranging from 4.5% to 5.6% and maturities ranging from 2025 to 2052. The proceeds from the debt issuance were used for the repayment of debt under our commercial paper programs in the third quarter of 2022.
Revolving Credit Facilities
On February 28, 2023, FIS entered into a Incremental Revolving Credit Facility which provides credit commitments outstanding of $2.0 billion, with a scheduled maturity date of December 15, 2023. The proceeds of any borrowings under the Incremental Revolving Credit Facility will be used to provide ongoing working capital and for other general corporate purposes of the Company and its subsidiaries, including the repayment of certain existing debt of the Company and its subsidiaries and to backstop the Company’s commercial paper program. The Incremental Revolving Credit Facility contains customary covenants restricting, among other things, the incurrence of indebtedness, certain restricted payments and use of proceeds as well as to maintain certain financial ratios.
As of March 31, 2023, the borrowing capacity under the Revolving Credit Facility and Incremental Revolving Credit Facility was $2,976 million (net of $3,968 million of capacity backstopping our commercial paper notes).
Fair Value of Debt
The fair value of the Company's long-term debt is estimated to be approximately $1,629 million and $1,873 million lower than the carrying value, excluding the fair value of the interest rate swaps and unamortized discounts, as of March 31, 2023, and December 31, 2022, respectively.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
(7) Financial Instruments
Fair Value Hedges
The Company holds interest rate swaps with aggregate notional amounts of $1,854 million, £925 million and €500 million at each of March 31, 2023, and December 31, 2022, converting the interest rate exposure on certain of the Company's Senior USD Notes, Senior GBP Notes and Senior Euro Notes, as applicable, from fixed to variable. These swaps are designated as fair value hedges for accounting purposes with a net liability fair value of $514 million and $578 million reflected as a decrease in the long-term debt balance at March 31, 2023, and December 31, 2022, respectively (see Note 6).
Net Investment Hedges
The purpose of the Company's net investment hedges, as discussed below, is to reduce the volatility of FIS' net investment value in its Euro- and Pound Sterling-denominated operations due to changes in foreign currency exchange rates.
The Company recorded net investment hedge aggregate gain (loss) for the change in fair value and related income tax (expense) benefit within Other comprehensive earnings (loss), net of tax, on the consolidated statements of comprehensive earnings (loss) for its designated net investment hedges as follows (in millions). No ineffectiveness has been recorded on the net investment hedges.
Three months ended March 31,
2023
2022
Foreign currency-denominated debt designations
$
(117)
$
174
Cross-currency interest rate swap designations
(104)
86
Total
$
(221)
$
260
Foreign Currency-Denominated Debt Designations
The Company designates certain foreign currency-denominated debt as net investment hedges of its investment in Euro- and Pound Sterling-denominated operations. As of March 31, 2023, and December 31, 2022, an aggregate €7,499 million and €7,646 million, respectively, was designated as a net investment hedge of the Company's investment in Euro-denominated operations related to Senior Euro Notes with maturities ranging from 2023 to 2039 and ECP Notes. As of March 31, 2023, and December 31, 2022, an aggregate £746 million and £726 million, respectively, was designated as a net investment hedge of the Company's Pound Sterling-denominated operations related to the Senior GBP Notes with maturities ranging from 2029 to 2031 at March 31, 2023.
Cross-Currency Interest Rate Swap Designations
The Company holds cross-currency interest rate swaps and designates them as net investment hedges of its investment in Euro- and Pound Sterling-denominated operations.
As of March 31, 2023, and December 31, 2022, aggregate notional amounts of €6,343 million and €6,343 million, respectively, were designated as net investment hedges of the Company's investment in Euro-denominated operations, and aggregate notional amounts of £2,580 million and £2,580 million, respectively, were designated as net investment hedges of the Company's Pound Sterling-denominated operations. The cross-currency interest rate swap fair values totaled assets of $246 million and $336 million and liabilities of $(112) million and $(72) million at March 31, 2023, and December 31, 2022, respectively.
During the three months ended March 31, 2023 and 2022, the Company (paid) received net proceeds of approximately $(10) million and $135 million, respectively, for the fair values of the cross-currency interest rate swaps as of the settlement dates. The proceeds were recorded within investing activities on the consolidated statements of cash flows. Following the settlement of the existing cross-currency interest rate swaps, the Company entered into new cross-currency interest rate swaps at current market terms with similar notional amounts and maturity dates as the settled cross-currency interest rate swaps.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
(8) Commitments and Contingencies
Securities Litigation
On March 6, 2023, a complaint captioned Palm Bay Police and Firefighters’ Pension Fund v. Fidelity National Information Services, Inc., et al., was filed in the United States District Court for the Middle District of Florida by a shareholder of the Company. This putative class action, which names the Company and certain of its current and former officers as defendants, seeks damages for alleged violations of federal securities laws in connection with our disclosures relating to our Merchant Solutions segment. Plaintiff seeks to represent a class consisting of all persons who purchased the Company’s common stock between February 9, 2021, and February 10, 2023. A second putative class action complaint, making many of the same allegations, was filed on April 28, 2023, seeking damages on behalf of a class consisting of all persons who purchased the Company’s common stock between May 7, 2020, and February 10, 2023. While we believe the cases are without merit, no assurance can be given as to their ultimate outcome. We intend to contest them vigorously.
On April 27, 2023, a shareholder derivative action captioned Portia McCollum, derivatively on behalf of Fidelity National Information Services, Inc. v. Gary Norcross et al., was filed in the same court by a shareholder of the Company. This action, which was purportedly filed on behalf of the Company and names our current and certain of our former directors as defendants, makes claims for alleged breaches of federal securities laws, breaches of fiduciary duty, and corporate waste arising out of the same matters at issue in the Palm Bay Pension Fund matter described above.
Brazilian Tax Authorities Claims
In 2004, Proservvi Empreendimentos e Servicos, Ltda., the predecessor to Fidelity National Servicos de Tratamento de Documentos e Informatica Ltda. ("Servicos"), a subsidiary of Fidelity National Participacoes Ltda., our former item processing and remittance services operation in Brazil, acquired certain assets and employees and leased certain facilities from the Transpev Group ("Transpev") in Brazil. Transpev's remaining assets were later acquired by Prosegur, an unrelated third party. When Transpev discontinued its operations after the asset sale to Prosegur, it had unpaid federal taxes and social contributions owing to the Brazilian tax authorities. The Brazilian tax authorities brought a claim against Transpev and, beginning in 2012, brought claims against Prosegur and Servicos on the grounds that Prosegur and Servicos were successors in interest to Transpev. To date, the Brazilian tax authorities filed 14 claims against Servicos asserting potential tax liabilities of approximately $12 million. There are potentially 24 additional claims against Transpev/Prosegur for which Servicos is named as a co-defendant or may be named but for which Servicos has not yet been served. These additional claims amount to approximately $34 million, making the total potential exposure for all 38 claims approximately $46 million. We do not believe a liability for these 38 total claims is probable and, therefore, have not recorded a liability for any of these claims.
Tax Receivable Agreement
The Company assumed in the Worldpay acquisition a Tax Receivable Agreement ("TRA") under which the Company agreed to make payments to Fifth Third Bank ("Fifth Third") of 85% of the federal, state, local and foreign income tax benefits realized by the Company as a result of certain tax deductions. In December 2019, the Company entered into a Tax Receivable Purchase Addendum (the "Amendment") that provides written call and put options (collectively "the options") to terminate certain estimated obligations under the TRA in exchange for fixed cash payments.
The remaining TRA obligations not subject to the Amendment are based on the cash savings realized by the Company by comparing the actual income tax liability of the Company to the amount of such taxes the Company would have been required to pay had there been no deductions related to the tax attributes. Under the TRA, in certain specified circumstances, such as certain changes of control, the Company may be required to make payments in excess of such cash savings.
Obligations recorded in our consolidated financial statements pursuant to the TRA are based on estimates of future deductions and future tax rates and, in the case of the obligations subject to the Amendment, reflect management's expectation that the options will be exercised. In January 2023, the Company exercised its third call option pursuant to the Amendment,
which results in fixed cash payments to Fifth Third of $138 million. The timing and/or amount of aggregate payments due under the TRA may vary based on a number of factors, including the exercise of options, the amount and timing of taxable income the Company generates in the future and the tax rate then applicable, the use of loss carryforwards and amortizable basis. Each reporting period, the Company evaluates the assumptions underlying the TRA obligations.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
The consolidated balance sheets as of March 31, 2023, and December 31, 2022, include a total liability of $172 million and $266 million, respectively, relating to the TRA.
Chargeback Liability
Through services offered in our Merchant Solutions segment, the Company is exposed to potential losses from merchant-related chargebacks. A chargeback occurs when a dispute between a cardholder and a merchant, including a claim for non-delivery of the product or service by the merchant, is not resolved in favor of the merchant and the transaction is charged back to the merchant resulting in a refund of the purchase price to the cardholder. If the Company is unable to collect this chargeback amount from the merchant due to closure, bankruptcy or other reasons, the Company bears the loss for the refund paid to the cardholder. The risk of chargebacks is typically greater for those merchants that promise future delivery of goods and services rather than delivering goods or rendering services at the time of payment.
Indemnifications and Warranties
The Company generally indemnifies its clients, subject to certain limitations and exceptions, against damages and costs resulting from claims of patent, copyright, or trademark infringement associated solely with its customers' use of the Company's software applications or services. Historically, the Company has not made any material payments under such indemnifications but continues to monitor the conditions that are subject to the indemnifications to identify whether it is probable that a loss has occurred, in which case it would recognize any such losses when they are estimable. In addition, the Company warrants to customers that its software operates substantially in accordance with the software specifications. Historically, no material costs have been incurred related to software warranties, and no accruals for warranty costs have been made.
(9) Net Earnings (Loss) per Share
The basic weighted average shares and common stock equivalents for the three months ended March 31, 2023 and 2022, were computed using the treasury stock method.
The following table summarizes net earnings and net earnings per share attributable to FIS common stockholders for the three months ended March 31, 2023 and 2022 (in millions, except per share amounts):
Three months ended March 31,
2023
2022
Net earnings attributable to FIS common stockholders
$
140
$
120
Weighted average shares outstanding-basic
592
610
Plus: Common stock equivalent shares
1
4
Weighted average shares outstanding-diluted
593
614
Net earnings per share-basic attributable to FIS common stockholders
$
0.24
$
0.20
Net earnings per share-diluted attributable to FIS common stockholders
$
0.24
$
0.20
Options to purchase approximately 9 million and 5 million shares of our common stock, were not included in the computation of diluted earnings per share for the three months ended March 31, 2023 and 2022, respectively, because they were anti-dilutive.
In January 2021, our Board of Directors approved a 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 repurchase program has no expiration date and may be suspended for periods, amended or discontinued at any time. Approximately 64 million shares remained available for repurchase as of March 31, 2023. Our current plan for 2023 is to reorient our use of excess cash flow from share repurchases to debt reduction, in part given our outlook for business trends in 2023.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
FIS reports its financial performance based on the following segments: Banking Solutions, Merchant Solutions, Capital Market Solutions and Corporate and Other. Below is a summary of each segment. The Company regularly assesses its portfolio of assets and reclassified certain businesses from Capital Market Solutions to Banking Solutions and to the Corporate and Other Segment in the quarter ended March 31, 2023, and recast all prior-period segment information presented. Revenue from the reclassified businesses during the quarter ended March 31, 2023, represented less than 1% of consolidated revenue for the period.
Banking Solutions ("Banking")
The Banking segment is focused on serving financial institutions of all sizes with core processing software, transaction processing software and complementary applications and services, many of which interact directly with core processing software. We sell these solutions on either a bundled or stand-alone basis. Clients in this segment include global financial institutions, U.S. regional and community banks, credit unions and commercial lenders, as well as government institutions and other commercial organizations. Banking serves clients in more than 100 countries. We provide our clients integrated solutions characterized by multi-year processing contracts that generate recurring revenue. The predictable nature of cash flows generated from the Banking segment provides opportunities for further investments in innovation, integration, information and security, and compliance in a cost-effective manner.
Merchant Solutions ("Merchant")
The Merchant segment is focused on serving merchants of all sizes globally, enabling them to accept, authorize and settle electronic payment transactions. Merchant includes all aspects of payment processing, including value-added services, such as security, fraud prevention, advanced data analytics, foreign currency management and numerous funding options. Merchant serves clients in over 100 countries. Our Merchant clients are highly-diversified, including global enterprises, national retailers and small- to medium-sized businesses. The Merchant segment utilizes broad and varied distribution channels, including direct sales forces and multiple referral partner relationships that provide us with access to new and existing markets.
On February 13, 2023, we announced plans to spin off our Merchant Solutions business as further discussed in Item 2 "Management's Discussion and Analysis of Financial Condition and Results of Operations."
Capital Market Solutions ("Capital Markets")
The Capital Markets segment is focused on serving global financial services clients with a broad array of buy- and sell-side solutions. Clients in this segment operate in more than 100 countries and include asset managers, buy- and sell-side securities brokerage and trading firms, insurers, private equity firms, and other commercial organizations. Our buy- and sell-side solutions include a variety of mission-critical applications for recordkeeping, data and analytics, trading, financing and risk management. Capital Markets clients purchase our solutions in various ways including licensing and managing technology "in-house," using consulting and third-party service providers, as well as procuring fully outsourced end-to-end solutions. Our long-established relationships with many of these financial and commercial institutions generate significant recurring revenue. We have made, and continue to make, investments in modern platforms, advanced technologies, open APIs, machine learning and artificial intelligence, and regulatory technology to support our Capital Markets clients.
Corporate and Other
The Corporate and Other segment consists of corporate overhead expense, certain leveraged functions and miscellaneous expenses that are not included in the operating segments, as well as certain non-strategic businesses that we plan to wind down or sell. The overhead and leveraged costs relate to corporate marketing, corporate finance and accounting, human resources, legal, and amortization of acquisition-related intangibles and other costs, such as acquisition, integration and transformation-related expenses, that are not considered when management evaluates revenue-generating segment performance.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
In the Corporate and Other segment, the Company recorded acquisition, integration and other costs comprised of the following (in millions):
Three months ended
March 31,
2023
2022
Acquisition and integration
$
9
$
48
Enterprise transformation, including Future forward and platform modernization
76
80
Severance and other termination expenses associated with enterprise cost control initiatives and changes in senior management
28
11
Planned spin-off of the Merchant Solutions business
11
—
Stock-based compensation, primarily from certain performance-based awards
—
24
Other, including divestiture-related expenses, enterprise costs control and other initiatives
3
28
Total acquisition, integration and other costs
$
127
$
190
Amounts in table may not sum due to rounding.
Other costs in Corporate and Other also included 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 totaling $19 million and $52 million for the three months ended March 31, 2023 and 2022, respectively, which is recorded in depreciation and amortization in the statement of operations. Additionally, during the quarter ended March 31, 2022, the Company recorded $58 million of impairments primarily related to real estate-related assets resulting from office space reductions.
Adjusted EBITDA
Adjusted EBITDA is a measure of segment profit or loss that 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. Adjusted EBITDA is defined as net earnings (loss) before net interest expense, net other income (expense), income tax provision (benefit) and 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. The items affecting the segment profit measure generally include the purchase price amortization of acquired intangible assets as well as acquisition, integration and certain other costs and asset impairments. 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.
Summarized financial information for the Company's segments is shown in the following tables. The Company does not evaluate performance or allocate resources based on segment asset data; therefore, such information is not presented.
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
Unless stated otherwise or the context otherwise requires, all references to "FIS," "we," "our," "us," the "Company" or the "registrant" are to Fidelity National Information Services, Inc., a Georgia corporation, and its subsidiaries.
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 the U.S. federal securities laws. Statements that are not historical facts, including statements about anticipated financial outcomes, including any earnings guidance or projections, projected revenue or expense synergies or dis-synergies, business and market conditions, outlook, accruals and estimates, foreign currency exchange rates, deleveraging plans, expected dividends and share repurchases of the Company and following the proposed spin-off of the Merchant Solutions business, the Company's and the Merchant Solutions business' sales pipelines and anticipated profitability and growth, assumptions and strategies of the Company and the Merchant Solutions business following the proposed spin-off, the anticipated benefits of the spin-off, the expected timing of completion of the spin-off, 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. These statements may be identified by words such as "expect," "anticipate," "intend," "plan," "believe," "will," "should," "could," "would," "project," "continue," "likely," and similar expressions. 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 the United States and international lending, capital and financial markets or currency fluctuations;
•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, 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;
•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;
•risks associated with the impact or terms of the previously announced proposed spin-off of the Company’s Merchant Solutions business, including the impact on our businesses, resources, systems, procedures and controls, diversion of management’s attention and the impact on relationships with customers, governmental authorities, suppliers, employees and other business counterparties;
•risks associated with the expected benefits of the proposed spin-off, including the risk that the expected benefits of the proposed spin-off will not be realized within the expected timeframe, in full or at all, and the risk that conditions to the proposed spin-off will not be satisfied and/or that the proposed spin-off will not be completed within the expected timeframe, on the expected terms or at all;
•failure to obtain the expected qualification of the proposed spin-off as a tax-free transaction for U.S. federal income tax purposes, including whether or not an IRS ruling will be obtained;
•the risk that any consents or approvals required in connection with the proposed spin-off will not be received or obtained within the expected timeframe, on the expected terms or at all;
•risks associated with expected financing transactions undertaken in connection with the proposed spin-off and risks associated with indebtedness incurred in connection with the proposed spin-off, including the potential inability to access or reduced access to the capital markets or increased cost of borrowings, including as a result of a credit rating downgrade;
•the risk that dis-synergy costs, costs of restructuring transactions and other costs incurred in connection with the proposed spin-off will exceed our estimates or otherwise adversely affect our business or operations;
•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 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 risk that policies and resulting actions of the current administration in the U.S. may result in additional regulations and executive orders, as well as additional regulatory and tax costs;
•major bank failures or sustained financial market illiquidity;
•competitive pressures on pricing related to the decreasing number of community banks in the U.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 ended December 31, 2022, in our Quarterly Reports on Form 10-Q and in our other filings with the SEC.
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 these 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 these 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 in Jacksonville, Florida, FIS is a member of the Fortune 500® and the Standard & 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 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. The Company regularly assesses its portfolio of assets and reclassified certain businesses from Capital Market Solutions to Banking Solutions and to the Corporate and Other Segment in the quarter ended March 31, 2023, and recast all prior-period segment information presented. A description of our segments is included in Note 10 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 solutions, 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 the U.S. The majority of our international revenue is generated by clients in the U.K., Germany, Australia, Canada and Brazil. 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 solutions, 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.
The U.S. and Europe, the two largest geographic areas for our businesses, are experiencing slower economic growth than in recent years. In 2022, we began to experience lengthening sales cycles in Banking and Capital Markets, particularly across large transactions with a total contract value in excess of $50 million. We also experienced, and continue to experience, higher rates of inflation in these markets, including increasing wage and benefits rates, 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, as well as increasing non-labor-related costs. Given the nature of our varied businesses, the magnitude of future effects of slower economic growth, including lengthy sales cycles and inflation, are difficult to predict, although they have had and are expected to continue to have an adverse effect on our results of operations. In 2022, the strengthening of the U.S. dollar had a negative impact on our revenue and earnings; however, it has weakened in recent months, tempering the effects. Given the volatility of exchange rates and the mix of currencies involved in both revenues and expenses, the direction and magnitude of future effects of currency fluctuations are uncertain. Rising interest rates had, and may continue to have, a negative impact on our interest expense.
In 2022, we also recorded a goodwill impairment charge of $17.6 billion related to the Merchant Solutions reporting unit. The impairment reflects our intermediate-term expectation of lower growth in the segment, particularly related to the SMB sub-segment. See "Goodwill Impairment" in our Critical Accounting Policies and Note 6 to the consolidated financial statements in the Company's Annual Report on Form 10-K for the year ended December 31, 2022, for further details. The Merchant segment revenue growth decelerated over the second half of 2022, particularly in the fourth quarter, primarily reflecting a decline in SMB sub-segment revenues, attributable to slower economic growth and competitive pressures. Additionally, our Enterprise sub-segment was negatively impacted in 2022 by a decline in U.K.- derived revenue, principally reflecting softer economic conditions in the region. These trends continued in the first quarter of 2023, and we anticipate them to continue in the short term. In addition, the war in Ukraine has negatively affected, and as long as it continues is expected to continue to negatively affect, our Merchant business.
As a result of the factors noted above, for the Company as a whole, we expect 2023 revenue growth will be substantially slower than 2022, and we expect to experience margin compression in 2023 as compared to 2022. Over the longer term, we expect improvements in revenue growth and margins in response to improving economic conditions and planned management actions, including our Future Forward program discussed below.
On February 13, 2023, we announced plans to spin off our Merchant Solutions business ("SpinCo"). We may retain a minority interest of up to 19.9% of SpinCo. The planned separation is intended to create two independent, publicly traded companies with enhanced strategic and operational focus and to enable more tailored capital allocation and investment decisions to unlock growth. While we believe the spin-off will be beneficial to both FIS and, following the spin, SpinCo, and therefore indirectly to our shareholders, it will result in some one-time costs and revenue and expense dis-synergies. The latter are expected to include higher interest expense as a result of replacing lower coupon FIS debt with higher coupon Merchant debt, in part due to expected credit ratings and the current interest rate environment. FIS and SpinCo are expected to maintain a commercial relationship to ensure continuity for clients. We expect the spin-off to be completed by early 2024. The proposed spin-off is subject to customary conditions, including final approval by our Board of Directors, receipt of a tax opinion and a private letter ruling from the Internal Revenue Service, the filing and effectiveness of a Form 10 registration statement with the
SEC, SpinCo's ability to raise new debt and obtaining of all required regulatory approvals. No assurance can be given that a spin-off will in fact occur, or that it will achieve the anticipated benefits, on our desired timetable or at all. See "Risk Factors—Risks Related to the Planned Spin-Off of our Merchant Business" in Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2022.
We anticipate that, in connection with the proposed spin-off, SpinCo will incur indebtedness and, immediately prior to the closing of the proposed spin-off, pay a cash dividend to FIS using proceeds of such indebtedness. The amount of any such dividend will depend upon SpinCo’s ability to raise new indebtedness which, in turn, will depend upon its historic and anticipated business, financial performance and liquidity as well as market conditions, credit ratings and other factors, some of which are outside our control. We intend to use the cash distributed to FIS by SpinCo from the dividend to reduce our indebtedness to a level consistent with our current investment grade credit ratings and for general corporate purposes, including paying for costs of the spin-off. We expect that our weighted average interest rate after the spin-off will be higher than it was as of March 31, 2023.
In November 2022, we launched an enterprise-wide efficiency program, Future Forward, with a focus on streamlining operations, accelerating time to market of new solutions and improving profitability and cash flow. We are targeting cash savings from Future Forward of $1.25 billion by year-end 2024, consisting of $600 million of operating expense savings (run rate as of end of 2024), $300 million of capital expense savings (run rate as of end of 2024) and $350 million of cumulative savings by year-end 2024 from the reduction or elimination of acquisition, integration and transformation-related expenses, in each case prior to the effects of the proposed spin-off of the Merchant Solutions business, which we believe will reduce the available savings.
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.
We continue to invest in modernization, innovation and integrated solutions 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.
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. We have been providing our large regional banking customers in the U.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.
Consolidation within the banking industry has occurred and may 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 solutions if such solutions are chosen to survive the consolidation and to support the newly combined entity. Conversely, we may lose revenue if we are providing solutions to both entities, or if a client of ours is involved in a consolidation and our solutions 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 solutions that we currently provide or could provide. We seek to mitigate the risks of consolidations by offering other competitive solutions to take advantage of specific opportunities at the surviving company.
Recent U.S. bank failures could negatively impact our results to the extent more of our customers become illiquid; however, our current exposure to recent failures is limited, and we may be a long-term beneficiary of the recent disruption. As a leading provider of financial technology services to the top 100 U.S. banks by asset size as well as other global financial institutions, FIS boasts a highly diversified customer base, with no single customer accounting for more than approximately 1% of 2022 total Company revenue. With respect to U.S. financial institutions that closed in March 2023, FIS continues to provide services for these banks and is paid during their transition, and our revenue exposure from potential contract terminations related to these banks is nominal. Further, FIS' core banking customer contracts are generally structured with fees that increase based on the number of active accounts or transactions rather than the amount of deposits. Thus, to the extent account volume increases, we are positioned to benefit from this growth as a leading core banking services provider to large financial institutions.
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 digital currencies. The payment processing industry is adopting new technologies, developing new solutions, 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 solutions 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 in the long term. 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, such as those operated by FIS, continue to grow in frequency, complexity and sophistication. This is a trend we expect to continue. These circumstances present both a threat and an opportunity for FIS. We maintain significant focus on and investment in information security that is designed to mitigate threats to our systems and solutions. Through the expertise we have gained with this ongoing focus and investment, we have developed and offer fraud, security, risk management and compliance solutions to target the 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 ended December 31, 2022.
Consolidated Results of Operations - Comparisons of three-month periods ended March 31, 2023 and 2022
Three months ended March 31,
$
%
2023
2022
Change
Change
(In millions)
Revenue
$
3,510
$
3,492
$
18
1
%
Cost of revenue
(2,169)
(2,242)
73
(3)
Gross profit
1,341
1,250
91
7
Gross profit margin
38
%
36
%
Selling, general and administrative expenses
(1,004)
(1,035)
31
(3)
Asset impairments
—
(58)
58
NM
Operating income
$
337
$
157
180
115
Operating margin
10
%
4
%
NM = Not meaningful
Revenue
Revenue for the three months ended March 31, 2023, increased primarily due to strong recurring revenue growth and professional services in Banking, increased Merchant volumes, and strong recurring growth in Capital Markets. Revenue was negatively impacted by unfavorable foreign currency movements, primarily related to a stronger U.S. Dollar versus the British Pound Sterling and Euro as compared to the prior-year period. 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 ended March 31, 2023, 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.
Selling, General and Administrative Expenses
Selling, general and administrative expenses for the three months ended March 31, 2023, decreased primarily due to lower acquisition, integration and other costs, partially offset by cost inflation.
Asset Impairments
For the three months ended March 31, 2022, the Company recorded impairments of $58 million related primarily to real estate-related assets as a result of office space reductions.
Operating Income and Operating Margin
The change in operating income for the three months ended March 31, 2023, resulted from the revenue and cost variances noted above. The operating margin for the three months ended March 31, 2023, benefited from lower asset impairments and intangible asset amortization compared to the prior-year period.
The increase in interest expense, net during the three months ended March 31, 2023, was primarily due to higher interest rates on our debt and higher outstanding debt throughout the three months ended March 31, 2023, offset in part by increased interest income.
Other income (expense), net includes the net change in fair value of the CVR-related preferred stock and CVR liability of $(3) million and $25 million for the three months ended March 31, 2023 and 2022, respectively. Other income (expense), net also includes net gains (losses) on equity security investments without readily determinable fair values of $(2) million and $41 million for the three months ended March 31, 2023 and 2022, respectively. See Note 4 to the consolidated financial statements.
Provision (Benefit) for Income Taxes
Three months ended March 31,
$
%
2023
2022
Change
Change
(In millions)
Provision (benefit) for income taxes
$
48
$
54
$
(6)
NM
Effective tax rate
25
%
31
%
NM = Not meaningful
The decrease in the effective tax rate for the three months ended March 31, 2023, was primarily due to the ratio of book to tax differences to pre-tax earnings.
Segment Results of Operations - Comparisons of three-month periods ended March 31, 2023 and 2022
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), 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. 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 10 to the consolidated financial statements.
Banking Solutions
Three months ended March 31,
$
%
2023
2022
Change
Change
(In millions)
Revenue
$
1,685
$
1,659
$
26
2
%
Adjusted EBITDA
$
676
$
707
(31)
(4)
Adjusted EBITDA margin
40.1
%
42.6
%
Adjusted EBITDA margin basis points change
(250)
Three months ended March 31:
Recurring revenue contributed 3% to growth, primarily due to increased processing volumes. Professional services revenue contributed 1% to growth, and software license and other non-recurring revenue contributed (2%) to growth.
Adjusted EBITDA and adjusted EBITDA margin decreased as the revenue impacts noted above were offset by lower-margin revenue mix and cost inflation.
Revenue decreased primarily due to foreign currency movements versus the prior year. Global eCommerce volumes, including those related to our Payrix acquisition, contributed 5% to growth, Enterprise volumes contributed (2%) to growth and SMB volumes contributed (1%) to growth. Revenue was negatively impacted by unfavorable foreign currency movements, which contributed (3%) to growth primarily related to a stronger U.S. Dollar versus the British Pound Sterling as compared to the prior-year period.
Adjusted EBITDA and adjusted EBITDA margin decreased as the revenue impacts noted above were offset by lower-margin revenue mix and cost inflation.
On February 13, 2023, we announced our plans to spin off the Merchant business, with the intention to create a new, publicly traded company. We expect the spin-off to be completed by early 2024. The proposed spin-off is subject to customary conditions, including final approval by our Board of Directors, receipt of a tax opinion and a private letter ruling from the Internal Revenue Service, the filing and effectiveness of a Form 10 registration statement with the SEC SpinCo's ability to raise new debt and obtaining of all required regulatory approvals. No assurance can be given that a spin-off will in fact occur on our desired timetable or at all. See "Business Trends and Conditions" in Item 2 of this Quarterly Report.
Capital Market Solutions
Three months ended March 31,
$
%
2023
2022
Change
Change
(In millions)
Revenue
$
663
$
627
$
36
6
%
Adjusted EBITDA
$
320
$
300
20
7
Adjusted EBITDA margin
48.2
%
47.9
%
Adjusted EBITDA margin basis points change
30
Three months ended March 31:
Revenue increased primarily due to recurring revenue contributing 8% to growth from strong new sales momentum. Professional services revenue contributed (1%) to growth. Revenue was also negatively impacted by unfavorable foreign currency movements, contributing (1%) to growth primarily related to a stronger U.S. Dollar versus the British Pound Sterling as compared to the prior-year period.
Adjusted EBITDA increased primarily due to the revenue impacts noted above. Adjusted EBITDA margin increased primarily due to strong contribution margins from revenue growth.
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 March 31:
Revenue decreased due to divestitures of non-strategic businesses in 2022 as well as client attrition in our non-strategic businesses..
Adjusted EBITDA decreased as a result of the revenue impacts noted above and higher corporate expenses, which were partially offset by foreign currency movements impacting corporate and infrastructure expenses related to a stronger U.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 Revolving Credit Facility, the U.S. commercial paper program and the Euro-commercial paper program discussed in Note 6 to the consolidated financial statements.
As of March 31, 2023, the Company had $4,847 million of available liquidity, including $1,871 million of cash and cash equivalents and $2,976 million of capacity available under its Revolving Credit Facility and Incremental Credit Facility. Approximately $1,056 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 $20.0 billion, with an effective weighted average interest rate of 3.0%.
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.
In January 2023, the Board of Directors approved a quarterly dividend of $0.52 per share beginning with the first quarter of 2023. A regular quarterly dividend of $0.52 per common share is payable on June 23, 2023, to shareholders of record as of the close of business on June 9, 2023. We currently expect to continue to pay quarterly dividends at a target payout ratio consistent with our previously announced capital allocation strategy. 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, and other factors, including legal and contractual restrictions, that may be considered relevant by our Board of Directors. Additionally, the payment of cash dividends may be limited by covenants in certain debt agreements.
In January 2021, our Board of Directors approved a 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 share repurchase program has no expiration date and may be suspended for periods, amended or discontinued at any time. Approximately 64 million shares remained available for repurchase as of March 31, 2023. Our current plan for 2023 is to reorient our use of excess cash flow from share repurchases to
debt reduction, in part given our outlook for business trends in 2023. Although we continue to evaluate the optimal capital structure for our Merchant business following the proposed spin-off, we intend to maintain investment grade debt ratings for FIS. The spin-off will also result in significant one-time costs that we will be required to fund.
Cash Flows from Operations
Cash flows from operations were $632 million and $896 million for the three-month periods ended March 31, 2023, and 2022, 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 $264 million in the three-month period ended March 31, 2023, primarily due to a decrease in net earnings after adjusting to add back depreciation and other non-cash items and to working capital 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 $279 million and $412 million in capital expenditures (excluding other financing obligations for certain hardware and software) during the three-month periods ended March 31, 2023 and 2022, respectively. We expect to continue investing in property and equipment, purchased software and internally developed software to support our business.
During the three-month periods ended March 31, 2023 and 2022, we (paid) received approximately $(10) million and $135 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. In January 2023, the Founders of Virtus exercised their put option, and as a result, FIS paid the $173 million redemption value, recorded as a financing activity in the consolidated statement of cash flows.
Financing
For more information regarding the Company's debt and financing activity, see "Risk Factors—Risks Related to Our Indebtedness" in Item 1A of our Annual Report on Form 10-K filed on February 27, 2023, and "Quantitative and Qualitative Disclosures About Market Risk—Interest Rate Risk" in Item 3 as well as Notes 6 and 7 to the consolidated financial statements.
Contractual Obligations
There were no material changes in our contractual obligations through the three months ended March 31, 2023, in comparison to the table included in our Annual Report on Form 10-K for the year ended December 31, 2022, except as disclosed in Note 6 to the consolidated financial statements.
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.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Market Risk
We are exposed to market risks primarily from changes in interest rates and foreign currency exchange rates. We periodically use certain derivative financial instruments, including interest rate swaps and foreign currency forward contracts, to manage interest rate and foreign currency risk. We do not use derivatives for trading purposes, to generate income or to engage in speculative activity.
Interest Rate Risk
In addition to existing cash balances and cash provided by operating activities, we use fixed-rate and variable-rate debt to finance our operations. We are exposed to interest rate risk on these debt obligations and related interest rate swaps.
Our fixed rate senior notes (as included in Note 6 to the consolidated financial statements) represent the majority of our fixed-rate long-term debt obligations as of March 31, 2023. The carrying value, excluding the fair value of the interest rate swaps described below and unamortized discounts, of our senior notes was $16.1 billion as of March 31, 2023. The fair value of
our senior notes was approximately $14.4 billion as of March 31, 2023. The potential reduction in fair value of the senior notes from a hypothetical 10 percent increase in market interest rates would not be material to the overall fair value of the debt.
Our variable-rate risk principally relates to borrowings under our U.S. commercial paper program, Euro-commercial paper program, Revolving Credit Facility and Incremental Revolving Credit Facility (as described in Note 6 to the consolidated financial statements) and the notional amounts of our interest rate swaps designated as fair value hedges (collectively, "variable-rate debt"). At March 31, 2023, our weighted-average cost of debt was 3.0% with a weighted-average maturity of 5.6 years; 62% of our debt was fixed rate, and the remaining 38% was variable-rate debt, inclusive of fair value adjustments of interest rate swaps. A 100 basis-point increase in the weighted-average interest rate on our variable-rate debt would have increased our annual interest expense by $81 million. We performed the foregoing sensitivity analysis based solely on the outstanding balance of our variable-rate debt as of March 31, 2023. This sensitivity analysis does not take into account any changes that occurred in the prior 12 months or that may take place in the next 12 months in the amount of our outstanding debt. Further, this sensitivity analysis assumes the change in interest rates is applicable for an entire year. For comparison purposes, based on the outstanding balance of our variable-rate debt as of March 31, 2022, and calculated in the same manner as set forth above, an increase of 100 basis points in the weighted-average interest rate would have increased our annual interest expense by approximately $71 million.
As of March 31, 2023, the following interest rate swaps converting the interest rate exposure on certain of our senior notes from fixed to variable were outstanding (in millions):
Weighted
Weighted
Notional Amount by
Average
Average
Currency
Maturities
Receive Rate
Pay Rate
$
1,854
2029 - 2031
2.74
%
6.48
%
£
925
2029 - 2031
3.00
%
6.63
%
€
500
2024
1.10
%
3.17
%
By entering into the aforementioned swap agreements, we have assumed risks associated with variable interest rates based upon LIBOR, or Daily Compounded SONIA as applicable based on the phase-out of LIBOR rates, or Euribor. Changes in the overall level of interest rates affect the interest expense that we recognize. We designated the interest rate swaps as fair value hedges for accounting purposes as described in Note 7 to the consolidated financial statements. A 100 basis-point increase in the 3-month USD LIBOR rate, Daily Compounded SONIA rate and 3-month Euribor rate, as applicable, for the interest rate swaps outstanding as of March 31, 2023 and 2022, would increase our annual interest expense by approximately $35 million and $36 million, respectively.
Foreign Currency Risk
We are exposed to foreign currency risks that arise from normal business operations. These risks include the translation of local currency balances of foreign subsidiaries, transaction gains and losses associated with intercompany loans with foreign subsidiaries and transactions denominated in currencies other than a location's functional currency. We manage the exposure to these risks through a combination of normal operating activities and the use of foreign currency forward contracts and non-derivative and derivative investment hedges.
Our exposure to foreign currency exchange risks generally arises from our non-U.S. operations, to the extent they are conducted in local currency. Changes in foreign currency exchange rates affect translations of revenue denominated in currencies other than the U.S. Dollar. We generated approximately $675 million and $703 million during the three months ended March 31, 2023 and 2022, respectively, in revenue denominated in currencies other than the U.S. Dollar. The major currencies to which our revenue is exposed are the British Pound Sterling, Euro, Brazilian Real, Australian Dollar and Indian Rupee. A 10% movement in average exchange rates for these currencies (assuming a simultaneous and immediate 10% change in all of such rates for the relevant period) would have resulted in the following increase or decrease in our reported revenue for
the three months ended March 31, 2023 and 2022 (in millions):
Three months ended March 31,
Currency
2023
2022
Pound Sterling
$
43
$
43
Euro
8
7
Real
4
4
Rupee
1
3
Australian Dollar
3
3
Total increase or decrease
$
59
$
60
While our results of operations have been impacted by the effects of currency fluctuations, our international operations' revenue and expenses are generally denominated in local currency, which reduces our economic exposure to foreign exchange risk in those jurisdictions.
Our foreign exchange risk management policy permits the use of derivative instruments, such as forward contracts and options, to reduce volatility in our results of operations and/or cash flows resulting from foreign exchange rate fluctuations. We do not enter into foreign currency derivative instruments for trading purposes or to engage in speculative activity. We do periodically enter into foreign currency forward contracts to hedge foreign currency exposure to intercompany loans and other balance sheet items. The Company also utilizes foreign currency-denominated debt and cross-currency interest rate swaps designated as net investment hedges in order to reduce the volatility of the net investment value of certain of its Euro and Pound Sterling functional subsidiaries (see Note 7 to the consolidated financial statements).
Item 4. Controls and Procedures
As of the end of the period covered by this report, we carried out an evaluation, under the supervision and with the participation of our principal executive officer and principal financial officer, of the effectiveness of the design and operation of our disclosure controls and procedures, as such term is defined in Rule 13a-15(e) under the Securities Exchange Act of 1934, as amended (the "Exchange Act"). Based on this evaluation, our principal executive officer and principal financial officer concluded that our disclosure controls and procedures were effective to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is (a) recorded, processed, summarized and reported within the time periods specified in the Commission's rules and forms and (b) accumulated and communicated to management, including our principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure.
There have been no changes in our internal control over financial reporting that occurred during the most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Part II: OTHER INFORMATION
Item 1A. Risk Factors
See Item 1A. Risk Factors in our Annual Report on Form 10-K for the year ended December 31, 2022, for a detailed discussion of risk factors affecting the Company. There have been no material changes in the risk factors described therein except for the addition of the new risk factor included below.
Bank failures or sustained financial market disruptions could adversely affect our business, financial condition and results of operations.
We regularly maintain domestic cash deposits in banks that are not subject to insurance protection against loss or exceed the deposit limits. We also maintain cash deposits in foreign banks where we operate, some of which are not insured or are only partially insured. The failure of a bank, or events involving limited liquidity, defaults, non-performance or other adverse conditions in the financial or credit markets impacting financial institutions at which we maintain balances, or concerns or rumors about such events, may lead to disruptions in access to our bank deposits or otherwise adversely impact our liquidity and financial performance. There can be no assurance that our deposits in excess of the insurance limits will be backstopped by the U.S. or applicable foreign government, or that any bank or financial institution with which we do business will be able to obtain needed liquidity from other banks, government institutions or otherwise in the event of a failure or liquidity crisis.
Our clients, including those of our clients that are banks, may be similarly adversely affected by any bank failure or other event affecting financial institutions. Any resulting adverse effects to our clients’ liquidity or financial performance could reduce the demand for our services or affect our allowance for credit losses and collectability of trade receivables. A significant change in the liquidity or financial position of our clients could cause unfavorable trends in receivable collections and cash flows and additional allowances for anticipated losses may be required. These additional allowances could materially adversely affect our future financial results.
In addition, instability, liquidity constraints or other distress in the financial markets, including the effects of bank failures, defaults, non-performance or other adverse developments that affect financial institutions, could impair the ability of one or more of the banks participating in our current or any future credit facilities to honor their commitments. This could have an adverse effect on our business if we were not able to replace those commitments or to locate other sources of liquidity on acceptable terms.
XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
FIDELITY NATIONAL INFORMATION SERVICES, INC.
Date: May 2, 2023
By:
/s/ Erik Hoag
Erik Hoag
Corporate Executive Vice President and Chief Financial Officer (Principal Financial Officer )
