Fidelity National Information Services Earnings: First Look at FIS’s Future

Fidelity National Information Services’ FIS third-quarter results provided a look at how the company will perform following the sale of Worldpay operations, as it is now reporting Worldpay as discontinued operations. Overall, the company should see lower growth but also become a more stable and predictable company that focuses on capital return. While we think the course management chose for Worldpay was not optimal, this is not an unattractive proposition. We will maintain our $76 fair value estimate for the narrow-moat company and see shares as undervalued.

Revenue from continuing operations grew 3% year over year, or 4% organically. The banking and capital markets segments saw 3% and 6% organic growth, respectively. Overall, growth was in line with what we expect long term. Adjusted EBITDA margin improved to 43.0% from 42.3% last year, reflecting the increased focus on cost control. On a GAAP basis, FIS reported a modest loss for the quarter, due primarily to a $1.5 billion noncash charge related to Worldpay.

FIS intends to reinstitute share repurchases with the expectation of repurchasing $500 million in the fourth quarter, toward a goal of $3.5 billion in total by the end of 2024. Most of the proceeds of the Worldpay sale will be devoted to debt reduction, which should result in modest leverage and significant financial flexibility given the capital-light nature of the business. Management has been clear that capital return will be the focus but noted on the call that it will still look at small tuck-in deals.

The sale of Worldpay is on track to be completed during the first quarter of 2024. In our view, the shift toward classifying Worldpay as discontinued operations highlights one of the negatives of FIS’ plan for Worldpay. With its results reduced to a line item, we think it will be very difficult to assess any potential long-term turnaround at Worldpay.