Fidelity National Information Services, Inc. - Quarter Report: 2021 March (Form 10-Q)
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_______________________________________________
Form 10-Q
_______________________________________________
| ☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | ||||
For the quarterly period ended March 31, 2021
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.) | ||||||||||
| 601 Riverside Avenue | |||||||||||
| Jacksonville | Florida | 32204 | |||||||||
| (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 | ||||||||||||
| Floating Rate Senior Notes due 2021 | FIS21B | New York Stock Exchange | ||||||||||||
| 1.700% Senior Notes due 2022 | FIS22B | New York Stock Exchange | ||||||||||||
| 0.125% Senior Notes due 2022 | FIS22C | 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 May 5, 2021, 620,125,558 shares of the Registrant’s Common Stock were outstanding.
FORM 10-Q
QUARTERLY REPORT
Quarter Ended March 31, 2021
INDEX
| Page | |||||
Part I: FINANCIAL INFORMATION | |||||
1
FIDELITY NATIONAL INFORMATION SERVICES, INC.
AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
(In millions, except per share amounts)
(Unaudited)
| March 31, 2021 | December 31, 2020 | ||||||||||
| ASSETS | |||||||||||
| Current assets: | |||||||||||
| Cash and cash equivalents | $ | 1,039 | $ | 1,959 | |||||||
| Settlement deposits and merchant float | 2,919 | 3,252 | |||||||||
Trade receivables, net of allowance for credit losses of $82 and $82, respectively | 3,508 | 3,314 | |||||||||
| Settlement receivables | 703 | 662 | |||||||||
| Other receivables | 470 | 317 | |||||||||
| Prepaid expenses and other current assets | 466 | 394 | |||||||||
| Total current assets | 9,105 | 9,898 | |||||||||
| Property and equipment, net | 863 | 887 | |||||||||
| Goodwill | 53,069 | 53,268 | |||||||||
| Intangible assets, net | 13,315 | 13,928 | |||||||||
| Software, net | 3,382 | 3,370 | |||||||||
| Other noncurrent assets | 1,624 | 1,574 | |||||||||
| Deferred contract costs, net | 959 | 917 | |||||||||
| Total assets | $ | 82,317 | $ | 83,842 | |||||||
| LIABILITIES, REDEEMABLE NONCONTROLLING INTEREST AND EQUITY | |||||||||||
| Current liabilities: | |||||||||||
| Accounts payable, accrued and other liabilities | $ | 2,370 | $ | 2,482 | |||||||
| Settlement payables | 4,735 | 4,934 | |||||||||
| Deferred revenue | 964 | 881 | |||||||||
| Short-term borrowings | 2,537 | 2,750 | |||||||||
| Current portion of long-term debt | 602 | 1,314 | |||||||||
| Total current liabilities | 11,208 | 12,361 | |||||||||
| Long-term debt, excluding current portion | 16,300 | 15,951 | |||||||||
| Deferred income taxes | 4,115 | 4,017 | |||||||||
| Other noncurrent liabilities | 1,986 | 1,967 | |||||||||
| Deferred revenue | 59 | 59 | |||||||||
| Total liabilities | 33,668 | 34,355 | |||||||||
| Redeemable noncontrolling interest | 175 | 174 | |||||||||
| Equity: | |||||||||||
| FIS stockholders’ equity: | |||||||||||
Preferred stock $0.01 par value; 200 shares authorized, none issued and outstanding at March 31, 2021 and December 31, 2020 | — | — | |||||||||
Common stock $0.01 par value, 750 shares authorized, 624 and 621 shares issued as of March 31, 2021 and December 31, 2020, respectively | 6 | 6 | |||||||||
| Additional paid in capital | 46,152 | 45,947 | |||||||||
| Retained earnings | 2,823 | 3,440 | |||||||||
| Accumulated other comprehensive earnings (loss) | 124 | 57 | |||||||||
Treasury stock, $0.01 par value, 4 and 1 common shares as of March 31, 2021 and December 31, 2020, respectively, at cost | (645) | (150) | |||||||||
| Total FIS stockholders’ equity | 48,460 | 49,300 | |||||||||
| Noncontrolling interest | 14 | 13 | |||||||||
| Total equity | 48,474 | 49,313 | |||||||||
| Total liabilities, redeemable noncontrolling interest and equity | $ | 82,317 | $ | 83,842 | |||||||
See accompanying notes to unaudited condensed consolidated financial statements.
2
FIDELITY NATIONAL INFORMATION SERVICES, INC.
AND SUBSIDIARIES
Condensed Consolidated Statements of Earnings (Loss)
(In millions, except per share amounts)
(Unaudited)
| Three months ended March 31, | |||||||||||
| 2021 | 2020 | ||||||||||
| Revenue | $ | 3,223 | $ | 3,078 | |||||||
| Cost of revenue | 2,118 | 2,089 | |||||||||
| Gross profit | 1,105 | 989 | |||||||||
| Selling, general, and administrative expenses | 1,006 | 881 | |||||||||
| Operating income | 99 | 108 | |||||||||
| Other income (expense): | |||||||||||
| Interest expense, net | (74) | (80) | |||||||||
| Other income (expense), net | (493) | (39) | |||||||||
| Total other income (expense), net | (567) | (119) | |||||||||
| Earnings (loss) before income taxes and equity method investment earnings (loss) | (468) | (11) | |||||||||
| Provision (benefit) for income taxes | (97) | (30) | |||||||||
| Equity method investment earnings (loss) | 1 | (1) | |||||||||
| Net earnings (loss) | (370) | 18 | |||||||||
| Net (earnings) loss attributable to noncontrolling interest | (3) | (3) | |||||||||
| Net earnings (loss) attributable to FIS common stockholders | $ | (373) | $ | 15 | |||||||
| Net earnings (loss) per share-basic attributable to FIS common stockholders | $ | (0.60) | $ | 0.02 | |||||||
| Weighted average shares outstanding-basic | 621 | 616 | |||||||||
| Net earnings (loss) per share-diluted attributable to FIS common stockholders | $ | (0.60) | $ | 0.02 | |||||||
| Weighted average shares outstanding-diluted | 621 | 625 | |||||||||
See accompanying notes to unaudited condensed consolidated financial statements.
3
FIDELITY NATIONAL INFORMATION SERVICES, INC.
AND SUBSIDIARIES
Condensed Consolidated Statements of Comprehensive Earnings (Loss)
(In millions)
(Unaudited)
| Three months ended March 31, | |||||||||||||||||||||||
| 2021 | 2020 | ||||||||||||||||||||||
| Net earnings (loss) | $ | (370) | $ | 18 | |||||||||||||||||||
| Other comprehensive earnings (loss), before tax: | |||||||||||||||||||||||
| Unrealized gain (loss) on derivatives | $ | 9 | $ | — | |||||||||||||||||||
| Foreign currency translation adjustments | 185 | (208) | |||||||||||||||||||||
| Other adjustments | — | 1 | |||||||||||||||||||||
| Other comprehensive earnings (loss), before tax | 194 | (207) | |||||||||||||||||||||
| Provision for income tax (expense) benefit related to items of other comprehensive earnings | (127) | (8) | |||||||||||||||||||||
| Other comprehensive earnings (loss), net of tax | $ | 67 | 67 | $ | (215) | (215) | |||||||||||||||||
| Comprehensive earnings (loss) | (303) | (197) | |||||||||||||||||||||
| Net (earnings) loss attributable to noncontrolling interest | (3) | (3) | |||||||||||||||||||||
| Comprehensive earnings (loss) attributable to FIS common stockholders | $ | (306) | $ | (200) | |||||||||||||||||||
See accompanying notes to unaudited condensed consolidated financial statements.
4
FIDELITY NATIONAL INFORMATION SERVICES, INC.
AND SUBSIDIARIES
Condensed Consolidated Statements of Equity
Three months ended March 31, 2021 and 2020
(In millions, except per share amounts)
(Unaudited)
| Amount | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| FIS Stockholders | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Accumulated | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Number of shares | Additional | other | |||||||||||||||||||||||||||||||||||||||||||||||||||
| Common | Treasury | Common | paid in | Retained | comprehensive | Treasury | Noncontrolling | Total | |||||||||||||||||||||||||||||||||||||||||||||
| shares | shares | stock | capital | earnings | earnings (loss) | stock | interest (1) | equity | |||||||||||||||||||||||||||||||||||||||||||||
| Balances, December 31, 2020 | 621 | (1) | $ | 6 | $ | 45,947 | $ | 3,440 | $ | 57 | $ | (150) | $ | 13 | $ | 49,313 | |||||||||||||||||||||||||||||||||||||
| Issuance of restricted stock | 3 | — | — | 1 | — | — | — | — | 1 | ||||||||||||||||||||||||||||||||||||||||||||
| Exercise of stock options | — | — | — | 47 | — | — | — | — | 47 | ||||||||||||||||||||||||||||||||||||||||||||
| Purchases of treasury stock | — | (3) | — | — | — | — | (400) | — | (400) | ||||||||||||||||||||||||||||||||||||||||||||
| Treasury shares held for taxes due upon exercise of stock options | — | — | — | — | — | — | (95) | — | (95) | ||||||||||||||||||||||||||||||||||||||||||||
| Stock-based compensation | — | — | — | 157 | — | — | — | — | 157 | ||||||||||||||||||||||||||||||||||||||||||||
Cash dividends declared ($0.39 per share per quarter) and other distributions | — | — | — | — | (244) | — | — | (1) | (245) | ||||||||||||||||||||||||||||||||||||||||||||
| Net earnings (loss) | — | — | — | — | (373) | — | — | 2 | (371) | ||||||||||||||||||||||||||||||||||||||||||||
| Other comprehensive earnings (loss), net of tax | — | — | — | — | — | 67 | — | — | 67 | ||||||||||||||||||||||||||||||||||||||||||||
| Balances, March 31, 2021 | 624 | (4) | $ | 6 | $ | 46,152 | $ | 2,823 | $ | 124 | $ | (645) | $ | 14 | $ | 48,474 | |||||||||||||||||||||||||||||||||||||
| Amount | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| FIS Stockholders | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Accumulated | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Number of shares | Additional | other | |||||||||||||||||||||||||||||||||||||||||||||||||||
| Common | Treasury | Common | paid in | Retained | comprehensive | Treasury | Noncontrolling | Total | |||||||||||||||||||||||||||||||||||||||||||||
| shares | shares | stock | capital | earnings | earnings (loss) | stock | interest (1) | equity | |||||||||||||||||||||||||||||||||||||||||||||
| Balances, December 31, 2019 | 615 | — | $ | 6 | $ | 45,358 | $ | 4,161 | $ | (33) | $ | (52) | $ | 16 | $ | 49,456 | |||||||||||||||||||||||||||||||||||||
| Issuance of restricted stock | — | — | — | (7) | — | — | 7 | — | — | ||||||||||||||||||||||||||||||||||||||||||||
| Exercise of stock options | 2 | — | — | 140 | — | — | — | — | 140 | ||||||||||||||||||||||||||||||||||||||||||||
| Treasury shares held for taxes due upon exercise of stock options | — | (1) | — | — | — | — | (46) | — | (46) | ||||||||||||||||||||||||||||||||||||||||||||
| Stock-based compensation | — | — | — | 56 | — | — | — | — | 56 | ||||||||||||||||||||||||||||||||||||||||||||
Cash dividends declared ($0.35 per share per quarter) and other distributions | — | — | — | — | (218) | — | — | (2) | (220) | ||||||||||||||||||||||||||||||||||||||||||||
| Other | — | — | — | 1 | (6) | — | — | — | (5) | ||||||||||||||||||||||||||||||||||||||||||||
| Net earnings | — | — | — | — | 15 | — | — | 1 | 16 | ||||||||||||||||||||||||||||||||||||||||||||
| Other comprehensive earnings (loss), net of tax | — | — | — | — | — | (215) | — | — | (215) | ||||||||||||||||||||||||||||||||||||||||||||
| Balances, March 31, 2020 | $ | 617 | $ | (1) | $ | 6 | $ | 45,548 | $ | 3,952 | $ | (248) | $ | (91) | $ | 15 | $ | 49,182 | |||||||||||||||||||||||||||||||||||
(1)Excludes redeemable noncontrolling interest that is not considered equity.
See accompanying notes to unaudited condensed consolidated financial statements.
5
FIDELITY NATIONAL INFORMATION SERVICES, INC.
AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
(In millions)
(Unaudited)
| Three months ended March 31, | |||||||||||
| 2021 | 2020 | ||||||||||
| Cash flows from operating activities: | |||||||||||
| Net earnings (loss) | $ | (370) | $ | 18 | |||||||
| Adjustment to reconcile net earnings (loss) to net cash provided by operating activities: | |||||||||||
| Depreciation and amortization | 953 | 914 | |||||||||
| Amortization of debt issue costs | 7 | 8 | |||||||||
| Loss (gain) on sale of businesses, investments and other | (1) | 2 | |||||||||
| Loss on extinguishment of debt | 528 | — | |||||||||
| Stock-based compensation | 157 | 56 | |||||||||
| Deferred income taxes | (22) | (108) | |||||||||
| Net changes in assets and liabilities, net of effects from acquisitions and foreign currency: | |||||||||||
| Trade and other receivables | (219) | 96 | |||||||||
| Settlement activity | 122 | (368) | |||||||||
| Prepaid expenses and other assets | (129) | 40 | |||||||||
| Deferred contract costs | (113) | (150) | |||||||||
| Deferred revenue | 89 | 86 | |||||||||
| Accounts payable, accrued liabilities and other liabilities | (166) | (211) | |||||||||
| Net cash provided by operating activities | 836 | 383 | |||||||||
| Cash flows from investing activities: | |||||||||||
| Additions to property and equipment | (69) | (55) | |||||||||
| Additions to software | (229) | (251) | |||||||||
| Acquisitions, net of cash acquired | — | (402) | |||||||||
| Other investing activities, net | (23) | 92 | |||||||||
| Net cash provided by (used in) investing activities | (321) | (616) | |||||||||
| Cash flows from financing activities: | |||||||||||
| Borrowings | 13,858 | 10,958 | |||||||||
| Repayment of borrowings and other financing obligations | (14,364) | (10,391) | |||||||||
| Debt issuance costs | (74) | — | |||||||||
| Proceeds from stock issued under stock-based compensation plans | 73 | 176 | |||||||||
| Treasury stock activity | (494) | (46) | |||||||||
| Dividends paid | (244) | (216) | |||||||||
| Other financing activities, net | (136) | (4) | |||||||||
| Net cash provided by (used in) financing activities | (1,381) | 477 | |||||||||
| Effect of foreign currency exchange rate changes on cash | (40) | (15) | |||||||||
| Net increase (decrease) in cash and cash equivalents | (906) | 229 | |||||||||
| Cash and cash equivalents, beginning of period | 4,030 | 3,211 | |||||||||
| Cash and cash equivalents, end of period | $ | 3,124 | $ | 3,440 | |||||||
| Supplemental cash flow information: | |||||||||||
| Cash paid for interest | $ | 95 | $ | 33 | |||||||
| Cash paid for income taxes | $ | 68 | $ | 65 | |||||||
See accompanying notes to unaudited condensed consolidated financial statements.
6
FIDELITY NATIONAL INFORMATION SERVICES, INC.
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
Unless stated otherwise or the context otherwise requires, all references to "FIS," "we," 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, 2020.
The preparation of these consolidated financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and 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 the outbreak of the novel coronavirus ("COVID-19") and the subsequently declared COVID-19 pandemic ("the pandemic") by the World Health Organization on March 11, 2020. The extent to which the pandemic further affects our results of operations and financial position will depend on future developments, which are highly uncertain and are difficult to predict, including, but not limited to, the duration and spread of the pandemic, its severity, the actions to contain the virus or treat its impact, and how quickly and to what extent normal economic and operating conditions can resume. Accordingly, our future results could be materially affected by changes in our estimates.
Certain reclassifications have been made in the 2020 consolidated financial statements to conform to the classifications used in 2021. Amounts in tables in the financial statements and accompanying footnotes may not sum due to rounding.
FIS reports its financial performance based on the following segments: Merchant Solutions, Banking Solutions, Capital Market Solutions, and Corporate and Other. The Company regularly assesses its portfolio of assets and reclassified certain non-strategic businesses from the Merchant Solutions, Banking Solutions, and Capital Market Solutions segments into the Corporate and Other segment during the year ended December 31, 2020, and recast all prior-period segment information presented.
(2) 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 recast to conform to the new reportable segment presentation as discussed in Note 11.
7
FIDELITY NATIONAL INFORMATION SERVICES, INC.
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
For the three months ended March 31, 2021 (in millions):
| Reportable Segments | ||||||||||||||||||||||||||||||||
| Capital | ||||||||||||||||||||||||||||||||
| Merchant | Banking | Market | Corporate | |||||||||||||||||||||||||||||
| Solutions | Solutions | Solutions | and Other | Total | ||||||||||||||||||||||||||||
| Primary Geographical Markets: | ||||||||||||||||||||||||||||||||
| North America | $ | 681 | $ | 1,311 | $ | 370 | $ | 58 | $ | 2,420 | ||||||||||||||||||||||
| All others | 285 | 229 | 255 | 34 | 803 | |||||||||||||||||||||||||||
| Total | $ | 966 | $ | 1,540 | $ | 625 | $ | 92 | $ | 3,223 | ||||||||||||||||||||||
| Type of Revenue: | ||||||||||||||||||||||||||||||||
| Recurring revenue: | ||||||||||||||||||||||||||||||||
| Transaction processing and services | $ | 943 | $ | 1,164 | $ | 291 | $ | 84 | $ | 2,482 | ||||||||||||||||||||||
| Software maintenance | 1 | 88 | 127 | — | 216 | |||||||||||||||||||||||||||
| Other recurring | 20 | 38 | 24 | 3 | 85 | |||||||||||||||||||||||||||
| Total recurring | 964 | 1,290 | 442 | 87 | 2,783 | |||||||||||||||||||||||||||
| Software license | 1 | 24 | 68 | — | 93 | |||||||||||||||||||||||||||
| Professional services | — | 146 | 106 | 1 | 253 | |||||||||||||||||||||||||||
| Other non-recurring fees | 1 | 80 | 9 | 4 | 94 | |||||||||||||||||||||||||||
| Total | $ | 966 | $ | 1,540 | $ | 625 | $ | 92 | $ | 3,223 | ||||||||||||||||||||||
For the three months ended March 31, 2020 (in millions):
| Reportable Segments | ||||||||||||||||||||||||||||||||
| Capital | ||||||||||||||||||||||||||||||||
| Merchant | Banking | Market | Corporate | |||||||||||||||||||||||||||||
| Solutions | Solutions | Solutions | and Other | Total | ||||||||||||||||||||||||||||
| Primary Geographical Markets: | ||||||||||||||||||||||||||||||||
| North America | $ | 661 | $ | 1,242 | $ | 373 | $ | 72 | $ | 2,348 | ||||||||||||||||||||||
| All others | 274 | 202 | 224 | 30 | 730 | |||||||||||||||||||||||||||
| Total | $ | 935 | $ | 1,444 | $ | 597 | $ | 102 | $ | 3,078 | ||||||||||||||||||||||
| Type of Revenue: | ||||||||||||||||||||||||||||||||
| Recurring revenue: | ||||||||||||||||||||||||||||||||
| Transaction processing and services | $ | 911 | $ | 1,078 | $ | 278 | $ | 97 | $ | 2,364 | ||||||||||||||||||||||
| Software maintenance | 1 | 88 | 121 | 1 | 211 | |||||||||||||||||||||||||||
| Other recurring | 21 | 44 | 24 | — | 89 | |||||||||||||||||||||||||||
| Total recurring | 933 | 1,210 | 423 | 98 | 2,664 | |||||||||||||||||||||||||||
| Software license | — | 19 | 73 | — | 92 | |||||||||||||||||||||||||||
| Professional services | — | 143 | 101 | 2 | 246 | |||||||||||||||||||||||||||
| Other non-recurring fees | 2 | 72 | — | 2 | 76 | |||||||||||||||||||||||||||
| Total | $ | 935 | $ | 1,444 | $ | 597 | $ | 102 | $ | 3,078 | ||||||||||||||||||||||
8
FIDELITY NATIONAL INFORMATION SERVICES, INC.
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
Contract Balances
The Company recognized revenue of $327 million and $338 million during the three months ended March 31, 2021 and 2020, 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, 2021, approximately $21.0 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 32% 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, which is primarily comprised of contracts with an original duration of one year or less or variable consideration that meet specific criteria. This segment's core performance obligations consist of variable consideration under a stand-ready series of distinct days of service, and revenue from the segment's products and service arrangements are generally billed and recognized as the services are performed. The aggregate fixed consideration portion of customer contracts with an initial contract duration greater than one year is not material.
(3) Condensed Consolidated Financial Statement Details
Cash and Cash Equivalents
The Company includes restricted cash in the Cash and cash equivalents balance reported in the consolidated statements of cash flows. The reconciliation between Cash and cash equivalents in the consolidated balance sheets and the consolidated statements of cash flows is as follows (in millions):
| March 31, 2021 | December 31, 2020 | ||||||||||
| Cash and cash equivalents on the consolidated balance sheets | $ | 1,039 | $ | 1,959 | |||||||
| Merchant float restricted cash (in Settlement deposits and merchant float) | 2,085 | 2,071 | |||||||||
| Total Cash and cash equivalents per the consolidated statements of cash flows | $ | 3,124 | $ | 4,030 | |||||||
Allowance for Credit Losses
The Company monitors trade receivables, contract assets as well as other receivable balances and estimates the allowance for lifetime expected credit losses. Estimates of expected credit losses are based on historical collection experience and other factors, including those related to current market conditions and events. The allowance for credit losses is separate from the chargeback liability described in Note 7.
While the COVID-19 pandemic did not result in a significant increase in the Company's expected credit loss allowance recorded as of March 31, 2021, it is reasonably possible that future developments related to the economic impact of the COVID-19 pandemic could have a material impact on management's estimates.
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FIDELITY NATIONAL INFORMATION SERVICES, INC.
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
Property and Equipment, Intangible Assets and Computer Software
The following table shows the Company's consolidated financial statement details as of March 31, 2021, and December 31, 2020 (in millions):
| March 31, 2021 | December 31, 2020 | ||||||||||||||||||||||||||||||||||
| Cost | Accumulated depreciation and amortization | Net | Cost | Accumulated depreciation and amortization | Net | ||||||||||||||||||||||||||||||
| Property and equipment | $ | 2,319 | $ | 1,456 | $ | 863 | $ | 2,292 | $ | 1,405 | $ | 887 | |||||||||||||||||||||||
| Intangible assets | $ | 19,117 | $ | 5,802 | $ | 13,315 | $ | 19,141 | $ | 5,213 | $ | 13,928 | |||||||||||||||||||||||
| Software | $ | 5,838 | $ | 2,456 | $ | 3,382 | $ | 5,535 | $ | 2,165 | $ | 3,370 | |||||||||||||||||||||||
As of March 31, 2021, intangible assets, net of amortization, includes $12,947 million of customer relationships and $368 million of trademarks and other intangible assets. Amortization expense with respect to these intangible assets was $595 million and $598 million for the three months ended March 31, 2021 and 2020, respectively.
Goodwill
Changes in goodwill during the three months ended March 31, 2021, are summarized below (in millions).
| Capital | Corporate | ||||||||||||||||||||||||||||
| Merchant | Banking | Market | And | ||||||||||||||||||||||||||
| Solutions | Solutions | Solutions | Other | Total | |||||||||||||||||||||||||
| Balance, December 31, 2020 | $ | 36,267 | $ | 12,279 | $ | 4,702 | $ | 20 | $ | 53,268 | |||||||||||||||||||
| Foreign currency adjustments | (164) | (19) | (16) | — | (199) | ||||||||||||||||||||||||
| Balance, March 31, 2021 | $ | 36,103 | $ | 12,260 | $ | 4,686 | $ | 20 | $ | 53,069 | |||||||||||||||||||
We assess goodwill for impairment on an annual basis during the fourth quarter or more frequently if circumstances indicate potential impairment. For 2020, we completed our annual assessment for the Banking Solutions and Capital Market Solutions reporting units with qualitative assessments and concluded that it remained more likely than not that the fair value of each reporting unit continued to exceed its carrying value. For Merchant Solutions, we completed our 2020 annual assessment with a quantitative assessment due to the economic impact of the COVID-19 pandemic on our Merchant Solutions business and its primary operations having been recently acquired as part of the Worldpay acquisition completed on July 31, 2019. As a result of the annual assessment, the fair value of the reporting unit was estimated to be in excess of carrying amount by approximately 4%.
Due to the continued economic impact of the COVID-19 pandemic, we evaluated if events and circumstances as of March 31, 2021, indicated potential impairment. We performed a qualitative assessment by examining factors most likely to affect our reporting units' fair values and considered the impact to our business from the COVID-19 pandemic. 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, 2021, 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.
However, it is reasonably possible that future developments related to the economic impact of the COVID-19 pandemic on our Merchant Solutions business, such as an extended duration of the pandemic and/or government-imposed shutdowns, prolonged economic downturn or recession, or lack of governmental support for recovery, 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.
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FIDELITY NATIONAL INFORMATION SERVICES, INC.
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
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 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. 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 $50 million and $70 million at March 31, 2021, and December 31, 2020, respectively, recorded in Other noncurrent assets on the consolidated balance sheets. The fair value of the CVR liability was $377 million and $401 million at March 31, 2021, and December 31, 2020, respectively, recorded in Other noncurrent liabilities on the consolidated balance sheets. The net change in fair value was $5 million and $(20) million for the three months ended March 31, 2021 and 2020, respectively, recorded in Other income (expense), net on the consolidated statements of earnings (loss).
(4) Deferred Contract Costs
Origination and fulfillment costs from contracts with customers capitalized as of March 31, 2021, and December 31, 2020, consist of the following (in millions):
| March 31, 2021 | December 31, 2020 | ||||||||||
| Contract costs on implementations in progress | $ | 186 | $ | 245 | |||||||
| Contract origination costs on completed implementations, net | 540 | 470 | |||||||||
| Contract fulfillment costs on completed implementations, net | 233 | 202 | |||||||||
| Total Deferred contract costs, net | $ | 959 | $ | 917 | |||||||
Amortization of deferred contract costs on completed implementations was $68 million and $51 million during the three months ended March 31, 2021 and 2020, respectively, and there were no significant impairment losses in relation to the costs capitalized for the periods presented.
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FIDELITY NATIONAL INFORMATION SERVICES, INC.
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
(5) Debt
Long-term debt as of March 31, 2021, and December 31, 2020, consists of the following (in millions):
| March 31, 2021 | ||||||||||||||||||||||||||||||||
| Weighted | ||||||||||||||||||||||||||||||||
| Average | ||||||||||||||||||||||||||||||||
| Interest | Interest | March 31, | December 31, | |||||||||||||||||||||||||||||
| Rates | Rate | Maturities | 2021 | 2020 | ||||||||||||||||||||||||||||
| Fixed Rate Notes | ||||||||||||||||||||||||||||||||
| Senior USD Notes | 0.4% - 4.8% | 1.9% | 2023 - 2048 | $ | 6,909 | $ | 4,938 | |||||||||||||||||||||||||
| Senior Euro Notes | 0.1% - 3.0% | 1.3% | 2022 - 2039 | 7,916 | 8,891 | |||||||||||||||||||||||||||
| Senior GBP Notes | 1.7% - 3.4% | 1.5% | 2022 - 2031 | 1,686 | 2,526 | |||||||||||||||||||||||||||
| Senior Euro Floating Rate Notes | 0.0% | 2021 | 523 | 613 | ||||||||||||||||||||||||||||
| Revolving Credit Facility (1) | —% | 2026 | — | 251 | ||||||||||||||||||||||||||||
| Other | (132) | 46 | ||||||||||||||||||||||||||||||
| Total long-term debt, including current portion | 16,902 | 17,265 | ||||||||||||||||||||||||||||||
| Current portion of long-term debt | (602) | (1,314) | ||||||||||||||||||||||||||||||
| Long-term debt, excluding current portion | $ | 16,300 | $ | 15,951 | ||||||||||||||||||||||||||||
(1)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.
Short-term borrowings as of March 31, 2021, and December 31, 2020, consist of the following (in millions):
| March 31, 2021 | ||||||||||||||||||||||||||
| Weighted | ||||||||||||||||||||||||||
| Average | ||||||||||||||||||||||||||
| Interest | March 31, | December 31, | ||||||||||||||||||||||||
| Rate | Maturities | 2021 | 2020 | |||||||||||||||||||||||
| Euro-commercial paper notes ("ECP Notes") | (0.5) | % | Up to 183 days | $ | 243 | $ | 861 | |||||||||||||||||||
| U.S. commercial paper notes ("USCP Notes") | 0.3 | % | Up to 397 days | 2,129 | 1,745 | |||||||||||||||||||||
| Other | 165 | 144 | ||||||||||||||||||||||||
| Total Short-term borrowings | $ | 2,537 | $ | 2,750 | ||||||||||||||||||||||
As of March 31, 2021, the weighted average interest rate of the Company's outstanding debt was 1.0%, including the impact of interest rate swaps (see Note 6).
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 discussed below and net unamortized non-cash bond premiums and discounts of $(141) million as of March 31, 2021 (in millions):
| Total | ||||||||
| 2021 remaining period | $ | 578 | ||||||
| 2022 | 1,623 | |||||||
| 2023 | 2,234 | |||||||
| 2024 | 1,343 | |||||||
| 2025 | 739 | |||||||
| Thereafter | 10,646 | |||||||
| Total principal payments | 17,163 | |||||||
| Debt issuance costs, net of accumulated amortization | (120) | |||||||
| Total long-term debt | $ | 17,043 | ||||||
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FIDELITY NATIONAL INFORMATION SERVICES, INC.
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
There are no mandatory principal payments on the Revolving Credit Facility, and any balance outstanding on the Revolving Credit Facility will be due and payable at its scheduled maturity date, which occurs on March 2, 2026.
Senior Notes
In March 2021, pursuant to cash tender offers and make-whole redemptions, FIS purchased and redeemed an aggregate principal amount of $5.1 billion in Senior Notes, comprised of $3,529 million in Senior USD Notes, $600 million in Senior Euro Notes, $871 million in Senior GBP Notes, and $66 million in Senior Euro Floating Rate Notes, with interest rates ranging from 0.0% to 5.0% and maturities ranging from 2021 to 2029, resulting in a loss on extinguishment of debt of approximately $528 million, recorded in Other income (expense), net on the consolidated statement of earnings (loss), relating to tender premiums, make-whole amounts, and fees; the write-off of unamortized bond discounts and debt issuance costs; and losses on related derivative instruments. The Company funded the purchase and redemption of the Senior Notes with proceeds on borrowings from the issuance and sale of Senior USD Notes on March 2, 2021.
On March 2, 2021, FIS completed the issuance and sale of Senior USD Notes with an aggregate principal amount of $5.5 billion with interest rates ranging from 0.4% to 3.1% and maturities ranging from 2023 to 2041 ("new Senior USD Notes"). The proceeds from the debt issuance were subsequently used to purchase and redeem the Senior Notes discussed above with the remainder used to repay a portion of our commercial paper notes. The new Senior USD Notes are subject to customary covenants, including, among others, customary events of default. The new Senior USD Notes also include redemption provisions at the option of FIS, similar to the other Senior Notes.
Revolving Credit Facility
On March 2, 2021, FIS entered into an amendment to the Restated Credit Agreement to amend certain covenant provisions, revise lender commitments for certain counterparties, and extend the scheduled maturity date to March 2, 2026. As of March 31, 2021, the borrowing capacity under the Revolving Credit Facility was $3,126 million (net of $2,372 million of capacity backstopping our commercial paper notes and $2 million in outstanding letters of credit issued under the Revolving Credit Facility).
Fair Value of Debt
The fair value of the Company's long-term debt is estimated to be approximately $650 million and $1,640 million higher than the carrying value, excluding the fair value of the interest rate swaps and unamortized discounts, as of March 31, 2021, and December 31, 2020, respectively.
(6) Financial Instruments
Fair Value Hedges
The Company holds interest rate swaps with aggregate notional amounts of $1,604 million, £925 million and €500 million at March 31, 2021, and $1,000 million and €500 million at December 31, 2020, 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 $96 million reflected as a decrease in the long-term debt balance at March 31, 2021, and a net asset fair value of $10 million reflected as an increase in the long-term debt balance at December 31, 2020 (see Note 5).
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 as Foreign currency translation adjustments and related income tax (expense) benefit within Other comprehensive earnings (loss), net of tax, on the consolidated statements of comprehensive earnings (loss) of $321 million and $535 million during the three months ended March 31, 2021 and 2020, respectively. No ineffectiveness has been recorded on the net investment hedges.
13
FIDELITY NATIONAL INFORMATION SERVICES, INC.
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
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, 2021, and December 31, 2020, an aggregate €6,968 million and €7,466 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 2022 to 2039 and ECP Notes. As of December 31, 2020, an additional €1,000 million was designated as a net investment hedge of the Company's investment in Euro-denominated operations related to the Senior Euro Floating Rate Notes and Senior Euro Notes with a 2021 maturity. As of March 31, 2021, and December 31, 2020, an aggregate £1,203 million and £1,850 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 2022 to 2031.
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, 2021, and December 31, 2020, aggregate notional amounts of €5,906 million and €4,508 million, respectively, were designated as net investment hedges of the Company's investment in Euro-denominated operations, and aggregate notional amounts of £2,045 million and £565 million, respectively, were designated as net investment hedges of the Company's Pound Sterling-denominated operations. The cross-currency interest rate swap fair values were net liabilities of $206 million and $306 million at March 31, 2021, and December 31, 2020, respectively.
(7) Commitments and Contingencies
Reliance Trust Claims
Reliance Trust Company ("Reliance"), the Company's subsidiary, is a defendant in a class action arising out of its provision of services as the discretionary trustee for a 401(k) Plan (the "Plan") for one of its customers. On behalf of the Plan participants, plaintiffs in the action, which was filed in December 2015, sought damages and attorneys' fees, as well as equitable relief, against Reliance and the Plan's sponsor and record-keeper for alleged breaches of fiduciary duty under the Employee Retirement Income Security Act of 1974 ("ERISA"). At a non-jury trial conducted in March 2020, Reliance vigorously defended the action and contended that no breaches of fiduciary duty or prohibited transactions occurred and that Plan participants suffered no damages. At trial, Plaintiffs claimed damages of approximately $127 million against all defendants. On October 12, 2020, Reliance and plaintiffs entered into a settlement agreement, which was subject to final court approval, to settle all allegations and claims asserted in the action for $39.8 million without equitable relief. On October 14, 2020, the Court preliminarily approved the settlement agreement. In the settlement agreement, Reliance admitted no wrongdoing or liability with respect to any of the allegations or claims and maintains that the Plan was managed, operated, and administered during its tenure as the Plan's discretionary trustee in full compliance with ERISA and applicable regulations. The Company recorded a liability for the agreed settlement amount of $39.8 million and a corresponding loss in Other income (expense), net on the consolidated statement of earnings during the quarter ended September 30, 2020. On March 8, 2021, the Court entered an order approving the settlement and entered a final judgment dismissing the action with prejudice. Reliance paid the full settlement amount in April 2021 and has met its monetary obligations under the settlement agreement.
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 $11 million. There are potentially 24 additional claims against Transpev/Prosegur for which Servicos is named
14
FIDELITY NATIONAL INFORMATION SERVICES, INC.
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
as a co-defendant or may be named but for which Servicos has not yet been served. These additional claims amount to approximately $30 million, making the total potential exposure for all 38 claims approximately $41 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. 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.
The consolidated balance sheets as of March 31, 2021, and December 31, 2020, include a total liability of $448 million and $532 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. The economic impact of the COVID-19 pandemic has not resulted in material chargeback losses as of March 31, 2021; however, it is reasonably possible that the Company has incurred or may incur significant losses related to future chargebacks. Due to the unprecedented nature of the pandemic and the numerous current and future uncertainties that may impact any potential chargeback losses, and considering that the Company has no historical experience with similar uncertainties, a reasonable estimate of the possible accrual for future chargeback losses or range of losses cannot be made.
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.
(8) Stock Compensation Plans
On January 1, 2021, the Company established a Qualified Retirement Equity Program that modified our existing stock compensation plans. The modification implemented a new retirement policy that permits retirees that meet certain eligibility
15
FIDELITY NATIONAL INFORMATION SERVICES, INC.
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
criteria to continue vesting in unvested equity awards in accordance with the terms of the respective grant agreements, resulting in accelerated stock compensation expense for those employees meeting the definition of retirement eligible. During the quarter ended March 31, 2021, the Company recorded $104 million in accelerated stock compensation expense included in Selling, general, and administrative expenses in the consolidated statement of earnings (loss) to reflect the impact of the modification on unvested equity awards outstanding at January 1, 2021.
(9) Related-Party Transactions
The Company holds a noncontrolling ownership stake in Cardinal Holdings ("Cardinal"), which operates the Capco consulting business. FIS' ownership stake in Cardinal was 36% at March 31, 2021, and December 31, 2020. The ownership stake in Cardinal is recorded as an equity method investment included within Other noncurrent assets on the consolidated balance sheets. The carrying value of this equity method investment was $140 million and $137 million, at March 31, 2021, and December 31, 2020, respectively. FIS provides ongoing management consulting services and other services to Cardinal. FIS also purchases services and software licenses from Cardinal from time to time. Amounts transacted through these agreements were not significant to the 2021 and 2020 periods presented.
On April 29, 2021, we sold our ownership stake in Cardinal for net cash proceeds of approximately $367 million resulting from an acquisition transaction of the Capco consulting business by Wipro Ltd. We will record the sale transaction during the second quarter of 2021.
(10) Net Earnings (Loss) per Share
The basic weighted average shares and common stock equivalents for the three months ended March 31, 2021 and 2020, were computed using the treasury stock method.
The following table summarizes net earnings (loss) and net earnings (loss) per share attributable to FIS common stockholders for the three months ended March 31, 2021 and 2020 (in millions, except per share amounts):
| Three months ended March 31, | |||||||||||
| 2021 | 2020 | ||||||||||
| Net earnings (loss) attributable to FIS common stockholders | $ | (373) | $ | 15 | |||||||
| Weighted average shares outstanding-basic | 621 | 616 | |||||||||
| Plus: Common stock equivalent shares | — | 9 | |||||||||
| Weighted average shares outstanding- diluted | 621 | 625 | |||||||||
| Net earnings (loss) per share-basic attributable to FIS common stockholders | $ | (0.60) | $ | 0.02 | |||||||
| Net earnings (loss) per share-diluted attributable to FIS common stockholders | $ | (0.60) | $ | 0.02 | |||||||
The diluted net loss per share for the three months ended March 31, 2021, did not include the effect of common stock equivalent shares of 5 million because the effect would have been anti-dilutive. The diluted net earnings per share for the three months ended March 31, 2021 and 2020, did not include options to purchase less than 1 million shares of our common stock because they were anti-dilutive.
In January 2021, our Board of Directors approved a new 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. Under the new share repurchase program approximately 97 million shares remain available for repurchase as of March 31, 2021.
(11) Segment Information
FIS reports its financial performance based on the following segments: Merchant Solutions, Banking Solutions, Capital Market Solutions and Corporate and Other. The Company regularly assesses its portfolio of assets and reclassified certain non-strategic businesses from the Merchant Solutions, Banking Solutions, and Capital Market Solutions segments into the Corporate
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FIDELITY NATIONAL INFORMATION SERVICES, INC.
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
and Other segment during the year ended December 31, 2020, and recast all prior-period segment information presented. Below is a summary of each segment.
Merchant Solutions ("Merchant")
The Merchant segment is focused on serving merchants of all sizes globally, enabling them to accept electronic payments, including card-based payments, contactless card and mobile wallet, originated at a physical point of sale, as well as card-not-present payments in eCommerce and mobile environments. Merchant services include all aspects of payment processing, including authorization and settlement, customer service, chargeback and retrieval processing, electronic payment transaction reporting and network fee and interchange management. Merchant also includes value-added services, such as security and fraud prevention solutions, advanced data analytics and information management solutions, foreign currency management and numerous funding options. Merchant serves clients in over 140 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 a growing and diverse client base.
Banking Solutions ("Banking")
The Banking segment is focused on serving all sizes of financial institutions with core processing software, transaction processing software and complementary applications and services, many of which interact directly with the core processing applications. We sell these solutions and services 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 highly 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.
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 and services 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, such as cloud delivery, 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 and integration expenses, that are not considered when management evaluates revenue-generating segment performance.
During the three months ended March 31, 2021 and 2020, the Company recorded acquisition and integration costs primarily related to the Worldpay acquisition, as well as certain other costs associated with data center consolidation activities totaling $15 million and $18 million, respectively, and incremental costs directly related to COVID-19 of $9 million and $3 million, respectively. For the three months ended March 31, 2021, we also recorded $104 million in accelerated stock compensation expense to reflect the impact of establishing a Qualified Retirement Equity Program that modified unvested equity awards outstanding at January 1, 2021 (see Note 8).
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FIDELITY NATIONAL INFORMATION SERVICES, INC.
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
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), equity method investment earnings (loss), and depreciation and amortization, and excludes certain costs and other transactions that management deems non-operational in nature. The non-operational items affecting the segment profit measure generally include purchase accounting adjustments as well as acquisition, integration and certain other costs. Adjusted EBITDA also excludes incremental and direct costs resulting from the COVID-19 pandemic. 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.
For the three months ended March 31, 2021 (in millions):
| Capital | |||||||||||||||||||||||||||||
| Merchant | Banking | Market | Corporate | ||||||||||||||||||||||||||
| Solutions | Solutions | Solutions | and Other | Total | |||||||||||||||||||||||||
| Revenue | $ | 966 | $ | 1,540 | $ | 625 | $ | 92 | $ | 3,223 | |||||||||||||||||||
| Operating expenses | (603) | (1,018) | (419) | (1,084) | (3,124) | ||||||||||||||||||||||||
| Depreciation and amortization (including purchase accounting amortization) | 88 | 145 | 82 | 638 | 953 | ||||||||||||||||||||||||
| Acquisition, integration and other costs | — | — | — | 256 | 256 | ||||||||||||||||||||||||
| Adjusted EBITDA | $ | 451 | $ | 667 | $ | 288 | $ | (98) | $ | 1,308 | |||||||||||||||||||
| Adjusted EBITDA | $ | 1,308 | |||||||||||||||||||||||||||
| Depreciation and amortization | (279) | ||||||||||||||||||||||||||||
| Purchase accounting amortization | (674) | ||||||||||||||||||||||||||||
| Acquisition, integration and other costs | (256) | ||||||||||||||||||||||||||||
| Interest expense, net | (74) | ||||||||||||||||||||||||||||
| Other income (expense), net | (493) | ||||||||||||||||||||||||||||
| (Provision) benefit for income taxes | 97 | ||||||||||||||||||||||||||||
| Equity method investment earnings (loss) | 1 | ||||||||||||||||||||||||||||
| Net earnings attributable to noncontrolling interest | (3) | ||||||||||||||||||||||||||||
| Net earnings (loss) attributable to FIS common stockholders | $ | (373) | |||||||||||||||||||||||||||
| Capital expenditures | $ | 104 | $ | 106 | $ | 54 | $ | 34 | $ | 298 | |||||||||||||||||||
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FIDELITY NATIONAL INFORMATION SERVICES, INC.
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
For the three months ended March 31, 2020 (in millions):
| Capital | |||||||||||||||||||||||||||||
| Merchant | Banking | Market | Corporate | ||||||||||||||||||||||||||
| Solutions | Solutions | Solutions | and Other | Total | |||||||||||||||||||||||||
| Revenue | $ | 935 | $ | 1,444 | $ | 597 | $ | 102 | $ | 3,078 | |||||||||||||||||||
| Operating expenses | (597) | (961) | (392) | (1,020) | (2,970) | ||||||||||||||||||||||||
| Depreciation and amortization (including purchase accounting amortization) | 85 | 129 | 62 | 638 | 914 | ||||||||||||||||||||||||
| Acquisition, integration and other costs | — | — | — | 225 | 225 | ||||||||||||||||||||||||
| Adjusted EBITDA | $ | 423 | $ | 612 | $ | 267 | $ | (55) | $ | 1,247 | |||||||||||||||||||
| Adjusted EBITDA | $ | 1,247 | |||||||||||||||||||||||||||
| Depreciation and amortization | (230) | ||||||||||||||||||||||||||||
| Purchase accounting amortization | (684) | ||||||||||||||||||||||||||||
| Acquisition, integration and other costs | (225) | ||||||||||||||||||||||||||||
| Interest expense, net | (80) | ||||||||||||||||||||||||||||
| Other income (expense), net | (39) | ||||||||||||||||||||||||||||
| (Provision) benefit for income taxes | 30 | ||||||||||||||||||||||||||||
| Equity method investment earnings (loss) | (1) | ||||||||||||||||||||||||||||
| Net earnings attributable to noncontrolling interest | (3) | ||||||||||||||||||||||||||||
| Net earnings attributable to FIS common stockholders | $ | 15 | |||||||||||||||||||||||||||
| Capital expenditures (1) | $ | 106 | $ | 132 | $ | 58 | $ | 10 | $ | 306 | |||||||||||||||||||
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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," 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 of the Company, projected revenue or expense synergies, business and market conditions, outlook, foreign currency exchange rates, deleveraging plans, expected dividends and share repurchases, the Company's sales pipeline and anticipated profitability and growth, 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. In many cases, forward-looking statements can be identified by terminology such as "may," "will," "should," "expect," "plan," "anticipate," "believe," "estimate," "predict," "potential," or "continue," or the negative of these terms and other comparable terminology. 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:
•the outbreak or recurrence of the novel coronavirus ("COVID-19") and measures to reduce its spread, including the impact of governmental or voluntary actions such as business shutdowns and stay-at-home orders;
•the duration, including any recurrence, of the COVID-19 pandemic and its impacts, including the impact of an economic recession in certain markets, reductions in consumer and business spending, and instability of the financial markets in heavily impacted areas across the globe;
•the economic and other impacts of COVID-19 on our clients which affect the sales of our solutions and services and the implementation of such solutions;
•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;
•changes in general economic, business and political conditions, including those resulting from COVID-19 or other pandemics, intensified international hostilities, acts of terrorism, changes in either or both the U.S. and international lending, capital and financial markets and currency fluctuations;
•the risk that the Worldpay transaction will not provide the expected benefits or that we will not be able to achieve the revenue synergies anticipated;
•the risk that other 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 other synergies anticipated to be realized from other acquisitions may not be fully realized or may take longer to realize than expected;
•the risks of doing business internationally;
•the effect of legislative initiatives or proposals, statutory changes, governmental or other 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;
•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;
•the reaction of current and potential customers to communications from us or regulators regarding information security, risk management, internal audit or other matters;
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•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;
•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, 2020, in our Quarterly Reports on Form 10-Q and in our other filings with the Securities and Exchange Commission.
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 our 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 our forward-looking statements, whether as a result of new information, future events or otherwise.
Overview
FIS is a leading provider of technology solutions for merchants, banks, and capital markets firms globally. Our employees are dedicated to advancing the way the world pays, banks and invests by applying our scale, deep expertise and data-driven insights. 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 Fortune 500® company and is a member of Standard & Poor's 500® Index.
We have grown organically as well as through acquisitions which have contributed critical solutions and services that complement or enhance our existing offerings, diversifying our revenue by client, geography and service offering, and opening new and profitable adjacent markets that align with our core solution's strengths. FIS evaluates possible acquisitions that might contribute to our growth or performance on an ongoing basis. We also develop new solutions that enhance our client offerings.
FIS reports its financial performance based on the following segments: Merchant Solutions ("Merchant"), Banking Solutions ("Banking"), Capital Market Solutions ("Capital Markets") and Corporate and Other. A description of our segments is included in Note 11 to the consolidated financial statements. Revenue by segment and the Adjusted EBITDA of our segments are discussed below in Segment Results of Operations.
Business Trends and Conditions
Our revenue is primarily derived from a combination of technology and processing services, 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, France, Canada, Brazil and India. 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 services, 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 also 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.
COVID-19's impact to our financial results in the first quarter of 2021 lessened due to the gradual opening of markets, especially where accelerated by the accessibility and effective rollout of vaccines. In certain locations, where government lockdowns and shelter-in-place orders have been tightened, particularly in certain areas of Europe and Brazil, reduced consumer spending continues to adversely impact our Merchant payments volume and related transaction revenue. In addition, certain
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discretionary spending verticals, including travel, airlines and restaurants, continue to be impacted, although the impact has lessened due to the gradual opening of markets with access to vaccines.
As the impact of COVID-19 lessens in certain areas with access to vaccines, including the U.S., consumer spending and sales of our solutions have increased. We have continued to prioritize investments in solutions that help address the needs of our clients in order to increase the Company's potential to resume strong revenue growth following the pandemic. Additionally, we are continuing to take several actions to manage discretionary expenses, including reducing office space and prohibiting most travel, as well as accelerating automation and functional alignment across the organization.
We extended higher-than-usual levels of credit to our merchant clients during 2020 as part of funds settlement in connection with payments to their customers, for, among other things, refunds for cancelled trips as cases of COVID-19 spread across the globe. The level of credit extended to our merchant clients has since normalized, although there is risk that increased government lockdown orders could adversely impact credit extensions and chargebacks in affected areas. We are exposed to losses if our merchant customers are unable to repay the credit we have extended or to fund their liability for chargebacks due to closure, insolvency, bankruptcy or other reasons. Our potential liability for chargebacks did not have a material impact on our liquidity for the three-month period ended March 31, 2021, and we continue to monitor for impact on our liquidity, results of operations and financial condition.
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 outsourcing 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.
Over the last five years, we have moved approximately 76% of our server compute, primarily in North America, to our FIS cloud located in our strategic data centers, and our goal is to increase that percentage to 80% by the end of 2021. This allows us to further enhance security for our clients' data and increases the flexibility and speed with which we can provide solutions and services to our clients, eventually at lesser cost. Concurrently, we have continued to consolidate our data centers, generating a savings for the Company of approximately $245 million in run-rate annual expense since the program's inception in mid-2016. We plan to close and consolidate approximately five more data centers by the end of 2021, which should result in additional run-rate annual expense reduction of approximately $5 million.
We continue to invest in modernization, innovation and integrated solutions and services 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 have increased our investments in these areas in each of the last three years. Our innovation efforts have recently resulted in bringing to market our Modern Banking Platform that is among the first cloud-native core banking solutions. 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.
In addition, we are investing in the development of new solutions and venture opportunities by establishing FIS Impact Ventures. This group prioritizes development of, and investment in, next-generation technology and innovation.
FIS continues to carefully monitor the effects of the ongoing COVID-19 pandemic as conditions continue to evolve. Since the beginning of the pandemic, the Company has taken several actions to protect its employees while maintaining business continuity, including implementing its comprehensive Pandemic Plan. The Pandemic Plan includes site-specific plans as well as travel restrictions, medical response protocols, work-from-home strategies and enhanced cleaning within our locations. As a critical infrastructure provider for the global economy, FIS continues to operate around the world to serve our clients.
The spread of COVID-19 has caused us to modify our business practices (including restricting employee travel, developing social distancing plans for our employees and cancelling physical participation in meetings, events and conferences), and we may take further actions as may be required by government authorities or as we determine are in the best interests of our employees, clients and business partners. Where government lockdowns have prohibited or slowed down certain functions at specific locations, FIS has outfitted employees to provide services from home or transferred work to other locations. The
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majority of our employees remain in a work-from-home status and have been effectively outfitted to continue to provide all necessary services to our clients. We continued this work-from-home status in most locations since the impact of the pandemic began in mid-March 2020 through the end of the first quarter of 2021, as the safety of our employees is a top priority. We recently began a limited opening of offices in certain locations where the COVD-19 infection rates have been significantly reduced.
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. The COVID-19 pandemic has resulted in accelerating digitization of banking and payment services by requiring, in many cases, banks and bank customers to transact through digital 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.
We anticipate consolidation within the banking industry will continue, primarily in the form of merger and acquisition activity among financial institutions, which we believe as a whole is 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 services if such services are chosen to survive the consolidation and to support the newly combined entity. Conversely, we may lose revenue if we are providing services to both entities, or if a client of ours is involved in a consolidation and our services are not chosen to survive the consolidation and 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 services that we currently provide or could provide. We seek to mitigate the risks of consolidations by offering other competitive services to take advantage of specific opportunities at the surviving company.
FIS is a global leader in the merchant solutions industry, with differentiated solutions throughout the payments market, including capabilities in global eCommerce, integrated payments, and enterprise payments and data security solutions in business-to-business ("B2B") payments. These solutions bring advanced payments technologies at each stage of the transaction life cycle. We have a broad solution portfolio, enabling us to significantly expand our merchant acquiring solutions, including our capabilities in the growing eCommerce and integrated payment segments of the market, which are in demand among our merchant clients as they look for ways to integrate technology into their business models.
Due to the COVID-19 pandemic, our merchant processing revenue has been adversely impacted, particularly in the discretionary spending areas of travel, airlines and restaurants, although it has improved in the first quarter of 2021 in locations where the vaccine rollout has been more accessible and more effectively rolled out. We expect revenue will continue to be adversely impacted until the economic effects of the pandemic, including those caused by government, company, and public travel restrictions subside around the world, but that revenue will continue to increase in areas where the vaccine rollout effectively continues.
Following the Worldpay acquisition completed on July 31, 2019, we are focused on completing post-merger integration to achieve potential incremental revenue opportunities and expense efficiencies created by the combination of the two companies. We have a history of successfully integrating the operations and technology platforms of acquired companies, including winding down legacy environments and consolidating platforms from other acquisitions into our environment. Based on prior integration experience, we developed integration plans to achieve the potential benefits created by the Worldpay acquisition. As of the end of the first quarter of 2021, our achievement of revenue synergies remains on track to meet or exceed our current targets driven by successful cross-sell of our heritage FIS solutions into heritage Worldpay clients and by leveraging our heritage Worldpay sales and distribution teams, expanding on our existing relationships with financial institutions to establish merchant referral agreements and optimizing our network routing capabilities. We have also exceeded our original target for expense synergies, as we have successfully integrated organizational structures, reduced corporate overhead and achieved cost savings within our operating environment, and expect to continue to achieve additional expense synergies during 2021.
We continue to see demand for innovative solutions in the payments market that will deliver faster, more convenient payment solutions in mobile channels, internet applications and cards. The payment processing industry is adopting new
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technologies, developing new solutions and services, 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 services 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 have found that the COVID-19 pandemic has accelerated digitization of payment services by requiring, in many cases, businesses and consumers to transact through digital channels.
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. 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 continue to grow in frequency, complexity and sophistication. This is a trend we expect to continue. Such attacks have become a point of focus for individuals, businesses and governmental entities. The objectives of these attacks include, among other things, gaining unauthorized access to systems to facilitate financial fraud, disrupt operations, cause denial of service events, corrupt data, and steal non-public information. These circumstances present both a threat and an opportunity for FIS. As part of our business, we electronically receive, process, store and transmit a wide range of confidential information, including sensitive customer information and personal consumer data. We also operate payment, cash access and prepaid card systems.
FIS remains focused on making strategic investments in information security to protect our clients and our information systems. These investments include both capital expenditures and operating expense related to hardware, software, personnel and consulting services. We also participate in industry and governmental initiatives to improve information security for our clients. Through the expertise we have gained with this ongoing focus and involvement, we have developed fraud, security, risk management and compliance solutions to target this 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, 2020. For discussion regarding the impact of the COVID-19 pandemic on our critical and significant accounting estimates subject to risk and uncertainties, see Notes 1, 3 and 7 to the consolidated financial statements.
Transactions with Related Parties
See Note 9 to the consolidated financial statements for a description of transactions with related parties.
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Consolidated Results of Operations - Comparisons of three-month periods ended March 31, 2021 and 2020
| Three months ended March 31, | |||||||||||||||||||||||
| 2021 | 2020 | $ Change | % Change | ||||||||||||||||||||
| (In millions) | |||||||||||||||||||||||
| Revenue | $ | 3,223 | $ | 3,078 | $ | 145 | 5 | % | |||||||||||||||
| Cost of revenue | (2,118) | (2,089) | (29) | 1 | |||||||||||||||||||
| Gross profit | 1,105 | 989 | 116 | 12 | |||||||||||||||||||
| Gross profit margin | 34 | % | 32 | % | |||||||||||||||||||
| Selling, general and administrative expenses | (1,006) | (881) | (125) | 14 | |||||||||||||||||||
| Operating income | 99 | 108 | (9) | (8) | |||||||||||||||||||
| Operating margin | 3 | % | 4 | % | |||||||||||||||||||
Revenue
Revenue increased primarily due to increased Merchant CNP volumes, increased demand for our newly developed offerings in Banking, and strong new sales driving Capital Markets managed services and other recurring revenue growth during the first quarter of 2021. Revenue also benefited from a favorable foreign currency impact, which was primarily related to a weaker U.S. Dollar versus the Euro and the British Pound Sterling. See Segment Results of Operations below for more detailed explanation.
Cost of Revenue, Gross Profit and Gross Profit Margin
Gross profit increased primarily due to the revenue variances noted above. Gross profit margin increased primarily due to revenue growth and continued expense management.
Selling, General and Administrative Expenses
Selling, general and administrative expenses increased primarily due to accelerated stock compensation expense associated with the establishment of the Qualified Retirement Equity Program that modified our existing stock compensation plans as described in Note 8 to the consolidated financial statements, as well as higher incentive compensation expense during the first quarter of 2021. These increases were partially offset by lower discretionary spending during the COVID-19 pandemic.
Operating Income and Operating Margin
The change in operating income resulted from the revenue and cost variances noted above. The operating margin during 2021 was negatively impacted by the increase in selling, general, and administrative expenses noted above.
Total Other Income (Expense), Net
| Three months ended March 31, | |||||||||||||||||||||||
| 2021 | 2020 | $ Change | % Change | ||||||||||||||||||||
| Other income (expense): | (In millions) | ||||||||||||||||||||||
| Interest expense, net | $ | (74) | $ | (80) | $ | 6 | (8) | % | |||||||||||||||
| Other income (expense), net | (493) | (39) | (454) | 1164 | % | ||||||||||||||||||
| Total other income (expense), net | $ | (567) | $ | (119) | (448) | 376 | % | ||||||||||||||||
The decrease in interest expense, net is primarily due to lower outstanding debt and lower weighted average interest rate on the outstanding debt throughout the quarter.
Other income (expense), net for three months ended March 31, 2021, primarily represents loss on extinguishment of debt of approximately $528 million relating to tender premiums, make-whole amounts, and fees; the write-off of unamortized bond discounts and debt issuance costs; and losses on related derivative instruments. The foregoing loss resulted from the debt refinancing activity we undertook in the first quarter of 2021 (see Note 5 to the consolidated financial statements), which will substantially reduce our ongoing interest expense. This loss was partially offset by fair value adjustments on certain non-operating assets and liabilities and foreign currency transaction remeasurement gains.
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Other income (expense), net for the three months ended March 31, 2020, includes foreign currency transaction remeasurement losses and a fair value adjustment on convertible Visa Inc. Series B preferred stock and related contingent value rights liability acquired from Worldpay.
Provision (Benefit) for Income Taxes
| Three months ended March 31, | |||||||||||||||||||||||
| 2021 | 2020 | $ Change | % Change | ||||||||||||||||||||
| (In millions) | |||||||||||||||||||||||
| Provision (benefit) for income taxes | $ | (97) | $ | (30) | $ | (67) | 223 | % | |||||||||||||||
| Effective tax rate | 21 | % | 273 | % | |||||||||||||||||||
The decrease in the effective tax rate is primarily due to the difference in pre-tax earnings relative to the benefit for income taxes.
Segment Results of Operations - Comparisons of three-month periods ended March 31, 2021 and 2020
FIS reports its financial performance based on the following segments: Merchant Solutions, Banking Solutions, Capital
Market Solutions, and Corporate and Other. The Company reclassified certain non-strategic businesses from Merchant Solutions, Banking Solutions, and Capital Market Solutions into Corporate and Other during the year ended December 31, 2020, and recast all prior-period segment information presented.
Adjusted EBITDA is defined as net earnings (loss) before net interest expense, net other income (expense), income tax provision (benefit), equity method investment earnings (loss), depreciation and amortization, and excludes certain costs and other transactions that management deems non-operational in nature. 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 non-operational items affecting the segment profit measure generally include purchase accounting adjustments, and acquisition, integration and certain other costs. Adjusted EBITDA also excludes incremental and direct costs resulting from the COVID-19 pandemic. 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 11 to the consolidated financial statements.
Merchant Solutions
| Three months ended March 31, | $ Change | % Change | |||||||||||||||||||||
| 2021 vs | 2021 vs | ||||||||||||||||||||||
| 2021 | 2020 | 2020 | 2020 | ||||||||||||||||||||
| (In millions) | |||||||||||||||||||||||
| Revenue | $ | 966 | $ | 935 | $ | 31 | 3 | % | |||||||||||||||
| Adjusted EBITDA | $ | 451 | $ | 423 | 28 | 7 | |||||||||||||||||
| Adjusted EBITDA margin | 46.7 | % | 45.2 | % | |||||||||||||||||||
| Adjusted EBITDA margin basis points change | 150 | ||||||||||||||||||||||
Revenue increased primarily from strong CNP volumes, excluding travel and airlines, contributing 5% as well as from a favorable foreign currency impact of 2%, which was primarily related to a weaker U.S. Dollar versus the British Pound Sterling. Revenue was adversely impacted by the COVID-19 pandemic including depressed volumes in the U.K. and within our travel, airlines and restaurant verticals.
The increase in adjusted EBITDA primarily resulted from revenue drivers listed above. The increase in adjusted EBITDA margin was due to a higher-margin revenue mix and continued expense management.
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Banking Solutions
| Three months ended March 31, | $ Change | % Change | |||||||||||||||||||||
| 2021 vs | 2021 vs | ||||||||||||||||||||||
| 2021 | 2020 | 2020 | 2020 | ||||||||||||||||||||
| (In millions) | |||||||||||||||||||||||
| Revenue | $ | 1,540 | $ | 1,444 | $ | 96 | 7 | % | |||||||||||||||
| Adjusted EBITDA | $ | 667 | $ | 612 | 55 | 9 | |||||||||||||||||
| Adjusted EBITDA margin | 43.3 | % | 42.4 | % | |||||||||||||||||||
| Adjusted EBITDA margin basis points change | 90 | ||||||||||||||||||||||
Revenue increased primarily due to increased demand for our newly developed offerings, such as modern banking platform and pandemic-related programs.
Adjusted EBITDA increased primarily due to the revenue variances noted above. Adjusted EBITDA margin increased primarily due to revenue growth and continued expense management.
Capital Market Solutions
| Three months ended March 31, | $ Change | % Change | |||||||||||||||||||||
| 2021 vs | 2021 vs | ||||||||||||||||||||||
| 2021 | 2020 | 2020 | 2020 | ||||||||||||||||||||
| (In millions) | |||||||||||||||||||||||
| Revenue | $ | 625 | $ | 597 | $ | 28 | 5 | % | |||||||||||||||
| Adjusted EBITDA | $ | 288 | $ | 267 | 21 | 8 | |||||||||||||||||
| Adjusted EBITDA margin | 46.1 | % | 44.7 | % | |||||||||||||||||||
| Adjusted EBITDA margin basis points change | 140 | ||||||||||||||||||||||
Revenue increased primarily due to strong new sales driving managed services and other recurring revenue and professional services growth across the product portfolio. Revenue also benefited from a favorable foreign currency impact contributing 2%, which primarily related to a weaker U.S. Dollar versus the Euro and the British Pound Sterling. Revenue was adversely impacted by the timing of license renewals compared to prior year contributing approximately (1%).
Adjusted EBITDA increased primarily due to the revenue impacts mentioned above. Adjusted EBITDA margin increased primarily due to revenue growth and continued expense management.
Corporate and Other
| Three months ended March 31, | $ Change | % Change | |||||||||||||||||||||
| 2021 vs | 2021 vs | ||||||||||||||||||||||
| 2021 | 2020 | 2020 | 2020 | ||||||||||||||||||||
| (In millions) | |||||||||||||||||||||||
| Revenue | $ | 92 | $ | 102 | $ | (10) | (10) | % | |||||||||||||||
| Adjusted EBITDA | $ | (98) | $ | (55) | (43) | 78 | |||||||||||||||||
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.
Revenue decreased primarily due to client attrition in certain of our non-strategic businesses.
Adjusted EBITDA decreased primarily due to the revenue impact mentioned above as well as higher incentive compensation expense compared to prior year.
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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 5 to the consolidated financial statements.
As of March 31, 2021, the Company had $4,165 million of available liquidity, including $1,039 million of cash and cash equivalents and $3,126 million of capacity available under its Revolving Credit Facility. Approximately $508 million of cash and cash equivalents is held by our foreign entities. The majority of our cash and cash equivalents represents net deposits-in-transit at the balance sheet dates and relates to daily settlement activity and regulatory requirements. Debt outstanding totaled $19.4 billion, with an effective weighted average interest rate of 1.0%.
The Company's liquidity continued to improve in the first quarter as compared to at the onset of the pandemic. However, our liquidity could be impacted if economic conditions deteriorate or as a result of governmental measures that might be imposed in response to the COVID-19 pandemic.
The Company remains committed to reducing its leverage incurred in the Worldpay acquisition while ensuring ample liquidity and expects to reach its target leverage by the end of 2021.
We expect that cash and cash equivalents plus cash flows from operations over the next 12 months will be sufficient to fund our operating cash requirements, capital expenditures and mandatory debt service payments.
We currently expect to continue to pay quarterly dividends. However, 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, the duration and impact of the COVID-19 pandemic, and other factors that may be considered relevant by our Board of Directors, including legal and contractual restrictions. Additionally, the payment of cash dividends may be limited by covenants in certain debt agreements. A regular quarterly dividend of $0.39 per common share is payable on June 25, 2021, to shareholders of record as of the close of business on June 11, 2021.
In January 2021, our Board of Directors approved a new 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 share repurchase program has no expiration date and may be suspended for periods, amended or discontinued at any time. Under the new share repurchase program, approximately 97 million shares remain available for repurchase as of March 31, 2021.
Cash Flows from Operations
Cash flows from operations were $836 million and $383 million for the three-month periods ended March 31, 2021 and 2020, respectively. Our net cash provided by operating activities consists primarily of net earnings (loss), adjusted to add back depreciation and amortization. Cash flows from operations increased $453 million in the 2021 period primarily due to settlement timing, partially offset by working capital.
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 $298 million and $306 million in capital expenditures (excluding other financing obligations for certain hardware and software) during the three-month periods ended March 31, 2021 and 2020, respectively. We expect to continue investing in property and equipment, purchased software and internally developed software to support our business.
We used $402 million of cash (net of cash acquired) during the three months ended March 31, 2020, primarily for the Virtus acquisition completed on January 2, 2020.
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Financing
For more information regarding the Company's debt and financing activity see Note 5 to the consolidated financial statements.
Contractual Obligations
There were no material changes in our contractual obligations through the three months ended March 31, 2021, in comparison to the table included in our Annual Report on Form 10-K for the year ended December 31, 2020, except as disclosed in Note 5 to the consolidated financial statements.
Off-Balance Sheet Arrangements
FIS does not have any material off-balance sheet arrangements.
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 Disclosure About Market Risks
Market Risk
We are exposed to market risks primarily from changes in interest rates and foreign currency exchange rates. Such risks may be exacerbated by the effects of the COVID-19 pandemic. 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 5 to the consolidated financial statements) represent the majority of our fixed-rate long-term debt obligations as of March 31, 2021. The carrying value, excluding the fair value of the interest rate swaps described below and unamortized discounts, of our senior notes was $17.0 billion as of March 31, 2021. The fair value of our senior notes was approximately $17.7 billion as of March 31, 2021. 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, Senior Euro Floating Rate Notes (as included in Note 5 to the consolidated financial statements) and interest rate swaps on our fixed-rate long-term debt (collectively, "variable-rate debt"). At March 31, 2021, our weighted-average cost of debt was 1.0% with a weighted-average maturity of 6.3 years; 68% of our debt was fixed rate, and the remaining 32% of our debt was variable rate. A 100 basis-point increase in the weighted-average interest rate on our variable-rate debt would have increased our annual interest expense by $64 million. We performed the foregoing sensitivity analysis based solely on the principal amount of our variable-rate debt as of March 31, 2021. 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 principal amounts of variable-rate debt outstanding as of March 31, 2020, 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 $50 million.
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As of March 31, 2021, the following interest rate swaps converting the interest rate exposure on certain of our senior notes from fixed to variable are outstanding (in millions):
| Weighted | Weighted | |||||||||||||||||||
| Notional Amount by | Average | Average | ||||||||||||||||||
| Currency | Maturities | Receive Rate | Pay Rate | |||||||||||||||||
| $ | 1,604 | 2029 - 2031 | 2.81 | % | 1.85 | % | ||||||||||||||
| £ | 925 | 2029 - 2031 | 3.00 | % | 2.24 | % | ||||||||||||||
| € | 500 | 2024 | 1.10 | % | 0.33 | % | ||||||||||||||
By entering into the aforementioned swap agreements, we have assumed risks associated with variable interest rates based upon LIBOR. 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 6 to the consolidated financial statements. A 100 basis-point increase in the 3-month USD LIBOR rate, 6-month GBP LIBOR rate, and 3-month Euribor rate, as applicable, for the interest rate swaps outstanding as of March 31, 2021 and 2020, would increase our annual interest expense by approximately $35 million and $6 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 $641 million and $593 million during the three months ended March 31, 2021 and 2020, 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, 2021 and 2020 (in millions):
| Three months ended March 31, | ||||||||||||||
| Currency | 2021 | 2020 | ||||||||||||
| Pound Sterling | $ | 38 | $ | 35 | ||||||||||
| Euro | 10 | 8 | ||||||||||||
| Real | 3 | 3 | ||||||||||||
| Australian Dollar | 3 | 1 | ||||||||||||
| Rupee | 3 | 3 | ||||||||||||
| Total increase or decrease | $ | 57 | $ | 50 | ||||||||||
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 6 to the consolidated financial statements).
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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, 2020, for a detailed discussion of risk factors affecting the Company.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
The following table summarizes purchases of equity securities by the issuer during the three-month period ended March 31, 2021:
| Maximum number | ||||||||||||||||||||||||||
| of shares that | ||||||||||||||||||||||||||
| Total cost of shares | may yet be | |||||||||||||||||||||||||
| purchased as part of | purchased under | |||||||||||||||||||||||||
| Total number of | publicly announced | the plans or | ||||||||||||||||||||||||
| shares purchased (1) | Average price | plans or programs (1) | programs (1) | |||||||||||||||||||||||
| Period | (in millions) | paid per share | (in millions) | (in millions) | ||||||||||||||||||||||
| January 1-31, 2021 | — | $ | — | $ | — | — | ||||||||||||||||||||
| February 1-28, 2021 | 0.1 | $ | 138.39 | $ | 15.0 | 99.9 | ||||||||||||||||||||
| March 1-31, 2021 | 2.7 | $ | 143.20 | $ | 385.0 | 97.2 | ||||||||||||||||||||
| 2.8 | $ | 400.0 | ||||||||||||||||||||||||
(1)In January 2021, our Board of Directors approved a new 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 share repurchase program has no expiration date and may be suspended for periods, amended or discontinued at any time. Under the new share repurchase program, approximately 97.2 million shares remain available for repurchases as of March 31, 2021.
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Item 6. Exhibits
| Incorporated by Reference | ||||||||||||||||||||
| Exhibit | SEC File | Filed/ Furnished | ||||||||||||||||||
| No. | Exhibit Description | Form | Number | Exhibit | Filing Date | Herewith | ||||||||||||||
| 10.1 | * | |||||||||||||||||||
| 10.2 | * | |||||||||||||||||||
| 10.3 | * | |||||||||||||||||||
| 10.4 | * | |||||||||||||||||||
| 31.1 | * | |||||||||||||||||||
| 31.2 | * | |||||||||||||||||||
| 32.1 | * | |||||||||||||||||||
| 32.2 | * | |||||||||||||||||||
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| Incorporated by Reference | ||||||||||||||||||||
| Exhibit | SEC File | Filed/ Furnished | ||||||||||||||||||
| No. | Exhibit Description | Form | Number | Exhibit | Filing Date | Herewith | ||||||||||||||
| 101.INS | 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. | * | ||||||||||||||||||
| 101.SCH | Inline XBRL Taxonomy Extension Schema Document. | * | ||||||||||||||||||
| 101.CAL | Inline XBRL Taxonomy Extension Calculation Linkbase Document. | * | ||||||||||||||||||
| 101.DEF | Inline XBRL Taxonomy Extension Definition Linkbase Document. | * | ||||||||||||||||||
| 101.LAB | Inline XBRL Taxonomy Extension Label Linkbase Document. | * | ||||||||||||||||||
| 101.PRE | Inline XBRL Taxonomy Extension Presentation Linkbase Document. | * | ||||||||||||||||||
(1) Management contract or compensatory plan or arrangement.
* Filed or furnished herewith
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SIGNATURES
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 6, 2021 | By: | /s/ JAMES W. WOODALL | ||||||
| James W. Woodall | ||||||||
| Corporate Executive Vice President and Chief Financial Officer (Principal Financial Officer ) | ||||||||
| FIDELITY NATIONAL INFORMATION SERVICES, INC. | ||||||||
| Date: May 6, 2021 | By: | /s/ CHRISTOPHER THOMPSON | ||||||
| Christopher Thompson | ||||||||
| Chief Accounting Officer (Principal Accounting Officer) | ||||||||
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