filings.toolsCover and table of contents
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Cover and table of contents
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, 2022
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 | ||||||||||||
| 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 2, 2022, 610,771,236 shares of the Registrant’s Common Stock were outstanding.
FORM 10-Q
QUARTERLY REPORT
Quarter Ended March 31, 2022
INDEX
FIDELITY NATIONAL INFORMATION SERVICES, INC.
AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
(In millions, except per share amounts)
(Unaudited)
| March 31, 2022 | December 31, 2021 | ||||||||||
| ASSETS | |||||||||||
| Current assets: | |||||||||||
| Cash and cash equivalents | $ | 1,547 | $ | 2,010 | |||||||
| Settlement assets | 4,062 | 4,020 | |||||||||
| Trade receivables, net of allowance for credit losses of $89 and $76, respectively | 3,655 | 3,772 | |||||||||
| Other receivables | 260 | 355 | |||||||||
| Prepaid expenses and other current assets | 621 | 551 | |||||||||
| Total current assets | 10,145 | 10,708 | |||||||||
| Property and equipment, net | 901 | 949 | |||||||||
| Goodwill | 52,988 | 53,330 | |||||||||
| Intangible assets, net | 10,854 | 11,539 | |||||||||
| Software, net | 3,235 | 3,299 | |||||||||
| Other noncurrent assets | 2,132 | 2,137 | |||||||||
| Deferred contract costs, net | 943 | 969 | |||||||||
| Total assets | $ | 81,198 | $ | 82,931 | |||||||
| LIABILITIES, REDEEMABLE NONCONTROLLING INTEREST AND EQUITY | |||||||||||
| Current liabilities: | |||||||||||
| Accounts payable, accrued and other liabilities | $ | 2,690 | $ | 2,864 | |||||||
| Settlement payables | 5,228 | 5,295 | |||||||||
| Deferred revenue | 847 | 779 | |||||||||
| Short-term borrowings | 2,682 | 3,911 | |||||||||
| Current portion of long-term debt | 2,330 | 1,617 | |||||||||
| Total current liabilities | 13,777 | 14,466 | |||||||||
| Long-term debt, excluding current portion | 14,208 | 14,825 | |||||||||
| Deferred income taxes | 4,055 | 4,193 | |||||||||
| Other noncurrent liabilities | 1,948 | 1,915 | |||||||||
| Total liabilities | 33,988 | 35,399 | |||||||||
| Redeemable noncontrolling interest | 174 | 174 | |||||||||
| Equity: | |||||||||||
| FIS stockholders’ equity: | |||||||||||
| Preferred stock $0.01 par value; 200 shares authorized, none issued and outstanding as of March 31, 2022, and December 31, 2021 | — | — | |||||||||
| Common stock $0.01 par value, 750 shares authorized, 628 and 625 shares issued as of March 31, 2022, and December 31, 2021, respectively | 6 | 6 | |||||||||
| Additional paid in capital | 46,536 | 46,466 | |||||||||
| Retained earnings | 2,721 | 2,889 | |||||||||
| Accumulated other comprehensive earnings (loss) | 106 | 252 | |||||||||
| Treasury stock, $0.01 par value, 17 and 16 common shares as of March 31, 2022, and December 31, 2021, respectively, at cost | (2,343) | (2,266) | |||||||||
| Total FIS stockholders’ equity | 47,026 | 47,347 | |||||||||
| Noncontrolling interest | 10 | 11 | |||||||||
| Total equity | 47,036 | 47,358 | |||||||||
| Total liabilities, redeemable noncontrolling interest and equity | $ | 81,198 | $ | 82,931 |
See accompanying notes, which are an integral part of these unaudited condensed consolidated financial statements.
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, | |||||||||||||||||||||||
| 2022 | 2021 | ||||||||||||||||||||||
| Revenue | $ | 3,492 | $ | 3,223 | |||||||||||||||||||
| Cost of revenue | 2,242 | 2,118 | |||||||||||||||||||||
| Gross profit | 1,250 | 1,105 | |||||||||||||||||||||
| Selling, general, and administrative expenses | 1,035 | 1,006 | |||||||||||||||||||||
| Asset impairments | 58 | — | |||||||||||||||||||||
| Operating income | 157 | 99 | |||||||||||||||||||||
| Other income (expense): | |||||||||||||||||||||||
| Interest expense, net | (43) | (74) | |||||||||||||||||||||
| Other income (expense), net | 61 | (493) | |||||||||||||||||||||
| Total other income (expense), net | 18 | (567) | |||||||||||||||||||||
| Earnings (loss) before income taxes and equity method investment earnings (loss) | 175 | (468) | |||||||||||||||||||||
| Provision (benefit) for income taxes | 54 | (97) | |||||||||||||||||||||
| Equity method investment earnings (loss) | — | 1 | |||||||||||||||||||||
| Net earnings (loss) | 121 | (370) | |||||||||||||||||||||
| Net (earnings) loss attributable to noncontrolling interest | (1) | (3) | |||||||||||||||||||||
| Net earnings (loss) attributable to FIS common stockholders | $ | 120 | $ | (373) | |||||||||||||||||||
| Net earnings (loss) per share-basic attributable to FIS common stockholders | $ | 0.20 | $ | (0.60) | |||||||||||||||||||
| Weighted average shares outstanding-basic | 610 | 621 | |||||||||||||||||||||
| Net earnings (loss) per share-diluted attributable to FIS common stockholders | $ | 0.20 | $ | (0.60) | |||||||||||||||||||
| Weighted average shares outstanding-diluted | 614 | 621 |
See accompanying notes, which are an integral part of these unaudited condensed consolidated financial statements.
FIDELITY NATIONAL INFORMATION SERVICES, INC.
AND SUBSIDIARIES
Condensed Consolidated Statements of Comprehensive Earnings (Loss)
(In millions)
(Unaudited)
| Three months ended March 31, | |||||||||||||||||||||||||||||||||||||||||||||||
| 2022 | 2021 | ||||||||||||||||||||||||||||||||||||||||||||||
| Net earnings (loss) | $ | 121 | $ | (370) | |||||||||||||||||||||||||||||||||||||||||||
| Other comprehensive earnings (loss), before tax: | |||||||||||||||||||||||||||||||||||||||||||||||
| Unrealized gain (loss) on derivatives | $ | — | $ | 9 | |||||||||||||||||||||||||||||||||||||||||||
| Foreign currency translation adjustments | (144) | 185 | |||||||||||||||||||||||||||||||||||||||||||||
| Other adjustments | 4 | — | |||||||||||||||||||||||||||||||||||||||||||||
| Other comprehensive earnings (loss), before tax | (140) | 194 | |||||||||||||||||||||||||||||||||||||||||||||
| Provision for income tax (expense) benefit related to items of other comprehensive earnings | (6) | (127) | |||||||||||||||||||||||||||||||||||||||||||||
| Other comprehensive earnings (loss), net of tax | $ | (146) | (146) | $ | 67 | 67 | |||||||||||||||||||||||||||||||||||||||||
| Comprehensive earnings (loss) | (25) | (303) | |||||||||||||||||||||||||||||||||||||||||||||
| Net (earnings) loss attributable to noncontrolling interest | (1) | (3) | |||||||||||||||||||||||||||||||||||||||||||||
| Comprehensive earnings (loss) attributable to FIS common stockholders | $ | (26) | $ | (306) |
See accompanying notes, which are an integral part of these unaudited condensed consolidated financial statements.
FIDELITY NATIONAL INFORMATION SERVICES, INC.
AND SUBSIDIARIES
Condensed Consolidated Statements of Equity
Three months ended March 31, 2022, and March 31, 2021
(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, 2021 | 625 | (16) | $ | 6 | $ | 46,466 | $ | 2,889 | $ | 252 | $ | (2,266) | $ | 11 | $ | 47,358 | |||||||||||||||||||||||||||||||||||||
| Issuance of restricted stock | 3 | — | — | 5 | — | — | — | — | 5 | ||||||||||||||||||||||||||||||||||||||||||||
| Exercise of stock options | — | — | — | 8 | — | — | — | — | 8 | ||||||||||||||||||||||||||||||||||||||||||||
| Treasury shares held for taxes due upon exercise of stock awards | — | (1) | — | — | — | — | (77) | — | (77) | ||||||||||||||||||||||||||||||||||||||||||||
| Stock-based compensation | — | — | — | 57 | — | — | — | — | 57 | ||||||||||||||||||||||||||||||||||||||||||||
| Cash dividends declared ($0.47 per share per quarter) and other distributions | — | — | — | — | (288) | — | — | (2) | (290) | ||||||||||||||||||||||||||||||||||||||||||||
| Net earnings (loss) | — | — | — | — | 120 | — | — | 1 | 121 | ||||||||||||||||||||||||||||||||||||||||||||
| Other comprehensive earnings (loss), net of tax | — | — | — | — | — | (146) | — | — | (146) | ||||||||||||||||||||||||||||||||||||||||||||
| Balances, March 31, 2022 | 628 | (17) | $ | 6 | $ | 46,536 | $ | 2,721 | $ | 106 | $ | (2,343) | $ | 10 | $ | 47,036 |
| 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 awards | — | — | — | — | — | — | (95) | — | (95) | ||||||||||||||||||||||||||||||||||||||||||||
| Stock-based compensation | — | — | — | 157 | — | — | — | — | 157 | ||||||||||||||||||||||||||||||||||||||||||||
| Cash dividends declared ($0.39 per share per quarter) and other distributions | — | — | — | — | (244) | — | — | (1) | (245) | ||||||||||||||||||||||||||||||||||||||||||||
| Net earnings | — | — | — | — | (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 |
**(1)**Excludes redeemable noncontrolling interest that is not considered equity.
See accompanying notes, which are an integral part of these unaudited condensed consolidated financial statements.
FIDELITY NATIONAL INFORMATION SERVICES, INC.
AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
(In millions)
(Unaudited)
| Three months ended March 31, | |||||||||||
| 2022 | 2021 | ||||||||||
| Cash flows from operating activities: | |||||||||||
| Net earnings (loss) | $ | 121 | $ | (370) | |||||||
| Adjustment to reconcile net earnings (loss) to net cash provided by operating activities: | |||||||||||
| Depreciation and amortization | 1,013 | 953 | |||||||||
| Amortization of debt issuance costs | 7 | 7 | |||||||||
| Asset impairments | 58 | — | |||||||||
| Loss (gain) on sale of businesses, investments and other | — | (1) | |||||||||
| Loss on extinguishment of debt | — | 528 | |||||||||
| Stock-based compensation | 57 | 157 | |||||||||
| Deferred income taxes | (112) | (22) | |||||||||
| Net changes in assets and liabilities, net of effects from acquisitions and foreign currency: | |||||||||||
| Trade and other receivables | 62 | (219) | |||||||||
| Settlement activity | (162) | 122 | |||||||||
| Prepaid expenses and other assets | (152) | (129) | |||||||||
| Deferred contract costs | (73) | (113) | |||||||||
| Deferred revenue | 55 | 89 | |||||||||
| Accounts payable, accrued liabilities and other liabilities | 22 | (166) | |||||||||
| Net cash provided by operating activities | 896 | 836 | |||||||||
| Cash flows from investing activities: | |||||||||||
| Additions to property and equipment | (108) | (69) | |||||||||
| Additions to software | (304) | (229) | |||||||||
| Other investing activities, net | 122 | (23) | |||||||||
| Net cash provided by (used in) investing activities | (290) | (321) | |||||||||
| Cash flows from financing activities: | |||||||||||
| Borrowings | 15,902 | 13,858 | |||||||||
| Repayment of borrowings and other financing obligations | (16,609) | (14,364) | |||||||||
| Debt issuance costs | — | (74) | |||||||||
| Net proceeds from stock issued under stock-based compensation plans | 33 | 73 | |||||||||
| Treasury stock activity | (77) | (494) | |||||||||
| Dividends paid | (287) | (244) | |||||||||
| Other financing activities, net | (47) | (136) | |||||||||
| Net cash provided by (used in) financing activities | (1,085) | (1,381) | |||||||||
| Effect of foreign currency exchange rate changes on cash | (103) | (40) | |||||||||
| Net increase (decrease) in cash, cash equivalents and restricted cash | (582) | (906) | |||||||||
| Cash, cash equivalents and restricted cash, beginning of period | 4,283 | 4,030 | |||||||||
| Cash, cash equivalents and restricted cash, end of period | $ | 3,701 | $ | 3,124 | |||||||
| Supplemental cash flow information: | |||||||||||
| Cash paid for interest | $ | 75 | $ | 95 | |||||||
| Cash paid for income taxes | $ | 46 | $ | 68 |
See accompanying notes, which are an integral part of these unaudited condensed consolidated financial statements.
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," "our," "us," the "Company" or the "registrant" are to Fidelity National Information Services, Inc., a Georgia corporation, and its subsidiaries.
(1) Basis of Presentation
The unaudited financial information included in this report includes the accounts of FIS and its subsidiaries prepared in accordance with U.S. generally accepted accounting principles and the instructions to Form 10-Q and Article 10 of Regulation S-X. All adjustments considered necessary for a fair presentation have been included. This report should be read in conjunction with the Company's Annual Report on Form 10-K for the year ended December 31, 2021.
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 and any recurrence or new strain of COVID-19, its severity, the success of vaccines or other 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 2021 consolidated financial statements to conform to the classifications used in 2022. Amounts in tables in the financial statements and accompanying footnotes may not sum or calculate due to rounding.
(2) Acquisitions
Payrix Acquisition
On December 23, 2021, FIS acquired 100% of the equity of Payrix Holdings, LLC, and subsidiaries ("Payrix"), previously a privately held fintech company that specializes in embedding and monetizing payments in SaaS platforms to serve the eCommerce needs of small- to medium-sized businesses through a global card-not-present offering. The acquisition was accounted for as a business combination. We recorded a provisional allocation of the $777 million purchase price, primarily paid in cash, to tangible and identifiable intangible assets acquired and liabilities assumed based on their estimated fair values, consisting primarily of $131 million in software assets. We also recorded adjustments to our provisional allocation of the purchase price as of March 31, 2022, resulting in $631 million in total goodwill. Our purchase price allocation is provisional as of March 31, 2022, and we expect to finalize as soon as practicable, but no later than one year from the date of acquisition.
(3) Revenue
Disaggregation of Revenue
In the following tables, revenue is disaggregated by primary geographical market and type of revenue. The tables also include a reconciliation of the disaggregated revenue with the Company's reportable segments.
FIDELITY NATIONAL INFORMATION SERVICES, INC.
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
For the three months ended March 31, 2022 (in millions):
| Reportable Segments | ||||||||||||||||||||||||||||||||
| Capital | ||||||||||||||||||||||||||||||||
| Merchant | Banking | Market | Corporate | |||||||||||||||||||||||||||||
| Solutions | Solutions | Solutions | and Other | Total | ||||||||||||||||||||||||||||
| Primary Geographical Markets: | ||||||||||||||||||||||||||||||||
| North America | $ | 785 | $ | 1,406 | $ | 386 | $ | 51 | $ | 2,628 | ||||||||||||||||||||||
| All others | 327 | 239 | 272 | 26 | 864 | |||||||||||||||||||||||||||
| Total | $ | 1,112 | $ | 1,645 | $ | 658 | $ | 77 | $ | 3,492 | ||||||||||||||||||||||
| Type of Revenue: | ||||||||||||||||||||||||||||||||
| Recurring revenue: | ||||||||||||||||||||||||||||||||
| Transaction processing and services | $ | 1,087 | $ | 1,248 | $ | 321 | $ | 70 | $ | 2,726 | ||||||||||||||||||||||
| Software maintenance | 1 | 87 | 130 | — | 218 | |||||||||||||||||||||||||||
| Other recurring | 22 | 52 | 23 | — | 97 | |||||||||||||||||||||||||||
| Total recurring | 1,110 | 1,387 | 474 | 70 | 3,041 | |||||||||||||||||||||||||||
| Software license | 1 | 30 | 74 | — | 105 | |||||||||||||||||||||||||||
| Professional services | — | 142 | 110 | 1 | 253 | |||||||||||||||||||||||||||
| Other non-recurring fees | 1 | 86 | — | 6 | 93 | |||||||||||||||||||||||||||
| Total | $ | 1,112 | $ | 1,645 | $ | 658 | $ | 77 | $ | 3,492 |
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 |
FIDELITY NATIONAL INFORMATION SERVICES, INC.
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
Contract Balances
The Company recognized revenue of $310 million and $327 million during the three months ended March 31, 2022 and 2021, 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, 2022, approximately $22.5 billion of revenue is estimated to be recognized in the future primarily from the Banking Solutions and Capital Market Solutions segments' remaining unfulfilled performance obligations, which are primarily comprised of recurring account- and volume-based processing services. This excludes the amount of anticipated recurring renewals not yet contractually obligated. The Company expects to recognize approximately 30% of the Banking Solutions and Capital Market Solutions segments' remaining performance obligations over the next 12 months, approximately another 21% 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.
(4) Condensed Consolidated Financial Statement Details
Cash and Cash Equivalents
The Company records restricted cash in captions other than Cash and cash equivalents in the consolidated balance sheets. The reconciliation between Cash and cash equivalents in the consolidated balance sheets and Cash, cash equivalents and restricted cash per the consolidated statements of cash flows is as follows (in millions):
| March 31, 2022 | December 31, 2021 | ||||||||||
| Cash and cash equivalents on the consolidated balance sheets | $ | 1,547 | $ | 2,010 | |||||||
| Merchant float (in Settlement assets) | 2,154 | 2,273 | |||||||||
| Total Cash and cash equivalents and restricted cash per the consolidated statements of cash flows | $ | 3,701 | $ | 4,283 |
Settlement Assets and Payables
The principal components of the Company's settlement assets and payables on the consolidated balance sheets are as follows (in millions):
| March 31, 2022 | December 31, 2021 | ||||||||||
| Settlement assets | |||||||||||
| Settlement deposits | $ | 527 | $ | 530 | |||||||
| Merchant float | 2,154 | 2,273 | |||||||||
| Settlement receivables | 1,381 | 1,217 | |||||||||
| Total Settlement assets | $ | 4,062 | $ | 4,020 | |||||||
| Settlement payables | $ | 5,228 | $ | 5,295 |
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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
Allowance for Credit Losses
The Company monitors trade receivable balances and contract assets as well as other receivables 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 8.
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, 2022, and December 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.
Property and Equipment, Intangible Assets and Software
The following table provides details of Property and equipment, Intangible assets and Software as of March 31, 2022, and December 31, 2021 (in millions):
| March 31, 2022 | December 31, 2021 | ||||||||||||||||||||||||||||||||||
| Cost | Accumulated depreciation and amortization | Net | Cost | Accumulated depreciation and amortization | Net | ||||||||||||||||||||||||||||||
| Property and equipment | $ | 2,511 | $ | 1,610 | $ | 901 | $ | 2,520 | $ | 1,571 | $ | 949 | |||||||||||||||||||||||
| Intangible assets | $ | 18,734 | $ | 7,880 | $ | 10,854 | $ | 18,919 | $ | 7,380 | $ | 11,539 | |||||||||||||||||||||||
| Software | $ | 6,384 | $ | 3,149 | $ | 3,235 | $ | 6,195 | $ | 2,896 | $ | 3,299 |
As of March 31, 2022, Intangible assets, net of amortization, includes $10,522 million of customer relationships and $332 million of trademarks and other intangible assets. Amortization expense with respect to Intangible assets was $557 million and $595 million for the three months ended March 31, 2022 and 2021, respectively.
During the three months ended March 31, 2022, the Company recorded $62 million of incremental software amortization expense driven by the Company's platform modernization. Platform modernization includes sunsetting certain technology platforms, which resulted in shortened estimated useful lives and accelerated amortization methods primarily impacting the associated assets over approximately three years, beginning in the third quarter of 2021.
Impairments
During the three months ended March 31, 2022, the Company recorded $58 million of impairments primarily related to real estate-related assets as a result of office space reductions.
Goodwill
Changes in goodwill during the three months ended March 31, 2022, are summarized below (in millions).
| Capital | Corporate | ||||||||||||||||||||||||||||
| Merchant | Banking | Market | And | ||||||||||||||||||||||||||
| Solutions | Solutions | Solutions | Other | Total | |||||||||||||||||||||||||
| Balance, December 31, 2021 | $ | 36,403 | $ | 12,244 | $ | 4,663 | $ | 20 | $ | 53,330 | |||||||||||||||||||
| Foreign currency adjustments | (323) | (7) | (23) | — | (353) | ||||||||||||||||||||||||
| Goodwill attributable to acquisitions | 11 | — | — | — | 11 | ||||||||||||||||||||||||
| Balance, March 31, 2022 | $ | 36,091 | $ | 12,237 | $ | 4,640 | $ | 20 | $ | 52,988 |
We assess goodwill for impairment on an annual basis during the fourth quarter or more frequently if circumstances indicate potential impairment. Due to the continued economic impact of the COVID-19 pandemic, we evaluated if events and circumstances as of March 31, 2022, indicated potential impairment of our reporting units. 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
FIDELITY NATIONAL INFORMATION SERVICES, INC.
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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
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, 2022, 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 or other macroeconomic conditions 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.
Visa Europe and Contingent Value Rights
As part of the Worldpay acquisition, the Company acquired certain assets and liabilities related to the June 2016 Worldpay Group plc (Legacy Worldpay) disposal of its ownership interest in Visa Europe to Visa Inc. As part of the disposal, Legacy Worldpay received proceeds from Visa Inc. in the form of cash ("cash consideration") and convertible preferred stock ("preferred stock"), the value of which may be reduced by losses incurred relating to ongoing interchange-related litigation involving Visa Europe. 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 $213 million and $197 million at March 31, 2022, and December 31, 2021, respectively, recorded in Other noncurrent assets on the consolidated balance sheets. The fair value of the CVR liability was $469 million and $478 million at March 31, 2022, and December 31, 2021, respectively, recorded in Other noncurrent liabilities on the consolidated balance sheets. Pursuant to ASC 825, the Company remeasures the fair value of the preferred stock and CVR liability each reporting period. The net change in fair value was $25 million and $5 million for the three months ended March 31, 2022 and 2021, respectively, recorded in Other income (expense), net on the consolidated statements of earnings (loss).
Equity Security Investments
The Company holds various equity securities without readily determinable fair values that primarily represent strategic investments made through our FIS Impact Ventures program as well as investments obtained through acquisitions. Such investments totaled $409 million and $358 million at March 31, 2022, and December 31, 2021, respectively, and are included within Other noncurrent assets on the consolidated balance sheets. The Company accounts for these investments at cost, less impairment, and adjusts the carrying values for observable price changes from orderly transactions for identical or similar investments of the same issuer. The Company records gains and losses on these investments, realized and unrealized, as Other income (expense), net on the consolidated statements of earnings (loss) and recorded net gains of $41 million and $15 million for the three months ended March 31, 2022 and 2021, respectively, related to these investments.
(5) Deferred Contract Costs
Origination and fulfillment costs from contracts with customers capitalized as of March 31, 2022, and December 31, 2021, consist of the following (in millions):
| March 31, 2022 | December 31, 2021 | ||||||||||
| Contract costs on implementations in progress | $ | 173 | $ | 218 | |||||||
| Contract origination costs on completed implementations, net | 584 | 553 | |||||||||
| Contract fulfillment costs on completed implementations, net | 186 | 198 | |||||||||
| Total Deferred contract costs, net | $ | 943 | $ | 969 |
Amortization of deferred contract costs on completed implementations was $96 million and $68 million during the three months ended March 31, 2022 and 2021, respectively.
During the three months ended March 31, 2022, the Company recorded $16 million of incremental amortization expense related to deferred contract costs driven by the Company's platform modernization.
FIDELITY NATIONAL INFORMATION SERVICES, INC.
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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
(6) Debt
Long-term debt as of March 31, 2022, and December 31, 2021, consists of the following (in millions):
| March 31, 2022 | ||||||||||||||||||||||||||||||||
| Weighted | ||||||||||||||||||||||||||||||||
| Average | ||||||||||||||||||||||||||||||||
| Interest | Interest | March 31, | December 31, | |||||||||||||||||||||||||||||
| Rates | Rate (1) | Maturities | 2022 | 2021 | ||||||||||||||||||||||||||||
| Fixed Rate Notes | ||||||||||||||||||||||||||||||||
| Senior USD Notes | 0.4% - 4.8% | 1.9% | 2023 - 2048 | $ | 6,909 | $ | 6,909 | |||||||||||||||||||||||||
| Senior Euro Notes | 0.1% - 3.0% | 1.2% | 2022 - 2039 | 7,502 | 7,656 | |||||||||||||||||||||||||||
| Senior GBP Notes | 1.7% - 3.4% | 1.6% | 2022 - 2031 | 1,609 | 1,655 | |||||||||||||||||||||||||||
| Revolving Credit Facility (2) | 1.7% | 2026 | 838 | 325 | ||||||||||||||||||||||||||||
| Other (3) | (320) | (103) | ||||||||||||||||||||||||||||||
| Total long-term debt, including current portion | 16,538 | 16,442 | ||||||||||||||||||||||||||||||
| Current portion of long-term debt | (2,330) | (1,617) | ||||||||||||||||||||||||||||||
| Long-term debt, excluding current portion | $ | 14,208 | $ | 14,825 |
(1)The weighted average interest rate includes the impact of interest rate swaps (see Note 7).
(2)Interest on the Revolving Credit Facility is generally payable at LIBOR plus an applicable margin of up to 1.625% plus an unused commitment fee of up to 0.225%, each based upon the Company's corporate credit ratings. The weighted average interest rate on the Revolving Credit Facility excludes fees.
(3)Other includes financing obligations for certain hardware and software, the fair value of interest rate swaps (see Note 7), unamortized non-cash bond discounts and unamortized debt issuance costs.
Short-term borrowings as of March 31, 2022, and December 31, 2021, consist of the following (in millions):
| March 31, 2022 | ||||||||||||||||||||||||||
| Weighted | ||||||||||||||||||||||||||
| Average | ||||||||||||||||||||||||||
| Interest | March 31, | December 31, | ||||||||||||||||||||||||
| Rate | Maturities | 2022 | 2021 | |||||||||||||||||||||||
| Euro-commercial paper notes ("ECP Notes") | (0.3) | % | Up to 183 days | $ | 1,689 | $ | 1,723 | |||||||||||||||||||
| U.S. commercial paper notes ("USCP Notes") | 0.8 | % | Up to 397 days | 993 | 2,087 | |||||||||||||||||||||
| Other | — | 101 | ||||||||||||||||||||||||
| Total Short-term borrowings | $ | 2,682 | $ | 3,911 |
As of March 31, 2022, the weighted average interest rate of the Company's outstanding debt was 1.0%, including the impact of interest rate swaps (see Note 7).
FIDELITY NATIONAL INFORMATION SERVICES, INC.
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
The following summarizes the aggregate maturities of our long-term debt, including other financing obligations for certain hardware and software, based on stated contractual maturities, excluding the fair value of the interest rate swaps (see Note 7) and net unamortized non-cash bond discounts of $(324) million as of March 31, 2022 (in millions):
| Total | ||||||||
| 2022 remaining period | $ | 1,563 | ||||||
| 2023 | 2,163 | |||||||
| 2024 | 1,313 | |||||||
| 2025 | 701 | |||||||
| 2026 | 2,094 | |||||||
| Thereafter | 9,125 | |||||||
| Total principal payments | 16,959 | |||||||
| Debt issuance costs, net of accumulated amortization | (97) | |||||||
| Total long-term debt | $ | 16,862 |
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 Revolving Credit Facility 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, 2022, the borrowing capacity under the Revolving Credit Facility was $1,980 million (net of $2,682 million of capacity backstopping our commercial paper notes).
Fair Value of Debt
The fair value of the Company's long-term debt is estimated to be approximately $437 million lower than the carrying value and $570 million higher than the carrying value, excluding the fair value of the interest rate swaps and unamortized discounts, as of March 31, 2022, and December 31, 2021, respectively.
FIDELITY NATIONAL INFORMATION SERVICES, INC.
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
(7) Financial Instruments
Fair Value Hedges
The Company holds interest rate swaps with aggregate notional amounts of $1,854 million, £925 million and €500 million at March 31, 2022, and December 31, 2021, 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 $283 million and $85 million reflected as a decrease in the long-term debt balance at March 31, 2022, and December 31, 2021, respectively (see Note 6).
Net Investment Hedges
The purpose of the Company's net investment hedges, as discussed below, is to reduce the volatility of FIS' net investment value in its Euro- and Pound Sterling-denominated operations due to changes in foreign currency exchange rates.
The Company recorded net investment hedge aggregate gain (loss) for the change in fair value 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 $260 million and $321 million during the three months ended March 31, 2022 and 2021, respectively. No ineffectiveness has been recorded on the net investment hedges.
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, 2022, and December 31, 2021, an aggregate €8,265 million and €8,275 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 March 31, 2022, and December 31, 2021, an aggregate £1,140 million and £1,193 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, 2022, and December 31, 2021, aggregate notional amounts of €5,906 million and €5,906 million, respectively, were designated as net investment hedges of the Company's investment in Euro-denominated operations, and aggregate notional amounts of £2,386 million and £2,345 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 assets of $245 million at March 31, 2022, and net assets of $258 million at December 31, 2021, respectively. The Company recorded net cash inflows related to the fair value at maturity or termination of cross-currency interest rate swaps within Other investing activities, net, on the consolidated statements of cash flows of $135 million during the three months ended March 31, 2022.
(8) Commitments and Contingencies
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
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. In January 2022, the Company exercised its second call option pursuant to the Amendment,
which results in fixed cash payments to Fifth Third of $186 million. The timing and/or amount of aggregate payments due under the TRA may vary based on a number of factors, including the exercise of options, the amount and timing of taxable income the Company generates in the future and the tax rate then applicable, the use of loss carryforwards and amortizable basis. Each reporting period, the Company evaluates the assumptions underlying the TRA obligations.
The consolidated balance sheets as of March 31, 2022, and December 31, 2021, include a total liability of $405 million and $451 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, 2022; 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.
FIDELITY NATIONAL INFORMATION SERVICES, INC.
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
(9) 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 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 to reflect the impact of the modification on unvested equity awards outstanding at January 1, 2021.
(10) Related-Party Transactions
The Company held a noncontrolling ownership stake in Cardinal Holdings ("Cardinal"), which operated the Capco consulting business, through April 29, 2021, when we sold our ownership stake due to an acquisition transaction of the Capco consulting business by Wipro Ltd. Prior to the sale, the Company recorded the ownership stake in Cardinal as an equity method investment included within Other noncurrent assets on the consolidated balance sheet.
FIS provides ongoing management consulting services and other services to Cardinal. FIS also purchases services and software licenses from Cardinal from time to time. Cardinal was a related party through April 29, 2021. Amounts transacted through these agreements were not significant to the 2021 period presented when Cardinal was a related party.
(11) Net Earnings (Loss) per Share
The basic weighted average shares and common stock equivalents for the three months ended March 31, 2022 and 2021, 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, 2022 and 2021 (in millions, except per share amounts):
| Three months ended March 31, | |||||||||||||||||||||||
| 2022 | 2021 | ||||||||||||||||||||||
| Net earnings (loss) attributable to FIS common stockholders | $ | 120 | $ | (373) | |||||||||||||||||||
| Weighted average shares outstanding-basic | 610 | 621 | |||||||||||||||||||||
| Plus: Common stock equivalent shares | 4 | — | |||||||||||||||||||||
| Weighted average shares outstanding-diluted | 614 | 621 | |||||||||||||||||||||
| Net earnings (loss) per share-basic attributable to FIS common stockholders | $ | 0.20 | $ | (0.60) | |||||||||||||||||||
| Net earnings (loss) per share-diluted attributable to FIS common stockholders | $ | 0.20 | $ | (0.60) |
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 (loss) per share for the three months ended March 31, 2022 and 2021, did not include options to purchase approximately 5 million and 1 million shares of our common stock for the three months ended March 31, 2022 and 2021, respectively, 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 85 million shares remain available for repurchase as of March 31, 2022.
(12) Segment Information
FIS reports its financial performance based on the following segments: Merchant Solutions, Banking Solutions, Capital Market Solutions and Corporate and Other. Below is a summary of each segment.
FIDELITY NATIONAL INFORMATION SERVICES, INC.
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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
Merchant Solutions ("Merchant")
The Merchant segment is focused on serving merchants of all sizes globally, enabling them to accept, authorize and settle electronic payment transactions. Merchant includes all aspects of payment processing, including value-added services, such as security, fraud prevention, advanced data analytics, foreign currency management and numerous funding options. Merchant serves clients in over 100 countries. Our Merchant clients are highly-diversified, including global enterprises, national retailers and small- to medium-sized businesses. The Merchant segment utilizes broad and varied distribution channels, including direct sales forces and multiple referral partner relationships that provide us with access to new and existing markets.
Banking Solutions ("Banking")
The Banking segment is focused on serving financial institutions of all sizes with core processing software, transaction processing software and complementary applications and services, many of which interact directly with core processing software. We sell these solutions 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, 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.
In the Corporate and Other segment, for the three months ended March 31, 2022, the Company recorded acquisition and integration costs primarily related to the Worldpay acquisition as well as certain other costs, including cost associated with the Company's platform modernization totaling $80 million. The Company also recorded $58 million of asset impairments primarily for real estate-related assets as a result of office space reductions as well as $52 million of incremental amortization expense associated with shortened estimated useful lives and accelerated amortization methods for certain software and deferred contract cost assets driven by the Company's platform modernization for the three months ended March 31, 2022. For the three months ended March 31, 2021, the Company 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 9) as well as costs related to data center consolidation activities totaling $15 million. In addition, the Company recorded incremental costs directly related to COVID-19 of $9 million for the three months ended March 31, 2021.
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
FIDELITY NATIONAL INFORMATION SERVICES, INC.
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
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 the purchase price amortization of acquired intangible assets as well as acquisition, integration and certain other costs and asset impairments. 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, 2022 (in millions):
| Capital | |||||||||||||||||||||||||||||
| Merchant | Banking | Market | Corporate | ||||||||||||||||||||||||||
| Solutions | Solutions | Solutions | and Other | Total | |||||||||||||||||||||||||
| Revenue | $ | 1,112 | $ | 1,645 | $ | 658 | $ | 77 | $ | 3,492 | |||||||||||||||||||
| Operating expenses | (682) | (1,099) | (439) | (1,115) | (3,335) | ||||||||||||||||||||||||
| Depreciation and amortization (including purchase accounting amortization) | 92 | 151 | 89 | 681 | 1,013 | ||||||||||||||||||||||||
| Acquisition, integration and other costs | — | — | — | 190 | 190 | ||||||||||||||||||||||||
| Asset impairments | — | — | — | 58 | 58 | ||||||||||||||||||||||||
| Adjusted EBITDA | $ | 522 | $ | 697 | $ | 308 | $ | (109) | $ | 1,418 | |||||||||||||||||||
| Adjusted EBITDA | $ | 1,418 | |||||||||||||||||||||||||||
| Depreciation and amortization | (363) | ||||||||||||||||||||||||||||
| Purchase accounting amortization | (650) | ||||||||||||||||||||||||||||
| Acquisition, integration and other costs | (190) | ||||||||||||||||||||||||||||
| Asset impairments | (58) | ||||||||||||||||||||||||||||
| Interest expense, net | (43) | ||||||||||||||||||||||||||||
| Other income (expense), net | 61 | ||||||||||||||||||||||||||||
| (Provision) benefit for income taxes | (54) | ||||||||||||||||||||||||||||
| Net earnings attributable to noncontrolling interest | (1) | ||||||||||||||||||||||||||||
| Net earnings attributable to FIS common stockholders | $ | 120 | |||||||||||||||||||||||||||
| Capital expenditures | $ | 143 | $ | 158 | $ | 84 | $ | 27 | $ | 412 |
FIDELITY NATIONAL INFORMATION SERVICES, INC.
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
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 attributable to FIS common stockholders | $ | (373) | |||||||||||||||||||||||||||
| Capital expenditures | $ | 104 | $ | 106 | $ | 54 | $ | 34 | $ | 298 |
Next: Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations