FIS Sees Strong Merchant Sales, Jump In Cross-Selling Activity In Q3

Roughly three months after closing its $43 billion deal for payments processor Worldpay, Fidelity National Information Services (FIS) reported third-quarter results that showed some initial impacts of the revenue and cost synergies outlined when the deal was struck earlier this year.

In terms of headline numbers, adjusted earnings of $1.43 were eight cents better than the Street expected. Revenues of $2.8 billion for the combined company were up more than 35 percent, roughly $20 million below consensus.

Supplemental materials provided by the company show merchant solutions contributing $720 million to the top line, up from $50 million last year and before the Worldpay deal. Banking solutions provided $1.5 billion of revenues, and capital markets contributed $611 million.

Worldpay contributed two months’ worth of results in the quarter.

In a conference call with analysts, CEO Gary Norcross said the results, reflecting the Worldpay acquisition, showed 5 percent organic growth.

Merchant sales saw strong results, he said, including eCommerce – accelerating the pace of cross-selling activity to 23 wins, up from 14 wins in the second quarter.

According to Norcross, in remarks on the call, “If you look at our revenue stream, more than 70 percent of our revenue stream is in the U.S. So naturally our cross-sells, our revenue synergy, is just going to be heavily weighted toward the U.S.”

The combined company exited the third quarter with $30 million in annualized run rate revenue synergies, and still targets $500 million in revenue synergies, with, separately, $500 million in total cost synergies. Though the firm is focused on the Worldpay integration, there still may be an opportunity for “tuck-in” deals, according to management.

In other remarks, FIS CFO James Woodall told analysts the revenue synergies should hit $150 million next year, aided in part by debit card routing and improved authorization rates. “Our first joint loyalty as a currency client is on track to go live during the first half of next year,” he said.

In reference to analyst questions about the digital transformation of banks, Norcross said that shift was in “early, early innings.” Drilling down into individual markets, he noted the softness seen in Europe, due in part to Brexit and volume declines in the United Kingdom. Management also cited growth opportunities with the ATM and core banking businesses in India, as well as growth opportunities in Brazil.

The banking segment showed 5 percent organic growth, matched by the capital markets segment, which showed the same organic growth rate. Management said the merchant solutions group should continue to see 10 percent growth in the current quarter, with eCommerce growing at twice that rate.