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October 28
Banks continued to demonstrate renewed confidence in their technology spending decisions in the third quarter, executives of Fidelity National Information Services Inc. said Tuesday.
The Jacksonville, Fla., financial technology vendor said investments in core processing systems are picking up, but it also is winning new sales with ancillary services, such as bill payment, Internet banking and card processing.
"More than half of our core clients in North America have purchased additional services from us in 2010," Gary Norcross, FIS' chief operating officer, said during a conference call with analysts.
The company, which significantly expanded a year ago with its acquisition of rival Metavante Technologies Inc., expects banks to continue moving forward on spending decisions.
Spending largely stalled during the most recent economic downturn.
As the economy has improved, banks have been more willing to invest in upgrades and new services than before.
FIS reported adjusted revenue, which includes the revenue of Metavante, grew 3.3%, to $1.29 billion in the third quarter from a year earlier.
The Metavante purchase closed last October.
"The key is that 3.3% organic growth number for revenue," said Brett Huff, a research analyst with Stephens Inc. in Little Rock, Ark.
"I think it shows FIS is executing cross-sales and new customer sales well. It's also a sign that there is some spending in the bank tech market overall."
FIS, along with competitor Fiserv Inc., which also reported earnings Tuesday, are considered bellwethers of the financial technology industry.
Both companies as well as smaller vendors have reported an uptick in contracts over the past several months.
They said that additional clarity surrounding new regulations has helped banks grow more comfortable with moving forward on plans.
Because of the recent wave of new regulations, which is forcing banks to revamp their payments and lending strategies, FIS also sees opportunities to play more of a consulting role to clients.
Its executives said they expect to bolster FIS' strengths with previously announced plans to acquire Capco, an international technology consulting company in Antwerp, Belgium, that works with several large banks.
"We're very focused on continuing to grow and expand in large financial institutions and this is where Capco does most of their work," Norcross said.
The acquisition is expected to close by the end of the year.
FIS' nonadjusted revenue grew 65% year over year to $1.37 billion. Its net income rose 63%, to $110.4 million.
FIS did have a softening in its payment solutions business, which saw revenue decline 1.9%, to $600.6 million.
The drop was because of lower item processing and retail check activity, the company said.
FIS has put its Fidelity National Participacoes Ltda. item processing and remittance services subsidiary in Brazil up for sale.
The "paper-intensive, check-based" business does not have the "scale and leverage" that FIS has in the U.S., Michael Hayford, FIS' chief financial officer, said during the call.
With check volume declining, it is more difficult to operate the business in Brazil, Huff said.
In the U.S., volumes are high enough so there is "more room from a profitability standpoint," he said.
