FIS Inc. had only begun to digest the massive processor Worldpay, which it acquired in July last year, when the global Covid-19 virus broke out, leaving the company on Tuesday to report a challenging second quarter marked by a significant hit to its newly integrated merchant-processing business. Still, given the pandemic’s deep impact on consumer and business spending, the quarter’s results “exceeded our expectations across the board,” said chief financial officer Woody Woodall during a Tuesday morning earnings call.
Overall, the results companywide could have been worse for Jacksonville, Fla.-based FIS but for “the benefits of automation,” including the company’s move to a cloud-based strategy, chief executive Gary Norcross told equity analysts during the call. He predicted FIS, which provides core processing for financial institutions and capital-markets software as well as merchant processing, will have more than 80% of its computational power in a cloud configuration “by the middle of next year.”
The merchant business produced $812 million in second-quarter revenue, up from $97 million in the pre-Worldpay second quarter of 2019. That accounted for fully 27% of FIS’s revenue, But the pandemic’s hit to merchant acquiring was such that the company reported a 25% drop in organic revenue for the unit, referring to change year-over-year when current revenue sources are included on a constant-currency basis in last year’s result. The drop was 19%, though, with the exclusion of a “$60-million headwind” that resulted from the delay in federal tax-filing deadlines, Woodall told the analysts.
Still, “merchant volumes returned to growth by the end of June,” Woodall added, with dollar volume for the month up 4% and transaction count down by just 1%. The corresponding figures for May, by contrast, were negative 7% and negative 11%. And the drops in April were even deeper, at 18% and 21%. A big bright spot was an approximate 30% rise in e-commerce transactions for the quarter, excluding travel and airlines, as stuck-at-home consumers turned to the Internet for shopping needs.
Indeed, e-commerce processing capability “was the crown jewel that came out of the Worldpay acquisition,” said Norcross. “We’re leaning in to next-generation capabilities there. Post-Covid, this is a good, solid double-digit grower for FIS.” Added Woodall: “On the e-commerce side, demand continues to be robust across the board.”
FIS executives said the integration of Worldpay is proceeding “ahead of schedule,” having already produced $115 million in second-quarter revenue “synergies,” or incremental revenue compared to the same time last year. “Our original estimate was $100 million for this year,” Norcross said. “We feel great about where we are.”
In the banking solutions unit, which at $1.48 billion in second-quarter revenue is the largest of FIS’s trio of divisions, the company reported progress toward mobile and digital technology after long delays caused by outmoded supporting technology. “We’re now seeing [banks] leaning into next-generation digital,” said Norcross. “Most of our customers have just held on [to older technology] too long and now realize they’ll have to spend their way out of it.”
The company as a whole generated $2.96 billion in revenue for the quarter, down 7% from $3.21 billion a year ago when adjusted to include Worldpay.