Sunday , September 19, 2021

FIS Logs a Record Performance in the June Quarter As Merchant Volume Balloons

Led by robust growth in its merchant-processing unit, FIS Inc. Tuesday morning heralded a strong second quarter, with record sales and with momentum continuing deeper into the summer, according to the Jacksonville, Fla.-based company’s top executives. 

Speaking to equity analysts to discuss the company’s second-quarter results, management also outlined a cautious approach to the hot buy now, pay later trend and hinted further acquisitions are likely following FIS’s huge 2019 deal for merchant processor Worldpay.

With that acquisition now fully digested, FIS recorded total revenue of $3.48 billion for the quarter, up 17% year-over-year. Most of the action came from the merchant-solutions division, which includes Worldpay. That unit registered revenue of $1.18 billion, a 45% growth rate compared to 2020’s second period, in which much of the impact of the coronavirus pandemic was being felt. Still, FIS executives pointed out that merchant revenue in the quarter outpaced the same period in 2019 by 9% as lockdown orders have eased and travel has re-opened.

Norcross: “M&A will always be something we evaluate and if it makes sense, we’ll execute.”

Much of that growth rate, the company said, was organic, or stemming from business already in place a year ago. Volume from small-and-medium size merchants ratcheted up more than 50% in the quarter, according to Woody Woodall, FIS’s chief financial officer, while enterprise merchants posted a better than 40% growth rate. The momentum appears to have continued into July, Woodall said.

“We have not taken our foot off the gas,” Woodall told the analysts, adding the company expects merchant revenue to grow at a rate in the mid-to-high teens into the latter part of the year. 

Concern about the more contagious Delta variant of the coronavirus could dampen forecasts somewhat, but overall, “We continue to see July results improving,” noted Gary Norcross, FIS’s chairman and chief executive. “They are lagging in the U.S. a little, but we expect growth to continue into the last half of the year.”

While the $40-billion-plus deal for Worldpay was a lot to digest, FIS hasn’t ruled out further acquisitions, Norcross stressed. “Things are expensive right now, and we feel very good about our strengths,” he told the analysts. “But M&A will always be something we evaluate and if it makes sense, we’ll execute.”

Responding to a question about recent developments in BNPL— including Square Inc.’s announcement this week that it is acquiring Afterpay Ltd., a major player in that market, in a deal valued at $29 billion—Norcross sounded a somewhat more cautious note. “BNPL is just another unsecured lending product for us. It’s another payment type we’re going to accept, but we’re going to minimize credit exposure,” he said. BNPL, or installment lending, lets consumers online or in stores split purchases typically into four equal payments at zero interest.

As for FIS’s other two units, banking solutions recorded revenue of $1.58 billion, up 8%. Capital markets recorded 6% growth, to $630 million.

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