Unless stated otherwise or the context otherwise requires, all references to
"FIS," "we," the "Company" or the "registrant" are to
The following discussion should be read in conjunction with Item 1. Condensed Consolidated Financial Statements (Unaudited) and the Notes thereto included elsewhere in this report. The statements contained in this Form 10-Q or in our other documents or in oral presentations or other management statements that are not purely historical are forward-looking statements within the meaning of theU.S. federal securities laws. Statements that are not historical facts, including statements about anticipated financial outcomes, including any earnings guidance or projections of the Company, projected revenue or expense synergies, business and market conditions, outlook, foreign currency exchange rates, deleveraging plans, expected dividends and share repurchases, the Company's sales pipeline and anticipated profitability and growth, as well as other statements about our expectations, beliefs, intentions, or strategies regarding the future, or other characterizations of future events or circumstances, are forward-looking statements. In many cases, forward-looking statements can be identified by terminology such as "may," "will," "should," "expect," "plan," "anticipate," "believe," "estimate," "predict," "potential," or "continue," or the negative of these terms and other comparable terminology. These statements relate to future events and our future results and involve a number of risks and uncertainties. Forward-looking statements are based on management's beliefs as well as assumptions made by, and information currently available to, management. Actual results, performance or achievement could differ materially from those contained in these forward-looking statements. The risks and uncertainties to which forward-looking statements are subject include the following, without limitation: •the outbreak or recurrence of the novel coronavirus and any related variants ("COVID-19") and measures to reduce its spread, including the impact of governmental or voluntary actions such as business shutdowns and stay-at-home orders in certain geographies; •the duration, including any recurrence, of the COVID-19 pandemic and its impacts, including reductions in consumer and business spending, and instability of the financial markets in heavily impacted areas across the globe; •the economic and other impacts of COVID-19 on our clients which affect the sales of our solutions and services and the implementation of such solutions; •the risk of losses in the event of defaults by merchants (or other parties) to which we extend credit in our card settlement operations or in respect of any chargeback liability, either of which could adversely impact liquidity and results of operations; •changes in general economic, business and political conditions, including those resulting from COVID-19 or other pandemics, intensified international hostilities, acts of terrorism, changes in either or both theU.S. and international lending, capital and financial markets and currency fluctuations; •the risk that other acquired businesses will not be integrated successfully or that the integration will be more costly or more time-consuming and complex than anticipated; •the risk that cost savings and other synergies anticipated to be realized from other acquisitions may not be fully realized or may take longer to realize than expected; •the risks of doing business internationally; •the effect of legislative initiatives or proposals, statutory changes, governmental or other applicable regulations and/or changes in industry requirements, including privacy and cybersecurity laws and regulations; •the risks of reduction in revenue from the elimination of existing and potential customers due to consolidation in, or new laws or regulations affecting, the banking, retail and financial services industries or due to financial failures or other setbacks suffered by firms in those industries; •changes in the growth rates of the markets for our solutions; •the amount, declaration and payment of future dividends is at the discretion of our Board of Directors and depends on, among other things, our investment opportunities, results of operations, financial condition, cash requirements, future prospects, the duration and impact of the COVID-19 pandemic, and other factors that may be considered relevant by our Board of Directors, including legal and contractual restrictions; •failures to adapt our solutions to changes in technology or in the marketplace; •internal or external security breaches of our systems, including those relating to unauthorized access, theft, corruption or loss of personal information and computer viruses and other malware affecting our software or platforms, and the reactions of customers, card associations, government regulators and others to any such events; •the risk that implementation of software, including software updates, for customers or at customer locations or employee error in monitoring our software and platforms may result in the corruption or loss of data or customer information, interruption of business operations, outages, exposure to liability claims or loss of customers; 23
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•the reaction of current and potential customers to communications from us or regulators regarding information security, risk management, internal audit or other matters; •the risk that policies and resulting actions of the current administration in theU.S. may result in additional regulations and executive orders, as well as additional regulatory and tax costs; •competitive pressures on pricing related to the decreasing number of community banks in theU.S. , the development of new disruptive technologies competing with one or more of our solutions, increasing presence of international competitors in the U.S. market and the entry into the market by global banks and global companies with respect to certain competitive solutions, each of which may have the impact of unbundling individual solutions from a comprehensive suite of solutions we provide to many of our customers; •the failure to innovate in order to keep up with new emerging technologies, which could impact our solutions and our ability to attract new, or retain existing, customers; •an operational or natural disaster at one of our major operations centers; •failure to comply with applicable requirements of payment networks or changes in those requirements; •fraud by merchants or bad actors; and •other risks detailed elsewhere in the Risk Factors and other sections of our Annual Report on Form 10-K for the fiscal year endedDecember 31, 2020 , in our Quarterly Reports on Form 10-Q and in our other filings with theSecurities and Exchange Commission . Other unknown or unpredictable factors also could have a material adverse effect on our business, financial condition, results of operations and prospects. Accordingly, readers should not place undue reliance on our forward-looking statements. These forward-looking statements are inherently subject to uncertainties, risks and changes in circumstances that are difficult to predict. Except as required by applicable law or regulation, we do not undertake (and expressly disclaim) any obligation, and do not intend, to publicly update or review any of our forward-looking statements, whether as a result of new information, future events or otherwise.
Overview
FIS is a leading provider of technology solutions for merchants, banks, and capital markets firms globally. Our employees are dedicated to advancing the way the world pays, banks and invests by applying our scale, deep expertise and data-driven insights. We help our clients use technology in innovative ways to solve business-critical challenges and deliver superior experiences for their customers. Headquartered inJacksonville, Florida , FIS is a Fortune 500® company and is a member ofStandard & Poor's 500® Index. We have grown organically as well as through acquisitions, which have contributed critical solutions and services that complement or enhance our existing offerings, diversifying our revenue by client, geography and service offering, and opening new and profitable adjacent markets that align with our core solutions' strengths. FIS evaluates possible acquisitions that might contribute to our growth or performance on an ongoing basis. We also develop new solutions that enhance our client offerings. FIS reports its financial performance based on the following segments: Merchant Solutions ("Merchant"), Banking Solutions ("Banking"), Capital Market Solutions ("Capital Markets") and Corporate and Other. A description of our segments is included in Note 11 to the consolidated financial statements. Revenue by segment and the Adjusted EBITDA of our segments are discussed below in Segment Results of Operations. Amounts in tables below may not sum or calculate due to rounding.
Business Trends and Conditions
Our revenue is primarily derived from a combination of technology and processing services, transaction fees, professional services and software license fees. While we are a global company and do business around the world, the majority of our revenue is generated by clients in theU.S. The majority of our international revenue is generated by clients in theU.K. ,Germany ,Australia ,Brazil ,Canada , andIndia . In addition, the majority of our revenue has historically been recurring and has been provided under multi-year Banking and Capital Markets contracts that contribute relative stability to our revenue stream. These services, in general, are considered critical to our clients' operations. Although Merchant has a lesser percentage of multi-year contracts, substantially all of our Merchant revenue is recurring, derived from transaction processing fees that fluctuate with the number or value of transactions processed, among other variable measures associated with consumer activity. Professional services revenue is typically non-recurring, though recognition often occurs over time rather than at a point in time. Sales of software licenses are typically non-recurring with point-in-time recognition and are less predictable. COVID-19's impact to our financial results in the third quarter of 2021 lessened as compared to prior periods due to the continued reopening of markets, especially where reopening is accelerated by the accessibility and effective rollout of vaccines. In certain locations, where government lockdowns and shelter-in-place orders remain or have been tightened, particularly in 24
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certain areas ofEurope andBrazil , reduced consumer spending continues to adversely impact our Merchant payments volume and related transaction revenue. In addition, certain discretionary spending verticals, including cross-border travel and airlines, continue to be impacted, although the impact has lessened. We extended higher-than-usual levels of credit to our merchant clients during 2020 as part of funds settlement in connection with payments to their customers, for, among other things, refunds for cancelled trips as cases of COVID-19 spread across the globe. The level of credit extended to our merchant clients has since normalized. We are potentially exposed to losses if our merchant customers are unable to repay the credit we have extended or to fund their liability for chargebacks due to closure, insolvency, bankruptcy or other reasons. Our potential liability for chargebacks did not have a material impact on our liquidity for the three- and nine-month periods endedSeptember 30, 2021 , and we continue to monitor for impact on our liquidity, results of operations and financial condition. We continue to assist financial institutions in migrating to outsourced integrated technology solutions to improve their profitability and address increasing and ongoing regulatory requirements. As a provider of outsourced solutions, we benefit from multi-year recurring revenue streams, which help moderate the effects of broader year-to-year economic and market changes that otherwise might have a larger impact on our results of operations. We believe our integrated solutions and outsourced services are well-positioned to address this outsourcing trend across the markets we serve. Over the last five years, we have moved over 80% of our server compute, primarily inNorth America , to our FIS cloud located in our strategic data centers. This allows us to further enhance security for our clients' data and increases the flexibility and speed with which we can provide solutions and services to our clients, at lesser cost. We have also completed our data center consolidation program, generating a savings for the Company of over$250 million in run-rate annual expense since the program's inception in mid-2016. Following the successful modernization of our IT infrastructure and consolidation of our data centers, we are now accelerating the modernization of our applications and integration of our technology platforms through our Platform initiatives. Our Platform initiatives primarily include enabling clients to easily consume the breadth of our capabilities using microservices as well as process automation and consolidation of technology platforms to speed new solution and service innovation over approximately the next three years. We continue to invest in modernization, innovation and integrated solutions and services to meet the demands of the markets we serve and compete with global banks, financial and other technology providers, and emerging technology innovators. We invest both organically and through investment opportunities in companies building complementary technologies in the financial services space. Our internal efforts in research and development activities have related primarily to the modernization of our proprietary core systems in each of our segments, design and development of next-generation digital and innovative solutions and development of processing systems and related software applications and risk management platforms. We have increased our investments in these areas in each of the last three years. Our innovation efforts have recently resulted in bringing to market our Modern Banking Platform that is among the first cloud-native core banking solutions. We expect to continue our practice of investing an appropriate level of resources to maintain, enhance and extend the functionality of our proprietary systems and existing software applications, to develop new and innovative software applications and systems to address emerging technology trends in response to the needs of our clients, and to enhance the capabilities of our outsourcing infrastructure.
In addition, we are investing in the development of new solutions and venture
opportunities by establishing
FIS continues to carefully monitor the effects of the ongoing COVID-19 pandemic as conditions continue to evolve in different parts of the world. Since the beginning of the pandemic, the Company has taken several actions to protect its employees while maintaining business continuity, including implementing its comprehensive Pandemic Plan. When the COVID-19 variants impactedIndia in the second quarter, we rolled out several benefits to help our employees there, including providing vaccines to over 15,000 employees and dependents. The Pandemic Plan includes site-specific plans as well as travel restrictions, medical response protocols, work-from-home strategies and enhanced cleaning within our locations. As a critical infrastructure provider for the global economy, FIS continues to operate around the world to serve our clients. The spread of COVID-19 has caused us to modify our business practices, and we may take further actions as may be required by government authorities or as we determine are in the best interests of our employees, clients and business partners. While FIS has outfitted employees to provide services from home or transferred work to other locations, we recently began a limited reopening of offices in certain locations where the COVD-19 infection rates have been significantly reduced. In many locations, a hybrid work status will allow employees to work from home and the office. 25
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Consumer preference continues to shift from traditional branch banking services to digital banking solutions, and our clients seek to provide a single integrated banking experience through their branch, mobile, internet and voice banking channels. The COVID-19 pandemic has resulted in accelerating digitization of banking and payment services by requiring, in many cases, banks and bank customers to transact through digital channels. We have been providing our large regional banking customers in theU.S. with Digital One, an integrated digital banking platform, and are now adding functionality and offering Digital One to our community bank clients to provide a consistent, omnichannel experience for consumers of banking services across self-service channels like mobile banking and online banking, as well as supporting channels for bank staff operating in bank branches and contact centers. The uniform customer experience extends to support a broad range of financial services including opening new accounts, servicing of existing accounts, money movement, and personal financial management, as well as other consumer, small business and commercial banking capabilities. Digital One is integrated into several of the core banking platforms offered by FIS and is also offered to customers of non-FIS core banking systems. We anticipate consolidation within the banking industry will continue, primarily in the form of merger and acquisition activity among financial institutions, which we believe would broadly be detrimental to the profitability of the financial technology industry. However, consolidation resulting from specific merger and acquisition transactions may be beneficial to our business. When consolidations of financial institutions occur, merger partners often operate systems obtained from competing service providers. The newly formed entity generally makes a determination to migrate its core and payments systems to a single platform. When a financial institution processing client is involved in a consolidation, we may benefit by their expanding the use of our services if such services are chosen to survive the consolidation and to support the newly combined entity. Conversely, we may lose revenue if we are providing services to both entities, or if a client of ours is involved in a consolidation and our services are not chosen to survive the consolidation and to support the newly combined entity. It is also possible that larger financial institutions resulting from consolidation may have greater leverage in negotiating terms or could decide to perform in-house some or all of the services that we currently provide or could provide. We seek to mitigate the risks of consolidations by offering other competitive services to take advantage of specific opportunities at the surviving company. FIS is a global leader in the merchant solutions industry, with differentiated solutions throughout the payments market, including capabilities in global eCommerce, integrated payments, enterprise payments and data security solutions in business-to-business ("B2B") payments. These solutions bring advanced payments technologies at each stage of the transaction life cycle. We have a broad solution portfolio, enabling us to significantly expand our merchant acquiring solutions, including our capabilities in the growing eCommerce and integrated payment segments of the market, which are in demand among our merchant clients as they look for ways to integrate technology into their business models. As the impact of the COVID-19 pandemic lessens with the continuing reopening of markets, our merchant processing revenue has improved significantly as consumer spending increased, particularly in areas where the vaccine has been more accessible and more effectively rolled out. Certain areas of spending continue to lag behind pre-COVID 19 levels, such as cross-border travel and airlines, and our merchant processing revenues continue to be adversely affected in those areas. We expect that revenue will continue to be adversely impacted until the economic effects of the pandemic, including those caused by government, company and public travel restrictions, subside around the world but that revenue should continue to increase in areas where the vaccine rollout effectively continues. As of the end of the third quarter of 2021, our achievement of revenue synergies from the Worldpay acquisition remains on track to meet or exceed our current targets, driven by successful cross-sell of our heritage FIS solutions into heritage Worldpay clients and leveraging our heritage Worldpay sales and distribution teams, expanding on our existing relationships with financial institutions to establish merchant referral agreements and optimizing our network routing capabilities. We have also exceeded our original target for expense synergies, as we have successfully integrated organizational structures, reduced corporate overhead and achieved cost savings within our operating environment, and we expect to continue to achieve additional expense synergies during 2021. We continue to see demand in the payments market for innovative solutions that will deliver faster, more convenient payment options in mobile channels, internet applications, in-store cards, and the growing area of cryptocurrency. The payment processing industry is adopting new technologies, developing new solutions and services, evolving new business models and being affected by new market entrants and by an evolving regulatory environment. As merchants and financial institutions respond to these changes by seeking services to help them enhance their own offerings to consumers, including the ability to accept card-not-present ("CNP") payments in eCommerce and mobile environments as well as contactless cards and mobile wallets at the point-of-sale, FIS believes that payment processors will seek to develop additional capabilities in order to serve clients' evolving needs. To facilitate this expansion, we believe that payment processors will need to enhance their technology platforms so they can deliver these capabilities and differentiate their offerings from other providers. The COVID-19 pandemic 26
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has accelerated digitization of payment services by requiring, in many cases, businesses and consumers to transact through digital channels.
We believe that these market changes present both an opportunity and a risk for us, and we cannot predict which emerging technologies or solutions will be successful. However, FIS believes that payment processors, like FIS, that have scalable, integrated business models, provide solutions across the payment processing value chain and utilize broad distribution capabilities will be best positioned to enable emerging alternative electronic payment technologies. Further, FIS believes that its depth of capabilities and breadth of distribution will enhance its position as emerging payment technologies are adopted by merchants and other businesses. FIS' ability to partner with non-financial institution enterprises, such as mobile payment providers and internet, retail and social media companies, continues to create attractive growth opportunities as these new entrants seek to become more active participants in the development of alternative electronic payment technologies and to facilitate the convergence of retail, online, mobile and social commerce applications. Globally, attacks on information technology systems continue to grow in frequency, complexity and sophistication. This is a trend we expect to continue. Such attacks have become a point of focus for individuals, businesses and governmental entities. The objectives of these attacks include, among other things, gaining unauthorized access to systems to facilitate financial fraud, disrupt operations, cause denial of service events, corrupt data, and steal non-public information. These circumstances present both a threat and an opportunity for FIS. As part of our business, we electronically receive, process, store and transmit a wide range of confidential information, including sensitive customer information and personal consumer data. We also operate payment, cash access and prepaid card systems. FIS remains focused on making strategic investments in information security to protect our clients and our information systems. These investments include both capital expenditures and operating expense related to hardware, software, personnel and consulting services. We also participate in industry and governmental initiatives to improve information security for our clients. Through the expertise we have gained with this ongoing focus and involvement, we have developed fraud, security, risk management and compliance solutions to target this growth opportunity in the financial services industry. During the third quarter of 2021, we became aware that a particular vendor's point-of-sale devices, used by merchants to accept card payments, were initiating connections to destinations not listed in the vendor's supplied documentation. We questioned the vendor about this issue and did not receive answers we consider satisfactory. While we are not aware of any evidence that data processed by the devices have in fact been compromised, we determined that we would no longer participate in the deployment of this vendor's devices and that we would assist our merchant customers actively processing through our acquiring platform in replacing these devices, at our expense. This replacement is expected to be completed in 2022, and the aggregate costs of acquiring and installing the devices are not expected to be material to our results of operations or financial condition. We do not believe that this incident has affected the security of our information systems.
Critical Accounting Policies and Estimates
There have been no significant changes to our critical accounting policies as disclosed in our Annual Report on Form 10-K for the year endedDecember 31, 2020 . For discussion regarding the impact of the COVID-19 pandemic on our critical and significant accounting estimates subject to risk and uncertainties, see Notes 1, 3 and 7 to the consolidated financial statements.
Transactions with Related Parties
See Note 9 to the consolidated financial statements for a description of transactions with related parties.
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Consolidated Results of Operations - Comparisons of three- and nine-month
periods ended
Three months ended September 30, Nine months ended September 30, $ % $ % 2021 2020 Change Change 2021 2020 Change Change (In millions) (In millions) Revenue$ 3,507 $ 3,197 $ 310 10 %$ 10,205 $ 9,236 $ 969 10 % Cost of revenue (2,178) (2,104) (74) 4 (6,431) (6,238) (193) 3 Gross profit 1,329 1,093 236 22 3,774 2,998 776 26 Gross profit margin 38 % 34 % 37 % 32 % Selling, general and administrative expenses (989) (862) (127) 15 (2,972) (2,613) (359) 14 Asset impairments (202) - (202) NM (202) - (202) NM Operating income$ 138 $ 231 (93) (40)$ 600 $ 385 215 56 Operating margin 4 % 7 % 6 % 4 % NM = Not meaningful Revenue Revenue for the three and nine months endedSeptember 30, 2021 , increased primarily due to the continued global economic recovery from the pandemic leading to increased Merchant volumes, increased demand for our newly developed offerings in Banking, and strong new sales driving Capital Markets managed services and other recurring revenue growth. Revenue also benefited from a favorable foreign currency impact, which was primarily related to a weakerU.S. Dollar versus the Euro and the British Pound Sterling. See Segment Results of Operations below for more detailed explanation.
Cost of Revenue, Gross Profit and Gross Profit Margin
Cost of revenue and gross profit for the three and nine months endedSeptember 30, 2021 , increased primarily due to the revenue variances noted above. Gross profit margin for the three and nine months endedSeptember 30, 2021 , increased primarily due to revenue growth, a positive shift in revenue mix and continued expense management. This increase was partially offset by$102 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 initiatives.
Selling, General and Administrative Expenses
Selling, general and administrative expenses for the three and nine months endedSeptember 30, 2021 , increased primarily due to higher compensation expense, including incentive compensation and, for the nine months endedSeptember 30, 2021 , accelerated stock compensation expense recorded during the first quarter of 2021 associated with the establishment of the Qualified Retirement Equity Program that modified our existing stock compensation plans as described in Note 8 to the consolidated financial statements. These increases were partially offset by lower discretionary spending during the COVID-19 pandemic.
Asset Impairments
During the three and nine months endedSeptember 30, 2021 , the Company recorded$202 million of asset impairments for certain software and deferred contract cost assets driven by the Company's Platform initiatives.
Operating Income and Operating Margin
The change in operating income for the three and nine months endedSeptember 30, 2021 , resulted from the revenue and cost variances noted above. The operating margin for the three months endedSeptember 30, 2021 , decreased primarily due to the asset impairments, accelerated amortization expense, and higher compensation expense, partially offset by a positive shift in revenue mix and continued expense management discussed above as compared to prior year. The operating margin for the nine months endedSeptember 30, 2021 , increased primarily due to a positive shift in revenue mix and continued expense 28
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management, partially offset by asset impairments, accelerated amortization expense, and higher compensation expense discussed above as compared to prior year.
Total Other Income (Expense), Net
Three months ended September 30, Nine months ended September 30, $ % $ % 2021 2020 Change Change 2021 2020 Change Change Other income (expense): (In millions) (In millions)
Interest expense, net
(45) %$ (169) $ (252) $ 83 (33) % Other income (expense), net 110 (4) 114 NM (58) 31 (89) NM Total other income (expense), net $ 64$ (88) 152 NM$ (227) $ (221) (6) 3 % NM = Not meaningful The decrease in interest expense, net is primarily due to lower outstanding debt and lower weighted average interest rate on the outstanding debt throughout the three and nine months endedSeptember 30, 2021 . Other income (expense), net for the three and nine months endedSeptember 30, 2021 , includes net gains on equity security investments without readily determinable fair values of$126 million and$214 million , respectively (see Note 3 to the consolidated financial statements). For the nine months endedSeptember 30, 2021 , other income (expense), net also includes gain on the sale of our equity ownership interest inCardinal Holdings of approximately$225 million and a loss on extinguishment of debt of approximately$528 million 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 foregoing loss resulted from the debt refinancing activity we undertook in the first quarter of 2021 (see Note 5 to the consolidated financial statements), which will substantially reduce our ongoing interest expense. Other income (expense), net for these periods also includes fair value adjustments on certain other non-operating assets and liabilities and foreign currency transaction remeasurement gains. Other income (expense), net for the three and nine months endedSeptember 30, 2020 , primarily includes the fair value adjustment on certain assets and liabilities offset by foreign currency transaction remeasurement losses and the settlement recorded for theReliance Trust claims, which is further described in Note 7 to the consolidated financial statements.
Provision (Benefit) for Income Taxes
Three months ended September 30, Nine months ended September 30, $ % $ % 2021 2020 Change Change 2021 2020 Change Change (In millions) (In millions) Provision (benefit) for income taxes$ 41 $ 121 $ (80) NM$ 246 $ 94 $ 152
NM
Effective tax rate 20 % 85 % 66 % 57 %
NM = Not meaningful
The effective tax rate for the three months endedSeptember 30, 2020 , includes a one-time net remeasurement of certain deferred tax liabilities due to the increase in theU.K. corporate statutory tax rate from 17% to 19% enacted onJuly 22, 2020 , causing a decrease in the effective tax rate for the three months endedSeptember 30, 2021 , when compared to the 2020 three-month period. The increase in the effective tax rate for the nine months endedSeptember 30, 2021 , is primarily due to the one-time net remeasurement of certain deferred tax liabilities due to the increase in theU.K. corporate statutory tax rate from 19% to 25% effectiveApril 1, 2023 , enacted onJune 10, 2021 .
Segment Results of Operations - Comparisons of three- and nine-month periods
ended
FIS reports its financial performance based on the following segments: Merchant Solutions, Banking Solutions, Capital Market Solutions, and Corporate and Other. The Company reclassified certain non-strategic businesses from Merchant Solutions, Banking Solutions, and Capital Market Solutions into Corporate and Other during the year endedDecember 31, 2020 , and recast all prior-period segment information presented. 29
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Adjusted EBITDA is defined as net earnings (loss) before net interest expense, net other income (expense), income tax provision (benefit), equity method investment earnings (loss), depreciation and amortization, and excludes certain costs and other transactions that management deems non-operational in nature. This measure 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. The non-operational items affecting the segment profit measure generally include the amortization of purchase accounting adjustments 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. Financial information, including details of Adjusted EBITDA, for each of our segments is set forth in Note 11 to the consolidated financial statements. Merchant Solutions Three months ended September 30, Nine months ended September 30, $ % $ % 2021 2020 Change Change 2021 2020 Change Change (In millions) (In millions) Revenue$ 1,161 $ 1,017 $ 144 14 %$ 3,303 $ 2,764 $ 539 20 % Adjusted EBITDA$ 600 $ 487 113 23$ 1,639 $ 1,241 398 32 Adjusted EBITDA margin 51.7 % 47.9 % 49.6 % 44.9 % Adjusted EBITDA margin basis points change 380 470
Three months ended
Revenue increased primarily due to easing lockdown restrictions and the continued global economic recovery from the pandemic. Third quarter revenue increased due to higher card-present volumes contributing 12% to growth and card-not-present volumes contributing 5% to growth, which were offset (4%) primarily due to lower volumes from the shifted timing of theU.S. tax filing deadline from the second to the third quarter of 2020. Revenue also benefited from a favorable foreign currency impact contributing 1% to growth and was primarily related to a weakerU.S. Dollar versus the British Pound Sterling.
Adjusted EBITDA increased primarily due to the revenue impacts noted above. Adjusted EBITDA margin increased primarily due to revenue growth, higher-margin revenue mix and continued expense management.
Nine months ended
Revenue increased primarily due to easing lockdown restrictions and the continued global economic recovery from the pandemic. For the first nine months, revenue increased due to higher card-present volumes contributing 13% to growth and card-not-present volumes contributing 4% to growth. Revenue also benefited from a favorable foreign currency impact contributing 3% to growth and was primarily related to a weakerU.S. Dollar versus the British Pound Sterling.
Adjusted EBITDA increased primarily due to the revenue impacts noted above. Adjusted EBITDA margin increased primarily due to revenue growth, higher-margin revenue mix and continued expense management.
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Table of Contents Banking Solutions Three months ended September 30, Nine months ended September 30, $ % $ % 2021 2020 Change Change 2021 2020 Change Change (In millions) (In millions) Revenue$ 1,610 $ 1,488 $ 122 8 %$ 4,729 $ 4,394 $ 335 8 % Adjusted EBITDA$ 742 $ 649 93 14$ 2,129 $ 1,868 $ 261 14 Adjusted EBITDA margin 46.1 % 43.6 % 45.0 % 42.5 % Adjusted EBITDA margin basis points change 250 250
Three months ended
Revenue increased primarily due to recurring revenue contributing 5% to growth, driven by strong new sales, including newly developed offerings, and increased volumes due to the continued global economic recovery from the pandemic. Non-recurring revenue also contributed 3% to growth, primarily due to the timing of termination fees.
Adjusted EBITDA increased primarily due to the revenue impacts noted above. Adjusted EBITDA margin increased primarily due to higher-margin revenue mix and continued expense management.
Nine months ended
Revenue increased primarily due to recurring revenue contributing 5% to growth, driven by strong new sales, including newly developed offerings, and increased volumes due to the continued global economic recovery from the pandemic. Non-recurring revenue also contributed 2% to growth primarily due to the timing of termination fees. Revenue also benefited from a favorable foreign currency impact contributing 1% to growth and was primarily related to a weakerU.S. Dollar versus the British Pound Sterling and the Euro.
Adjusted EBITDA increased primarily due to the revenue impacts noted above. Adjusted EBITDA margin increased primarily due to higher-margin revenue mix and continued expense management.
Capital Market Solutions Three months ended September 30, Nine months ended September 30, $ % $ % 2021 2020 Change Change 2021 2020 Change Change (In millions) (In millions) Revenue$ 654 $ 587 $ 67 11 %$ 1,908 $ 1,777 $ 131 7 % Adjusted EBITDA$ 316 $ 265 51 20$ 897 $ 801 96 12 Adjusted EBITDA margin 48.4 % 45.1 % 47.0 % 45.1 % Adjusted EBITDA margin basis points change 330 190
Three months ended
Revenue increased primarily due to recurring revenue contributing 4% to growth from strong new sales driving outsourced solutions and services. Non-recurring revenue also contributed 6% driven by strong deal execution in the quarter and favorable renewal timing. Revenue also benefited from a favorable foreign currency impact contributing 1% to growth and was primarily related to a weakerU.S. Dollar versus the British Pound Sterling.
Adjusted EBITDA increased primarily due to the revenue impacts noted above. Adjusted EBITDA margin increased primarily due to higher-margin revenue mix and continued expense management.
Nine months ended
Revenue increased primarily due to recurring revenue contributing 3% and non-recurring revenue contributing 3% to growth driven by strong new sales driving outsourced solutions and services. The growth of recurring revenue led to an increase in professional services revenue, with much of the services being delivered in a virtual capacity given the ongoing COVID-19 31
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pandemic. Revenue also benefited from a favorable foreign currency impact
contributing 1% to growth and was primarily related to a weaker
Adjusted EBITDA increased primarily due to the revenue impacts noted above. Adjusted EBITDA margin increased primarily due to higher-margin revenue mix and continued expense management. Corporate and Other Three months ended September 30, Nine months ended September 30, $ % $ % 2021 2020 Change Change 2021 2020 Change Change (In millions) (In millions) Revenue$ 82 $ 105 $ (23) (21) %$ 265 $ 301 $ (36) (12) % Adjusted EBITDA$ (73) $ (44) (29) 66$ (253) $ (149) (104) 70
The Corporate and Other segment results consist of selling, general and administrative expenses and depreciation and intangible asset amortization not otherwise allocated to the reportable segments. Corporate and Other also includes operations from certain non-strategic businesses.
Three and nine months ended
Revenue decreased primarily due to client attrition in our non-strategic businesses.
Adjusted EBITDA decreased primarily due to the revenue impact noted above as well as higher compensation expense compared to prior year.
Liquidity and Capital Resources
Cash Requirements
Our ongoing cash requirements include operating expenses, income taxes, tax receivable obligations, mandatory debt service payments, capital expenditures, stockholder dividends, regulatory requirements, working capital and timing differences in settlement-related assets and liabilities, and may include discretionary debt repayments, share repurchases and business acquisitions. Our principal sources of funds are cash generated by operations and borrowings, including the capacity under our Revolving Credit Facility, theU.S. commercial paper program and the Euro-commercial paper program discussed in Note 5 to the consolidated financial statements. As ofSeptember 30, 2021 , the Company had$3,381 million of available liquidity, including$1,390 million of cash and cash equivalents and$1,991 million of capacity available under its Revolving Credit Facility. Approximately$686 million of cash and cash equivalents is held by our foreign entities. The majority of our cash and cash equivalents represents net deposits-in-transit at the balance sheet dates and relates to daily settlement activity and regulatory requirements. Debt outstanding totaled$19.8 billion , with an effective weighted average interest rate of 0.9%. The Company's liquidity has improved during 2021 as compared to at the onset of the pandemic. However, our liquidity could be impacted if economic conditions deteriorate or as a result of governmental measures that might be imposed in response to the COVID-19 pandemic or any recurrence or related variants thereof.
The Company remains committed to reducing its leverage incurred in the Worldpay acquisition while ensuring ample liquidity and expects to reach its target leverage by the end of 2021.
We expect that cash and cash equivalents plus cash flows from operations over the next 12 months will be sufficient to fund our operating cash requirements, capital expenditures and mandatory debt service payments. We currently expect to continue to pay quarterly dividends, and we recently announced an intent to increase our dividend payout ratio over the next several years. However, the amount, declaration and payment of future dividends is at the discretion of our Board of Directors and depends on, among other things, our investment opportunities (including potential mergers and acquisitions), results of operations, financial condition, cash requirements, future prospects, the duration and impact of the COVID-19 pandemic, and other factors that may be considered relevant by our Board of Directors, including legal and contractual restrictions. Additionally, the payment of cash dividends may be limited by covenants in certain debt agreements. A 32
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regular quarterly dividend of
InJanuary 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 share repurchase program has no expiration date and may be suspended for periods, amended or discontinued at any time. Under the new share repurchase program, the Company repurchased approximately$1.2 billion in shares during the third quarter and approximately 85 million shares remain available for repurchase as ofSeptember 30, 2021 .
Cash Flows from Operations
Cash flows from operations were$3,697 million and$3,024 million for the nine-month periods endedSeptember 30, 2021 and 2020, respectively. Our net cash provided by operating activities consists primarily of net earnings, adjusted to add back depreciation and amortization. Cash flows from operations increased$673 million in the 2021 period primarily due to the continued global economic recovery from the pandemic, partially offset by working capital timing.
Capital Expenditures and Other Investing Activities
Our principal capital expenditures are for software (purchased and internally developed) and additions to property and equipment. We invested approximately$877 million and$838 million in capital expenditures (excluding other financing obligations for certain hardware and software) during the nine-month periods endedSeptember 30, 2021 and 2020, respectively. We expect to continue investing in property and equipment, purchased software and internally developed software to support our business. We received approximately$367 million of cash during the nine months endedSeptember 30, 2021 , for the net proceeds from the sale of our equity ownership interest inCardinal Holdings . We used$469 million of cash (net of cash acquired) during the nine months endedSeptember 30, 2020 , primarily for the Virtus acquisition completed onJanuary 2, 2020 .
Financing
For more information regarding the Company's debt and financing activity see Note 5 to the consolidated financial statements.
Contractual Obligations
There were no material changes in our contractual obligations through the nine months endedSeptember 30, 2021 , in comparison to the table included in our Annual Report on Form 10-K for the year endedDecember 31, 2020 , except as disclosed in Note 5 to the consolidated financial statements. Off-Balance Sheet Arrangements FIS does not have any material off-balance sheet arrangements. Recent Accounting Pronouncements No new accounting pronouncement issued or effective during the fiscal year had or is expected to have a material impact on our consolidated financial statements or disclosures.
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