A Fidelity National Information Services plan aimed at carving out $500 million in costs may expand as payments technology company FIS braces for macroeconomic headwinds.
The enterprise transformation program “is really just a starting point for us,” FIS Chief Financial Officer Erik Hoag said at a conference Tuesday. The company expects the cost-cutting efforts to stretch into next year.
In addition to “right-sizing the cost footprint of the company,” the program is aimed at reducing the capital intensity of the business, increasing profitable revenue growth and boosting free cash flow, he explained at the UBS Global TMT conference.
That could mean cutting thousands of jobs at the Jacksonville, Florida-based company, Bloomberg reported last month. FIS had about 65,000 employees as of the end of last year, including 40,000 outside the U.S., according to its annual filing with the Securities and Exchange Commission.
Cost pressures have been driven at least partly by employee expense, with Hoag saying that the cost of the employees FIS has been hiring has outpaced the cost of those exiting.
The company’s need to reset its business cost structure comes after making major acquisitions in recent years, including agreeing to pay $35 billion for payments processor Worldpay in 2019. The restructuring also comes as FIS, which has a corporate history reaching back 54 years, faces a slew of younger, more cost-efficient fintech competitors.
FIS has experienced “softening sales” this year in its business of selling financial technology services to banks as it comes up against “cautious buyers,” Hoag said. Nonetheless, he said he still believes that the business is fairly well insulated from competition and will persist in a downturn because of its recurring revenue.
In its other major business segment of selling payment services to merchants, including e-commerce venues, FIS has battled “choppier” demand in its sales to small- and mid-sized clients, too, Hoag said.
FIS is also up against a difficult economic environment, currently characterized by rising inflation and higher interest rates. When asked what worries him about the future at the conference yesterday, Hoag pointed to economic conditions. “We've got a really uncertain macro, and the macro is impacting us rather materially in 2022,” Hoag said.
He took on the CFO job last month as FIS prepares for a new CEO, too. In October, the company’s board appointed President Stephanie Ferris to succeed the current CEO, Gary Norcross, on Jan. 1.
Ferris talked about the company’s cost savings program earlier this year, too. “Early expectations are to deliver at least $500 million of cash savings with an additional update to be determined as we go through the planning process,” Ferris said last month.
As for any new acquisitions, Hoag said the company’s plans don’t include seeking to purchase any businesses at the moment. That’s likely at least partly because of the ongoing cost pressures in a challenging economic climate. “We do expect cost pressures to persist into 2023,” Hoag said.