Market Overview

Fiserv Reports Second Quarter 2018 Results

Share:

GAAP revenue growth of 2 percent in the quarter and 3 percent year to
date;

GAAP EPS increase of 18 percent in the quarter and 49 percent year to
date;

Internal revenue growth of 6 percent in the quarter and 5 percent year
to date;

Adjusted EPS increase of 32 percent in the quarter and 27 percent year
to date;

Full year 2018 guidance affirmed

Fiserv, Inc. (NASDAQ:FISV), a leading global provider of financial
services technology solutions, today reported financial results for the
second quarter of 2018.

Second Quarter 2018 GAAP Results

GAAP revenue for the company increased 2 percent to $1.42 billion in the
second quarter of 2018 compared to the prior year period, with 7 percent
growth in the Payments segment and 5 percent decline in the Financial
segment. For the first six months of 2018, GAAP revenue increased 3
percent to $2.86 billion compared to the prior year period, with 7
percent growth in the Payments segment and 3 percent decline in the
Financial segment. The sale of a 55 percent interest of the company's
Lending Solutions business (the "Lending Transaction") in the first
quarter of 2018 resulted in a decline of GAAP revenue in 2018 for the
Financial segment.

GAAP earnings per share was $0.60 in the second quarter and $1.61 in the
first six months of 2018, increasing 18 percent and 49 percent,
respectively, compared to the prior year periods. GAAP earnings per
share in the first six months of 2018 included a gain of $0.36 per share
on the Lending Transaction. The company completed a two-for-one stock
split in the first quarter of 2018. Accordingly, all share data and per
share amounts are presented on a split-adjusted basis.

GAAP operating margin was 25.2 percent in the second quarter and 33.8
percent in the first six months of 2018, respectively, compared to 26.8
percent in the second quarter and 26.5 percent in the first six months
of 2017, respectively. GAAP operating margin in the first six months of
2018 included a $229 million gain resulting from the Lending Transaction.

Net cash provided by operating activities was $613 million in the first
six months of 2018, which did not reflect $419 million of sale proceeds
from the Lending Transaction. Net cash provided by operating activities
was $691 million in the first six months of 2017, which included cash
distributions of $31 million from StoneRiver Group, L.P. ("StoneRiver"),
a joint venture in which the company owns a 49 percent interest.

"Our second quarter results were excellent and have us well-positioned
to achieve our full-year objectives," said Jeffery Yabuki, President and
Chief Executive Officer of Fiserv. "We continue to focus on service
quality, innovation and integration which is reflected in both our
current results and sales pipeline entering the second half of the year."

Second Quarter 2018 Non-GAAP Results and Additional Information

  • Adjusted revenue increased 2 percent to $1.35 billion in the second
    quarter and 3 percent to $2.72 billion in the first six months of 2018
    compared to the prior year periods.
  • Internal revenue growth for the company was 6 percent in the second
    quarter, with 5 percent growth in the Payments segment and 7 percent
    growth in the Financial segment.
  • Internal revenue growth for the company was 5 percent in the first six
    months of 2018, with 5 percent growth in the Payments segment and 4
    percent growth in the Financial segment.
  • Adjusted earnings per share increased 32 percent to $0.75 in the
    second quarter and 27 percent to $1.51 in the first six months of 2018
    compared to the prior year periods.
  • Adjusted operating margin increased 40 basis points to 32.4 percent in
    the second quarter and increased 20 basis points to 32.5 percent in
    the first six months of 2018 compared to the prior year periods.
  • Free cash flow was $491 million in the first six months of 2018
    compared to $555 million in the prior year period.
  • Sales results were up 6 percent in the quarter and 9 percent in the
    first six months of 2018 compared to the prior year periods.
  • The company repurchased 5.4 million and 11.0 million shares of common
    stock for $390 million and $789 million in the second quarter and
    first half of 2018, respectively. The company had 10.4 million
    remaining shares authorized for repurchase as of June 30, 2018.

Outlook for 2018

Fiserv continues to expect internal revenue growth of at least 4.5
percent and adjusted earnings per share in a split-adjusted range of
$3.02 to $3.15, which represents growth of 22 to 27 percent over 2017 as
adjusted for the Lending Transaction.

"Our first-half performance has set us up for strong full-year results
and additional momentum as we look into 2019," said Yabuki.

Earnings Conference Call

The company will discuss its second quarter 2018 results on a conference
call and webcast at 4 p.m. CT on Tuesday, July 31, 2018. To register for
the event, go to Fiserv.com
and click on the Q2 Earnings webcast link. Supplemental materials will
be available in the "Investor Relations" section of the website.

About Fiserv

Fiserv, Inc. (NASDAQ:FISV) enables clients worldwide to create and
deliver financial services experiences in step with the way people live
and work today. For more than 30 years, Fiserv has been a trusted leader
in financial services technology, helping clients achieve best-in-class
results by driving quality and innovation in payments, processing
services, risk and compliance, customer and channel management, and
insights and optimization. Fiserv is a member of the FORTUNE®
500 and has been named among the FORTUNE Magazine World's Most Admired
Companies® for five consecutive years, recognized for
strength of business model and innovation leadership. For more
information, visit Fiserv.com.

Use of Non-GAAP Financial Measures

In this earnings release, the company supplements its reporting of
information determined in accordance with GAAP, such as revenue,
operating income, operating margin, income from continuing operations,
net income, earnings per share from continuing operations, earnings per
share and net cash provided by operating activities, with "adjusted
revenue," "internal revenue growth," "adjusted operating income,"
"adjusted operating margin," "adjusted net income," "adjusted earnings
per share," "adjusted earnings per share, as adjusted for the Lending
Transaction," and "free cash flow." Management believes that adjustments
for certain non-cash or other items and the exclusion of certain
pass-through revenue and expenses should enhance shareholders' ability
to evaluate the company's performance, as such measures provide
additional insights into the factors and trends affecting its business.
Therefore, the company excludes these items from GAAP revenue, operating
income, operating margin, income from continuing operations, net income,
earnings per share from continuing operations, earnings per share and
net cash provided by operating activities to calculate these non-GAAP
measures. The corresponding reconciliations of these non-GAAP financial
measures to the most comparable GAAP measures are included in this
earnings release, except for forward-looking measures where a
reconciliation to the corresponding GAAP measures is not available due
to the variability, complexity and limited visibility of the non-cash
and other items described below that are excluded from the non-GAAP
outlook measures. See page 11 for additional information regarding the
company's forward-looking non-GAAP financial measures.

Examples of non-cash or other items may include, but are not limited to,
non-cash deferred revenue adjustments arising from acquisitions,
non-cash intangible asset amortization expense associated with
acquisitions, non-cash impairment charges, severance costs, merger and
integration costs, certain costs associated with the achievement of the
company's operational effectiveness objectives, gains or losses from
dispositions and unconsolidated affiliates, and certain discrete tax
benefits. The company excludes these items to more clearly focus on the
factors management believes are pertinent to its operations, and
management uses this information to make operating decisions, including
the allocation of resources to the company's various businesses.

Internal revenue growth and free cash flow are non-GAAP financial
measures and are described on page 10. Management believes internal
revenue growth is useful because it presents revenue growth excluding
acquisitions, dispositions and the impact of postage reimbursements in
the company's Output Solutions business, and including deferred revenue
purchase accounting adjustments. Management believes free cash flow is
useful to measure the funds generated in a given period that are
available for debt service requirements and strategic capital decisions.
Management believes this supplemental information enhances shareholders'
ability to evaluate and understand the company's core business
performance.

These non-GAAP measures may not be comparable to similarly titled
measures reported by other companies and should be considered in
addition to, and not as a substitute for, revenue, operating income,
operating margin, income from continuing operations, net income,
earnings per share from continuing operations, earnings per share and
net cash provided by operating activities or any other amount determined
in accordance with GAAP.

Forward-Looking Statements

This press release contains forward-looking statements within the
meaning of the Private Securities Litigation Reform Act of 1995,
including statements regarding anticipated internal revenue growth,
adjusted earnings per share and adjusted earnings per share growth.
Statements can generally be identified as forward-looking because they
include words such as "believes," "anticipates," "expects," "could,"
"should" or words of similar meaning. Statements that describe the
company's future plans, objectives or goals are also forward-looking
statements. Forward-looking statements are subject to assumptions, risks
and uncertainties that may cause actual results to differ materially
from those contemplated by such forward-looking statements. The factors
that may affect the company's results include, among others: pricing and
other actions by competitors; the capacity of the company's technology
to keep pace with a rapidly evolving marketplace; the impact of a
security breach or operational failure on the company's business; the
effect of legislative and regulatory actions in the United States and
internationally; the company's ability to comply with government
regulations;
the company's ability to successfully identify,
complete and integrate acquisitions, and to realize the anticipated
benefits associated with the same; the impact of the company's strategic
initiatives; the impact of market and economic conditions on the
financial services industry; and other factors included in the company's
filings with the SEC, including its Annual Report on Form 10-K for the
year ended December 31, 2017, and in other documents that the company
files with the SEC. You should consider these factors carefully in
evaluating forward-looking statements and are cautioned not to place
undue reliance on such statements. The company assumes no obligation to
update any forward-looking statements, which speak only as of the date
of this press release.

 
 
 
 
 
Fiserv, Inc.
Condensed Consolidated Statements of Income
(In millions, except per share amounts, unaudited)
 
        Three Months Ended
June 30,
    Six Months Ended
June 30,
2018     2017 2018     2017
Revenue
Processing and services $ 1,207 $ 1,186 $ 2,445 $ 2,364
Product 213   200   415   416  
Total revenue 1,420   1,386   2,860   2,780  
 
Expenses
Cost of processing and services 560 573 1,128 1,143
Cost of product 179 175 370 357
Selling, general and administrative 320 276 625 553
(Gain) loss on sale of businesses 3   (10 ) (229 ) (10 )
Total expenses 1,062   1,014   1,894   2,043  
 
Operating income 358 372 966 737
Interest expense (45 ) (44 ) (90 ) (86 )
Non-operating income 3   2   3   2  
 
Income before income taxes and income
from
investments in unconsolidated affiliates
316 330 879 653
Income tax provision (72 ) (109 ) (212 ) (211 )
Income from investments in unconsolidated affiliates 7     7   26  
 
Net income $ 251   $ 221   $ 674   $ 468  
 
GAAP earnings per share - diluted $ 0.60 $ 0.51 $ 1.61 $ 1.08
 
Diluted shares used in computing earnings per share 416.4 432.5 419.0 435.5
 
Earnings per share is calculated using actual, unrounded amounts.
 
 
 
 
 
 
Fiserv, Inc.
Reconciliation of GAAP to
Adjusted Net Income and Adjusted Earnings Per Share
(In millions, except per share amounts, unaudited)
       
Three Months Ended
June 30,
Six Months Ended
June 30,
2018   2017 2018 2017
 
GAAP net income $ 251 $ 221 $ 674 $ 468
Adjustments:
Merger, integration and other costs 1 29 15 52 29
Severance costs 7 7 12 19
Amortization of acquisition-related intangible assets 40 40 80 78
Lending Transaction impact 2 (17 ) (17 )
Tax impact of adjustments 3 (17 ) (15 ) (32 ) (36 )
(Gain) loss on sale of businesses 4 3 (10 ) (229 ) (10 )
Tax impact of gain/loss on sale of businesses 3 (1 ) 5 77 5
StoneRiver transactions 5 (1 ) (1 ) (26 )
Tax impact of StoneRiver transactions 3       9  
Adjusted net income $ 311   $ 246   $ 633   $ 519  
 
GAAP earnings per share $ 0.60 $ 0.51 $ 1.61 $ 1.08
Adjustments - net of income taxes:
Merger, integration and other costs 1 0.05 0.02 0.10 0.04
Severance costs 0.01 0.01 0.02 0.03
Amortization of acquisition-related intangible assets 0.08 0.06 0.15 0.12
Lending Transaction impact 2 (0.03 ) (0.02 )
(Gain) loss on sale of businesses 4 0.01 (0.01 ) (0.36 ) (0.01 )
StoneRiver transactions 5       (0.04 )
Adjusted earnings per share $ 0.75   $ 0.57   $ 1.51   $ 1.19  
 

1 Merger, integration and other costs include acquisition and
related integration costs of $29 million in 2018 and $13 million
in 2017, and certain costs associated with the achievement of the
company's operational effectiveness objectives of $23 million in
2018 and $16 million in 2017, primarily consisting of expenses
related to data center consolidation activities.

 

2 Represents the earnings attributable to the disposed 55
percent interest of the company's Lending Solutions business.

 

3 The tax impact of adjustments is calculated using tax rates
of 22 percent and 33 percent in 2018 and 2017, respectively, which
approximates the company's annual effective tax rate for the
respective years, exclusive of the actual tax impacts associated
with the gain/loss on sale of businesses and StoneRiver
transactions.

 

4 Represents the (gain) loss on the Lending Transaction in
2018 and the sale of the company's Australian item processing
business in 2017.

 

5 Represents the company's share of the net gains on the
sales of businesses at StoneRiver.

 

See page 3 for disclosures related to the use of non-GAAP
financial measures.

Earnings per share is calculated using actual, unrounded amounts.

 
 
 
 
 
 
Fiserv, Inc.
Financial Results by Segment
(In millions, unaudited)
                   
Three Months Ended
June 30,
Six Months Ended
June 30,
2018 2017 2018 2017
Total Company
Revenue $ 1,420 $ 1,386 $ 2,860 $ 2,780
Output Solutions postage reimbursements (67 ) (64 ) (141 ) (139 )
Deferred revenue purchase accounting adjustments 1   1   3   2  
Adjusted revenue $ 1,354   $ 1,323   $ 2,722   $ 2,643  
 
Operating income $ 358 $ 372 $ 966 $ 737
Merger, integration and other costs 31 15 54 29
Severance costs 7 7 12 19
Amortization of acquisition-related intangible assets 40 40 80 78
(Gain) loss on sale of businesses 3   (10 ) (229 ) (10 )
Adjusted operating income $ 439   $ 424   $ 883   $ 853  
Operating margin 25.2 % 26.8 % 33.8 % 26.5 %
Adjusted operating margin 32.4 % 32.0 % 32.5 % 32.3 %
 
Payments and Industry Products ("Payments")
Revenue $ 837 $ 779 $ 1,679 $ 1,573
Output Solutions postage reimbursements (67 ) (64 ) (141 ) (139 )
Deferred revenue purchase accounting adjustments 1   1   3   2  
Adjusted revenue $ 771   $ 716   $ 1,541   $ 1,436  
 
Operating income $ 269 $ 238 $ 540 $ 497
Merger, integration and other costs 1   1   2   2  
Adjusted operating income $ 270   $ 239   $ 542   $ 499  
Operating margin 32.1 % 30.5 % 32.2 % 31.6 %
Adjusted operating margin 35.0 % 33.3 % 35.2 % 34.7 %
 
Financial Institution Services ("Financial")
Revenue $ 590   $ 623   $ 1,206   $ 1,243  
 
Operating income $ 201   $ 214   $ 403   $ 410  
Operating margin 34.0 % 34.3 % 33.4 % 33.0 %
 
Corporate and Other
Revenue $ (7 ) $ (16 ) $ (25 ) $ (36 )
 
Operating income (loss) $ (112 ) $ (80 ) $ 23 $ (170 )
Merger, integration and other costs 30 14 52 27
Severance costs 7 7 12 19
Amortization of acquisition-related intangible assets 40 40 80 78
(Gain) loss on sale of businesses 3   (10 ) (229 ) (10 )
Adjusted operating loss $ (32 ) $ (29 ) $ (62 ) $ (56 )
 
See page 3 for disclosures related to the use of non-GAAP financial
measures.
Operating margin percentages are calculated using actual, unrounded
amounts.
 
 
 
 
 
 
Fiserv, Inc.
Condensed Consolidated Statements of Cash Flows
(In millions, unaudited)
          Six Months Ended
June 30,
2018   2017
Cash flows from operating activities
Net income $ 674 $ 468
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and other amortization 190 141
Amortization of acquisition-related intangible assets 80 78
Share-based compensation 36 33
Deferred income taxes 80
Gain on sale of businesses (229 ) (10 )
Income from investments in unconsolidated affiliates (7 ) (26 )
Dividends from unconsolidated affiliates 1 31
Non-cash impairment charges 1 10
Other operating activities (1 )
Changes in assets and liabilities, net of effects from acquisitions
and dispositions:
Trade accounts receivable (11 ) 59
Prepaid expenses and other assets (64 ) (13 )
Contract costs (76 ) (12 )
Accounts payable and other liabilities 17 (40 )
Contract liabilities (79 ) (27 )
Net cash provided by operating activities 613   691  
 
Cash flows from investing activities
Capital expenditures, including capitalization of software costs (169 ) (136 )
Proceeds from sale of businesses 419 19
Payments for acquisition of business, net of cash acquired (78 )
Purchases of investments (2 )
Other investing activities (12 ) 1  
Net cash provided by (used in) investing activities 236   (194 )
 
Cash flows from financing activities
Debt proceeds 1,161 1,173
Debt repayments (1,257 ) (1,005 )
Proceeds from issuance of treasury stock 44 47

Purchases of treasury stock, including employee shares withheld
for tax obligations

(824 ) (713 )
Other financing activities 7    
Net cash used in financing activities (869 ) (498 )
 
Net change in cash and cash equivalents (20 ) (1 )
Net cash flows from discontinued operations 43
Cash and cash equivalents, beginning balance 325   300  
Cash and cash equivalents, ending balance $ 348   $ 299  
 
Certain prior period amounts have been reclassified to conform to
current period presentation.
 
 
 
 
 
 
Fiserv, Inc.
Condensed Consolidated Balance Sheets
(In millions, unaudited)
           

June 30,

2018

December 31,

2017

Assets
Cash and cash equivalents $ 348 $ 325
Trade accounts receivable – net 932 997
Prepaid expenses and other current assets 524 603
Assets held for sale 50
Total current assets 1,804 1,975
 
Property and equipment – net 374 390
Intangible assets – net 1,833 1,882
Goodwill 5,456 5,590
Contract costs – net 398 84
Other long-term assets 353 368
Total assets $ 10,218 $ 10,289
 
Liabilities and Shareholders' Equity
Accounts payable and accrued expenses $ 1,302 $ 1,359
Current maturities of long-term debt 1 3
Contract liabilities 352 576
Total current liabilities 1,655 1,938
 
Long-term debt 4,805 4,897
Deferred income taxes 692 552
Long-term contract liabilities 71 54
Other long-term liabilities 145 117
Total liabilities 7,368 7,558
Shareholders' equity 2,850 2,731
Total liabilities and shareholders' equity $ 10,218 $ 10,289
 
Certain prior period amounts have been reclassified to conform to
current period presentation.
 
 
 
 
 
 

Fiserv, Inc.
Selected Non-GAAP Financial Measures
($
in millions, unaudited)

 
Internal Revenue Growth 1        

Three Months Ended

June 30, 2018

   

Six Months Ended

June 30, 2018

Payments Segment 5 % 5 %
Financial Segment 7 % 4 %
Total Company 6 % 5 %
 

1

  Internal revenue growth is measured as the increase in adjusted
revenue (see page 7) for the current period excluding acquired
revenue and revenue attributable to dispositions, divided by
adjusted revenue from the prior year period excluding revenue
attributable to dispositions. Revenue attributable to dispositions
includes transition services revenue within Corporate and Other.
 
In the second quarter of 2018, acquired revenue was $17 million ($16
million in the Payments segment and $1 million in the Financial
segment). Revenue attributable to dispositions was $10 million (all
in Corporate and Other) and $71 million (all in the Financial
segment) in the second quarter of 2018 and 2017, respectively,
primarily from the Lending Transaction.
 
During the first six months of 2018, acquired revenue was $35
million ($33 million in the Payments segment and $2 million in the
Financial segment). Revenue attributable to dispositions was $64
million ($54 million in the Financial segment and $10 million in
Corporate and Other) and $135 million (all in the Financial segment)
in the first six months of 2018 and 2017, respectively, primarily
from the Lending Transaction.
 
Free Cash Flow         Six Months Ended
June 30,
2018     2017
Net cash provided by operating activities $ 613 $ 691
Capital expenditures (169 ) (136 )
Adjustments:
Severance, merger and integration payments 56 42
StoneRiver cash distributions (1 ) (31 )
Other (3 )
Tax payments on adjustments (8 ) (8 )
Free cash flow $ 491   $ 555  
 

See page 3 for disclosures related to the use of non-GAAP
financial measures.

 
 
 
 
 
 

Fiserv, Inc.
Full Year Forward-Looking Non-GAAP Financial
Measures

Internal Revenue Growth - The company's internal revenue growth
outlook for 2018 excludes acquisitions, dispositions, and the impact of
postage reimbursements in its Output Solutions business, and includes
deferred revenue purchase accounting adjustments. These adjustments are
subject to variability and are anticipated to lower 2018 GAAP revenue
growth by approximately 2.5 percentage points as compared to the
internal revenue growth rate, primarily due to the Lending Transaction.

Adjusted Earnings Per Share - The company's adjusted earnings per
share outlook for 2018 excludes certain non-cash or other items which
should enhance shareholders' ability to evaluate the company's
performance, as such measures provide additional insights into the
factors and trends affecting its business. Non-cash or other items may
be significant and include, but are not limited to, non-cash deferred
revenue adjustments arising from acquisitions, non-cash intangible asset
amortization expense associated with acquisitions, non-cash impairment
charges, severance costs, merger and integration costs, certain costs
associated with the achievement of the company's operational
effectiveness objectives, gains or losses from dispositions and
unconsolidated affiliates, and certain discrete tax benefits. The
company estimates that the amortization expense with respect to acquired
intangible assets as of June 30, 2018 will be approximately $160 million
in 2018. Other adjustments to earnings per share that have been incurred
to date are presented on page 6. Estimates of these other adjustments on
a forward-looking basis are not available due to the variability,
complexity and limited visibility of these items.

The company's adjusted earnings per share growth outlook for 2018
reflects 2017 performance as adjusted for the Lending Transaction. The
information below is presented with a reconciliation to the most
comparable GAAP measure, consistent with the fourth quarter 2017
earnings materials on a split-adjusted basis.

2017 GAAP income from continuing operations     $ 1,232
Adjustments:
Merger, integration and other costs 1 74
Severance costs 24
Amortization of acquisition-related intangible assets 159
Tax impact of adjustments 2 (85 )
Gain on sale of business 3 (10 )
Tax impact of gain on sale of business 2 5
StoneRiver transactions 4 (32 )
Tax impact of StoneRiver transactions 2 11
Tax benefit 5 (275 )
2017 adjusted net income $ 1,103  
 
2017 GAAP earnings per share from continuing operations $ 2.86
Adjustments (0.30 )
2017 adjusted earnings per share 2.56
Lending Transaction impact (0.08 )
2017 adjusted earnings per share, as adjusted for the Lending
Transaction
$ 2.48  
 
2018 adjusted earnings per share outlook $3.02 - $3.15
2018 adjusted earnings per share growth outlook 22% - 27%
 

1 Merger, integration and other costs include
acquisition and related integration costs of $47 million and
certain costs associated with the achievement of the company's
operational effectiveness objectives of $27 million, including
expenses related to data center consolidation activities.

2 The tax impact of adjustments is calculated using a
tax rate of 33 percent, which approximates the company's annual
effective tax rate in 2017, exclusive of discrete income tax
benefits associated with The Tax Cuts and Jobs Act and the actual
tax impacts associated with StoneRiver transactions and the gain
on sale of business.

3 Represents the gain on the sale of the company's
Australian item processing business.

4 Represents the company's share of net gains on the
disposition of a business at StoneRiver.

5 Represents discrete income tax benefits associated with
The Tax Cuts and Jobs Act enacted in December 2017.
 

See page 3 for disclosures related to the use of non-GAAP
financial measures.

 
 

FISV-E

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