Market Overview

Fiserv Reports Second Quarter 2019 Results

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First Data transaction expected to close on or about July 29;

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

GAAP EPS decrease of 7 percent in the quarter and 30 percent year to date;

Internal revenue growth of 4 percent in both the quarter and year to date;

Adjusted EPS increase of 9 percent in the quarter and 11 percent year to date;

Full year 2019 guidance affirmed

Fiserv, Inc. (NASDAQ:FISV), a leading global provider of financial services technology solutions, today reported financial results for the second quarter of 2019.

Second Quarter 2019 GAAP Results

GAAP revenue for the company increased 6 percent to $1.51 billion in the second quarter of 2019 compared to the prior year period, with 10 percent growth in the Payments segment and 2 percent growth in the Financial segment. For the first six months of 2019, GAAP revenue increased 5 percent to $3.01 billion compared to the prior year period, with 9 percent growth in the Payments segment and Financial segment revenue relatively consistent with the prior year period.

GAAP earnings per share was $0.56 in the second quarter and $1.12 in the first six months of 2019, decreasing 7 percent and 30 percent, respectively, compared to the prior year periods. GAAP earnings per share included costs of $0.10 and $0.26 per share in the second quarter and first six months of 2019, respectively, related to the previously announced pending acquisition of First Data Corporation. GAAP earnings per share in the first six months of 2018 included a gain of $0.36 per share on the sale of a 55 percent interest of the company's Lending Solutions business (the "Lending Transaction").

GAAP operating margin was 25.4 percent in the second quarter and 25.1 percent in the first six months of 2019 compared to 25.2 percent in the second quarter and 33.8 percent in the first six months of 2018. 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 $579 million in the first six months of 2019 compared to $613 million in the first six months of 2018.

"We delivered stronger than expected second quarter results across all financial measures including double-digit sales growth," said Jeffery Yabuki, President and Chief Executive Officer of Fiserv. "At the same time, we continue to advance our integration planning efforts for our pending First Data acquisition which we expect to close on July 29."

Second Quarter 2019 Non-GAAP Results and Additional Information

  • Adjusted revenue increased 7 percent to $1.45 billion in the second quarter and 6 percent to $2.88 billion in the first six months of 2019 compared to the prior year periods.
  • Internal revenue growth for the company was 4 percent in the second quarter, with 5 percent growth in the Payments segment and 2 percent growth in the Financial segment.
  • Internal revenue growth for the company was 4 percent in the first six months of 2019, with 4 percent growth in both the Payments and Financial segments.
  • Adjusted earnings per share increased 9 percent to $0.82 in the second quarter and 11 percent to $1.66 in the first six months of 2019 compared to the prior year periods.
  • Adjusted operating margin was 32.4 percent in both the second quarter of 2019 and 2018, and was 32.1 percent in the first six months of 2019 compared to 32.5 percent in the first six months of 2018.
  • Free cash flow was $602 million in the first six months of 2019 compared to $491 million in the prior year period.
  • Sales results were up 17 percent in the quarter and 14 percent in the first six months of 2019 compared to the prior year periods.
  • The company repurchased 1.6 million shares of common stock for $120 million in 2019 prior to the announcement of the proposed First Data acquisition. The company has deferred additional share repurchases until the close of the acquisition. As of June 30, 2019, the company had 24.3 million remaining shares authorized for repurchase.
  • In connection with the proposed acquisition, the company completed public offerings of $9.0 billion of senior notes in June 2019, and €1.5 billion and £1.1 billion of senior notes in July 2019.

Agreement to Merge with First Data Corporation

On January 16, 2019, Fiserv announced that it had entered into a definitive merger agreement to acquire First Data Corporation ("First Data") in an all-stock transaction for an equity value of approximately $22 billion as of the announcement. Fiserv and First Data have received the final required regulatory approvals and non-objections needed to complete the proposed acquisition. Subject to the satisfaction or waiver of the remaining customary contractual conditions set forth in the merger agreement, the parties expect to close the transaction on or about July 29, 2019.

Outlook for 2019

Fiserv continues to expect internal revenue growth in a range of 4.5 to 5 percent for the year. The company also expects adjusted earnings per share in a range of $3.39 to $3.52, which represents growth of 10 to 14 percent, as adjusted for the Lending Transaction. The company's outlook for the year does not include any impact related to its pending acquisition of First Data Corporation.

"Our stronger than expected first-half performance positions us well to meet our financial commitments for the year," said Yabuki.

Earnings Conference Call

The company will discuss its second quarter 2019 results on a conference call and webcast at 4 p.m. CT on Thursday, July 25, 2019. 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 35 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 six consecutive years, recognized for strength of business model, people management, social responsibility and innovation leadership. Visit fiserv.com and follow on social media for more information and the latest company news.

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, net income, 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 impact," 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, net income, 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 15 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, charges associated with debt financing activities including early debt extinguishment and bridge financing 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 and expenses. 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.

The company adjusts its non-GAAP results to exclude amortization of all acquisition-related intangible assets as such amounts are inconsistent in amount and frequency and are significantly impacted by the timing and/or size of acquisitions. Management believes that the adjustment of acquisition-related intangible asset amortization supplements the GAAP information with a measure that can be used to assess the comparability of operating performance. Although the company excludes amortization from acquisition-related intangible assets from its non-GAAP expenses, management believes that it is important for investors to understand that such intangible assets were recorded as part of purchase accounting and contribute to revenue generation.

Internal revenue growth and free cash flow are non-GAAP financial measures and are described on page 13. 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, net income, earnings per share and net cash provided by operating activities or any other amount determined in accordance with GAAP.

Forward-Looking Statements

This news 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 could cause Fiserv's actual results to differ materially include, among others: the possibility that Fiserv and First Data Corporation may be unable to achieve expected synergies and operating efficiencies from the proposed merger within the expected time frames or at all or to successfully integrate the operations of First Data Corporation into those of Fiserv; such integration may be more difficult, time-consuming or costly than expected; revenues following the transaction may be lower than expected, including for possible reasons such as unexpected costs, charges or expenses resulting from the transaction; operating costs, customer loss and business disruption (including, without limitation, difficulties in maintaining relationships with employees, customers, clients or suppliers) may be greater than expected following the transaction; the retention of certain key employees; the occurrence of any event, change or other circumstances that could give rise to the termination of the merger agreement; the outcome of any legal proceedings that may be instituted against Fiserv, First Data Corporation and others related to the merger agreement; unforeseen risks relating to liabilities of Fiserv or First Data Corporation may exist; the conditions to the completion of the transaction may not be satisfied; the amount of the costs, fees, expenses and charges related to the transaction, including the costs, fees, expenses and charges related to any financing arrangements entered into in connection with the transaction; the parties' ability to meet expectations regarding the timing, completion and accounting and tax treatments of the transaction. Fiserv and First Data Corporation are subject to, among other matters, changes in customer demand for their products and services; pricing and other actions by competitors; general changes in local, regional, national and international economic conditions and the impact they may have on Fiserv and First Data Corporation and their customers and Fiserv's and First Data Corporation's assessment of that impact; rapid technological developments and changes, and the ability of Fiserv's and First Data Corporation's technology to keep pace with a rapidly evolving marketplace; the impact of a security breach or operational failure on Fiserv's and First Data Corporation's business; the effect of proposed and enacted legislative and regulatory actions in the United States and internationally affecting the financial services industry as a whole and/or Fiserv and First Data Corporation and their subsidiaries individually or collectively; regulatory supervision and oversight, and Fiserv's and First Data Corporation's ability to comply with government regulations; the impact of Fiserv's and First Data Corporation's strategic initiatives; Fiserv's and First Data Corporation's ability to continue to introduce competitive new products and services on a timely, cost-effective basis; the ability to contain costs and expenses; the protection and validity of intellectual property rights; the outcome of pending and future litigation and governmental proceedings; acts of war and terrorism; and other factors included in "Risk Factors" in Fiserv's and First Data Corporation's respective filings with the SEC, including their respective Annual Reports on Form 10-K for the year ended December 31, 2018, and in other documents that the companies file with the SEC, which are available at http://www.sec.gov. You should consider these factors carefully in evaluating forward-looking statements and are cautioned not to place undue reliance on such statements. Fiserv assumes no obligation to update any forward-looking statements, which speak only as of the date of this news 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,

 

2019

 

2018

 

2019

 

2018

Revenue

 

 

 

 

 

 

 

Processing and services

$

1,328

 

 

$

1,207

 

 

$

2,621

 

 

$

2,445

 

Product

184

 

 

213

 

 

393

 

 

415

 

Total revenue

1,512

 

 

1,420

 

 

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