Company completed its acquisition of First Data
in the quarter; GAAP revenue growth of 122% in the quarter and 44%
year to date; GAAP EPS decrease of 40% in the quarter and 36% year
to date; Internal revenue growth of 6% in both the quarter and year
to date; Adjusted EPS increase of 17% in the quarter and 16% year
to date; Company now expects 2019 internal revenue growth of 6% and
adjusted EPS growth of 16% to 17% for the full year
Fiserv, Inc. (NASDAQ: FISV), a leading global provider of
payments and financial services technology solutions, today
reported financial results for the third quarter of 2019.
Completion of First Data Corporation Acquisition
On July 29, 2019, Fiserv, Inc. ("Fiserv") completed the
acquisition of First Data Corporation ("First Data") in an
all-stock transaction. The company filed a Form 8-K on October 3,
2019 with detailed financial information to provide historical
results on a combined company basis with First Data.
Third Quarter 2019 GAAP Results
On a GAAP basis, the financial results of First Data are
included in the consolidated results of Fiserv from the date of
acquisition. GAAP revenue for the company increased 122% to $3.13
billion in the third quarter of 2019 compared to the prior year
period, with $1.61 billion from the First Data segment, 10% growth
in the Payments segment and 4% growth in the Financial segment. For
the first nine months of 2019, GAAP revenue increased 44% to $6.14
billion compared to the prior year period, with $1.61 billion from
the First Data segment, 9% growth in the Payments segment and 1%
growth in the Financial segment.
GAAP earnings per share was $0.33 in the third quarter and $1.39
in the first nine months of 2019, decreasing 40% and 36%,
respectively, compared to the prior year periods. GAAP earnings per
share in the third quarter and the first nine months of 2019
included transaction costs associated with the First Data
acquisition and acquired intangible asset amortization from the
application of purchase accounting. GAAP earnings per share in the
first nine months of 2018 included a gain on the sale of a 55%
interest of the company's Lending Solutions business (the "Lending
Transaction").
GAAP operating margin was 12.0% in the third quarter and 18.4%
in the first nine months of 2019 compared to 25.2% in the third
quarter and 31.0% in the first nine months of 2018. GAAP operating
margin in the third quarter and the first nine months of 2019
included the operating margin impacts from transaction costs and
acquired intangible asset amortization associated with the
acquisition of First Data. GAAP operating margin in the first nine
months of 2018 included a $227 million gain resulting from the
Lending Transaction.
Net cash provided by operating activities was $1.6 billion in
the first nine months of 2019 compared to $981 million in the first
nine months of 2018.
"We delivered strong financial and sales results in the third
quarter while focusing on providing differentiated value for
clients across the new Fiserv," said Jeffery Yabuki, Chairman and
Chief Executive Officer of Fiserv. "Our primary market focus is to
enhance the manner in which consumers and business engage in
banking, commerce and financial services to produce meaningful
value for all of our stakeholders."
Third Quarter 2019 Non-GAAP Results and Additional
Information
On an adjusted non-GAAP basis, the company's financial
performance measures in this news release, including adjusted
revenue, internal revenue, adjusted operating margin, adjusted net
income, adjusted earnings per share and free cash flow, have been
recalculated to provide current and historical results on a
combined company basis to enhance investors' ability to evaluate
Fiserv's operating performance on a combined basis with First
Data.
- Adjusted revenue increased 5% to $3.62 billion in the third
quarter and 4% to $10.73 billion in the first nine months of 2019
compared to the prior year periods.
- Internal revenue growth, on a constant currency basis, was 6%
in the third quarter, with 7% growth in the First Data segment, 6%
growth in the Payments segment and 4% growth in the Financial
segment.
- Internal revenue growth, on a constant currency basis, was 6%
in the first nine months of 2019, with 7% growth in the First Data
segment, 5% growth in the Payments segment and 4% growth in the
Financial segment.
- Adjusted earnings per share increased 17% to $1.02 in the third
quarter and 16% to $2.87 in the first nine months of 2019 compared
to the prior year periods.
- Adjusted operating margin increased 130 basis points to 29.8%
in the third quarter and increased 100 basis points to 29.1% in the
first nine months of 2019 compared to the prior year periods.
- Free cash flow increased 13% to $2.3 billion in the first nine
months of 2019 compared to $2 billion in the prior year
period.
- Actual sales results were up 15% in the quarter and up 8% in
the first nine months of 2019 compared to the prior year
periods.
- The company reinstated its share repurchase program late in the
third quarter and repurchased 341 thousand shares in the quarter,
and 2 million shares in the first nine months of 2019, for $35
million and $156 million, respectively.
Outlook for 2019
Fiserv now expects internal revenue growth of 6% for the full
year and expects adjusted earnings per share in a range of $3.98 to
$4.02, or growth of 16% to 17% for the period.
"We believe our financial performance along with early synergy
benefits should translate to strong full year results and set a
foundation for an even better 2020," said Yabuki.
Earnings Conference Call
The company will discuss its third quarter 2019 results on a
conference call and webcast at 4 p.m. CT on Wednesday, November 6,
2019. To register for the event, go to fiserv.com and click on the Q3 Earnings webcast
link. Supplemental materials will be available in the "Investor
Relations" section of the website.
About Fiserv
Fiserv, Inc. (NASDAQ: FISV) aspires to move money and
information in a way that moves the world. As a global leader in
payments and financial technology, the company helps clients
achieve best-in-class results through a commitment to innovation
and excellence in areas including account processing and digital
banking solutions; card issuer processing and network services;
payments; e-commerce; merchant acquiring and processing; and the
CloverTM cloud-based point-of-sale solution. Fiserv is a member of
the S&P 500® Index and the FORTUNE® 500, and is among the
FORTUNE Magazine World's Most Admired Companies®. Visit
fiserv.com and follow on social media
for more information and the latest company news.
Use of Non-GAAP Financial Measures
Due to the financial impact of the First Data acquisition, the
company's non-GAAP financial performance measures have been
recalculated in this news release on a combined company basis for
both the third quarter and first nine months of 2019 and 2018. The
combined financial information has been prepared by making certain
adjustments to the sum of historical First Data financial
information determined in accordance with generally accepted
accounting principles ("GAAP") and historical Fiserv financial
information determined in accordance with GAAP. The historical
combined financial information includes various estimates and is
not necessarily indicative of the operating results of the combined
companies had the transaction been completed at the assumed dates
or of the combined companies in the future. The historical combined
financial information does not reflect any cost savings or other
synergies anticipated as a result of the acquisition. In addition,
the historical combined financial information does not reflect the
impact of any purchase accounting adjustments that may arise from
the acquisition as those impacts would be excluded in the
preparation of the combined financial information. The combined
financial information is not pro forma information prepared in
accordance with Article 11 of Regulation S-X of the Securities and
Exchange Commission, and the preparation of information in
accordance with Article 11 would result in a significantly
different presentation.
The company supplements its and First Data's historical
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 "combined revenue," "adjusted revenue," "internal revenue,"
"internal revenue growth," "combined operating income," "adjusted
operating income," "adjusted operating margin," "combined net
income attributable to Fiserv," "adjusted net income," "combined
earnings per share," "adjusted earnings per share," "combined net
cash provided by operating activities," and "free cash flow."
Management believes that providing combined historical financial
information, making adjustments for certain non-cash or other items
and excluding certain pass-through revenue and expenses with
respect to such combined information should enhance shareholders'
ability to evaluate the combined company's performance, including
providing a reasonable basis of comparison with its results for
post-acquisition periods and providing additional insights into the
factors and trends affecting the combined company's business.
Therefore, the company excludes these items from its and First
Data's historical combined revenue, combined operating income,
combined net income attributable to Fiserv, combined earnings per
share and combined net cash provided by operating activities to
calculate these non-GAAP measures. The corresponding
reconciliations of these adjusted financial measures to the most
comparable GAAP measures are included in this news 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 18 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 and restructuring costs; net charges associated with debt
financing activities including foreign currency transaction gains,
early debt extinguishment and bridge financing costs; merger and
integration costs; gains or losses from the sale of businesses; and
certain discrete tax benefits and expenses. The company excludes
these items to more clearly focus on the factors management
believes are pertinent to the company's 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 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.
Management believes internal revenue growth is useful because it
presents combined adjusted revenue growth including deferred
revenue purchase accounting adjustments and excluding the impact of
foreign currency fluctuations, acquisitions, dispositions and the
company's Output Solutions postage reimbursements. 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 the company’s actual results to differ
materially include, among others: the possibility that the company
may be unable to achieve expected synergies and operating
efficiencies from the acquisition of First Data within the expected
time frames or at all or to successfully integrate the operations
of First Data into the company's operations; such integration may
be more difficult, time-consuming or costly than expected;
profitability following the transaction may be lower than expected,
including due to 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;
unforeseen risks relating to the company's liabilities or those of
First Data may exist; the company's ability to meet expectations
regarding the accounting and tax treatments of the transaction; the
company's ability to compete effectively against new and existing
competitors and to continue to introduce competitive new products
and services on a timely, cost-effective basis; changes in customer
demand for the company's products and services; rapid technological
developments and changes, and the ability of the company's
technology to keep pace with a rapidly evolving marketplace; the
successful management of the company's merchant alliance program
which involves several alliances not under its sole control; the
impact of a security breach or operational failure on the company's
business including disruptions at other participants in the global
financial system; the failure of the company's third party vendors
and merchants to satisfy their obligations; the successful
management of credit and fraud risks in the company's business
units and merchant alliances; changes in local, regional, national
and international economic or political conditions and the impact
they may have on the company and its customers; the effect of
proposed and enacted legislative and regulatory actions affecting
the financial services industry as a whole and/or the company and
its subsidiaries individually or collectively; the company's
ability to comply with government regulations and applicable card
association and network rules; the protection and validity of
intellectual property rights; the outcome of pending and future
litigation and governmental proceedings; 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 company's
ability to attract and retain key personnel; changes in the
interest rate environment that increase interest on the company's
borrowings or the interest rate at which the company can refinance
its borrowings; adverse impacts from currency exchange rates or
currency controls imposed by any government or otherwise; and other
factors included in “Risk Factors” in the company's and First
Data's Annual Reports on Form 10-K for the year ended December 31,
2018, and in other documents that the company files 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.
The company 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 September
30,
Nine Months Ended September
30,
2019
2018
2019
2018
Revenue
Processing and services
$
2,608
$
1,223
$
5,229
$
3,668
Product
520
189
913
604
Total revenue
3,128
1,412
6,142
4,272
Expenses
Cost of processing and services
1,204
568
2,445
1,696
Cost of product
413
181
755
551
Selling, general and administrative
1,137
305
1,821
930
(Gain) loss on sale of businesses
—
2
(10
)
(227
)
Total expenses
2,754
1,056
5,011
2,950
Operating income
374
356
1,131
1,322
Interest expense, net
(164
)
(45
)
(279
)
(134
)
Debt financing activities
49
(8
)
(47
)
(8
)
Other (expense) income
(3
)
1
—
3
Income before income taxes and income
from investments in unconsolidated affiliates
256
304
805
1,183
Income tax provision
(53
)
(78
)
(144
)
(290
)
Income from investments in unconsolidated
affiliates
22
1
12
8
Net income
225
227
673
901
Less: net income attributable to
noncontrolling interests
27
—
27
—
Net income attributable to
Fiserv
$
198
$
227
$
646
$
901
GAAP earnings per share attributable to
Fiserv - diluted
$
0.33
$
0.55
$
1.39
$
2.16
Diluted shares used in computing
earnings per share attributable to Fiserv
596.9
412.0
465.2
416.6
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 September
30,
Nine Months Ended September
30,
2019
2018
2019
2018
GAAP net income
$
198
$
227
$
646
$
901
GAAP net income attributable to First Data
1
(141
)
401
303
843
Combined net income attributable to
Fiserv
57
628
949
1,744
Combined adjustments:
Merger and integration costs 2
217
16
319
50
Severance and restructuring costs 3
37
40
75
124
Amortization of acquisition-related
intangible assets 4
400
147
689
445
Debt financing activities 5
186
10
287
11
Impact of divestitures 6
—
(9
)
—
(28
)
Non wholly-owned entity activities 7
(2
)
(6
)
(20
)
(26
)
Tax impact of adjustments 8
(193
)
(46
)
(311
)
(133
)
Gain on sale of businesses 6
—
(202
)
(7
)
(429
)
Tax impact of gain on sale of businesses
8
—
14
2
91
Discrete tax items 9
8
19
8
(88
)
Adjusted net income
$
710
$
611
$
1,991
$
1,761
Weighted average common shares
outstanding - diluted
596.9
412.0
465.2
416.6
Issuance of shares for combination
95.4
286.3
222.7
286.3
Dilutive impact of exchanged equity
awards
2.6
7.8
6.0
7.8
Combined weighted average common shares
outstanding - diluted 10
694.9
706.1
693.9
710.7
GAAP earnings per share 10
$
0.33
$
0.55
$
1.39
$
2.16
Combined earnings per share 10
$
0.08
$
0.89
$
1.37
$
2.45
Combined adjustments - net of income
taxes:
Merger and integration costs 2
0.24
0.02
0.35
0.06
Severance and restructuring costs 3
0.04
0.04
0.08
0.13
Amortization of acquisition-related
intangible assets 4
0.44
0.16
0.76
0.48
Debt financing activities 5
0.21
0.01
0.32
0.01
Impact of divestitures 6
—
(0.01
)
—
(0.03
)
Non wholly-owned entity activities 7
—
(0.01
)
(0.02
)
(0.03
)
Gain on sale of businesses 6
—
(0.27
)
(0.01
)
(0.48
)
Discrete tax items 9
0.01
0.03
0.01
(0.12
)
Adjusted earnings per share
$
1.02
$
0.87
$
2.87
$
2.48
See page 3 for disclosures related to the use of non-GAAP
financial measures.
Earnings per share is calculated using actual, unrounded
amounts.
1
Represents the financial results of First
Data prior to the date of acquisition. For the three and nine
months ended September 30, 2019, this includes the results of First
Data from July 1, 2019 through July 28, 2019 and from January 1,
2019 through July 28, 2019, respectively. For the three and nine
months ended September 30, 2018, this includes the results of First
Data from July 1, 2018 through September 30, 2018 and from January
1, 2018 through September 30, 2018, respectively.
2
Represents acquisition and related
integration costs incurred as a result of the company's various
acquisitions. Merger and integration costs include $200 million and
$280 million in the third quarter and first nine months of 2019,
respectively, related to the acquisition of First Data and
primarily consist of legal and other professional service fees and
incremental share-based compensation associated with the fair value
of stock awards assumed by Fiserv in connection with the First Data
acquisition.
3
Represents severance and other costs
associated with the achievement of ongoing expense management
initiatives, including real estate and data center consolidation
activities.
4
Represents amortization of intangible
assets acquired through various acquisitions, including customer
relationships, software/technology, and tradenames. This adjustment
does not exclude the amortization of other intangible assets such
as contract assets (sales commissions and deferred conversion
costs), capitalized and purchased software, and financing costs and
debt discounts. See additional information on page 17 for an
analysis of the company's amortization expense.
5
Represents losses on early debt
extinguishments and other costs associated with the refinancing of
certain indebtedness of First Data. Debt financing activities in
the first nine months of 2019 include $220 million of early debt
extinguishment costs and $98 million of bridge term loan facility
expenses, partially offset by $50 million of net currency
transaction gains related to foreign currency denominated debt.
6
Represents the earnings attributable to
divested businesses and the gain on the associated divestiture
transactions. The divested businesses include First Data’s card
processing business in Central and Southeastern Europe, First
Data’s remittance processing business, and a 55% interest in
Fiserv's Lending Solutions business in September 2018, August 2018
and March 2018, respectively.
7
Represents the company’s share of
amortization of acquisition-related intangible assets at its
unconsolidated affiliates, as well as the minority interest share
of amortization of acquisition-related intangible assets at its
subsidiaries in which it holds a controlling financial interest.
This adjustment also includes a $14 million net gain on the merger
of a joint venture in the third quarter and first nine months of
2019.
8
The tax impact of adjustments is
calculated using a tax rate of 23%, which is expected to
approximate the combined company's annual effective tax rate,
exclusive of the actual tax impacts associated with the net gain on
sale of businesses.
9
Represents certain discrete tax items,
such as tax effects associated with U.S. federal tax reform and tax
impacts from valuation allowance releases, tax reserves and
non-deductible transaction costs associated with the acquisition of
First Data.
10
GAAP earnings per share is computed by
dividing GAAP net income by the weighted-average number of common
shares outstanding - diluted during the period. Combined earnings
per share is computed by dividing combined net income attributable
to Fiserv by the combined weighted average common shares
outstanding - diluted during the period. The combined weighted
average common shares outstanding - diluted is computed based on
the historical Fiserv weighted average shares outstanding - diluted
determined in accordance with GAAP, adjusted to include the Fiserv
shares issued as merger consideration and shares subject to First
Data equity awards assumed by Fiserv in connection with the First
Data acquisition for all periods presented.
Fiserv, Inc.
Financial Results by
Segment
(In millions, unaudited)
Three Months Ended September
30,
Nine Months Ended September
30,
2019
2018
2019
2018
Total Company
Revenue
$
3,128
$
1,412
$
6,142
$
4,272
First Data revenue 1
808
2,369
5,609
7,099
Combined revenue
3,936
3,781
11,751
11,371
Combined adjustments:
Intercompany eliminations 2
—
(2
)
(4
)
(6
)
Output Solutions postage reimbursements
3
(237
)
(249
)
(730
)
(755
)
Deferred revenue purchase accounting
adjustments
6
—
6
3
Merchant Services adjustment 4
(88
)
(94
)
(290
)
(297
)
Adjusted revenue
$
3,617
$
3,436
$
10,733
$
10,316
Operating income
$
374
$
356
$
1,131
$
1,322
First Data operating income 1
99
679
1,088
1,563
Combined operating income
473
1,035
2,219
2,885
Combined adjustments:
Merger and integration costs
217
16
319
50
Severance and restructuring costs
37
40
75
124
Amortization of acquisition-related
intangible assets
400
147
689
445
Merchant Services adjustment 4
(48
)
(57
)
(169
)
(172
)
Gain on sale of businesses
—
(202
)
(7
)
(429
)
Adjusted operating income
$
1,079
$
979
$
3,126
$
2,903
Operating margin
12.0
%
25.2
%
18.4
%
31.0
%
Adjusted operating margin
29.8
%
28.5
%
29.1
%
28.1
%
First Data 5
First Data revenue
$
2,422
$
2,369
$
7,223
$
7,099
Adjustments:
Intercompany eliminations 2
—
(1
)
(2
)
(4
)
Output Solutions postage
reimbursements
(172
)
(179
)
(521
)
(531
)
Deferred revenue purchase accounting
adjustments
6
—
6
—
Merchant Services adjustment 4
(88
)
(94
)
(290
)
(297
)
First Data adjusted revenue
$
2,168
$
2,095
$
6,416
$
6,267
First Data operating income
$
589
$
653
$
1,775
$
1,746
Adjustments:
Merger and integration costs
23
1
30
3
Severance and restructuring costs
3
22
7
54
Amortization of acquisition-related
intangible assets
100
107
300
325
Merchant Services adjustment 4
(48
)
(57
)
(169
)
(172
)
Gain on sale of businesses
—
(88
)
—
(88
)
First Data adjusted operating income
$
667
$
638
$
1,943
$
1,868
First Data operating margin
24.4
%
27.6
%
24.6
%
24.5
%
First Data adjusted operating margin
30.7
%
30.5
%
30.3
%
29.8
%
Fiserv, Inc.
Financial Results by Segment
(cont.)
(In millions, unaudited)
Three Months Ended September
30,
Nine Months Ended September
30,
2019
2018
2019
2018
Payments and Industry Products
("Payments")
Revenue
$
926
$
844
$
2,757
$
2,523
Adjustments:
Intercompany eliminations 2
—
(1
)
(2
)
(2
)
Output Solutions postage reimbursements
3
(65
)
(70
)
(209
)
(224
)
Deferred revenue purchase accounting
adjustments
—
—
—
3
Adjusted revenue
$
861
$
773
$
2,546
$
2,300
Operating income
$
309
$
267
$
899
$
807
Adjustments:
Merger and integration costs
—
—
—
2
Adjusted operating income
$
309
$
267
$
899
$
809
Operating margin
33.3
%
31.5
%
32.6
%
32.0
%
Adjusted operating margin
35.9
%
34.4
%
35.3
%
35.2
%
Financial Institution Services
("Financial")
Revenue
$
596
$
574
$
1,798
$
1,780
Operating income
$
196
$
187
$
598
$
590
Operating margin
32.9
%
32.7
%
33.3
%
33.2
%
Corporate and Other
Revenue
$
(8
)
$
(6
)
$
(27
)
$
(31
)
Operating loss
$
(527
)
$
(98
)
$
(762
)
$
(75
)
First Data operating (loss) income
(94
)
26
(291
)
(183
)
Combined adjustments:
Merger and integration costs
194
15
289
45
Severance and restructuring costs
34
18
68
70
Amortization of acquisition-related
intangible assets
300
40
389
120
Gain on sale of businesses
—
(114
)
(7
)
(341
)
Adjusted operating loss
$
(93
)
$
(113
)
$
(314
)
$
(364
)
See page 3 for disclosures related to the
use of non-GAAP financial measures.
Operating margin percentages are
calculated using actual, unrounded amounts.
1
Represents the financial results of First
Data prior to the date of acquisition. For the three and nine
months ended September 30, 2019, this includes the results of First
Data from July 1, 2019 through July 28, 2019 and from January 1,
2019 through July 28, 2019, respectively. For the three and nine
months ended September 30, 2018, this includes the results of First
Data from July 1, 2018 through September 30, 2018 and from January
1, 2018 through September 30, 2018, respectively.
2
Represents the elimination of intercompany
revenue and expense between First Data and the company.
3
Adjustment reflects the conformity of
historical amounts to be consistent with the combined company's
Output Solutions postage reimbursements.
4
Represents an adjustment primarily related
to the company's joint venture with Bank of America. The company
and Bank of America jointly announced the dissolution of the Banc
of America Merchant Services joint venture ("BAMS"), to be
effective June 2020. The company owns 51% of BAMS and BAMS'
financial results are 100% consolidated into the company's
financial statements for GAAP reporting purposes. Upon dissolution
of the joint venture, the company is entitled to receive a 51%
share of the joint venture's value via an agreed upon contractual
process. In addition, Bank of America has the right to require the
company to continue providing merchant processing and related
services to the joint venture clients allocated to Bank of America
in the dissolution of the joint venture through June 2023 at
current pricing. The company anticipates an ongoing relationship
with Bank of America to provide processing and other support
services to other Bank of America merchant clients following the
joint venture's dissolution. The non-GAAP adjustment reduces
adjusted revenue and adjusted operating income by the joint venture
revenue and expense that is not expected to be retained by the
company upon dissolution and is partially offset by an increase to
processing and services revenue.
5
Represents the results of First Data less
amounts included in Corporate and Other consisting of intercompany
eliminations, unallocated corporate expenses and other activities
that are not considered when management evaluates First Data
segment performance.
Fiserv, Inc.
Condensed Consolidated
Statements of Cash Flows
(In millions, unaudited)
Nine Months Ended September
30,
2019
2018
Cash flows from operating
activities
Net income
$
673
$
901
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and other amortization
386
278
Amortization of acquisition-related
intangible assets
476
120
Amortization of financing costs, debt
discounts and other
116
8
Net foreign currency gain on financing
activities
(50
)
—
Share-based compensation
121
54
Deferred income taxes
26
105
Gain on sale of business
(10
)
(227
)
Income from investments in unconsolidated
affiliates
(12
)
(8
)
Distributions from unconsolidated
affiliates
6
1
Settlement of interest rate hedge
contracts
(183
)
—
Other operating activities
(3
)
11
Changes in assets and liabilities, net of
effects from acquisitions and dispositions:
Trade accounts receivable
151
(29
)
Prepaid expenses and other assets
(41
)
(63
)
Contract costs
(141
)
(107
)
Accounts payable and other liabilities
117
48
Contract liabilities
(15
)
(111
)
Net cash provided by operating
activities
1,617
981
Cash flows from investing
activities
Capital expenditures, including
capitalization of software costs
(431
)
(263
)
Proceeds from sale of businesses
39
419
Payments for acquisition of business, net
of cash acquired
(16,004
)
—
Distributions from unconsolidated
affiliates
85
—
Purchases of investments
(4
)
—
Other investing activities
6
(13
)
Net cash (used in) provided by
investing activities
(16,309
)
143
Cash flows from financing
activities
Debt proceeds
18,855
3,627
Debt repayments
(3,051
)
(3,256
)
Payments of debt financing, redemption and
other costs
(247
)
—
Proceeds from issuance of treasury
stock
116
60
Purchases of treasury stock, including
employee shares withheld for tax obligations
(271
)
(1,254
)
Distributions paid to noncontrolling
interests and redeemable noncontrolling interest
(46
)
—
Other financing activities
(5
)
4
Net cash provided by (used in)
financing activities
15,351
(819
)
Effect of exchange rate changes on cash,
cash equivalents, and restricted cash
(4
)
—
Net change in cash, cash equivalents, and
restricted cash
655
305
Net cash flows from discontinued
operations
—
43
Cash, cash equivalents, and restricted
cash beginning balance
415
325
Cash, cash equivalents, and restricted
cash ending balance
$
1,070
$
673
Fiserv, Inc.
Condensed Consolidated Balance
Sheets
(In millions, unaudited)
September 30,
2019
December 31,
2018
Assets
Cash and cash equivalents
$
1,028
$
415
Trade accounts receivable – net
2,653
1,049
Prepaid expenses and other current
assets
1,330
274
Settlement assets
12,980
486
Total current assets
17,991
2,224
Property and equipment – net
1,639
398
Customer relationships – net
14,540
1,348
Other intangible assets – net
3,197
795
Goodwill
35,517
5,702
Contract costs – net
481
419
Investments in unconsolidated
affiliates
2,618
65
Other long-term assets
1,881
311
Total assets
$
77,864
$
11,262
Liabilities and Shareholders'
Equity
Accounts payable and accrued expenses
$
2,901
$
1,146
Short-term and current maturities of
long-term debt
368
4
Contract liabilities
412
380
Settlement obligations
12,980
480
Total current liabilities
16,661
2,010
Long-term debt
22,123
5,955
Deferred income taxes
4,110
745
Long-term contract liabilities
129
89
Other long-term liabilities
989
170
Total liabilities
44,012
8,969
Redeemable noncontrolling interest
92
—
Fiserv shareholders' equity
32,669
2,293
Noncontrolling interests
1,091
—
Total equity
33,760
2,293
Total liabilities and equity
$
77,864
$
11,262
Fiserv, Inc.
Selected Non-GAAP Financial
Measures and Additional Information
(In millions, unaudited)
Internal Revenue Growth
Three Months Ended
September 30,
Nine Months Ended
September 30,
2019
2018
Growth
2019
2018
Growth
Total Company
Adjusted revenue
$
3,617
$
3,436
$
10,733
$
10,316
Currency impact 1
43
—
193
—
Acquisition adjustments
(50
)
—
(152
)
—
Divestiture adjustments
(9
)
(48
)
(27
)
(208
)
Internal revenue
$
3,601
$
3,388
6%
$
10,747
$
10,108
6%
First Data
Adjusted revenue
$
2,168
$
2,095
$
6,416
$
6,267
Currency impact 1
41
—
186
—
Acquisition adjustments
(9
)
—
(20
)
—
Divestiture adjustments
—
(38
)
—
(134
)
Internal revenue
$
2,200
$
2,057
7%
$
6,582
$
6,133
7%
Payments
Adjusted revenue
$
861
$
773
$
2,546
$
2,300
Currency impact 1
1
—
4
—
Acquisition adjustments
(40
)
—
(131
)
—
Internal revenue
$
822
$
773
6%
$
2,419
$
2,300
5%
Financial
Adjusted revenue
$
596
$
574
$
1,798
$
1,780
Currency impact 1
1
—
3
—
Acquisition adjustments
(1
)
—
(1
)
—
Divestiture adjustments
—
—
—
(54
)
Internal revenue
$
596
$
574
4%
$
1,800
$
1,726
4%
Corporate and Other
Adjusted revenue
$
(8
)
$
(6
)
$
(27
)
$
(31
)
Divestiture adjustments
(9
)
(10
)
(27
)
(20
)
Internal revenue
$
(17
)
$
(16
)
n/m
$
(54
)
$
(51
)
n/m
See page 3 for disclosures related to the use of non-GAAP
financial measures.
Internal revenue growth is calculated using actual, unrounded
amounts.
1
Currency impact is measured as the
increase or decrease in adjusted revenue for the current period by
applying prior period foreign currency exchange rates to present a
constant currency comparison to prior periods.
Fiserv, Inc.
Selected Non-GAAP Financial
Measures and Additional Information (cont.)
(In millions, unaudited)
Free Cash Flow
Nine Months Ended September
30,
2019
2018
Net cash provided by operating
activities
$
1,617
$
981
First Data net cash provided by operating
activities 1
1,370
1,809
First Data payments for contract assets
2
(51
)
(62
)
Combined net cash provided by operating
activities
2,936
2,728
Combined capital expenditures
(828
)
(653
)
Combined adjustments:
Distributions paid to noncontrolling
interests and redeemable noncontrolling interest
(199
)
(193
)
Distributions from unconsolidated
affiliates 3
85
—
Severance, restructuring, merger and
integration payments
202
158
Settlement of interest rate hedge
contracts
183
—
Tax reform payments
—
23
Tax payments on adjustments and debt
financing
(72
)
(25
)
Other
(4
)
(1
)
Free cash flow
$
2,303
$
2,037
See page 3 for disclosures related to the use of non-GAAP
financial measures.
1
Represents the financial results of First
Data prior to the date of acquisition. For the nine months ended
September 30, 2019, this includes the results of First Data from
January 1, 2019 through July 28, 2019. For the nine months ended
September 30, 2018, this includes the results of First Data from
January 1, 2018 through September 30, 2018.
2
Represents the conformity of First Data's
historical classification of payments for contract assets to be
consistent with the company's classification and treatment.
3
Distributions from unconsolidated
affiliates totaled $190 million and $191 million for the nine
months ended September 30, 2019 and 2018, respectively, of which
$105 million and $191 million of the distributions are recorded
within First Data net cash provided by operating activities.
Fiserv, Inc.
Selected Non-GAAP Financial
Measures and Additional Information (cont.)
(In millions, unaudited)
Total Amortization1
Three Months Ended
September 30,
Nine Months Ended
September 30,
2019
2018
2019
2018
Acquisition-related intangible assets
$
387
$
40
$
476
$
120
Capitalized software
40
35
117
101
Purchased software
32
12
57
35
Financing costs, debt discounts and
other
11
3
116
9
Sales commissions
20
18
61
58
Deferred conversion costs
6
5
16
15
Total amortization
$
496
$
113
$
843
$
338
First Data acquisition-related intangible
assets
$
33
$
107
$
233
$
325
First Data capitalized software
10
23
62
68
First Data purchased software
11
30
72
89
First Data financing costs, debt discounts
and other
—
4
7
13
First Data sales commissions
—
—
—
—
First Data deferred conversion costs
4
10
22
30
Total First Data amortization 2
$
58
$
174
$
396
$
525
Combined acquisition-related intangible
assets
$
420
$
147
$
709
$
445
Combined capitalized software
50
58
179
169
Combined purchased software
43
42
129
124
Combined financing costs, debt discounts
and other
11
7
123
22
Combined sales commissions
20
18
61
58
Combined deferred conversion costs
10
15
38
45
Total combined amortization
$
554
$
287
$
1,239
$
863
1
The company adjusts its non-GAAP results
to exclude amortization of 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
(see corresponding adjustment on page 8). The adjustment for
acquired First Data software/technology excludes only the
incremental amortization related to the fair value purchase
accounting allocation. 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. Amortization of intangible assets that relate
to past acquisitions will recur in future periods until such
intangible assets have been fully amortized. Any future
acquisitions may result in the amortization of additional
intangible assets.
2
Represents the financial results of First
Data prior to the date of acquisition. For the three and nine
months ended September 30, 2019, this includes the results of First
Data from July 1, 2019 through July 28, 2019 and from January 1,
2019 through July 28, 2019, respectively. For the three and nine
months ended September 30, 2018, this includes the results of First
Data from July 1, 2018 through September 30, 2018 and from January
1, 2018 through September 30, 2018, respectively.
Fiserv, Inc. Full Year
Forward-Looking Non-GAAP Financial Measures
Internal Revenue Growth - The company's internal revenue growth
outlook for 2019 excludes the impact of foreign currency
fluctuations, acquisitions, dispositions and the impact of the
company's Output Solutions postage reimbursements and merchant
services adjustments, and includes deferred revenue purchase
accounting adjustments. Additionally, the internal revenue growth
outlook is calculated based on the combined results of Fiserv and
First Data. On a GAAP basis, the financial results of First Data
are included in the consolidated results of Fiserv from the date of
acquisition. Therefore, the company expects GAAP revenue growth to
be significantly higher than internal revenue growth.
Adjusted Earnings Per Share - The company's adjusted earnings
per share outlook for 2019 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 and
restructuring costs; net charges associated with debt financing
activities including foreign currency transaction gains, early debt
extinguishment and bridge financing costs; merger and integration
costs; gains or losses from the sale of businesses; and certain
discrete tax benefits and expenses. The company estimates that the
amortization expense with respect to acquired intangible assets as
of September 30, 2019 will be approximately $1.0 billion in 2019.
Other adjustments to earnings per share that have been incurred to
date are presented on page 8. 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
2019 reflects 2018 performance recalculated to include the
historical results of First Data on an adjusted combined company
basis. The information below is presented with a reconciliation to
the most comparable GAAP measure.
Fiserv, Inc.
Full Year Forward-Looking
Non-GAAP Financial Measures (cont.)
2018 GAAP net income
$
1,187
2018 GAAP net income attributable to First
Data
1,005
2018 combined net income attributable to
Fiserv
2,192
Combined adjustments:
Merger and integration costs 1
55
Severance and restructuring costs 2
155
Amortization of acquisition-related
intangible assets 3
594
Debt financing activities 4
167
Impact of divestitures 5
(28
)
Non wholly-owned entity activities 6
(33
)
Tax impact of adjustments 7
(209
)
Gain on sale of businesses 5
(424
)
Tax impact of gain on sale of businesses
7
90
Discrete tax items 8
(127
)
2018 adjusted net income
$
2,432
Weighted average common shares outstanding
- diluted
413.7
Issuance of shares for combination
286.3
Dilutive impact of exchanged equity
awards
7.8
Combined weighted average common shares
outstanding - diluted 9
707.8
2018 GAAP earnings per share 9
$
2.87
2018 combined earnings per share 9
$
3.10
Combined adjustments - net of income
taxes
Merger and integration costs 1
0.06
Severance and restructuring costs 2
0.17
Amortization of acquisition-related
intangible assets 3
0.65
Debt financing activities 4
0.18
Impact of divestitures 5
(0.03
)
Non wholly-owned entity activities 6
(0.04
)
Gain on sale of businesses 5
(0.48
)
Discrete tax items 8
(0.18
)
2018 adjusted earnings per share
$
3.44
2019 adjusted earnings per share
outlook
$3.98 - $4.02
2019 adjusted earnings per share growth
outlook
16% - 17%
In millions, except per share amounts, unaudited. Earnings per
share is calculated using actual, unrounded amounts.
See page 3 for disclosures related to the use of non-GAAP
financial measures.
1
Represents acquisition and related
integration costs incurred as a result of the company's various
acquisitions.
2
Represents severance and other costs
associated with the achievement of ongoing expense management
initiatives, including real estate and data center consolidation
activities.
3
Represents amortization of intangible
assets acquired through various acquisitions, including customer
relationships, software/technology, and tradenames. This adjustment
does not exclude the amortization of other intangible assets such
as contract assets (sales commissions and deferred conversion
costs), capitalized and purchased software, and financing costs and
debt discounts. See additional information on page 17 for an
analysis of the company's amortization expense.
4
Represents losses on early debt
extinguishment primarily associated with the redemption of First
Data's 7.0% senior notes and the company's 4.625% senior notes with
aggregate principal amounts of $3.4 billion and $450 million,
respectively.
5
Represents the earnings attributable to
divested businesses and the gain on the associated divestiture
transactions. The divested businesses include First Data's card
processing business in Central and Southeastern Europe, First
Data's remittance processing business, and a 55% interest in
Fiserv's Lending Solutions business in September 2018, August 2018
and March 2018, respectively.
6
Represents the company's share of
amortization of acquisition-related intangible assets at its
unconsolidated affiliates, as well as the minority interest share
of amortization of acquisition-related intangible assets at its
subsidiaries in which it holds a controlling financial
interest.
7
The tax impact of adjustments is
calculated using a tax rate of 23%, which is expected to
approximate the combined company's annual effective tax rate,
exclusive of the actual tax impacts associated with the gain on
sale of businesses.
8
Represents certain discrete tax items,
such as tax effects associated with U.S. federal tax reform and tax
impacts from valuation allowance releases and tax reserves.
9
GAAP earnings per share is computed by
dividing GAAP net income by the weighted-average number of common
shares outstanding - diluted during the period. Combined earnings
per share is computed by dividing combined net income attributable
to Fiserv by the combined weighted average common shares
outstanding - diluted during the period. The combined weighted
average common shares outstanding - diluted is computed based on
the historical Fiserv weighted average shares outstanding - diluted
determined in accordance with GAAP, adjusted to include the Fiserv
shares issued as merger consideration and shares subject to First
Data equity awards assumed by Fiserv in connection with the First
Data acquisition for the period.
FISV-E
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version on businesswire.com: https://www.businesswire.com/news/home/20191106005928/en/
Media Relations: Britt Zarling Corporate Communications
Fiserv, Inc. 414-378-4040 britt.zarling@fiserv.com Investor
Relations: Peter Poillon Investor Relations Fiserv, Inc.
212-266-3565 peter.poillon@fiserv.com
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