Fiserv, Inc. — Q1 2022 Form 10-Q Summary
Business context and reporting period
Fiserv is a global payments and financial technology provider serving merchants, financial institutions and corporate clients. Its reportable segments are Acceptance, Fintech and Payments. The filing covers the unaudited three months ended March 31, 2022, compared with the three months ended March 31, 2021.
Key financial metrics
| Metric | Q1 2022 | Q1 2021 | Change |
|---|---|---|---|
| Total revenue | $4.138 billion | $3.755 billion | Up 10% |
| Operating income | $846 million | $475 million | Up 78% |
| Operating margin | 20.5% | 12.6% | Up 790 bps |
| Net income | $682 million | $318 million | Up 114% |
| Net income attributable to Fiserv | $669 million | $304 million | Up 120% |
| Diluted EPS | $1.02 | $0.45 | Up $0.57 |
| Operating cash flow | $815 million | $952 million | Down 14% |
| Capital expenditures | $331 million | $234 million | Up 41% |
- Processing and services revenue increased 10% to $3.364 billion; product revenue increased 10% to $774 million.
- Segment revenue growth was 18% for Acceptance, 6% for Fintech and 4% for Payments. Segment operating margins were 28.4%, 35.4% and 42.3%, respectively.
- Net income attributable to Fiserv represented a 16.2% margin, compared with 8.1% in the prior-year quarter.
- Cash and cash equivalents were $863 million at March 31, 2022, excluding cash included in settlement assets. Total cash and cash equivalents used in the cash-flow statement were $2.833 billion.
- Total debt was approximately $21.1 billion, comprising $552 million of short-term and current maturities and $20.518 billion of long-term debt. Debt included approximately $17.6 billion of fixed-rate senior notes and $1.8 billion of commercial paper.
- Available capacity under the revolving credit facility was $1.6 billion, net of capacity designated for commercial paper borrowings and letters of credit.
- Settlement assets and settlement obligations were each $13.240 billion at March 31, 2022.
Material changes versus the prior comparable period
- Revenue growth reflected higher processing volumes, transaction volumes, product sales and increased global merchant accounts and locations.
- Operating income benefited from scalable revenue growth, a $103 million reduction in acquisition and integration expenses, and a $147 million pretax gain from the sale of certain merchant contracts following termination of a merchant alliance joint venture.
- Income from investments in unconsolidated affiliates increased to $106 million from $16 million and included approximately $91 million of pretax gains from affiliate transactions, including an $80 million gain related to dilution of the Company’s interest in Sagent.
- The effective tax rate increased to 14.5% from 5.6%, although both periods included discrete tax benefits.
- Operating cash flow declined despite higher earnings, primarily because of unfavorable working-capital movements and the noncash nature of certain gains and equity-method income. Capital expenditures increased to approximately 8% of revenue from 6%.
- Fiserv repurchased $500 million of common stock during the quarter. Approximately 37.2 million shares remained under its repurchase authorization at March 31, 2022.
Guidance, outlook, risks and unusual items
The filing does not provide a clear numerical revenue, earnings or cash-flow guidance target. Management described long-term opportunities from growth in digital payments, e-commerce, real-time payments, integrated point-of-sale solutions, digital banking and financial institutions’ continued outsourcing of technology.
- On April 1, 2022, after the reporting date, Fiserv acquired the remaining interest in Finxact for approximately $650 million. The Company expects to record an approximately $110 million pretax gain from remeasuring its previously held interest in the second quarter of 2022.
- Management expects to fund ordinary liquidity needs through operating cash flow, cash, commercial paper and revolving-credit availability. The Company stated that it was in compliance with all financial debt covenants and expected to remain compliant.
- Key risks include COVID-19 and economic uncertainty, supply-chain shortages and delays, interest-rate and foreign-currency volatility, cybersecurity or operational failures, merchant credit and fraud losses, regulatory changes, competition, client concentration or alliance performance, acquisition integration, litigation and access to financing.
- Merchant credit-loss expense was $8 million, compared with $22 million in Q1 2021; collateral available to the Company was approximately $2.0 billion.
- Legal accruals were $31 million, with possible exposure in excess of accrued amounts estimated at up to approximately $50 million. Management did not expect litigation to have a material adverse effect.
- The Company guaranteed certain debt of lending joint ventures. Guaranteed borrowings totaled $382 million at March 31, 2022, and management did not anticipate the joint ventures would fail to meet their obligations.
- Goodwill was $36.538 billion. No goodwill impairment had been recorded, but management identified interest rates, COVID-19 effects and discount-rate changes as potential future impairment factors.
Most important facts for investors to verify
- Separate recurring operating performance from the $147 million merchant-contract gain and approximately $91 million of affiliate transaction gains.
- Reconcile the decline in operating cash flow with the substantial increase in reported net income and monitor working-capital trends.
- Assess leverage, refinancing requirements for 2022 maturities, commercial-paper dependence and remaining revolving-credit capacity.
- Evaluate the cost and integration risk of the $650 million Finxact acquisition and the expected second-quarter remeasurement gain.
- Monitor Acceptance growth, Clover and digital-payment volumes, segment margins and the effect of supply-chain constraints.
- Review exposure to merchant credit losses, fraud, cybersecurity incidents, joint-venture guarantees, litigation and potential goodwill impairment.
- Confirm the sustainability of share repurchases given debt levels, capital expenditures and acquisition funding needs.