Fiserv, Inc. 2021 Q2 SEC Filing Summary
Business Context and Reporting Period
Fiserv is a global payments and financial technology provider serving merchants, financial institutions and corporate clients through its Acceptance, Fintech and Payments segments. This unaudited Form 10-Q covers the three and six months ended June 30, 2021, compared with the corresponding 2020 periods.
Key Financial Metrics
| Metric | Q2 2021 | Q2 2020 | Six Months 2021 | Six Months 2020 |
|---|---|---|---|---|
| Total revenue | $4.051 billion | $3.465 billion | $7.806 billion | $7.234 billion |
| Operating income | $644 million | $165 million | $1.119 billion | $794 million |
| Operating margin | 15.9% | 4.7% | 14.3% | 11.0% |
| Net income attributable to Fiserv | $269 million | $2 million | $573 million | $394 million |
| Diluted EPS | $0.40 | $0.00 | $0.85 | $0.57 |
| Operating cash flow | Not separately provided | Not separately provided | $2.013 billion | $1.919 billion |
- Q2 revenue increased 17%; six-month revenue increased 8%. Processing and services revenue rose 16% in Q2 and 8% year to date, while product revenue rose 20% and 10%, respectively.
- Q2 segment revenue growth was 36% in Acceptance, 6% in Fintech and 8% in Payments. Six-month growth was 17%, 4% and 4%, respectively.
- Q2 operating margins were 31.4% for Acceptance, 36.2% for Fintech and 44.3% for Payments. Six-month margins were 29.7%, 34.9% and 42.7%, respectively.
- Six-month capital expenditures, including capitalized software and other intangible assets, were $494 million, or approximately 6% of revenue.
- Cash and cash equivalents were $841 million at June 30, 2021, compared with $906 million at December 31, 2020. Approximately $392 million was classified as unavailable.
- Total debt was approximately $20.843 billion, including $418 million of short-term and current maturities and $20.425 billion of long-term debt. Debt increased modestly from approximately $20.684 billion at year-end 2020.
- The company reported $12.945 billion of settlement assets and an equal amount of settlement obligations, primarily reflecting payment-processing timing differences.
Material Changes Versus the Prior Comparable Period
- Payment and transaction volumes recovered from the COVID-19-related declines experienced in 2020, driving significant Acceptance and Payments growth.
- Operating leverage and lower acquisition, integration and severance costs materially improved profitability. Six-month acquisition and integration costs declined by approximately $181 million, and severance costs declined by approximately $65 million.
- Q2 operating margin expanded by 1,120 basis points, while the six-month margin expanded by 330 basis points.
- Six-month 2020 results included a $428 million gain on the sale of a 60% interest in the Investment Services business; this nonrecurring gain did not recur in 2021.
- Fiserv recognized $134 million of Q2 income tax expense from revaluing deferred tax liabilities following enacted tax-rate increases in the United Kingdom and Argentina. The six-month effective tax rate was 31.1%, compared with 11.5% in 2020.
- The company acquired Ondot, Pineapple Payments, Radius8 and SpendLabs for aggregate consideration of approximately $526 million, net of acquired cash and including estimated earn-outs.
- Fiserv sold its remaining InvestCloud ownership interest for $466 million and recognized a $33 million pretax gain in Q2. It also recognized a $28 million pretax gain from dilution of its interest in the entity earlier in 2021.
- Share repurchases totaled $1.2 billion during the first six months, including a $588 million repurchase of 5 million shares in May 2021. Approximately 55.5 million shares remained authorized for repurchase at June 30.
Guidance, Outlook, Risks and Unusual Items
- Management stated that payment volumes and transactions were expected to continue improving throughout 2021, consistent with spending trends observed through the filing date. The filing does not provide specific full-year revenue, earnings or EPS guidance.
- COVID-19 remains a material uncertainty. A prolonged or intensified pandemic, weaker consumer or business spending, renewed restrictions or slower vaccination progress could adversely affect transaction volumes, operations, liquidity and asset valuations.
- Management identified risks related to First Data integration, achievement of expected synergies, competition, cybersecurity and operational failures, merchant credit and fraud losses, regulatory changes, litigation, foreign exchange, interest rates and access to financing.
- Merchant credit losses were $11 million in Q2 and $33 million for the first six months, compared with $24 million and $54 million in the respective 2020 periods. Collateral held for merchant risk was $2.3 billion at June 30, 2021, and the merchant credit-loss reserve was $59 million.
- Goodwill totaled $36.668 billion. No goodwill impairment had been recorded through June 30, 2021, but management noted that COVID-19-related economic deterioration could affect future impairment assessments.
- Liquidity included $2.4 billion of available revolving-credit capacity after capacity designated for commercial paper borrowings. The company had $1.060 billion of commercial paper outstanding and was in compliance with debt covenants.
- Litigation reserves were $43 million, with estimated possible exposure above accrued amounts ranging from zero to approximately $65 million. Management does not expect pending matters to have a material adverse effect.
- Restructuring and integration activities continued, with $28 million of restructuring charges and $18 million of employee termination costs recorded in the first six months of 2021. Additional costs are expected, but the company cannot currently estimate them.
- Disclosure controls and procedures were assessed as effective as of June 30, 2021, with no material change in internal control over financial reporting during the quarter.
Most Important Facts for Investors to Verify
- Whether the post-pandemic recovery in merchant acquiring and payment volumes continues and supports the stated 2021 outlook.
- The sustainability of margin expansion after lower integration, restructuring and severance costs moderate.
- Debt reduction, commercial paper refinancing needs, covenant compliance and continued access to the revolving credit facility.
- Potential goodwill or intangible-asset impairment if COVID-19 or economic conditions weaken.
- The final purchase-price allocations and performance of the 2021 acquisitions, including earn-out liabilities.
- Future tax-rate effects, including the $134 million deferred-tax revaluation charge and outstanding unrecognized tax benefits of approximately $160 million.
- Exposure to merchant credit losses, fraud, litigation and contingencies related to the former Banc of America Merchant Services joint venture.