FISERV INC. 10-Q Summary: Period Ended September 30, 2003
Business Context and Reporting Period
This Form 10-Q covers the quarterly period ended September 30, 2003, and the nine-month period ended on that date. Fiserv, Inc. is an independent provider of financial data processing systems and related information management services. In the second quarter of 2003, the Company reorganized its reportable segments to include a new "Health plan management services" segment. The Company operates primarily through four segments: Financial institution outsourcing, systems and services (FIS); Health plan management services; Securities processing and trust services; and All other and corporate.
Key Financial Metrics
| Metric | Three Months Ended Sep 30, 2003 | Nine Months Ended Sep 30, 2003 |
|---|---|---|
| Total Revenues | $796.1 million | $2,242.2 million |
| Processing & Services Revenues | $712.0 million | $1,995.9 million |
| Operating Income | $136.3 million | $393.0 million |
| Net Income | $80.4 million | $233.0 million |
| Diluted EPS | $0.41 | $1.19 |
| Operating Cash Flow (9 months) | $403.6 million | |
| Long-Term Debt | $659.1 million (as of Sep 30, 2003) | |
| Cash and Cash Equivalents | $201.7 million (as of Sep 30, 2003) |
Material Changes vs. Prior Period
- Revenue Growth: Total revenues increased 25% for the quarter and 18% for the nine-month period compared to 2002. Processing and services revenues grew 26% (quarter) and 18% (nine months).
- Segment Performance:
- FIS Segment: Revenues increased 26% (quarter) and 17% (nine months). Operating income rose 25% (quarter) and 20% (nine months).
- Health Plan Management: Revenues surged 70% (quarter) and 54% (nine months). Operating income increased 49% (quarter) and 41% (nine months).
- Securities Processing: Revenues declined 6% (quarter) and 2% (nine months) due to a weak retail securities trading environment and lower interest rates.
- Profitability: Net income increased 22% for the quarter and 18% for the nine-month period. Operating margins remained stable at 20% for the nine-month period.
- Acquisitions: The Company completed nine acquisitions in the first nine months of 2003 for total cash consideration of $549.6 million, plus stock issuance valued at $10.9 million. Additional contingent consideration of $33.1 million cash and $20.6 million stock was paid for prior acquisitions.
- Debt Structure: In Q2 2003, the Company issued $250.0 million in five-year notes (due 2008) to repay credit facilities and fund acquisitions. Long-term debt increased from $482.8 million (Dec 31, 2002) to $659.1 million (Sep 30, 2003).
Guidance, Outlook, and Risks
Management Commentary: Management attributes revenue growth to strong performance in the FIS and Health plan management segments, driven by new client sales, cross-selling, and transaction volume increases. Approximately 15% of year-to-date revenue growth is attributed to acquisitions. The Securities processing segment continues to face headwinds from market conditions.
Liquidity: The Company maintains $133.6 million in availability under its credit facility. Management believes cash flow from operations and available funds are adequate to meet operating requirements, debt repayments, and capital spending. However, significant future acquisitions may require additional borrowings or securities issuance.
Risks and Contingencies:
- Contingent Payments: The Company may be required to pay up to $220.0 million in additional consideration through 2006 if acquired entities meet specific operating income targets.
- Market Risk: The Securities processing segment is sensitive to U.S. retail securities trading volumes and interest rate fluctuations.
- Forward-Looking Statements: The filing includes a Safe Harbor statement noting that actual results could differ materially from expectations due to economic, competitive, and technological factors.
Key Facts for Investor Verification
- Verify the sustainability of the 70% revenue growth in the new Health plan management services segment.
- Monitor the impact of the $220.0 million potential contingent acquisition payments on future earnings.
- Assess the continued weakness in the Securities processing segment and its drag on overall internal growth.
- Review the Company's ability to maintain debt covenants, specifically the fixed charge coverage ratio of 1.35 to one and the debt-to-EBITDA limit of 3.5x.
- Confirm the integration progress of the nine acquisitions completed in the first nine months of 2003.