FISERV INC. 10-Q Summary: Quarter Ended June 30, 1998
Business Context and Reporting Period
This Form 10-Q covers the quarterly and six-month periods ended June 30, 1998, for FISERV, Inc., a provider of financial services technology. The report includes unaudited consolidated financial statements. During the quarter, the company completed three acquisitions, including CUSA Technologies, Inc. and Network Data Processing Corporation, which were accounted for as poolings of interests.
Key Financial Metrics
| Metric | Q2 1998 | Q2 1997 | YTD 1998 | YTD 1997 |
|---|---|---|---|---|
| Revenues | $311.2M | $238.4M | $585.0M | $466.7M |
| Operating Income | $52.8M | $38.6M | $102.2M | $80.4M |
| Net Income | $28.7M | $20.8M | $55.8M | $43.4M |
| Diluted EPS | $0.33 | $0.26 | $0.66 | $0.55 |
| Operating Margin | 16.97% | 16.21% | 17.47% | 17.24% |
| Cash from Operations (YTD) | $81.2M (vs $95.7M YTD 1997) | |||
| Long-Term Debt | $302.2M (as of June 30, 1998) | |||
| Cash & Equivalents | $65.7M (as of June 30, 1998) |
Material Changes vs. Prior Period
- Revenue Growth: Revenues increased 30.6% in Q2 and 25.4% year-to-date compared to 1997. Approximately 65% of YTD growth is attributed to acquired companies, with the remainder driven by new clients, transaction volume growth, and price increases.
- Profitability: Operating income rose 36.7% in Q2 and 27.1% YTD. Operating margins improved slightly in both periods compared to the prior year.
- Cost Structure: Cost of revenues increased 29.4% in Q2 and 25.0% YTD, tracking closely with revenue growth. Salaries and related costs remained stable as a percentage of revenue (46.37% in Q2 1998 vs 47.57% in Q2 1997).
- Interest Expense: Net interest expense increased by $0.9 million in Q2 and $0.8 million YTD due to increased borrowings.
- Cash Flow: Net cash provided by operating activities decreased to $81.2M YTD 1998 from $95.7M YTD 1997, primarily due to a $29.3M net increase in securities processing receivables and payables.
Outlook, Risks, and Management Commentary
- Year 2000 Issues: Management expects to incur approximately $15 million annually in 1998 and 1999 related to Year 2000 compliance. The company does not anticipate a material impact on operating income margins from these charges.
- Liquidity: The company maintains a $280 million unsecured line of credit and commercial paper facility expiring May 17, 2000. As of June 30, 1998, $171.8 million was advanced under this facility. Management believes current cash flows and available funds are adequate for future requirements, though significant acquisitions may necessitate additional borrowings or equity issuance.
- Acquisitions: The company continues to utilize cash flows and borrowings to fund acquisitions. Three acquisitions were completed in Q2 1998.
Investor Verification Checklist
- Verify the sustainability of revenue growth excluding the 65% contribution from recent acquisitions.
- Monitor the impact of the $15 million annual Year 2000 compliance charges on future operating margins.
- Review the utilization of the $280 million credit facility and the maturity profile of the $106.1 million in senior notes due between 1998 and 2005.
- Assess the trend in securities processing receivables and payables, which significantly impacted YTD operating cash flow.
- Confirm the integration progress of CUSA Technologies, Inc. and Network Data Processing Corporation.