FISERV INC. 10-Q Summary: Quarter Ended March 31, 1997
Business Context and Reporting Period
This Form 10-Q covers the three-month period ended March 31, 1997, for Fiserv, Inc., a provider of financial services technology and processing solutions. The financial statements are unaudited but include all normal recurring adjustments necessary for a fair presentation. As of March 31, 1997, 45,445,000 shares of common stock were outstanding.
Key Financial Metrics
| Metric | Q1 1997 | Q1 1996 |
|---|---|---|
| Revenues | $206.5 million | $194.7 million |
| Operating Income | $34.2 million | $30.5 million |
| Net Income | $18.1 million | $14.7 million |
| Diluted EPS | $0.39 | $0.32 |
| Operating Margin | 16.6% | 15.7% |
| Net Cash from Operations | $28.9 million | $18.2 million |
| Cash and Equivalents | $41.8 million | $48.9 million |
| Long-Term Debt | $278.6 million | $271.5 million |
Material Changes vs. Prior Period
- Revenue Growth: Revenues increased 6.0% year-over-year. Over 90% of this growth was organic, driven by new clients, increased transaction volume, and price increases, rather than acquisitions.
- Profitability: Net income rose 24% to $18.1 million, and operating income increased 12%. This was aided by a 38% reduction in net interest expense due to declining debt levels.
- Cost Structure: Cost of revenues increased 4.9%. Salaries and related costs rose 9.7%, disproportionately to revenue, primarily due to severance payments from restructuring a contract with The Chase Manhattan Bank. Conversely, amortization of intangible assets dropped 33.4%.
- Liquidity: Cash and cash equivalents decreased by $39.1 million. This reduction was driven by significant investing activities, including a $165.0 million increase in trust account investments and $10.7 million for business acquisitions, partially offset by $28.9 million in operating cash flow.
Outlook, Risks, and Management Commentary
- Acquisitions: On March 14, 1997, Fiserv filed a registration statement to acquire BHC Financial, Inc. for approximately 6.5 million shares of common stock. The deal is expected to close in Q2 1997 and will be accounted for as a pooling of interests. Additionally, the company acquired AdminaStar Communications on April 1, 1997, to be accounted for under the purchase method.
- Revenue Recognition Note: Revenues from a Canadian joint venture are recorded on a fee basis. If gross revenues were recognized, Q1 1997 revenue would have been approximately $41 million higher (a 21% increase).
- Debt and Liquidity: Long-term obligations totaled $280.9 million, consisting of senior notes and advances under a $225 million credit facility. Management believes operating cash flows and available funding sources are adequate for future requirements.
- Tax Rate: The effective income tax rate was 41% for both periods and is expected to remain consistent for the year.
Investor Verification Checklist
- Verify the status and expected closing date of the proposed BHC Financial, Inc. acquisition and its impact on share count.
- Confirm the details of the severance payments related to the Chase Manhattan Bank contract restructuring.
- Review the terms of the $225 million unsecured line of credit and commercial paper facility expiring May 17, 2000.
- Assess the impact of the Canadian joint venture revenue recognition policy on reported growth metrics.
- Monitor the utilization of the $165 million increase in trust account investments and its effect on liquidity.