Fiserv, Inc. 2020 Form 10-K Summary
Business Context and Reporting Period
Fiserv is a global payments and financial technology provider serving financial institutions, merchants and corporate clients. Its principal segments are Merchant Acceptance, Financial Technology and Payments and Network. The filing covers the fiscal year ended December 31, 2020; 2020 results include First Data for the full year, compared with approximately five months in 2019 following the July 2019 acquisition.
Processing and services revenue represented 82% of total revenue and is primarily generated from recurring, account- and transaction-based fees under multiyear contracts.
Key Financial Metrics
| Metric | 2020 | 2019 | Change |
|---|---|---|---|
| Total revenue | $14.852 billion | $10.187 billion | +46% |
| Processing and services revenue | $12.215 billion | $8.573 billion | +42% |
| Product revenue | $2.637 billion | $1.614 billion | +63% |
| Operating income | $1.852 billion | $1.609 billion | +15% |
| Operating margin | 12.5% | 15.8% | Down 330 bps |
| Net income | $975 million | $914 million | +7% |
| Net income attributable to Fiserv | $958 million | $893 million | +7% |
| Diluted EPS | $1.40 | $1.71 | Down 18% |
| Operating cash flow | $4.147 billion | $2.795 billion | +48% |
| Capital expenditures | $900 million | $721 million | +25% |
- Net cash flow after capital expenditures was approximately $3.247 billion.
- Cash and cash equivalents were $906 million at year-end, including $514 million classified as available and $392 million classified as unavailable.
- Total debt, including current maturities, was $20.684 billion, down from $21.899 billion. Debt consisted primarily of $18.3 billion of fixed-rate senior notes and approximately $1.8 billion of variable-rate debt.
- Available borrowings under the revolving credit facility were approximately $3.4 billion at year-end. Fiserv reported compliance with all financial debt covenants.
- The company has never paid common stock dividends and does not anticipate paying dividends in the foreseeable future.
Segment Performance
| Segment | 2020 Revenue | 2020 Operating Income | 2020 Margin | Margin Change |
|---|---|---|---|---|
| Merchant Acceptance | $5.522 billion | $1.427 billion | 25.9% | Down 380 bps |
| Financial Technology | $2.901 billion | $992 million | 34.2% | Up 410 bps |
| Payments and Network | $5.504 billion | $2.361 billion | 42.9% | Up 50 bps |
Material Changes Versus the Prior Comparable Period
- First Data contributed approximately $5.067 billion of incremental 2020 revenue. The acquisition also increased amortization, integration and financing costs.
- COVID-19 reduced merchant acquiring and payment volumes beginning in late March 2020. Volumes partially recovered beginning in May and improved into July, then stabilized relative to the prior year for the remainder of 2020.
- Acceptance revenue increased 115%, primarily due to First Data, but its margin declined because of COVID-19 impacts and integration-related costs.
- Fintech revenue declined 1%; recurring revenue growth and expense management were offset by lower contract termination fees and dispositions.
- Operating expenses included $303 million of restructuring charges, $131 million of employee termination costs, $124 million of non-cash facility-related impairment charges, and $118 million of accelerated depreciation and amortization related to terminated vendor contracts.
- Fiserv recorded a $428 million pretax gain on the sale of a 60% interest in its Investment Services business and a $36 million pretax gain from the dissolution of the Banc of America Merchant Services joint venture.
- Merchant credit losses increased to $113 million from $40 million, while the merchant credit loss reserve increased to $59 million from $34 million.
- Fiserv repurchased $1.6 billion of common stock during 2020, including $200 million of shares purchased in connection with a secondary offering by New Omaha Holdings.
- The company issued $2.0 billion of senior notes in May 2020 and used the proceeds to repay $850 million of notes due in June 2020 and $1.1 billion of revolving credit borrowings.
Guidance, Outlook, Commentary and Risks
Management stated that payments volume and transactions were expected to continue improving throughout 2021, while acknowledging that the duration and intensity of COVID-19, vaccination success, government responses and economic recovery made future results difficult to predict. Management also stated that it had achieved a significant portion of First Data revenue and cost synergies and expected to meet or exceed previously announced targets.
- Principal risks include prolonged pandemic effects, reduced consumer and business spending, merchant failures, chargebacks, client payment delays, fraud and higher credit losses.
- Fiserv expects to continue incurring integration and restructuring costs related to First Data, but the filing does not provide a clear estimate of total future costs.
- Goodwill was $36.322 billion, and goodwill plus intangible assets represented approximately 69% of total assets. No goodwill impairment was recorded, but four First Data-related reporting units had only 14% to 21% fair-value cushions over carrying value.
- Interest-rate risk is material: a 1% increase in variable rates would increase annual interest expense by approximately $18 million.
- Material regulatory and operational risks include cybersecurity incidents, privacy and data-transfer requirements, payment-network rules, money-transmission regulation, litigation, tax examinations, vendor dependence and international currency exposure.
- Fiserv guaranteed certain Lending Joint Venture debt. The joint ventures had $385 million of senior unsecured debt and $13 million of revolving borrowings outstanding at year-end; Fiserv had not made payments under the guarantees.
- Legal reserves were $32 million, with estimated potential exposure in excess of accrued amounts ranging from zero to approximately $60 million. Management did not expect existing proceedings to materially affect the consolidated financial statements.
Important Facts for Investors to Verify
- Whether COVID-19-related transaction volumes and Merchant Acceptance margins continued to recover in subsequent filings.
- Actual First Data synergy realization compared with management’s targets, including the timing and magnitude of remaining integration costs.
- Debt repayment, refinancing of the $400 million of senior notes due in June 2021, covenant headroom and credit-rating changes.
- Goodwill impairment sensitivity for the four First Data-related reporting units with relatively limited fair-value cushions.
- Trends in merchant credit losses, chargebacks, reserves and collateral requirements.
- Progress under the BAMS transition and support agreements, which continue through June 2023 or under a five-year non-exclusive arrangement.
- Future regulatory, privacy, cybersecurity and litigation developments, including the Federal Trade Commission matter resolved for a $40 million payment in 2020.