Fiserv, Inc. 2015 Form 10-K Summary
Business context and reporting period
Fiserv provides financial-services technology, including account processing, electronic payments, card and transaction processing, digital banking, bill payment, lending, and related services. It serves approximately 13,000 clients, principally in the United States, through its Payments and Financial segments. The filing covers the fiscal year ended December 31, 2015; the source also includes unaudited fourth-quarter data.
- Approximately 84% of revenue came from processing and services, generally under three- to five-year contracts with high renewal rates.
- Revenue from clients outside the United States was approximately 6% of total revenue.
- Fiserv owned 49% of StoneRiver Group, L.P., accounted for under the equity method.
Financial performance and condition
| Metric | 2015 | 2014 | Change |
|---|---|---|---|
| Total revenue | $5.254 billion | $5.066 billion | Up 4% |
| Processing and services revenue | $4.411 billion | $4.219 billion | Up 5% |
| Operating income | $1.311 billion | $1.210 billion | Up 8% |
| Operating margin | 24.9% | 23.9% | Up 100 basis points |
| Income from continuing operations | $712 million | $754 million | Down 6% |
| Diluted continuing-operations EPS | $2.99 | $2.99 | Flat |
| Operating cash flow | $1.346 billion | $1.307 billion | Up 3% |
| Capital expenditures | $359 million | $292 million | Up 23% |
- Payments revenue was $2.862 billion, up 4%, with operating income of $840 million and a 29.3% margin.
- Financial revenue was $2.443 billion, up 3%, with operating income of $826 million and a 33.8% margin.
- Net income was $712 million, compared with $754 million in 2014. The decline reflected an $85 million pretax loss on early debt extinguishment and lower StoneRiver investment income.
- The effective tax rate declined to 35.7% from 36.6%.
- Cash and cash equivalents were $275 million at year-end, compared with $294 million in 2014.
- Total assets were $9.340 billion, shareholders’ equity was $2.660 billion, and long-term debt including current maturities was $4.293 billion.
- Goodwill and intangible assets totaled approximately $7.072 billion, or 76% of total assets. No goodwill or acquired-intangible impairment was identified in 2015.
Material changes versus the prior comparable period
- Revenue growth slowed to 4% from 5% in 2014, primarily because Payments growth declined to 4% from 8%; Financial growth remained 3%.
- Operating margin expanded in both segments, supported by scale efficiencies, expense discipline, and operational-effectiveness initiatives.
- Processing and services cost declined to 49.4% of related revenue from 51.3%; product cost increased to 86.7% from 84.7%, partly because of investments in output-solutions capacity.
- Fiserv issued $1.75 billion of senior notes in May 2015, redeemed $1.1 billion of higher-cost senior notes, and repaid or refinanced other debt. Year-end debt nevertheless increased from $3.790 billion to $4.293 billion.
- Share repurchases increased to $1.471 billion from $1.158 billion. Approximately 17.4 million shares remained authorized for repurchase at year-end. Fiserv has never paid a common-stock dividend and did not anticipate paying one in the foreseeable future.
- Capital expenditures increased materially, including spending related to the Atlanta facility consolidation.
- StoneRiver-related gains fell to $29 million from $87 million, and StoneRiver dividends received fell to $36 million from $110 million.
Guidance, outlook, risks, contingencies, and unusual items
- Management’s 2016 priorities were to build high-quality revenue while meeting earnings goals, deepen client relationships with emphasis on digital and payment solutions, and deliver innovation and integration.
- Management expected long-term opportunities from electronic-payment growth, digital-channel adoption, and financial institutions outsourcing technology rather than maintaining in-house systems. The filing does not provide a specific quantitative 2016 earnings or revenue forecast.
- On January 15, 2016, Fiserv acquired Hewlett Packard Enterprise’s Convenience Pay Services business. On January 20, 2016, it agreed to acquire certain ACI Worldwide Community Financial Services assets for $200 million, subject to approvals and closing conditions.
- Liquidity was expected to come from operating cash flow, cash on hand, and available revolving-credit borrowings. Total contractual obligations were $5.912 billion, including $5.143 billion of debt and interest, $344 million of operating leases, and $371 million of purchase obligations.
- Key risks include intense competition, rapid technological change, client contract renewals, financial-services industry consolidation, economic conditions, cybersecurity and operational failures, regulatory and payment-network compliance, acquisition integration, employee retention, intellectual-property claims, and potential impairment of goodwill and intangible assets.
- At year-end, credit ratings were Baa2 from Moody’s and BBB from S&P, both with stable outlooks. A downgrade below investment grade could increase interest rates on certain debt by up to two percentage points.
- Management stated that ordinary-course litigation was not expected to have a material adverse effect. The company reported effective disclosure controls and internal control over financial reporting, with an unqualified Deloitte audit opinion.
Most important facts for investors to verify
- Reconcile the decline in net income despite higher revenue, operating income, margins, and operating cash flow, particularly the debt-extinguishment loss and lower StoneRiver contribution.
- Assess debt-service capacity and refinancing exposure, including the $1.670 billion of debt maturities scheduled for 2020 and variable-rate borrowings.
- Evaluate whether continued share repurchases are sustainable alongside capital expenditures, acquisitions, and debt obligations.
- Monitor goodwill and intangible assets, which represent a substantial portion of total assets and depend on future revenue growth, margins, and discount rates.
- Track execution and financial effects of the 2016 acquisitions and management’s digital-payments and operational-efficiency initiatives.
- Review cybersecurity, service-continuity, regulatory, card-network, and client-renewal disclosures because disruptions or noncompliance could materially affect results.