FISERV INC. 10-Q Summary: Quarter Ended September 30, 2024
Business Context and Reporting Period
This report covers the quarterly period ended September 30, 2024 (Q3 2024). Fiserv, Inc. is a leading global provider of payments and financial services technology solutions. Effective in Q1 2024, the company realigned its reportable segments into Merchant Solutions and Financial Solutions. Comparative data for 2023 has been recast to reflect this realignment.
Key Financial Metrics
| Metric (in millions) | Q3 2024 | Q3 2023 | 9M 2024 | 9M 2023 |
|---|---|---|---|---|
| Total Revenue | $5,215 | $4,873 | $15,205 | $14,176 |
| Operating Income | $1,602 | $1,503 | $4,211 | $3,568 |
| Net Income (Attributable to Fiserv) | $564 | $952 | $2,193 | $2,198 |
| Diluted EPS | $0.98 | $1.56 | $3.74 | $3.54 |
| Operating Margin | 30.7% | 30.8% | 27.7% | 25.2% |
| Operating Cash Flow (9M) | $4,410 | $3,567 | - | - |
| Total Debt (Long-term + Current) | $25,285 | $23,118 | - | - |
| Cash and Cash Equivalents | $1,228 | $1,349 | - | - |
Note: Total Debt includes $1,200 million in short-term/current maturities and $24,085 million in long-term debt as of September 30, 2024.
Material Changes vs. Prior Period
- Revenue Growth: Total revenue increased 7% year-over-year (YoY) in Q3 and 7% for the nine-month period, driven by higher processing revenue in both segments. Foreign currency fluctuations negatively impacted revenue by approximately 8% in Q3 and 9% for the nine months.
- Profitability Decline: Net income attributable to Fiserv decreased 41% in Q3 ($564M vs. $952M) primarily due to a $570 million non-cash impairment charge related to the Wells Fargo Merchant Services (WFMS) equity method investment. Excluding this impairment, underlying profitability remained strong.
- Operating Leverage: Operating income increased 7% in Q3 and 18% for the nine months. Operating margins expanded in both segments due to scalable revenue growth and reduced amortization of acquisition-related intangibles.
- Interest Expense: Net interest expense increased 26% YoY in Q3 due to higher outstanding borrowings, including new senior notes issued in March and August 2024, and increased variable-rate borrowings for settlement advances in Latin America.
Guidance, Outlook, and Risks
- WFMS Non-Renewal: Wells Fargo provided notice of non-renewal for the WFMS merchant alliance, effective April 1, 2025. Fiserv recorded a $570 million impairment in Q3 2024 based on the estimated fair value of its 40% interest. The company expects to receive cash or assets equal to the fair value upon expiration and has entered a multi-year agreement to provide processing services to Wells Fargo's merchant clients.
- Capital Allocation: The company repurchased $4.3 billion of common stock during the first nine months of 2024. Approximately 24.2 million shares remain under the existing repurchase authorization.
- Debt Issuance: In August 2024, Fiserv issued $1.75 billion in senior notes (4.750% due 2030 and 5.150% due 2034). In March 2024, it issued $2.0 billion in senior notes. Proceeds were used for general corporate purposes, debt repayment, and share repurchases.
- Foreign Currency Risk: Operations in highly inflationary economies, particularly Argentina, resulted in foreign currency exchange losses of $22 million in Q3 and $75 million for the nine months. The company utilizes derivatives to hedge net investments in foreign subsidiaries.
- Pension Settlement: The company expects to recognize a net non-cash pre-tax pension settlement charge of approximately $140 million in Q4 2024 related to terminated U.S. and U.K. defined benefit plans.
Investor Verification Checklist
- WFMS Valuation: Verify the final valuation process and expected cash recovery from the Wells Fargo Merchant Services alliance separation, as the $570M impairment is subject to adjustment.
- Argentina Exposure: Monitor the impact of Argentine Peso devaluation and high interest rates on future earnings and the adequacy of hedging strategies.
- Debt Servicing: Review the impact of rising interest rates on variable-rate debt, particularly the $868 million in foreign lines of credit (weighted average rate 34.5%) and commercial paper programs.
- Pension Charges: Confirm the timing and magnitude of the expected $140 million pension settlement charge in Q4 2024.
- Share Repurchases: Track the remaining $24.2 million share authorization and the company's commitment to capital returns amidst higher interest expense.