Fiserv, Inc. 2023 Q2 Form 10-Q Summary
Business Context and Reporting Period
Fiserv is a global payments and financial technology provider serving merchants, financial institutions and corporate clients through its Acceptance, Fintech and Payments segments. This unaudited Form 10-Q covers the three and six months ended June 30, 2023, compared with the corresponding 2022 periods.
Key Financial Metrics
| Metric | Q2 2023 | Q2 2022 | Six Months 2023 | Six Months 2022 |
|---|---|---|---|---|
| Total revenue | $4.756 billion | $4.450 billion | $9.303 billion | $8.588 billion |
| Operating income | $1.131 billion | $860 million | $2.065 billion | $1.706 billion |
| Operating margin | 23.8% | 19.3% | 22.2% | 19.9% |
| Net income attributable to Fiserv | $683 million | $598 million | $1.246 billion | $1.267 billion |
| Diluted EPS | $1.10 | $0.92 | $1.99 | $1.94 |
| Operating cash flow | Not separately provided | Not separately provided | $2.008 billion | $1.805 billion |
- Q2 revenue increased 7%; six-month revenue increased 8%. Processing and services revenue grew 6% and 8%, respectively, while product revenue grew 10% and 12%.
- Q2 net margin was approximately 14.6%, compared with 13.7% in the prior-year quarter. Six-month net margin was approximately 13.7%, compared with 15.0%, primarily reflecting lower investment-related gains in 2023.
- Capital expenditures, including capitalized software and other intangibles, were $679 million in the first six months, down from $718 million.
- Cash and cash equivalents on the balance sheet were $1.082 billion at June 30, 2023, compared with $902 million at December 31, 2022. Cash flow statement cash, including settlement cash and other restricted cash, was $2.856 billion.
- Total debt was approximately $23.203 billion, consisting of $608 million of current debt and $22.595 billion of long-term debt. The company reported $2.971 billion of variable-rate debt and $19.5 billion of fixed-rate senior notes.
- Available revolving credit capacity was $1.8 billion after considering outstanding borrowings and capacity reserved for commercial paper, 2023 maturities and letters of credit.
Material Changes Versus the Prior Comparable Period
- Acceptance revenue increased 9% in Q2 and 10% for the six months, driven by higher merchant acquiring volumes, Clover and Carat contributions, and value-added services. Acceptance operating margin expanded to 34.7% from 31.2% in Q2.
- Fintech revenue declined 2% in Q2 and was essentially flat for the six months, primarily because of lower termination fee revenue. Fintech operating margin improved to 36.3% from 35.0% in Q2.
- Payments revenue increased 8% in Q2 and 10% for the six months, supported by debit and credit processing, new business onboarding, active account growth and higher Output Solutions volumes. Payments operating margin increased to 47.3% from 43.6% in Q2.
- Operating income benefited from revenue growth, operating leverage, productivity, expense management and lower acquisition-related amortization. Total expenses as a percentage of revenue declined 450 basis points in Q2 and 230 basis points for the six months.
- Interest expense increased 32% in Q2 and 26% for the six months because of higher variable interest rates, new fixed-rate debt issuance and increased Latin American settlement-advance borrowings.
- Investment income declined materially. Six-month 2022 results included approximately $209 million of pre-tax gains, primarily from the Finxact remeasurement and the Sagent ownership dilution transaction; 2023 included a $9 million loss from unconsolidated affiliates.
- Fiserv repurchased $2.5 billion of common stock during the first six months, compared with $1.0 billion in the prior-year period. Approximately 70.1 million shares remained authorized for repurchase at June 30.
Guidance, Outlook, Risks and Unusual Items
The filing does not provide a clear numerical full-year revenue, earnings or cash-flow guidance figure. Management describes long-term opportunities from digital payments, e-commerce, real-time payments, outsourced financial technology and integrated merchant solutions, while emphasizing competition, innovation and disciplined capital allocation.
- In June 2023, Fiserv agreed to sell its financial reconciliation business; the sale closed July 25, 2023 for approximately $230 million of net proceeds. Management expected a pre-tax gain of approximately $160 million. Proceeds were primarily used to reduce debt and repurchase shares.
- Fiserv issued $1.8 billion of senior notes in March 2023 and €800 million of 4.500% senior notes due 2031 in May 2023. It repaid its remaining term loan borrowings in June 2023 and subsequently repaid the 0.375% euro-denominated notes due July 2023.
- A Canadian GST/HST law change resulted in a $27 million pre-tax expense in Q2 and the first six months.
- Foreign-currency exposure remains significant. Argentina-related foreign-currency losses were $32 million in Q2 and $50 million for the six months. Currency fluctuations reduced reported revenue by approximately 3% in both periods.
- Merchant credit loss expense increased to $37 million for the six months from $28 million. Merchant credit losses, fraud, chargebacks, operational failures and cybersecurity incidents remain material risk areas.
- Fiserv guarantees debt of certain lending joint ventures. The guaranteed debt totaled approximately $520 million, with a $36 million non-contingent liability and a $21 million contingent liability recorded at June 30. No payments had been required under the guarantees.
- Litigation accruals were $31 million, with estimated exposure in excess of accruals ranging from zero to approximately $80 million. Management did not expect pending matters to have a material adverse effect.
- Management cited risks from rising interest rates, inflation, bank failures, recessionary conditions, supply-chain constraints, geopolitical events, regulation, foreign-exchange volatility, competition and integration of acquisitions.
Most Important Facts for Investors to Verify
- Whether revenue growth, particularly in Acceptance and Payments, remains durable after adjusting for foreign exchange, acquisitions and product mix.
- The effect of higher interest rates and commercial paper refinancing on future interest expense, liquidity and leverage.
- The timing and final amount of the approximately $160 million expected gain from the financial reconciliation business sale.
- Whether substantial share repurchases continue and how they affect diluted share count, leverage and per-share earnings.
- Trends in merchant credit losses, fraud, chargebacks and the adequacy of related collateral and reserves.
- Potential effects of Argentina-related currency losses, Canadian tax matters, litigation and other regulatory or legislative changes.
- Execution of the company’s technology, merchant-acquiring and digital-banking initiatives, including acquisition integration and goodwill impairment sensitivity.