Fiserv, Inc. 2021 Form 10-K Summary
Business context and reporting period
Fiserv is a global payments and financial technology provider serving merchants, banks, credit unions, financial institutions and corporate clients. Its reportable segments are Merchant Acceptance, Financial Technology and Payments. The filing covers the fiscal year ended December 31, 2021; it is an annual Form 10-K rather than a quarterly filing.
- Revenue is primarily recurring processing and services revenue generated under multi-year contracts; processing and services represented 82% of 2021 revenue.
- Fiserv had more than 44,000 employees worldwide at December 31, 2021.
- International revenue represented approximately 14% of total revenue, compared with 13% in 2020.
Financial performance and key metrics
| Metric | 2021 | 2020 | Change |
|---|---|---|---|
| Total revenue | $16.226 billion | $14.852 billion | Up 9% |
| Processing and services revenue | $13.307 billion | $12.215 billion | Up 9% |
| Product revenue | $2.919 billion | $2.637 billion | Up 11% |
| Operating income | $2.288 billion | $1.852 billion | Up 24% |
| Operating margin | 14.1% | 12.5% | Up 160 basis points |
| Net income | $1.403 billion | $975 million | Up 44% |
| Net income attributable to Fiserv | $1.334 billion | $958 million | Up 39% |
| Diluted EPS | $1.99 | $1.40 | Up 42% |
| Net cash from operating activities | $4.034 billion | $4.147 billion | Down 3% |
| Capital expenditures and capitalized software | $1.160 billion | $900 million | Up 29% |
Segment revenue and operating margins were: Acceptance revenue of $6.479 billion and a 30.8% margin; Fintech revenue of $3.022 billion and a 35.8% margin; and Payments revenue of $5.833 billion and a 43.8% margin.
- Cash and cash equivalents on the balance sheet were $835 million, compared with $906 million at year-end 2020. Total cash and cash equivalents in the cash-flow statement, including settlement cash, were $3.205 billion.
- Total debt was approximately $21.2 billion at year-end, including $20.729 billion of long-term debt and $508 million of short-term and current maturities. Fixed-rate senior notes totaled approximately $17.7 billion.
- Available capacity under the revolving credit facility was $1.6 billion, net of outstanding borrowings and capacity supporting commercial paper.
- Settlement assets and settlement obligations were each $13.652 billion.
- Goodwill was $36.433 billion and total identifiable intangible assets were $14.009 billion. Goodwill and intangible assets represented approximately 66% of total assets.
- No goodwill impairment was recorded in 2021. Three First Data-related reporting units had only 8% to 21% excess fair value over carrying value.
Material changes versus the prior comparable period
- Payment and transaction volumes recovered and continued to grow as COVID-19 effects moderated, particularly in merchant acquiring and payment-related businesses.
- Acceptance revenue increased 17%, Fintech revenue increased 4%, and Payments revenue increased 6%.
- Operating margin improved through operating leverage, First Data cost synergies and expense management. Fiserv reported $1.2 billion of actioned First Data cost synergies and had achieved 80% of its $600 million revenue synergy target by year-end.
- Operating cash flow declined despite higher earnings because of increased working capital usage, higher receivables and higher income tax payments.
- Capital expenditures increased substantially to support technology, software and other investments.
- Fiserv acquired several businesses for aggregate consideration of approximately $882 million, including BentoBox, Pineapple Payments, Ondot, NetPay, AIP, SpendLabs and Radius8.
- Fiserv sold its remaining interest in InvestCloud for $466 million and recognized a $33 million pretax gain. It also recognized a $28 million pretax gain from the related dilution transaction.
- The company repurchased approximately $2.6 billion of common stock in 2021 and had approximately 42.3 million shares remaining under its authorization at year-end. Fiserv does not pay a common stock dividend and does not anticipate paying one in the foreseeable future.
- First Data integration activities were substantially completed, and the company does not expect additional First Data restructuring or integration charges.
Guidance, outlook, management commentary and risks
The filing does not provide a specific 2022 revenue, earnings or cash-flow guidance range. Management expects continued long-term opportunities from digital payments, e-commerce, real-time payments, integrated point-of-sale systems, financial institution outsourcing and expanded digital banking capabilities.
- Fiserv expects to achieve the remaining First Data revenue synergies by the end of 2022 and expects lower acquisition and integration-related costs in 2022.
- In February 2022, Fiserv agreed to acquire the remaining interest in Finxact for approximately $650 million, subject to customary approvals and closing conditions. The transaction was expected to close in 2022.
- Global supply-chain shortages and delays affected semiconductors, paper, plastic and other inputs and could increase costs or disrupt operations.
- COVID-19 remained a significant uncertainty, affecting consumer and business spending, transaction volumes, clients, employees, vendors and liquidity.
- Key operating risks include competition, technological change, contract renewals, merchant credit losses and chargebacks, fraud, cybersecurity incidents, operational failures, third-party and network dependence, regulatory changes, privacy requirements, foreign exchange exposure and economic conditions.
- A 1% increase in variable interest rates would increase annual interest expense by approximately $29 million based on year-end debt balances.
- Fiserv guarantees certain debt of lending joint ventures. The guaranteed joint-venture debt totaled $365 million of senior unsecured debt plus $16 million drawn on revolving facilities; no payments had been required under the guarantees.
- Fiserv maintained $32 million of litigation accruals, with estimated possible exposure above accrued amounts ranging from zero to approximately $50 million. Management did not expect existing proceedings to have a material adverse effect.
- One merchant alliance was scheduled to terminate in March 2022. Fiserv anticipated recognizing an approximate $150 million pretax gain in the first quarter of 2022 from the termination and related contract transactions.
Most important facts for investors to verify
- Whether post-pandemic payment volumes and Acceptance growth remain durable and whether transaction growth offsets pricing and competitive pressure.
- Progress toward the remaining First Data revenue synergies and sustainability of the reported margin expansion.
- Debt refinancing requirements in 2022 and 2023, including the receivable securitized loan, senior notes, commercial paper and revolving credit facility maturities.
- Goodwill impairment sensitivity, particularly for the three First Data-related reporting units with limited valuation cushions.
- Cash conversion, working capital requirements and the effect of increased capital expenditures on free cash flow.
- Completion, funding and integration of the proposed Finxact acquisition and the expected gain from the merchant alliance termination.
- Exposure to cybersecurity, merchant fraud, chargebacks, regulatory changes, supply-chain disruptions and interest-rate increases.
- The filing reports unqualified audit opinions on the financial statements and internal control over financial reporting as of December 31, 2021.