Fiserv, Inc. Form 10-Q Summary
Reporting period: Three and six months ended June 30, 2022, compared with the corresponding 2021 periods. Results are unaudited. Fiserv provides payment processing, merchant acceptance, financial technology, digital banking, card and network, and related services through its Acceptance, Fintech, and Payments segments.
Key Financial Metrics
| Metric | Q2 2022 | Q2 2021 | Six months 2022 | Six months 2021 |
|---|---|---|---|---|
| Total revenue | $4.450 billion | $4.051 billion | $8.588 billion | $7.806 billion |
| Operating income | $860 million | $644 million | $1.706 billion | $1.119 billion |
| Operating margin | 19.3% | 15.9% | 19.9% | 14.3% |
| Net income attributable to Fiserv | $598 million | $269 million | $1.267 billion | $573 million |
| Diluted EPS | $0.92 | $0.40 | $1.94 | $0.85 |
| Operating cash flow | Not separately provided | Not separately provided | $1.805 billion | $2.013 billion |
| Capital expenditures | Not separately provided | Not separately provided | $718 million | $494 million |
- Q2 revenue increased 10%; processing and services revenue rose 10% and product revenue rose 9%.
- Six-month revenue increased 10%, with Acceptance up 16%, Fintech up 6%, and Payments up 5%.
- Q2 operating income increased 34% and the operating margin expanded 340 basis points. Six-month operating income increased 52% and margin expanded 560 basis points.
- Operating cash flow declined 10% year over year, primarily because of greater working-capital usage, including higher accounts receivable. Capital expenditures increased 45%.
- Income from unconsolidated affiliates was $128 million in Q2 and $234 million for the first six months, versus $42 million and $58 million, respectively, in the prior-year periods.
- Effective tax rates were 22.2% in Q2 and 18.2% for the first six months, compared with 48.5% and 31.1% in the prior-year periods. The 2021 rates included a $134 million tax expense from the revaluation of deferred tax liabilities.
Liquidity, Debt and Capital Allocation
- Cash and cash equivalents were $883 million at June 30, 2022, compared with $835 million at December 31, 2021. Total cash and cash equivalents including settlement cash were $3.063 billion.
- Total debt was approximately $21.5 billion, consisting of $600 million of short-term and current maturities and $20.915 billion of long-term debt. Debt increased modestly from $21.237 billion at December 31, 2021.
- Debt included approximately $17.5 billion of fixed-rate senior notes and $2.4 billion of commercial paper. The company had $3.6 billion of available revolving-credit capacity after capacity reserved for commercial paper and letters of credit.
- In June 2022, Fiserv replaced its revolving credit facility with a new $6.0 billion senior unsecured multicurrency facility maturing in June 2027.
- Fiserv was in compliance with its debt covenants during the first six months of 2022. On July 1, 2022, it redeemed $700 million of senior notes due October 2022 using commercial-paper proceeds. On July 25, 2022, it repaid and terminated a $485 million receivables financing facility.
- The company repurchased $1.0 billion of common stock during the first six months, with approximately 32.1 million shares remaining under its authorization at June 30, 2022. Its stated policy is to prioritize operating cash flow for capital expenditures, repurchases, acquisitions, and debt repayment rather than dividends.
Material Changes and Unusual Items
- Fiserv acquired the remaining interest in Finxact on April 1, 2022, for approximately $645 million net of acquired cash, and acquired City POS on June 1, 2022, for approximately $26 million. The aggregate purchase price was approximately $671 million net of $27 million of acquired cash.
- The Finxact transaction generated a $110 million pretax gain from remeasurement of Fiserv’s previously held equity interest. Finxact contributed to the Fintech segment.
- Fiserv recognized an $80 million pretax gain from dilution of its Sagent investment following a third-party transaction.
- Termination of a merchant alliance joint venture generated $175 million of proceeds and a $147 million pretax gain on the sale of merchant contracts.
- Fiserv recorded approximately $59 million of net pretax expense in the first six months related to guarantees of joint-venture debt, including a $62 million expense associated with incremental guaranteed indebtedness. Management does not anticipate the joint ventures will default.
- Foreign currency translation reduced other comprehensive income by $385 million in Q2 and $298 million for the first six months, primarily reflecting currency movements.
- Operating performance benefited from lower acquisition and integration costs, operating leverage, and the merchant-contract gain, while results were pressured by inflation, severance, business investments, and lower-margin output-solutions revenue.
Outlook, Risks and Contingencies
- The filing does not provide a specific full-year financial guidance figure.
- Management expects liquidity needs to be met through operating cash flow, cash on hand, commercial paper issuance, and revolving-credit availability.
- Key risks include COVID-19 effects, inflation, recessionary conditions, supply-chain shortages, changing consumer and business spending, cybersecurity or operational failures, fraud and merchant credit losses, competition, regulatory and card-network requirements, foreign exchange volatility, interest rates, acquisition integration, and access to financing.
- Merchant credit-loss expense was $20 million in Q2 and $28 million for the first six months. Collateral available to mitigate merchant credit risk was approximately $2.1 billion at June 30, 2022.
- Legal accruals were $24 million, with estimated possible additional exposure ranging from zero to approximately $50 million. Management does not expect litigation to have a material adverse effect.
- Goodwill totaled $36.829 billion. No goodwill impairment had been recorded through June 30, 2022, although interest rates, economic conditions, and changes in valuation assumptions could create future impairment risk.
- Management concluded that disclosure controls were effective as of June 30, 2022. The company implemented SAP S/4HANA for North America and certain non-U.S. locations during the quarter, resulting in related internal-control process changes.
Important Facts for Investors to Verify
- Separate recurring operating growth from the material Finxact, Sagent, and merchant-contract gains included in 2022 results.
- Assess whether the 19.9% six-month operating margin is sustainable after lower acquisition costs and other unusual benefits normalize.
- Monitor leverage, commercial-paper refinancing, variable-rate debt, and covenant compliance amid higher interest rates.
- Evaluate the effect of increased capital expenditures, acquisitions, share repurchases, and working-capital use on free cash flow.
- Track Acceptance growth, Fintech execution following the Finxact acquisition, and Payments margin pressure from output solutions and inflation.
- Review foreign-exchange exposure, merchant credit and fraud losses, cybersecurity risks, litigation, debt guarantees, and potential goodwill impairment.