Fiserv, Inc. 2022 Third-Quarter Form 10-Q Summary
Business context and reporting period
Fiserv is a global payments and financial technology provider serving merchants, financial institutions, fintech companies and corporate clients. Its reportable segments are Acceptance, Fintech, and Payments, with Corporate and Other including amortization, corporate costs, divestiture activity and Output Solutions postage reimbursements. The unaudited filing covers the three and nine months ended September 30, 2022, compared with the corresponding 2021 periods.
Key financial metrics
| Metric | Q3 2022 | Q3 2021 | 9M 2022 | 9M 2021 |
|---|---|---|---|---|
| Total revenue | $4.518 billion | $4.163 billion | $13.106 billion | $11.969 billion |
| Revenue growth | 9% | — | 9% | — |
| Operating income | $855 million | $636 million | $2.561 billion | $1.755 billion |
| Operating margin | 18.9% | 15.3% | 19.5% | 14.7% |
| Net income attributable to Fiserv | $481 million | $428 million | $1.748 billion | $1.001 billion |
| Diluted EPS | $0.75 | $0.64 | $2.68 | $1.49 |
| Operating cash flow | — | — | $2.985 billion | $2.691 billion |
| Capital expenditures | — | — | $1.148 billion | $814 million |
Q3 net income attributable to Fiserv increased 12%, while nine-month net income increased 75%. The nine-month effective tax rate was 19.7%, compared with 23.7% in 2021; the 2021 period included $134 million of tax expense from deferred-tax revaluation. Cash flow from operations increased 11%, but capital expenditures increased 41% and represented approximately 9% of nine-month revenue.
Segment performance
- Acceptance: Q3 revenue increased 9% to $1.878 billion and operating income increased 11% to $610 million; nine-month revenue increased 14% to $5.432 billion and operating income increased 14% to $1.673 billion.
- Fintech: Q3 revenue increased 1% to $766 million, while operating income declined 5% to $261 million and margin declined 190 basis points to 34.1%. Nine-month revenue increased 4% to $2.347 billion and operating income increased 3% to $817 million.
- Payments: Q3 revenue increased 10% to $1.617 billion and operating income increased 15% to $738 million; nine-month revenue increased 7% to $4.597 billion and operating income increased 9% to $2.018 billion.
Material changes versus the prior comparable period
- Revenue growth was driven by higher processing volumes, product sales, new clients and increased global merchant accounts and locations. Foreign exchange movements reduced reported revenue growth by approximately 2% in both Q3 and the first nine months.
- Operating margin improved primarily because acquisition and integration-related expenses declined by approximately $156 million in Q3 and $368 million in the first nine months. Operating leverage also helped, partly offset by growth investments and higher severance costs.
- Fintech results were pressured by lower license and termination fee revenue and costs associated with the Finxact acquisition.
- Q3 included a $120 million pretax loss on the sale of the Korea operations. The nine-month period also included a $147 million pretax gain from the sale of merchant contracts following termination of a merchant alliance.
- Nine-month income from unconsolidated affiliates included approximately $110 million of gain from remeasuring the previously held Finxact interest and an $80 million gain from dilution of the Company’s Sagent ownership interest. Q3 included a $15 million share of refinancing-related expenses at unconsolidated affiliates.
- Shares outstanding declined as the Company repurchased $1.8 billion of common stock during the first nine months, including 7.6 million shares in Q3. Approximately 24.5 million shares remained authorized for repurchase at September 30, 2022.
Debt, liquidity and balance-sheet position
- Cash and cash equivalents were $893 million at September 30, 2022, compared with $835 million at December 31, 2021. Total cash and cash equivalents including settlement cash were $3.375 billion.
- Total debt was approximately $21.4 billion, comprising $528 million of current maturities and $20.847 billion of long-term debt. Long-term debt increased modestly from $20.729 billion at year-end.
- Commercial paper borrowings totaled approximately $3.7 billion, compared with $1.8 billion at year-end, and carried weighted-average rates of 3.369% for U.S. dollar borrowings and 0.804% for Euro borrowings.
- Fiserv established a new $6.0 billion senior unsecured multicurrency revolving credit facility maturing in June 2027. Reported available capacity was $2.3 billion after amounts designated for commercial paper borrowings and letters of credit.
- The Company redeemed $700 million of senior notes due October 2022 and repaid a $485 million receivables-securitized loan, funding both primarily with U.S. dollar commercial paper.
- Management reported compliance with all financial debt covenants during the first nine months. Variable-rate debt totaled $4.162 billion at September 30, 2022, creating exposure to further interest-rate increases.
Guidance, outlook, commentary and risks
The filing does not provide a clear numerical earnings or revenue guidance update. Management expects operating cash flow, cash balances, commercial paper issuance and revolving-credit availability to fund operating needs, capital expenditures, acquisitions, share repurchases and debt obligations. The Company’s policy is generally to prioritize these uses of cash rather than dividends.
Management cited continued long-term opportunities from digital payments, e-commerce, real-time payments, integrated merchant software, digital banking and financial institutions outsourcing technology. Near-term risks include COVID-19 uncertainty, inflation, higher interest rates, slower economic growth, supply-chain shortages, foreign exchange volatility, geopolitical instability, cybersecurity or operational failures, merchant credit and fraud losses, competition, regulatory changes, litigation, acquisition integration and access to financing.
- Merchant credit loss expense increased to $46 million for the first nine months from $31 million in 2021; collateral available for merchant credit risk was $1.9 billion at September 30, 2022.
- The Company guaranteed up to $520 million of Lending Joint Venture debt and recognized a $62 million pretax expense related to the guarantees. No payments had been required, and management did not expect the joint ventures to default.
- Litigation accruals were $24 million, with estimated possible exposure in excess of accruals ranging from zero to approximately $60 million.
- Goodwill was $36.241 billion. No goodwill impairment had been recorded, but management identified interest rates, economic conditions and discount rates as potential future impairment factors.
Most important facts for investors to verify
- Assess the sustainability of margin expansion after the benefit from lower acquisition and integration expenses.
- Monitor Fintech margin pressure, Finxact integration costs and the contribution from the acquired platform.
- Track commercial paper balances, refinancing needs, variable-rate debt and interest expense as rates change.
- Separate recurring operating performance from unusual items, including the Korea disposal loss, merchant-contract gain, Finxact remeasurement gain and Sagent dilution gain.
- Evaluate foreign exchange effects, merchant credit losses, fraud exposure and the adequacy of collateral and reserves.
- Confirm execution of the announced divestitures and acquisitions, including the October 17, 2022 sale of Fiserv Costa Rica and Systems Integration Services, which occurred after the quarter-end.