Fiserv, Inc. 2023 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, 2023; it is an annual filing rather than a standalone fourth-quarter report.
Processing and services revenue represented 82% of total revenue and is generally generated under recurring, account- and transaction-based arrangements. Approximately 85% of revenue was domestic and 15% international.
Key financial metrics
| Metric | 2023 | 2022 | Change |
|---|---|---|---|
| Total revenue | $19.093 billion | $17.737 billion | Up 8% |
| Processing and services revenue | $15.630 billion | $14.460 billion | Up 8% |
| Operating income | $5.014 billion | $3.740 billion | Up 34% |
| Operating margin | 26.3% | 21.1% | Up 520 bps |
| Net income | $3.129 billion | $2.582 billion | Up 21% |
| Net income attributable to Fiserv | $3.068 billion | $2.530 billion | Up 21% |
| Diluted EPS | $4.98 | $3.91 | Up 27% |
| Cash flow from operations | $5.162 billion | $4.618 billion | Up 12% |
| Capital expenditures and capitalized software | $1.388 billion | $1.479 billion | Down 6% |
| Interest expense, net | $976 million | $733 million | Up 33% |
Segment revenue and operating margins were: Acceptance revenue of $8.132 billion and a 35.1% margin; Fintech revenue of $3.171 billion and a 36.6% margin; and Payments revenue of $6.696 billion and a 47.6% margin. Acceptance revenue increased 12%, Payments revenue increased 7%, and Fintech revenue was essentially flat.
At December 31, 2023, Fiserv reported $1.204 billion of cash and cash equivalents on the balance sheet, including $450 million classified as available. It also reported $2.2 billion of net available capacity under its revolving credit facility. Settlement assets and obligations were each $27.681 billion and primarily relate to funds moving through payment networks rather than unrestricted corporate liquidity.
Total debt was approximately $23.1 billion, including $22.4 billion of long-term debt and $755 million of short-term and current maturities. Fixed-rate senior notes represented approximately $20.0 billion of debt, while variable-rate debt was approximately $2.3 billion. A 1% increase in variable interest rates would increase annual interest expense by approximately $23 million.
Material changes versus the prior comparable period
- Revenue growth was driven primarily by higher merchant acquiring volume, international Acceptance growth, Clover and Carat contributions, increased debit and credit processing, and higher Zelle and Output Solutions activity.
- Operating margin expanded substantially due to operating leverage, expense management, lower acquisition-related intangible amortization and lower severance costs.
- Fiserv recognized a $172 million pretax gain from selling its financial reconciliation business for $235 million of cash proceeds. It also recorded a $3 million loss related to final working-capital adjustments for a prior disposition.
- Interest expense rose because of higher debt balances and higher interest rates following new senior-note issuances and increased variable-rate borrowings.
- Income from unconsolidated affiliates declined to a $15 million loss from $220 million of income in 2022. The 2022 amount included significant gains related to Finxact and Sagent transactions.
- Foreign currency losses increased, including $164 million of pretax remeasurement losses related to Argentina, compared with $52 million in 2022.
- The company repurchased 40.0 million shares for approximately $4.7 billion, including a $500 million privately negotiated repurchase of 4.1 million shares from an affiliate of ValueAct Capital. Approximately 52.0 million shares remained authorized for repurchase at year-end.
- Fiserv issued $3.8 billion of new senior notes in 2023, including dollar- and euro-denominated notes, and used proceeds for general corporate purposes, debt repayment and share repurchases.
Guidance, outlook, commentary and risks
The filing does not provide clear formal numerical revenue, earnings or cash-flow guidance for 2024. Management expects continued opportunities from digital payments, e-commerce, real-time payments, integrated commerce solutions, Clover, Carat and modernization spending by financial institutions.
Management noted that lower expected U.S. personal consumption and consumer savings growth in 2024 could pressure transaction volumes. In Argentina, higher interest rates and inflation may produce transitory revenue benefits, but these may be offset by foreign-exchange losses from further peso devaluation.
Fiserv expects to realign its reportable segments effective with the quarter ended March 31, 2024. The company also planned to relocate its global headquarters to Milwaukee in March 2024.
- Cybersecurity incidents, system outages, fraud, chargebacks and disruptions involving clients, vendors, payment networks or other financial-system participants could cause financial losses, regulatory penalties and reputational damage.
- Competition, pricing pressure, technological change including artificial intelligence, contract renewals, merchant alliances and financial institution consolidation could affect growth and margins.
- Regulatory exposure includes payment-network rules, consumer protection, money transmission, privacy, cybersecurity, anti-money-laundering, sanctions and financial institution regulations.
- Goodwill and intangible assets represented approximately 53% of total assets. Goodwill was $37.2 billion and was not impaired, but three reporting units with aggregate goodwill of $10.8 billion had only 16% to 36% fair-value headroom.
- The company has substantial refinancing and interest-rate exposure, including $755 million of scheduled 2024 debt maturities and reliance on continued access to commercial paper and revolving-credit capacity.
- Fiserv guaranteed debt of lending joint ventures. The guaranteed joint-venture debt totaled approximately $461 million at year-end, and Fiserv recorded $31 million of non-contingent and $23 million of contingent guarantee liabilities.
- Fiserv expects an estimated $110 million non-cash pension settlement charge and approximately $25 million of funding for a U.S. pension-plan shortfall when terminated U.K. and U.S. plans are settled in 2024.
The company recorded $27 million of pretax expense related to a retroactive Canadian GST/HST law change. Accrued litigation and tax-related proceedings totaled $32 million, with estimated exposure in excess of accruals ranging from zero to approximately $90 million. Management does not expect existing legal proceedings to have a material adverse effect on the consolidated financial statements.
Most important facts for investors to verify
- Reconcile the strong 2023 margin expansion and earnings growth for recurring operating performance versus the $172 million business-sale gain, lower amortization, lower severance and 2022 one-time affiliate gains.
- Monitor debt refinancing, commercial paper availability, interest expense and compliance with the revolving-credit leverage covenant.
- Assess the sustainability of Acceptance and Payments growth, particularly Clover, international merchant acquiring, debit and credit processing, and Zelle-related volumes.
- Evaluate sensitivity to Argentina’s currency devaluation, inflation and high local borrowing rates.
- Review goodwill headroom and the potential for impairment if growth, margins, discount rates, exchange rates or merchant-alliance relationships deteriorate.
- Confirm the effect of the planned segment realignment on 2024 comparability and reported performance.
- Track the timing and amount of the expected pension settlement charge and funding requirement.
- Verify the company’s cash-flow presentation, distinguishing unrestricted corporate cash from settlement assets, restricted cash and other funds held for clients or joint ventures.