FISERV, INC. - 10-Q Summary (Quarter Ended September 30, 1999)
Business Context and Reporting Period
This Form 10-Q covers the quarterly and nine-month periods ended September 30, 1999, for Fiserv, Inc., a leading independent provider of financial data processing systems and information management services. The company operates through three segments: financial institution data processing and software services, securities processing and trust services, and other corporate activities. As of October 15, 1999, 122,626,000 shares of common stock were outstanding.
Key Financial Metrics
| Metric | Q3 1999 | Q3 1998 | 9M 1999 | 9M 1998 |
|---|---|---|---|---|
| Revenues | $352.7M | $309.5M | $1,033.0M | $894.6M |
| Operating Income | $64.6M | $52.9M | $187.7M | $155.1M |
| Net Income | $35.2M | $28.9M | $103.0M | $84.7M |
| Diluted EPS | $0.28 | $0.23 | $0.81 | $0.67 |
| Operating Margin | 18.3% | 17.1% | 18.2% | 17.3% |
| Cash from Operations (9M) | $154.2M (vs $182.6M in 1998) | |||
| Total Debt (Long-term + Short-term) | $681.0M ($534.4M LT + $146.6M ST) | |||
| Cash & Equivalents | $75.9M |
Material Changes vs. Prior Period
- Revenue Growth: Revenues increased 13.9% in Q3 and 15.5% for the nine months ended September 30, 1999. Approximately 45% of year-to-date growth is attributed to acquisitions, while 55% stems from organic growth (new clients, transaction volume, and price increases).
- Profitability: Operating income rose 22.0% in Q3 and 21.0% for the nine-month period. Margins improved due to cost reductions from consolidating product lines.
- Acquisitions: The company completed eight acquisitions in the first nine months of 1999 for approximately $200.4 million in cash consideration.
- Cash Flow: Net cash provided by operating activities decreased to $154.2M for the nine months ended September 1999, compared to $182.6M in the prior year, primarily due to a $54.9M net increase in securities processing receivables and payables.
Guidance, Outlook, and Risks
- Year 2000 Compliance: The company has completed renovation and testing of mission-critical systems. Estimated costs for 1999 are $10M to $12M. Management expects compliance without significant incremental expenses or material adverse effects, though risks remain regarding third-party vendor compliance.
- Capital Allocation: In August 1999, the Board authorized a stock buy-back program of up to 3.25 million shares. The company intends to use cash flows and borrowings for future acquisitions.
- Liquidity: The company maintains $500M in revolving credit facilities (expiring May 2004) and a $75M unsecured line of credit. Management believes current cash flows and borrowing capacity are adequate for funding requirements.
- Tax Rate: The effective income tax rate was 41% and is expected to remain consistent for the year.
Investor Verification Checklist
- Verify the sustainability of the 18.3% operating margin given the heavy reliance on acquisitions for revenue growth.
- Confirm the status of Year 2000 compliance for key third-party vendors and clients, as failure here poses a material risk.
- Monitor the impact of the $200.4M acquisition spend on future cash flows and debt levels.
- Review the utilization of the $500M revolving credit facility and the $70M outstanding commercial paper.
- Assess the execution of the new 3.25 million share buy-back program and its impact on diluted EPS.