Fiserv, Inc. 2021 Q3 Form 10-Q Summary
Business Context and Reporting Period
Fiserv is a global payments and financial technology provider serving banks, credit unions, financial institutions, corporate clients and merchants. Its reportable segments are Acceptance, Fintech, and Payments, supported by Corporate and Other. This unaudited Form 10-Q covers the three and nine months ended September 30, 2021, compared with the corresponding 2020 periods.
Key Financial Metrics
| Metric | Q3 2021 | Q3 2020 | 9M 2021 | 9M 2020 |
|---|---|---|---|---|
| Total revenue | $4.163 billion | $3.786 billion | $11.969 billion | $11.020 billion |
| Operating income | $636 million | $542 million | $1.755 billion | $1.336 billion |
| Operating margin | 15.3% | 14.3% | 14.7% | 12.1% |
| Net income attributable to Fiserv | $428 million | $264 million | $1.001 billion | $658 million |
| Diluted earnings per share | $0.64 | $0.39 | $1.49 | $0.96 |
| Net cash from operating activities | Not separately provided | Not separately provided | $2.691 billion | $2.961 billion |
| Capital expenditures | Not separately provided | Not separately provided | $814 million | $689 million |
Q3 revenue increased 10%, operating income increased 17%, and Fiserv-attributable net income increased 62%. Nine-month revenue increased 9%, operating income increased 31%, and attributable net income increased 52%.
- Q3 segment revenue growth was 18% in Acceptance, 5% in Fintech and 6% in Payments. Nine-month growth was 17%, 4% and 5%, respectively.
- Q3 operating margins were 32.2% for Acceptance, 36.0% for Fintech and 43.7% for Payments. Nine-month margins were 30.6%, 35.3% and 43.1%, respectively.
- Q3 income before taxes and income from unconsolidated affiliates was $478 million, versus $381 million in the prior-year quarter. The effective tax rate was 11.3%, compared with 32.5%.
- Nine-month income before taxes and income from unconsolidated affiliates was $1.268 billion, versus $835 million. The effective tax rate was 23.7%, compared with 21.1%.
- At September 30, 2021, cash and cash equivalents were $933 million, compared with $906 million at December 31, 2020. Approximately $527 million was identified as available cash and $406 million as unavailable cash.
- Total debt was approximately $20.989 billion, including $449 million of current maturities and $20.540 billion of long-term debt. The filing reports approximately $21.7 billion of fair value for debt excluding finance leases and other financing obligations.
- The company had $2.0 billion of available revolving-credit capacity after outstanding borrowings and capacity designated for commercial paper. The revolving facility has total commitments of $3.5 billion.
- Fiserv repurchased $1.768 billion of common stock during the first nine months, including a $588 million repurchase of 5.0 million shares in connection with a May 2021 secondary offering. Approximately 52.3 million shares remained authorized for repurchase at September 30, 2021.
Material Changes Versus the Prior Comparable Period
- Payment and transaction volumes recovered from the COVID-19-related weakness experienced during much of 2020, particularly in merchant acquiring and payment-related businesses.
- Acceptance benefited most significantly from higher merchant acquiring volumes, producing 17% nine-month revenue growth and a 650-basis-point increase in operating margin.
- Operating leverage, lower acquisition and integration expenses, and lower employee termination costs improved profitability. Nine-month acquisition and integration expenses declined by approximately $151 million and employee termination costs declined by approximately $60 million.
- Operating cash flow declined 9% to $2.691 billion, primarily because of greater working-capital usage, higher accounts receivable associated with revenue growth, and higher income tax payments.
- Capital expenditures increased 18% to $814 million, representing approximately 7% of nine-month revenue versus 6% in 2020.
- Fiserv adopted ASU 2020-01 and ASU 2019-12 effective January 1, 2021; neither adoption had a material financial statement impact.
- New 2021 acquisitions included Ondot, Pineapple Payments, SpendLabs and Radius8, with aggregate purchase price of approximately $524 million, net of acquired cash and including estimated earn-outs. On October 18, 2021, after the reporting date, Fiserv agreed to acquire BentoBox, subject to customary closing conditions.
- Fiserv sold its remaining InvestCloud ownership interest in June 2021 for $466 million and recognized a $33 million pretax gain. It also recognized a $28 million pretax gain from the February 2021 dilution of its ownership interest.
Guidance, Outlook, Commentary, Risks and Unusual Items
- Management expected payments volume and transactions to continue improving through the remainder of 2021, consistent with spending trends observed through the third quarter. The filing does not provide specific numerical revenue or earnings guidance.
- Management expected to complete First Data integration activities related to cost synergies by the end of 2021 and expected acquisition- and integration-related expenses to decline thereafter.
- COVID-19 remained a significant uncertainty. A renewed downturn, prolonged pandemic, weaker consumer or business spending, supply-chain disruption, or changes in government responses could materially affect transaction volumes, operating results, liquidity and goodwill valuations.
- Fiserv reported increasing shortages and delays affecting semiconductors, paper, plastic and other inputs, with possible effects on procurement costs and operating continuity.
- Goodwill totaled $36.303 billion at September 30, 2021. No goodwill impairment had been recorded, but management identified continuing COVID-19-related impairment risk for certain First Data reporting units.
- First Data integration and restructuring charges were $58 million in the first nine months of 2021; employee termination costs were $45 million. A $6 million facility-exit impairment charge was also recorded.
- The nine-month 2021 tax provision included $134 million of expense from revaluing deferred tax liabilities following enacted tax-rate changes in the United Kingdom and Argentina. Q3 benefited from discrete tax items, including subsidiary restructurings and changes in uncertain tax positions.
- Legal reserves were $15 million at September 30, 2021, with estimated possible exposure beyond accrued amounts ranging from zero to approximately $65 million. Management did not expect litigation liabilities to have a material adverse effect.
- Fiserv guaranteed approximately $383 million of debt for certain equity-method joint ventures. The filing states that no guarantee payments had been required.
- One merchant alliance joint venture was mutually agreed to be terminated effective March 2022; separation negotiations were underway. Redeemable noncontrolling interests totaled $260 million.
- Fiserv was in compliance with all financial debt covenants during the first nine months of 2021. Its commercial paper ratings were P-2 from Moody’s and A-2 from S&P; corporate ratings were Baa2 and BBB, respectively, each with a stable outlook.
Important Facts for Investors to Verify
- Verify the sustainability of the post-pandemic recovery in merchant acquiring and payment transaction volumes, including the contribution from acquisitions and the impact of the BAMS dissolution.
- Assess whether operating-margin improvement continues after First Data integration and restructuring benefits diminish.
- Review leverage, refinancing requirements for the $1.4 billion commercial paper balance and the $500 million receivable-securitized loan, as well as sensitivity to interest rates and credit ratings.
- Monitor operating cash conversion, working-capital requirements and capital expenditures, which increased while operating cash flow declined.
- Evaluate goodwill and intangible-asset concentration, including $36.303 billion of goodwill and $14.268 billion of identifiable intangible assets.
- Review the closing, financing and integration risks associated with the planned BentoBox acquisition and other recent acquisitions.
- Assess exposure to COVID-19, supply-chain constraints, merchant credit losses, fraud, cybersecurity incidents, regulatory changes and litigation.
- Consider the effect of unusual tax benefits and charges, investment gains, dispositions and prior-year business-sale gains when comparing reported earnings.