Fiserv, Inc.
Jul 30, 2012
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Fiserv Reports Second Quarter 2012 Results

Adjusted EPS increases 13 percent to $1.28;

Adjusted revenue increase of 3 percent;

2012 revenue and earnings guidance affirmed;

Largest CheckFree RXP win since 2000 leads strong sales performance

BROOKFIELD, Wis.--(BUSINESS WIRE)-- Fiserv, Inc. (NASDAQ: FISV), a leading global provider of financial services technology solutions, today reported financial results for the second quarter of 2012.

GAAP revenue in the second quarter was $1.10 billion compared with $1.07 billion in the second quarter of 2011. Adjusted revenue was $1.03 billion in the second quarter compared with $1.00 billion in 2011, an increase of 3 percent. For the first six months of 2012, GAAP revenue was $2.21 billion compared with $2.11 billion in 2011, and adjusted revenue was $2.06 billion compared with $1.99 billion in 2011, an increase of 4 percent.

GAAP earnings per share from continuing operations for the second quarter was $1.18 compared with $0.67 in 2011, which included a loss from early debt extinguishment of $0.26 per share. GAAP earnings per share from continuing operations for the first six months of 2012 was $2.13 compared with $1.45 in 2011, which included a loss from early debt extinguishment of $0.26 per share.

Adjusted earnings per share from continuing operations in the second quarter increased 13 percent to $1.28 compared with $1.13 in 2011. Adjusted earnings per share from continuing operations for the first six months of 2012 was up 15 percent to $2.48 compared with $2.15 in 2011.

"We achieved strong earnings and sales performance in the quarter consistent with our full year expectations," said Jeffery Yabuki, President and Chief Executive Officer of Fiserv. "The continuing strength in the sales of our leading channel, payment and account processing solutions is providing strong forward momentum."

Second Quarter 2012

Outlook for 2012

Fiserv continues to expect 2012 adjusted revenue growth to be in a range of 4 to 6 percent and adjusted internal revenue growth to be in a range of 3.0 to 4.5 percent. The company now expects 2012 adjusted earnings per share to be in a range of $5.08 to $5.20, which represents growth of 11 to 14 percent over $4.58 in 2011.

"Our first half results were in line with expectations, and we remain on track to achieve our full-year revenue and earnings guidance," said Yabuki.

Earnings Conference Call

The company will discuss its second quarter 2012 results on a conference call and webcast at 4 p.m. CDT on Monday, July 30, 2012. To register for the event, go to www.fiserv.com and click on the Q2 Earnings webcast link. Supplemental materials will be available in the "Investor Relations" section of the website.

About Fiserv

Fiserv, Inc. (NASDAQ: FISV) is a leading global technology provider serving the financial services industry. Fiserv is driving innovation in payments, processing services, risk and compliance, customer and channel management, and business insights and optimization. For six of the past eight years, Fiserv ranked No. 1 on the FinTech 100, an annual international listing of the top technology providers to the financial services industry. For more information, visit www.fiserv.com.

Use of Non-GAAP Financial Measures

We supplement our reporting of revenue, operating income, income from continuing operations and earnings per share information determined in accordance with GAAP by using "adjusted revenue," "adjusted operating income," "adjusted income from continuing operations," "adjusted earnings per share," "adjusted operating margin," "free cash flow" and "adjusted internal revenue growth" in this earnings release. Management believes that adjustments for certain non-cash or other items and the exclusion of certain pass-through revenue and expenses enhance our shareholders' ability to evaluate our performance because such items do not reflect how we manage our operations. Therefore, we exclude these items from GAAP revenue, operating income, operating margin, income from continuing operations and earnings per share to calculate these non-GAAP measures.

Examples of non-cash or other items may include, but are not limited to, non-cash intangible asset amortization expense associated with acquisitions, severance costs, merger costs, certain integration expenses related to acquisitions, certain costs associated with the achievement of the company's operational effectiveness objectives and certain discrete tax benefits. We exclude these items to more clearly focus on the factors we believe are pertinent to the management of our operations, and we use this information to allocate resources to our various businesses.

Free cash flow and adjusted internal revenue growth are non-GAAP financial measures and are described on page 12. We believe free cash flow is useful to measure the funds generated in a given period that are available for strategic capital decisions. We believe adjusted internal revenue growth is useful because it presents revenue growth excluding all acquired revenue and postage reimbursements in our Output Solutions business. We believe this supplemental information enhances our shareholders' ability to evaluate and understand our core business performance.

These non-GAAP measures should be considered in addition to, and not as a substitute for, revenue, operating income, operating margin, income from continuing operations and earnings per share or any other amount determined in accordance with GAAP. These non-GAAP measures reflect management's judgment of particular items and may not be comparable to similarly titled measures reported by other companies.

Forward-Looking Statements

This press release contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, including statements regarding anticipated adjusted earnings per share, adjusted revenue growth and adjusted internal revenue growth. Statements can generally be identified as forward-looking because they include words such as "believes," "anticipates," "expects," "could," "should" or words of similar meaning. Statements that describe the company's future plans, objectives or goals are also forward-looking statements. Forward-looking statements are subject to assumptions, risks and uncertainties that may cause actual results to differ materially from those contemplated by such forward-looking statements. The factors that may affect the company's results include, among others: the impact on the company's business of the current state of the economy, including the risk of reduction in revenue resulting from decreased spending on the products and services that the company offers; legislative and regulatory actions in the United States and internationally, including the impact of the Dodd-Frank Wall Street Reform and Consumer Protection Act and related regulations; the company's ability to successfully integrate recent acquisitions into the company's operations; changes in client demand for the company's products or services; pricing or other actions by competitors; the impact of the company's strategic initiatives; the company's ability to comply with government regulations, including privacy regulations; and other factors included in the company's filings with the SEC, including its Annual Report on Form 10-K for the year ended December 31, 2011 and in other documents that the company files with the SEC. You should consider these factors carefully in evaluating forward-looking statements, and are cautioned not to place undue reliance on such statements. The company assumes no obligation to update any forward-looking statements, which speak only as of the date of this press release.

       
Fiserv, Inc.
Condensed Consolidated Statements of Income
(In millions, except per share amounts, unaudited)
 
Three Months Ended Six Months Ended
June 30, June 30,
2012 2011 2012 2011
Revenue
Processing and services $ 917 $ 884 $ 1,826 $ 1,746
Product   183     181     382     367  
Total revenue   1,100     1,065     2,208     2,113  
 
Expenses
Cost of processing and services 480 479 982 953
Cost of product 155 145 314 295
Selling, general and administrative   206     190     412     393  
Total expenses   841     814     1,708     1,641  
 
Operating income 259 251 500 472
Interest expense - net (38 ) (48 ) (81 ) (93 )
Loss on early debt extinguishment   -     (61 )   -     (61 )
 
Income from continuing operations before income taxes
and income from investment in unconsolidated affiliate 221 142 419 318
Income tax provision (61 ) (49 ) (129 ) (113 )
Income from investment in unconsolidated affiliate   3     4     6     6  
Income from continuing operations 163 97 296 211
Loss from discontinued operations   (2 )   (7 )   (3 )   (9 )
 
Net income $ 161   $ 90   $ 293   $ 202  
 
GAAP earnings (loss) per share - diluted:
Continuing operations $ 1.18 $ 0.67 $ 2.13 $ 1.45
Discontinued operations   (0.01 )   (0.05 )   (0.03 )   (0.06 )
Total $ 1.17   $ 0.62   $ 2.10   $ 1.39  
 
Diluted shares used in computing earnings (loss) per share 137.8 144.2 139.1 146.0
       
Fiserv, Inc.
Reconciliation of GAAP to Adjusted Income and
Earnings Per Share from Continuing Operations
(In millions, except per share amounts, unaudited)
 
Three Months Ended Six Months Ended
June 30, June 30,
2012 2011 2012 2011
 
GAAP income from continuing operations $ 163 $ 97 $ 296 $ 211
Adjustments:
Merger and integration costs 2 4 5 6
Severance costs - - 12 18
Amortization of acquisition-related intangible assets 41 39 81 77
Loss on early debt extinguishment - 61 - 61
Tax impact of adjustments (15 ) (38 ) (35 ) (59 )
Tax benefit 1   (14 )   -     (14 )   -  
Adjusted income from continuing operations $ 177   $ 163   $ 345   $ 314  
 
GAAP earnings per share - continuing operations $ 1.18 $ 0.67 $ 2.13 $ 1.45
Adjustments - net of income taxes:
Merger and integration costs 0.01 0.02 0.02 0.03
Severance costs - - 0.06 0.08
Amortization of acquisition-related intangible assets 0.19 0.18 0.37 0.34
Loss on early debt extinguishment - 0.26 - 0.26
Tax benefit 1   (0.10 )   -     (0.10 )   -  
Adjusted earnings per share $ 1.28   $ 1.13   $ 2.48   $ 2.15  
 

1 Represents certain discrete income tax benefits related to prior years recognized for GAAP purposes in the second quarter of 2012 that have been excluded from adjusted earnings per share. Management believes this adjustment results in an estimated adjusted effective tax rate for 2012 that is more representative of the company's expected annual effective tax rate.

See page 5 for disclosures related to the use of non-GAAP financial information. Earnings per share is calculated using actual, unrounded amounts.

       
Fiserv, Inc.
Financial Results by Segment
(In millions, unaudited)
 
Three Months Ended Six Months Ended
June 30, June 30,
2012 2011 2012 2011
Total Company
Revenue $ 1,100 $ 1,065 $ 2,208 $ 2,113
Output Solutions postage reimbursements   (71 )   (62 )   (145 )   (128 )
Adjusted revenue $ 1,029   $ 1,003   $ 2,063   $ 1,985  
Operating income $ 259 $ 251 $ 500 $ 472
Merger and integration costs 2 4 5 6
Severance costs - - 12 18
Amortization of acquisition-related intangible assets   41     39     81     77  
Adjusted operating income $ 302   $ 294   $ 598   $ 573  
Operating margin 23.6 % 23.6 % 22.7 % 22.3 %
Adjusted operating margin 29.3 % 29.3 % 29.0 % 28.8 %
 
Payments and Industry Products ("Payments")
Revenue $ 609 $ 579 $ 1,228 $ 1,159
Output Solutions postage reimbursements   (71 )   (62 )   (145 )   (128 )
Adjusted revenue $ 538   $ 517   $ 1,083   $ 1,031  
Operating income $ 160   $ 164   $ 321   $ 320  
Operating margin 26.3 % 28.4 % 26.1 % 27.6 %
Adjusted operating margin 29.8 % 31.7 % 29.6 % 31.0 %
 
Financial Institution Services ("Financial")
Revenue $ 502   $ 497   $ 1,003   $ 977  
Operating income $ 163   $ 153   $ 314   $ 292  
Operating margin 32.5 % 30.8 % 31.3 % 29.9 %
 
Corporate and Other
Revenue $ (11 ) $ (11 ) $ (23 ) $ (23 )
Operating loss $ (64 ) $ (66 ) $ (135 ) $ (140 )
Merger and integration costs 2 4 5 6
Severance costs - - 12 18
Amortization of acquisition-related intangible assets   41     39     81     77  
Adjusted operating loss $ (21 ) $ (23 ) $ (37 ) $ (39 )
 

See page 5 for disclosures related to the use of non-GAAP financial information. Operating margin percentages are calculated using actual, unrounded amounts.

   
Fiserv, Inc.
Condensed Consolidated Statements of Cash Flows
(In millions, unaudited)
   
Six Months Ended
June 30,
2012 2011
Cash flows from operating activities
Net income $ 293 $ 202
Adjustment for discontinued operations 3 9
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and other amortization 94 96
Amortization of acquisition-related intangible assets 81 77
Share-based compensation 25 21
Deferred income taxes (2 ) 2
Loss on early debt extinguishment - 61
Settlement of interest rate hedge contracts - (6 )
Other non-cash items (16 ) (14 )
Changes in assets and liabilities, net of effects from acquisitions:
Trade accounts receivable 61 28
Prepaid expenses and other assets (42 ) (34 )
Accounts payable and other liabilities (87 ) (2 )
Deferred revenue   (25 )   (22 )
Net cash provided by operating activities   385     418  
 
Cash flows from investing activities
Capital expenditures, including capitalization of software costs (102 ) (102 )
Payments for acquisitions of businesses, net of cash acquired - (49 )
Other investing activities   4     (4 )
Net cash used in investing activities   (98 )   (155 )
 
Cash flows from financing activities
Proceeds from long-term debt, net 18 241
Issuance of treasury stock 52 50
Purchases of treasury stock (396 ) (433 )
Other financing activities   7     (2 )
Net cash used in financing activities   (319 )   (144 )
 
Change in cash and cash equivalents (32 ) 119
Net cash flows from discontinued operations (3 ) (7 )
Beginning balance   337     563  
Ending balance $ 302   $ 675  
   
Fiserv, Inc.
Condensed Consolidated Balance Sheets
(In millions, unaudited)
 
June 30, December 31,
2012 2011
Assets
Cash and cash equivalents $ 302 $ 337
Trade accounts receivable — net 606 666
Deferred income taxes 39 44
Prepaid expenses and other current assets   336   309
Total current assets 1,283 1,356
 
Property and equipment — net 256 258
Intangible assets — net 1,814 1,881
Goodwill 4,718 4,720
Other long-term assets   345   333
Total assets $ 8,416 $ 8,548
 
Liabilities and Shareholders' Equity
Accounts payable and accrued expenses $ 715 $ 836
Current maturities of long-term debt 178 179
Deferred revenue   342   369
Total current liabilities 1,235 1,384
 
Long-term debt 3,237 3,216
Deferred income taxes 610 617
Other long-term liabilities   81   73
Total liabilities 5,163 5,290
Shareholders' equity   3,253   3,258
Total liabilities and shareholders' equity $ 8,416 $ 8,548
 

Fiserv, Inc.

Selected Non-GAAP Financial Measures

(In millions, unaudited)

       

Adjusted Internal Revenue Growth 1

   

Three Months Ended
June 30, 2012

 

Six Months Ended
June 30, 2012

Payments Segment 1% 2%
Financial Segment 1% 3%
Total Company 1% 2%
 

1 Adjusted internal revenue growth is measured as the increase in adjusted revenue (see page 9), excluding acquired revenue, for the current period divided by adjusted revenue from the prior year period. Acquired revenue was $14 million (all in the Payments segment) for the second quarter of 2012 and was $30 million ($29 million in the Payments segment and $1 million in the Financial segment) for the first six months of 2012.

       
Free Cash Flow 2    

Six Months Ended
June 30,

2012   2011
Net income from continuing operations $ 296 $ 211
Depreciation and amortization 175 173
Non-cash and other items 7 64
Sub-total 478 448
Change in working capital, net   (93 )   (30 )
Net cash provided by operating activities 385 418
Capital expenditures (102 ) (102 )
Other adjustments 3   15     19  
Free cash flow $ 298   $ 335  
 

2 Free cash flow is calculated as net cash provided by operating activities less capital expenditures, and excludes items which management believes may not be indicative of the future free cash flow of the company.

3 Free cash flow excludes the net change in settlement assets and obligations and tax-effected severance, merger and integration payments. Free cash flow also excludes payments for the settlement of interest rate hedge contracts associated with the company's debt offering in the second quarter of 2011.

See page 5 for disclosures related to the use of non-GAAP financial information.

FISV-E

Media Relations:
Judy Wicks
Vice President Communications
Fiserv, Inc.
678-375-1595
judy.wicks@fiserv.com
or
Investor Relations:
Peter Holbrook
Vice President Investor Relations
Fiserv, Inc.
262-879-5055
peter.holbrook@fiserv.com

Source: Fiserv, Inc.

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