Fiserv Reports Strong Earnings for First Quarter of 2006; Company Reaffirms Full Year Earnings Guidance
BROOKFIELD, Wis., Apr 25, 2006 (BUSINESS WIRE) -- Fiserv, Inc. (Nasdaq:FISV), a leading provider of information management systems and services to the financial and health benefit industries, today reported strong revenues and earnings for the first quarter of 2006. Total revenues for the quarter increased 13 percent to $1,096.7 million compared to $973.1 million in 2005. First quarter earnings per share were $0.64 (including the effect of expensing share-based compensation of $0.05 per share) compared to $0.71 per share in 2005 (including $0.14 from a realized gain on investment and excluding $0.06 in pro forma share-based compensation). Adjusted earnings per share were $0.64 for the quarter compared to $0.52 for the first quarter of 2005.
"Our first quarter results reflect the value of our mix of businesses, which combined to deliver significant growth in revenue, earnings and cash flow," said Jeff Yabuki, president and chief executive officer of Fiserv. "In addition, we continued to allocate our capital to build long term shareholder value. Specifically, we invested in initiatives that will provide future organic growth and, at the same time, returned almost $230 million to our shareholders through our stock buyback plan.
"For the remainder of 2006, we will continue to focus on building our organic growth capabilities across the enterprise. We remain confident in achieving our growth target for the year," said Yabuki.
Among other highlights for the first quarter:
-- The Company's adjusted organic revenue growth rate for the quarter increased from 5 percent in 2005 to 7 percent in 2006. Fiserv's financial segment adjusted organic growth rate rose to 8 percent compared to 5 percent in 2005
-- Free cash flow was $143.3 million for the quarter, increasing 39 percent over the prior year comparable period primarily due to improved cash collections on accounts receivable
-- Fiserv repurchased 5.4 million shares of its common stock in the first quarter of 2006 and had 7.7 million shares authorized for repurchase on March 31, 2006
-- The company was recognized by Fortune magazine as one of the newest Fortune 500 companies
-- Fiserv's credit union group signed a new core system relationship with $3 billion asset Digital Credit Union, Marlborough, Mass., one of the top 20 U.S. credit unions
-- CareGain signed its first hosted software agreement for its core consumer-directed health care technology with Health Net, Inc., a top 10 managed care company providing health benefits to approximately 6.3 million members
-- Fiserv was selected to provide services for the startup of Blue Healthcare Bank, which is an industrial bank in formation pending regulatory approval and currently operating under HealthBenefit Corporation. The new bank is being formed by the BlueCross and BlueShield Association and 32 of 38 state and regional Blue Plans to provide consumer- directed health program services to participating employers and insured members.
Fiserv will provide the new "Blue" bank a core banking platform, card processing, item processing and health savings, health reimbursement and flexible spending account administration, along with other supporting business process outsourcing services. "This agreement reflects Fiserv's unique capabilities to serve the growing convergence of healthcare and financial services," Yabuki said.
OUTLOOK FOR 2006
Fiserv reaffirmed its full-year 2006 earnings estimate to be within a range of $2.46 to $2.53 per share. The company also reaffirmed its 2006 adjusted internal revenue growth rates (excluding customer reimbursements and prescription product revenues) to be in the mid-single digits for the Financial and Investment segments and low to mid-single digits in the Health segment.
ACCOUNTING CHANGE
On January 1, 2006, the Company adopted Statement of Financial Accounting Standards No. 123 (revised 2004) "Share-Based Payment" ("SFAS 123R") that requires companies to expense the value of employee stock purchase plans, stock option grants and similar awards. The Company adopted SFAS 123R under the modified prospective method, which requires the application of SFAS 123R in 2006 to new awards and to awards modified, repurchased or cancelled after the effective date. Additionally, compensation cost for the portion of outstanding awards for which service has not been rendered (such as unvested options) that are outstanding as of January 1, 2006, shall be recognized as the remaining services are rendered.
Share-based compensation expense for the first quarter of 2006 was $13.8 million, or $0.05 per share, and is estimated to be approximately $0.01 to $0.02 per share per quarter for the remainder of 2006 with a full year impact of $0.09 to $0.11 per share.
EARNINGS CONFERENCE CALL
Fiserv will discuss the first quarter results on a conference call and Webcast at 4 p.m. Central on Tuesday, Apr. 25. To register for the event, go to www.fiserv.com and click on "Upcoming Events."
USE OF NON-GAAP FINANCIAL INFORMATION
The Company reports its financial results in accordance with GAAP. However, the Company uses certain non-GAAP performance measures, including free cash flow, internal revenue growth, adjusted operating margin and adjusted earnings per share, to provide investors a more complete understanding of the Company's underlying operational results. These non-GAAP measures are indicators management uses to provide additional meaningful comparisons between current results and prior reported results, and as a basis for planning and forecasting for future periods. As an example, the Company uses adjusted earnings per share to present the impact of certain transactions or events that management expects to occur infrequently, such as the realized gain on sale of investment occurring in the first quarter of 2005. The Company believes this adjusted measure is more indicative of the Company's operating performance. The presentation of this additional information is not meant to be considered in isolation or as a substitute for comparable metrics prepared in accordance with GAAP in the United States.
ABOUT FISERV
Fiserv, Inc. (Nasdaq:FISV), a Fortune 500 company, provides information management systems and services to the financial and health benefits industries. Leading services include transaction processing, outsourcing, business process outsourcing, software and systems solutions.
The company serves more than 17,000 clients worldwide and is the leading provider of core processing solutions for U.S. banks, credit unions and thrifts. Fiserv was ranked the largest provider of information technology services to the financial services industry worldwide in the 2005 and 2004 FinTech 100 surveys.
Fiserv Health provides health plan management, pharmacy benefits management and BPO services to the managed care market and self-funded commercial and government employers and health plans.
Headquartered in Brookfield, Wis., Fiserv reported more than $4 billion in total revenue for 2005. For more information, please visit www.fiserv.com.
his press release contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, including statements regarding the estimated earnings per share, internal revenue growth rates and share-based compensation expense for the full year 2006. Such 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 adversely affect the Corporation's results include, among others, changes in customers' demand for the Corporation's products, pricing and other actions by competitors, general changes in economic conditions and other factors included in the Corporation's filings with the SEC, including its Annual Report on Form 10-K. The Corporation assumes no obligation to update any forward-looking statements, which speak only as of the date of this press release.
FISERV, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share amounts)
(Unaudited)
Three Months Ended
March 31,
2006 2005
--------------- ---------------
Revenues:
Processing and services $761,044 $693,986
Product 335,624 279,128
--------------- ---------------
Total revenues 1,096,668 973,114
--------------- ---------------
Expenses:
Cost of processing and services (1) 485,968 440,459
Cost of product 272,094 221,440
Selling, general and administrative (1) 145,653 123,199
--------------- ---------------
Total expenses 903,715 785,098
--------------- ---------------
Operating income 192,953 188,016
Interest expense - net (6,106) (3,662)
Realized gain from sale of
investment (2) - 43,452
--------------- ---------------
Income from continuing operations,
before income taxes 186,847 227,806
Income tax provision 70,636 88,161
--------------- ---------------
Income from continuing operations 116,211 139,645
Loss from discontinued operations, net
of tax - (619)
--------------- ---------------
Net income $116,211 $139,026
=============== ===============
Earnings per share:
Continuing operations $0.64 $0.71
Discontinued operations - -
--------------- ---------------
Total $0.64 $0.71
=============== ===============
Adjusted earnings per share -
continuing operations:
Continuing operations $0.64 $0.71
Less: Pro forma share-based
compensation - SFAS 123R(3) - 0.06
Less: Realized gain from sale of
investment (2) - 0.14
--------------- ---------------
Adjusted earnings per share -
continuing operations $0.64 $0.52
=============== ===============
Diluted shares used in computing
earnings per share 181,783 195,495
(1) Share-based compensation expense for the first quarter of 2006 was
$13.8 million ($0.05 per share) primarily due to the adoption of
SFAS 123R on January 1, 2006, of which $2.8 million is included in
cost of processing and services, and $11.0 million is included in
selling, general and administrative expenses. If SFAS 123R had
been adopted January 1, 2005, share-based compensation expense
would have been $18.8 million in 2005, or $18.0 million higher
than the $0.8 million of share-based compensation expense recorded
in 2005.
(2) Represents the sale of the Company's remaining 3.2 million shares
of Bisys Group, Inc. common stock in the first quarter of 2005.
(3) Represents pro forma impact in 2005 of the incremental share-based
compensation expense under SFAS No. 123R, which was adopted on
January 1, 2006 under the modified prospective method.
FISERV, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
(Unaudited)
March 31, December 31,
2006 2005
--------------- ---------------
ASSETS
Cash and cash equivalents $204,775 $184,471
Accounts receivable, less allowance for
doubtful accounts 550,346 553,402
Prepaid expenses and other assets 117,862 105,782
Investments 2,098,265 2,126,538
Property and equipment - net 233,143 226,013
Intangible assets - net 597,462 593,808
Goodwill 2,287,302 2,249,502
--------------- ---------------
TOTAL $6,089,155 $6,039,516
=============== ===============
LIABILITIES AND SHAREHOLDERS' EQUITY
Accounts payable $268,973 $241,751
Accrued expenses 275,647 365,651
Accrued income taxes 64,421 4,266
Deferred revenues 244,031 240,105
Customer funds held and retirement
account deposits 1,925,837 1,960,626
Deferred income taxes 169,175 165,992
Long-term debt 757,935 595,385
--------------- ---------------
TOTAL LIABILITIES 3,706,019 3,573,776
SHAREHOLDERS' EQUITY
Preferred stock, no par value:
25,000,000 shares authorized; none
issued - -
Common stock, $0.01 par value:
450,000,000 shares authorized;
197,772,804 and 197,507,892 shares
issued 1,978 1,975
Additional paid-in capital 703,106 693,715
Accumulated other comprehensive income 3,467 1,321
Accumulated earnings 2,553,188 2,436,977
Treasury stock, at cost, 20,689,795 and
15,753,675 shares (878,603) (668,248)
--------------- ---------------
TOTAL SHAREHOLDERS' EQUITY 2,383,136 2,465,740
--------------- ---------------
TOTAL $6,089,155 $6,039,516
=============== ===============
FISERV, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
Three months ended March 31,
2006 2005
--------------- ---------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $116,211 $139,026
Adjustment for discontinued operations - 619
Adjustments to reconcile net income to
net cash provided by operating
activities:
Realized gain from sale of
investments - (43,452)
Deferred income taxes 9,527 12,068
Share-based compensation 13,794 847
Income tax benefit from exercise of
options 1,077 5,000
Depreciation and amortization 47,366 43,023
Changes in assets and liabilities,
net of effects from acquisitions and
dispositions of businesses:
Accounts receivable 7,077 (25,774)
Prepaid expenses and other assets (9,075) 3,874
Accounts payable and accrued
expenses (51,476) (46,278)
Deferred revenues 5 (2,723)
Accrued income taxes 55,961 48,802
--------------- ---------------
Net cash provided by operating
activities 190,467 135,032
--------------- ---------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures, including
capitalization of software costs for
external customers (47,172) (31,772)
Payment for acquisitions of businesses,
net of cash acquired (61,975) (96,003)
Proceeds from sale of businesses, net
of expenses paid (1,246) 412,920
Investments 28,487 (611,463)
--------------- ---------------
Net cash used in investing activities (81,906) (326,318)
--------------- ---------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from (repayments of) long-term
debt - net 162,364 (7,156)
Issuance of common stock and treasury
stock 13,050 9,648
Purchases of treasury stock (228,882) (106,681)
Customer funds held and retirement
account deposits (34,789) 499,076
--------------- ---------------
Net cash (used in) provided by
financing activities (88,257) 394,887
--------------- ---------------
Change in cash and cash equivalents 20,304 203,601
Beginning balance 184,471 516,127
--------------- ---------------
Ending balance $204,775 $719,728
=============== ===============
FISERV, INC. AND SUBSIDIARIES
SELECTED SEGMENT FINANCIAL INFORMATION
(Dollars in Thousands, Unaudited)
Three Months Ended
March 31,
Segment 2006 2005
------- --------------- ---------------
Revenues:(1)(2)
Financial institution outsourcing,
systems and services ("Financial") $781,091 $698,036
Health plan management services
("Health") 281,228 242,331
Investment support services
("Investment") 34,349 32,747
--------------- ---------------
Total $1,096,668 $973,114
=============== ===============
Operating income:(1)
Financial $166,169 $160,148
Health 20,753 22,266
Investment 6,031 5,602
--------------- ---------------
Total $192,953 $188,016
=============== ===============
Operating margin:
Financial 21% 23%
Health 7% 9%
Investment 18% 17%
--------------- ---------------
Total 18% 19%
=============== ===============
Adjusted operating margin:(3)
Financial 24% 24%
Health 17% 18%
Investment 18% 15%
--------------- ---------------
Total 23% 22%
=============== ===============
(1) Included in the Financial segment results are early contract
termination and assignment fees of $3.9 million for the three
months ended March 31, 2006 compared to $14.9 million for the
comparable period in 2005. This segment's businesses generally
enter into three- to five-year contracts with its clients that
contain early contract termination fees. These fees are very
unpredictable and can vary significantly from period to period
based on the number and size of terminated contracts and how early
in the contract term a contract is terminated.
(2) Included in the segment revenues and expenses for the first
quarter of 2006 were $102.4 million and $1.7 million of customer
reimbursements for the Financial and Health segments,
respectively, and for the first quarter of 2005 were $89.5 million
and $1.2 million for the Financial and Health segments,
respectively. Customer reimbursements primarily consist of
pass-through expenses such as postage and data communication costs
and are included in both revenues and expenses.
(3) Adjusted operating margin excludes prescription product costs
which are included in revenues and expenses in the Health segment
of $154.1 million and $124.1 million in the first quarter of 2006
and 2005, respectively, excludes customer reimbursements noted in
footnote 2 in both periods and includes the pro forma share-based
compensation expense (SFAS 123R) impact to the first quarter of
2005 of $16.3 million, $1.1 million and $0.5 million for the
Financial, Health and Investment segments, respectively. The first
quarter of 2006 operating income and actual and adjusted operating
margin include the 2006 share-based compensation expense impact of
$12.6 million, $0.8 million and $0.4 million for the Financial,
Health and Investment segments, respectively.
Adjusted operating margin is a non-GAAP financial measure that the
Company believes is useful to investors because it provides more
visibility and insight into how management views the underlying
operating performance of the Company. Management excludes the
impact of pass-through customer reimbursements and prescription
product costs and includes the pro forma share-based compensation
expense impact in the first quarter of 2005 due to the prospective
adoption of SFAS 123R, effective January 1, 2006.
FISERV, INC. AND SUBSIDIARIES
INTERNAL REVENUE GROWTH PERCENTAGES BY SEGMENT (1)
(Unaudited)
Three months ended
March 31,
-------------------------------
Segment 2006 2005
------- -------------------------------
Financial 9% 3%
Health 14% 14%
Investment 5% 8%
-------------------------------
TOTAL 10% 6%
===============================
Adjusted (2)
Three months ended
March 31,
-------------------------------
2006 2005
-------------------------------
Financial 8% 5%
Health 3% 4%
Investment 5% 8%
-------------------------------
TOTAL 7% 5%
===============================
(1) Internal revenue growth percentages are measured as the increase
in total revenues for the current period less "acquired revenue
from acquisitions" divided by total revenues from the prior year
period plus "acquired revenue from acquisitions." "Acquired
revenue from acquisitions" was $25.6 million ($21.2 million in the
Financial segment and $4.4 million in the Health segment) for the
first quarter of 2006 and represents pre-acquisition revenue of
acquired companies, less dispositions, for the comparable prior
year period.
(2) The adjusted internal revenue growth percentages exclude the
impact of customer reimbursements and prescription product costs,
which are both included in revenues and expenses under GAAP. See
page 9 footnotes 2 and 3 for further information.
Actual and adjusted internal revenue growth percentages are
non-GAAP financial measures that the Company believes are useful
to investors because they present separately internal and
acquisition-related revenue growth both including and excluding
customer reimbursements and prescription product costs that must
be presented under GAAP in revenue.
SELECTED FINANCIAL INFORMATION
(In thousands, unaudited)
Free Cash Flow Three Months Ended March 31,
2006 2005
--------------- ---------------
Net cash provided by operating
activities $190,467 $135,032
Capital expenditures (47,172) (31,772)
--------------- ---------------
Free cash flow $143,295 $103,260
=============== ===============
Free cash flow is measured as net cash provided by operating
activities less capital expenditures including capitalization of
software costs for external customers, as reported in the Company's
condensed consolidated statements of cash flows. Free cash flow is a
non-GAAP financial measure that the Company believes is useful to
investors because it measures cash flow after the Company has
satisfied the capital requirements of its operations.
Segment Results
Financial Segment:
The Company's largest operating segment began 2006 with solid performance during the first quarter with revenues of $781.1 million and an adjusted operating margin of 24 percent. Flood claims processing revenue in the first quarter of 2006 was $30.3 million as compared to $8.7 million in revenue in the first quarter of 2005, which positively impacted the adjusted operating margin compared to 2005. Substantially all of the flood claims remaining at December 31, 2005 had been processed by the end of the first quarter of 2006. In the first quarter of 2006, contract termination fees in the Financial segment were $3.9 million down from $14.9 million in the first quarter of 2005, which negatively impacted the adjusted operating margin compared to 2005.
The adjusted internal revenue growth rate for the Financial segment was 8 percent for the first quarter of 2006 and 5 percent for the comparable period in 2005. The incremental 2006 flood claims processing revenues positively impacted the Financial segment adjusted internal revenue growth rate by 3 percentage points and this was offset by a decrease in contract termination fees that negatively impacted the 2006 rate by approximately 2 percentage points. The other large positive contributors to the 2006 rate were increased volumes in the lending division's loan settlement services businesses, increased revenue associated with new client growth and cross sales in the credit union operations and incremental revenue associated with the Australian check processing business that began operations in mid-April of 2005.
Health Segment:
The Health segment revenues were $281.2 million in the first quarter of 2006 and the adjusted operating margin was 17 percent. The decrease in the first quarter 2006 adjusted operating margin compared to 2005 was primarily due to expenses related to investments in the Company's consumer-directed health care initiative and health plan business process outsourcing start-up business and lower revenue in 2006 related to processing one-time claims for lost clients, as fewer clients were lost to competition.
FISERV, INC. AND SUBSIDIARIES
2005 CONSOLIDATED STATEMENT OF INCOME
SUPPLEMENTAL QUARTERLY INFORMATION
(In thousands)
(Unaudited)
Quarter Ended
March 31, June 30, September 30, December 31,
2005 2005 2005 2005
------------- ------------- ------------- -------------
Revenues:
Processing and
services $693,986 $708,958 $722,984 $765,624
Product 279,128 287,468 288,661 312,669
------------- ------------- ------------- -------------
Total revenues 973,114 996,426 1,011,645 1,078,293
------------- ------------- ------------- -------------
Expenses:
Cost of processing
and services 440,459 453,816 470,787 490,185
Cost of product 221,440 229,055 239,680 252,533
Selling, general
and
administrative 123,199 126,310 129,659 136,959
------------- ------------- ------------- -------------
Total expenses 785,098 809,181 840,126 879,677
------------- ------------- ------------- -------------
Operating income $188,016 $187,245 $171,519 $198,616
============= ============= ============= =============
Segment Revenues:
Financial:
Processing
& services $566,629 $583,744 $596,661 $636,929
Product 131,407 130,248 122,270 140,191
------------- ------------- ------------- -------------
Total revenues $698,036 $713,992 $718,931 $777,120
============= ============= ============= =============
Health:
Processing &
services $94,610 $90,498 $93,613 $94,460
Product 147,721 157,220 166,391 172,478
------------- ------------- ------------- -------------
Total revenues $242,331 $247,718 $260,004 $266,938
============= ============= ============= =============
Investment:
Processing &
services $32,747 $34,716 $32,710 $34,235
Product - - - -
------------- ------------- ------------- -------------
Total revenues $32,747 $34,716 $32,710 $34,235
============= ============= ============= =============
Note: This supplemental schedule provides the 2005 reclassified
revenues and expenses by quarter due to the reclassified consolidated
statements of income filed in the Company's 2005 Annual Report on Form
10-K.
SOURCE: Fiserv, Inc.
Fiserv, Inc. Mike Muckian (Media), 262-879-5667 or Dave DeClark (Investors), 262-879-5316
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