Fiserv Reports Third Quarter 2020 Results

GAAP revenue growth of 21% in the quarter and 79% year to date;

GAAP EPS increase of 18% in the quarter and decrease of 31% year to date;

Internal revenue growth of 3% in the quarter and flat year to date;

Adjusted EPS increase of 19% in the quarter and 11% year to date;

Operating cash flow of $1.04 billion in the quarter and is up 83% to $2.96 billion year to date;

Free cash flow of $939 million in the quarter and is up 13% to $2.59 billion year to date;

Company raises full year 2020 adjusted EPS growth outlook to at least 11%

BROOKFIELD, Wis.--(BUSINESS WIRE)--Fiserv, Inc. (NASDAQ: FISV), a leading global provider of payments and financial services technology solutions, today reported financial results for the third quarter of 2020.


Third Quarter 2020 GAAP Results
On a GAAP basis, the financial results of First Data Corporation ("First Data") are included in the consolidated results of Fiserv from July 29, 2019, the date of acquisition. GAAP revenue for the company increased 21% to $3.79 billion in the third quarter, with 44% growth in the Acceptance segment, 1% decline in the Fintech segment and 20% growth in the Payments segment. GAAP revenue increased 79% to $11.02 billion in the first nine months of 2020 compared to the prior year period, with 303% growth in the Acceptance segment, 1% decline in the Fintech segment and 66% growth in the Payments segment. GAAP revenue within the Acceptance and Payments segments included revenue from acquired First Data businesses.

GAAP earnings per share was $0.39 in the third quarter and $0.96 in the first nine months of 2020, an increase of 18% and decrease of 31%, respectively, compared to the prior year periods. GAAP earnings per share in the first nine months of 2020 included integration costs and acquired intangible asset amortization from the application of purchase accounting associated with the First Data acquisition, as well as a gain from the sale of a 60% interest of the company's Investment Services business ("Investment Services Transaction").

GAAP operating margin was 14.3% and 12.1% in the third quarter and first nine months of 2020, respectively, compared to 12.0% and 18.4% in the third quarter and first nine months of 2019, respectively. GAAP operating margin in the third quarter of 2020 included the benefit from a gain on the dissolution of the Banc of America Merchant Services joint venture ("BAMS"). GAAP operating margin in the first nine months of 2020 also included the operating margin impacts from integration costs and acquired intangible asset amortization associated with the acquisition of First Data, as well as a gain resulting from the Investment Services Transaction.

Net cash provided by operating activities was flat at $1.04 billion in the third quarter and increased by 83% to $2.96 billion in the first nine months of 2020 compared to the prior year periods, primarily attributable to the First Data acquisition.

"Fiserv again delivered excellent financial results and free cash flow in an environment that continues to be impacted by a global pandemic,” said Frank Bisignano, President and Chief Executive Officer of Fiserv. “Our focus on serving clients with excellence has never been more important and has translated to another strong quarter of robust sales growth and continuing revenue momentum.”

Third Quarter 2020 Non-GAAP Results and Additional Information
On an adjusted non-GAAP basis, the company's financial performance measures in this release, including adjusted revenue, internal revenue, internal revenue growth, adjusted operating margin, adjusted net income, adjusted earnings per share and free cash flow, have been recalculated to provide historical results on a combined company basis to enhance investors' ability to evaluate the company's operating performance including First Data.

  • Adjusted revenue declined 1% to $3.59 billion in the third quarter and 4% to $10.29 billion in the first nine months of 2020 compared to the prior year periods.
  • Internal revenue growth was 3% in the third quarter, driven by 6% growth in the Acceptance segment, 1% growth in the Payments segment and the Fintech segment was flat compared to the prior year period.
  • Internal revenue was flat in the first nine months of 2020, with a 1% decline in the Acceptance segment, and both the Fintech and Payments segments were flat compared to the prior year.
  • Adjusted earnings per share increased 19% to $1.20 in the third quarter and 11% to $3.12 in the first nine months of 2020 compared to the prior year periods.
  • Free cash flow increased by 12% to $939 million and by 13% to $2.59 billion in the third quarter and first nine months of 2020, respectively, compared to $837 million and $2.30 billion in the prior year periods.
  • Adjusted operating margin increased 310 basis points to 32.9% in the third quarter and 80 basis points to 29.9% in the first nine months of 2020 compared to the prior year periods.
  • Sales results increased 27% in the third quarter and 23% in the first nine months of 2020 compared to the prior year periods.
  • The company repaid $769 million of debt in the third quarter and $1.03 billion in the first nine months of 2020.
  • Subsequent to quarter end, Alliance Data, one of the largest card issuers in the United States, selected Fiserv as its exclusive strategic partner to provide modernized credit processing services for its Card Services business.

Outlook for 2020
While the COVID-19 pandemic continues to provide uncertainty in market conditions, the company is raising its full year 2020 outlook for adjusted earnings per share. Fiserv now expects adjusted earnings per share to grow at least 11% over adjusted earnings per share for 2019, as revised for the net impact of divestitures.

"The strength of our business has allowed us to deliver outstanding results in uncertain times. We are, including raising our earnings outlook in anticipation of achieving our 35th consecutive year of double-digit adjusted earnings per share growth while continuing to invest in the future," said Bisignano.

Earnings Conference Call
The company will discuss its third quarter 2020 results on a conference call and webcast at 4 p.m. CT on Tuesday, October 27, 2020. To register for the event, go to fiserv.com and click on the Q3 Earnings webcast link. Supplemental materials will be available in the "Investor Relations" section of the website.

About Fiserv
Fiserv, Inc. (NASDAQ: FISV) aspires to move money and information in a way that moves the world. As a global leader in payments and financial technology, the company helps clients achieve best-in-class results through a commitment to innovation and excellence in areas including account processing and digital banking solutions; card issuer processing and network services; payments; e-commerce; merchant acquiring and processing; and the Clover® cloud-based point-of-sale solution. Fiserv is a member of the S&P 500® Index and the FORTUNE® 500, and is among FORTUNE World's Most Admired Companies®. Visit fiserv.com and follow on social media for more information and the latest company news.

Use of Non-GAAP Financial Measures
Due to the financial impact of the First Data acquisition, the company's 2019 non-GAAP financial performance measures have been recalculated in this news release on a combined company basis reflecting its new reportable segments as realigned during the first quarter of 2020. The combined financial information has been prepared by making certain adjustments to the sum of historical First Data financial information determined in accordance with generally accepted accounting principles ("GAAP") and historical Fiserv financial information determined in accordance with GAAP. The historical combined financial information includes various estimates and is not necessarily indicative of the operating results of the combined companies had the transaction been completed at the assumed date or of the combined companies in the future. The historical combined financial information does not reflect any cost savings or other synergies anticipated as a result of the acquisition. In addition, the historical combined financial information does not reflect the impact of any purchase accounting adjustments that may arise from the acquisition as those impacts would be excluded in the preparation of the combined financial information. The combined financial information is not pro forma information prepared in accordance with Article 11 of Regulation S-X of the Securities and Exchange Commission, and the preparation of information in accordance with Article 11 would result in a significantly different presentation.

The company supplements its and First Data's historical reporting of information determined in accordance with GAAP, such as revenue, operating income, operating margin, net income, earnings per share and net cash provided by operating activities, with "combined revenue," "adjusted revenue," "internal revenue," "internal revenue growth," "combined operating income," "adjusted operating income," "adjusted operating margin," "combined net income attributable to Fiserv," "adjusted net income," "adjusted net income, as adjusted for divestitures," "combined earnings per share," "adjusted earnings per share," "adjusted earnings per share, as adjusted for divestitures," "combined net cash provided by operating activities," and "free cash flow." Management believes that providing combined historical financial information, making adjustments for certain non-cash or other items and excluding certain pass-through revenue and expenses with respect to such combined information should enhance shareholders' ability to evaluate the combined company's performance, including providing a reasonable basis of comparison with its results for post-acquisition periods and providing additional insights into the factors and trends affecting the combined company's business. Therefore, the company excludes these items from its and First Data's historical combined revenue, combined operating income, combined net income attributable to Fiserv, combined earnings per share and combined net cash provided by operating activities to calculate these non-GAAP measures. The corresponding reconciliations of adjusted financial measures to the most comparable GAAP measures are included in this news release.

Examples of non-cash or other items may include, but are not limited to, non-cash deferred revenue adjustments arising from acquisitions; non-cash intangible asset amortization expense associated with acquisitions; non-cash impairment charges; severance and restructuring costs; net charges associated with debt financing activities including foreign currency transaction gains or losses, early debt extinguishment and bridge financing costs; merger and integration costs; gains or losses from the sale of businesses; and certain discrete tax benefits and expenses. The company excludes these items to more clearly focus on the factors management believes are pertinent to the company's operations, and management uses this information to make operating decisions, including the allocation of resources to the company's various businesses.

The company adjusts its non-GAAP results to exclude amortization of acquisition-related intangible assets as such amounts are inconsistent in amount and frequency and are significantly impacted by the timing and/or size of acquisitions. Management believes that the adjustment of acquisition-related intangible asset amortization supplements GAAP information with a measure that can be used to assess the comparability of operating performance. Although the company excludes amortization from acquisition-related intangible assets from its non-GAAP expenses, management believes that it is important for investors to understand that such intangible assets were recorded as part of purchase accounting and contribute to revenue generation.

Management believes internal revenue growth is useful because it presents combined adjusted revenue growth including deferred revenue purchase accounting adjustments and excluding the impact of foreign currency fluctuations, acquisitions, dispositions and the company's Output Solutions postage reimbursements. Management believes free cash flow is useful to measure the funds generated in a given period that are available for debt service requirements and strategic capital decisions. Management believes this supplemental information enhances shareholders' ability to evaluate and understand the company's core business performance.

These non-GAAP measures may not be comparable to similarly titled measures reported by other companies and should be considered in addition to, and not as a substitute for, revenue, operating income, operating margin, net income, earnings per share and net cash provided by operating activities or any other amount determined in accordance with GAAP.

Forward-Looking Statements
This news 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 and adjusted earnings per share 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 could cause the company’s actual results to differ materially include, among others, the following, many of which are, and will be, amplified by the COVID-19 pandemic: the duration and intensity of the COVID-19 pandemic; governmental and private sector responses to the COVID-19 pandemic and the impact of such responses on the company; the impact of the COVID-19 pandemic on the company's employees, clients, vendors, operations and sales; the possibility that the company may be unable to achieve expected synergies and operating efficiencies from the acquisition of First Data within the expected time frames or at all or to successfully integrate the operations of First Data into the company's operations; such integration may be more difficult, time-consuming or costly than expected; profitability following the transaction may be lower than expected, including due to unexpected costs, charges or expenses resulting from the transaction; operating costs, customer loss and business disruption (including, without limitation, difficulties in maintaining relationships with employees, customers, clients or suppliers) may be greater than expected following the transaction; unforeseen risks relating to the company's liabilities or those of First Data may exist; the company's ability to meet expectations regarding the accounting and tax treatments of the transaction; the company's ability to compete effectively against new and existing competitors and to continue to introduce competitive new products and services on a timely, cost-effective basis; changes in customer demand for the company's products and services; the ability of the company's technology to keep pace with a rapidly evolving marketplace; the successful management of the company's merchant alliance program which involves several alliances not under its sole control; the impact of a security breach or operational failure on the company's business including disruptions caused by other participants in the global financial system; the failure of the company's vendors and merchants to satisfy their obligations; the successful management of credit and fraud risks in the company's business and merchant alliances; changes in local, regional, national and international economic or political conditions and the impact they may have on the company and its customers; the effect of proposed and enacted legislative and regulatory actions affecting the company or the financial services industry as a whole; the company's ability to comply with government regulations and applicable card association and network rules; the protection and validity of intellectual property rights; the outcome of pending and future litigation and governmental proceedings; the company's ability to successfully identify, complete and integrate acquisitions, and to realize the anticipated benefits associated with the same; the impact of the company's strategic initiatives; the company's ability to attract and retain key personnel; volatility and disruptions in financial markets that may impact the company's ability to access preferred sources of financing and the terms on which the company is able to obtain financing or increase its costs of borrowing; adverse impacts from currency exchange rates or currency controls; and other factors included in “Risk Factors” in the company's Quarterly Report on Form 10-Q for the quarter ended June 30, 2020, Annual Report on Form 10-K for the year ended December 31, 2019, and in other documents that the company files with the SEC, which are available at http://www.sec.gov. 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 news release.

Fiserv, Inc.

Condensed Consolidated Statements of Income

(In millions, except per share amounts, unaudited)

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended
September 30,

 

Nine Months Ended
September 30,

 

 

2020

 

2019

 

2020

 

2019

Revenue

 

 

 

 

 

 

 

Processing and services

$

3,153

 

 

$

2,608

 

 

$

9,118

 

 

$

5,229

 

Product

 

633

 

 

 

520

 

 

 

1,902

 

 

 

913

 

Total revenue

 

3,786

 

 

 

3,128

 

 

 

11,020

 

 

 

6,142

 

 

 

 

 

 

 

 

 

Expenses

 

 

 

 

 

 

 

Cost of processing and services

 

1,387

 

 

 

1,204

 

 

 

4,488

 

 

 

2,445

 

Cost of product

 

481

 

 

 

413

 

 

 

1,467

 

 

 

755

 

Selling, general and administrative

 

1,412

 

 

 

1,137

 

 

 

4,193

 

 

 

1,821

 

Gain on sale of businesses

 

(36

)

 

 

 

 

 

(464

)

 

 

(10

)

Total expenses

 

3,244

 

 

 

2,754

 

 

 

9,684

 

 

 

5,011

 

 

 

 

 

 

 

 

 

Operating income

 

542

 

 

 

374

 

 

 

1,336

 

 

 

1,131

 

Interest expense, net

 

(174

)

 

 

(164

)

 

 

(535

)

 

 

(279

)

Debt financing activities

 

 

 

 

49

 

 

 

 

 

 

(47

)

Other income (expense)

 

13

 

 

 

(3

)

 

 

34

 

 

 

 

 

 

 

 

 

 

 

 

Income before income taxes and income from investments in unconsolidated affiliates

 

381

 

 

 

256

 

 

 

835

 

 

 

805

 

Income tax provision

 

(124

)

 

 

(53

)

 

 

(176

)

 

 

(144

)

Income from investments in unconsolidated affiliates

 

19

 

 

 

22

 

 

 

3

 

 

 

12

 

 

 

 

 

 

 

 

 

Net income

 

276

 

 

 

225

 

 

 

662

 

 

 

673

 

Less: net income attributable to noncontrolling interests

 

12

 

 

 

27

 

 

 

4

 

 

 

27

 

 

 

 

 

 

 

 

 

Net income attributable to Fiserv

$

264

 

 

$

198

 

 

$

658

 

 

$

646

 

 

 

 

 

 

 

 

 

GAAP earnings per share attributable to Fiserv - diluted

$

0.39

 

 

$

0.33

 

 

$

0.96

 

 

$

1.39

 

 

 

 

 

 

 

 

 

Diluted shares used in computing earnings per share attributable to Fiserv

 

680.3

 

 

 

596.9

 

 

 

684.1

 

 

 

465.2

 

 

 

 

 

 

 

 

 

Earnings per share is calculated using actual, unrounded amounts.

 

 

 

 

 

 

 

 

Fiserv, Inc.

Reconciliation of GAAP to

Adjusted Net Income and Adjusted Earnings Per Share

(In millions, except per share amounts, unaudited)

 

 

 

 

 

 

 

 

 

Three Months Ended
September 30,

 

Nine Months Ended
September 30,

 

 

2020

 

2019

 

2020

 

2019

 

 

 

 

 

 

 

 

GAAP net income

$

264

 

 

$

198

 

 

$

658

 

 

$

646

 

GAAP net income attributable to First Data 1

 

 

 

 

(141

)

 

 

 

 

 

303

 

Combined net income attributable to Fiserv

 

264

 

 

 

57

 

 

 

658

 

 

 

949

 

Combined adjustments:

 

 

 

 

 

 

 

Merger and integration costs 2

 

185

 

 

 

217

 

 

 

648

 

 

 

319

 

Severance and restructuring costs 3

 

13

 

 

 

37

 

 

 

92

 

 

 

75

 

Amortization of acquisition-related intangible assets 4

 

477

 

 

 

400

 

 

 

1,523

 

 

 

689

 

Debt financing activities 5

 

 

 

 

186

 

 

 

 

 

 

287

 

Impact of divestitures 6

 

 

 

 

(12

)

 

 

 

 

 

(41

)

Non wholly-owned entity activities 7

 

34

 

 

 

(2

)

 

 

53

 

 

 

(20

)

Tax impact of adjustments 8

 

(162

)

 

 

(189

)

 

 

(532

)

 

 

(301

)

Gain on sale of businesses 6

 

(36

)

 

 

 

 

 

(464

)

 

 

(7

)

Tax impact of gain on sale of businesses 8

 

12

 

 

 

 

 

 

124

 

 

 

2

 

Discrete tax items 9

 

32

 

 

 

8

 

 

 

32

 

 

 

8

 

Adjusted net income

$

819

 

 

$

702

 

 

$

2,134

 

 

$

1,960

 

 

 

 

 

 

 

 

 

Weighted average common shares outstanding - diluted

 

680.3

 

 

 

596.9

 

 

 

684.1

 

 

 

465.2

 

Issuance of shares for combination

 

 

 

 

95.4

 

 

 

 

 

 

222.7

 

Dilutive impact of exchanged equity awards

 

 

 

 

2.6

 

 

 

 

 

 

6.0

 

Combined weighted average common shares outstanding - diluted 10

 

680.3

 

 

 

694.9

 

 

 

684.1

 

 

 

693.9

 

 

 

 

 

 

 

 

 

GAAP earnings per share 10

$

0.39

 

 

$

0.33

 

 

$

0.96

 

 

$

1.39

 

 

 

 

 

 

 

 

 

Combined earnings per share 10

$

0.39

 

 

$

0.08

 

 

$

0.96

 

 

$

1.37

 

Combined adjustments - net of income taxes:

 

 

 

 

 

 

 

Merger and integration costs 2

 

0.21

 

 

 

0.24

 

 

 

0.73

 

 

 

0.35

 

Severance and restructuring costs 3

 

0.02

 

 

 

0.04

 

 

 

0.10

 

 

 

0.08

 

Amortization of acquisition-related intangible assets 4

 

0.54

 

 

 

0.44

 

 

 

1.71

 

 

 

0.76

 

Debt financing activities 5

 

 

 

 

0.21

 

 

 

 

 

 

0.32

 

Impact of divestitures 6

 

 

 

 

(0.01

)

 

 

 

 

 

(0.05

)

Non wholly-owned entity activities 7

 

0.04

 

 

 

 

 

 

0.06

 

 

 

(0.02

)

Gain on sale of businesses 6

 

(0.04

)

 

 

 

 

 

(0.50

)

 

 

(0.01

)

Discrete tax items 9

 

0.05

 

 

 

0.01

 

 

 

0.05

 

 

 

0.01

 

Adjusted earnings per share

$

1.20

 

 

$

1.01

 

 

$

3.12

 

 

$

2.82

 

 

See pages 3-5 for disclosures related to the use of non-GAAP financial measures.

Earnings per share is calculated using actual, unrounded amounts.

  1. Represents the financial results of First Data prior to the date of acquisition. For the three and nine months ended September 30, 2019, this includes the results of First Data from July 1, 2019 through July 28, 2019 and from January 1, 2019 through July 28, 2019, respectively.
  2. Represents acquisition and related integration costs incurred as a result of the company's various acquisitions. Merger and integration costs include $175 million and $200 million in the third quarter of 2020 and 2019, respectively, and $615 million and $280 million in the first nine months of 2020 and 2019, respectively, related to the First Data acquisition. First Data integration-related costs in the third quarter and first nine months of 2020 primarily include $51 million and $154 million, respectively, of third party professional service fees associated with integration-related activities; $34 million and $126 million, respectively, of incremental share-based compensation, including the fair value of stock awards assumed by Fiserv; $35 million and $115 million, respectively, of accelerated depreciation and amortization associated with the termination of certain vendor contracts; $27 million and $105 million, respectively, of other integration-related compensation costs; and $4 million and $44 million, respectively, of non-cash impairment charges associated with the early exit of certain leased facilities. Merger and integration costs related to the First Data acquisition in the third quarter and first nine months of 2019 include $108 million and $161 million, respectively, of legal and other professional service fees, primarily consisting of transaction costs, as well as $57 million of incremental share-based compensation, including the fair value of stock awards assumed by Fiserv in both the third quarter and first nine months of 2019.
  3. Represents severance and other costs associated with the achievement of expense management initiatives, including real estate and data center consolidation activities.

Contacts

Media Relations:
Britt Zarling
Corporate Communications
Fiserv, Inc.
414-378-4040
britt.zarling@fiserv.com

Investor Relations:
Peter Poillon
Investor Relations
Fiserv, Inc.
212-266-3565
peter.poillon@fiserv.com


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