Fiserv Reports First Quarter 2019 Results

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    GAAP revenue growth of 4 percent and internal revenue growth of 5
    percent;

    GAAP EPS decrease of 44 percent and adjusted EPS increase of 12 percent;

    Full year 2019 guidance affirmed

    BROOKFIELD, Wis.–(BUSINESS WIRE)–Fiserv, Inc. (NASDAQ: FISV), a leading global provider of financial
    services technology solutions, today reported financial results for the
    first quarter of 2019.

    First Quarter 2019 GAAP Results

    GAAP revenue for the company increased 4 percent to $1.50 billion in the
    first quarter of 2019 compared to the first quarter of 2018, with 9
    percent growth in the Payments segment and 3 percent decline in the
    Financial segment. The sale of a 55 percent interest of the company’s
    Lending Solutions business (the “Lending Transaction”) in the first
    quarter of 2018 resulted in a decline in GAAP revenue in 2019 for the
    Financial segment.

    GAAP earnings per share was $0.56 in the first quarter of 2019,
    decreasing 44 percent compared to the first quarter of 2018. GAAP
    earnings per share in the first quarter of 2019 included costs of $0.16
    per share related to the previously announced merger agreement to
    acquire First Data Corporation. GAAP earnings per share in the first
    quarter of 2018 included a gain of $0.37 per share on the Lending
    Transaction.

    GAAP operating margin was 24.8 percent in the first quarter of 2019,
    compared to 42.2 percent in the first quarter of 2018. GAAP operating
    margin in the first quarter of 2018 included a $232 million gain
    resulting from the Lending Transaction.

    Net cash provided by operating activities was $373 million in the first
    quarter of 2019 compared to $372 million in the first quarter of 2018.

    “We are off to a strong start to the year, with first quarter internal
    revenue growth and sales ahead of our initial expectations,” said
    Jeffery Yabuki, President and Chief Executive Officer of Fiserv. “In
    addition to strong financial performance, we are well into integration
    planning and looking forward to completing the First Data acquisition in
    the second half of the year.”

    First Quarter 2019 Non-GAAP Results and Additional Information

    • Adjusted revenue increased 5 percent to $1.43 billion in the quarter
      compared to the prior year period.
    • Internal revenue growth for the company was 5 percent in the quarter,
      with 4 percent growth in the Payments segment and 6 percent growth in
      the Financial segment.
    • Adjusted earnings per share increased 12 percent to $0.84 in the
      quarter compared to the prior year period.
    • Adjusted operating margin was 31.9 percent in the quarter compared to
      32.5 percent in the prior year period.
    • Free cash flow was $302 million in the quarter compared to $316
      million in the prior year period.
    • Sales results were up 10 percent in the quarter compared to the prior
      year period.
    • The company repurchased 1.6 million shares of common stock for
      $120 million in the quarter prior to the announcement of the First
      Data Corporation transaction, as described below. The company has
      deferred additional share repurchase until the close of the
      acquisition. As of March 31, 2019, the company had 24.3 million
      remaining shares authorized for repurchase.
    • On April 18, 2019, Fiserv shareholders approved the issuance of shares
      in connection with the First Data Corporation transaction with more
      than 99 percent of the vote in favor of the action.

    Agreement to Merge with First Data Corporation

    On January 16, 2019, Fiserv announced that it had entered into a
    definitive merger agreement to acquire First Data Corporation in an
    all-stock transaction for an equity value of approximately $22 billion
    as of the announcement. The transaction is expected to close during the
    second half of 2019 subject to customary closing conditions and
    regulatory approvals.

    Outlook for 2019

    Fiserv continues to expect internal revenue growth in a range of 4.5 to
    5 percent for the year. The company also expects adjusted earnings per
    share in a range of $3.39 to $3.52, which represents growth of 10 to 14
    percent, as adjusted for the Lending Transaction. The company’s outlook
    for the year does not include any impact related to its proposed
    transaction with First Data Corporation.

    “Our strong start to the year has us well positioned to meet our
    full-year financial commitments,” said Yabuki.

    Earnings Conference Call

    The company will discuss its first quarter 2019 results on a conference
    call and webcast at 4 p.m. CT on Tuesday, April 30, 2019. To register
    for the event, go to fiserv.com
    and click on the Q1 Earnings webcast link. Supplemental materials will
    be available in the “Investor Relations” section of the website.

    About Fiserv

    Fiserv, Inc. (NASDAQ: FISV) enables clients worldwide to create and
    deliver financial services experiences in step with the way people live
    and work today. For 35 years, Fiserv has been a trusted leader in
    financial services technology, helping clients achieve best-in-class
    results by driving quality and innovation in payments, processing
    services, risk and compliance, customer and channel management, and
    insights and optimization. Fiserv is a member of the FORTUNE®
    500 and has been named among the FORTUNE Magazine World’s Most Admired
    Companies® for six consecutive years, recognized for strength
    of business model, people management, social responsibility and
    innovation leadership. Visit fiserv.com
    and follow on social media for more information and the latest company
    news.

    Use of Non-GAAP Financial Measures

    In this earnings release, the company supplements its 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 “adjusted revenue,”
    “internal revenue growth,” “adjusted operating income,” “adjusted
    operating margin,” “adjusted net income,” “adjusted earnings per share,”
    “adjusted earnings per share, as adjusted for the Lending Transaction
    impact,” and “free cash flow.” Management believes that adjustments for
    certain non-cash or other items and the exclusion of certain
    pass-through revenue and expenses should enhance shareholders’ ability
    to evaluate the company’s performance, as such measures provide
    additional insights into the factors and trends affecting its business.
    Therefore, the company excludes these items from GAAP revenue, operating
    income, operating margin, net income, earnings per share and net cash
    provided by operating activities to calculate these non-GAAP measures.
    The corresponding reconciliations of these non-GAAP financial measures
    to the most comparable GAAP measures are included in this earnings
    release, except for forward-looking measures where a reconciliation to
    the corresponding GAAP measures is not available due to the variability,
    complexity and limited visibility of the non-cash and other items
    described below that are excluded from the non-GAAP outlook measures.
    See page 13 for additional information regarding the company’s
    forward-looking non-GAAP financial measures.

    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 costs, charges
    associated with early debt extinguishment and bridge financing costs,
    merger and integration costs, certain costs associated with the
    achievement of the company’s operational effectiveness objectives, gains
    or losses from dispositions and unconsolidated affiliates, and certain
    discrete tax benefits and expenses. The company excludes these items to
    more clearly focus on the factors management believes are pertinent to
    its operations, and management uses this information to make operating
    decisions, including the allocation of resources to the company’s
    various businesses.

    Internal revenue growth and free cash flow are non-GAAP financial
    measures and are described on page 12. Management believes internal
    revenue growth is useful because it presents revenue growth excluding
    acquisitions, dispositions and the impact of postage reimbursements in
    the company’s Output Solutions business, and including deferred revenue
    purchase accounting adjustments. 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 internal revenue growth,
    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 Fiserv’s actual results to differ materially include, among
    others: the possibility that Fiserv and First Data Corporation may be
    unable to achieve expected synergies and operating efficiencies from the
    proposed merger within the expected time frames or at all or to
    successfully integrate the operations of First Data Corporation into
    those of Fiserv; such integration may be more difficult, time-consuming
    or costly than expected; revenues following the transaction may be lower
    than expected, including for possible reasons such as 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; the retention of certain key employees; the occurrence of
    any event, change or other circumstances that could give rise to the
    termination of the merger agreement; the outcome of any legal
    proceedings that may be instituted against Fiserv, First Data
    Corporation and others related to the merger agreement; unforeseen risks
    relating to liabilities of Fiserv or First Data Corporation may exist;
    the conditions to the completion of the transaction may not be
    satisfied, or the regulatory approvals required for the transaction may
    not be obtained on the terms expected or on the anticipated schedule;
    the amount of the costs, fees, expenses and charges related to the
    transaction, including the costs, fees, expenses and charges related to
    any financing arrangements entered into in connection with the
    transaction; the parties’ ability to meet expectations regarding the
    timing, completion and accounting and tax treatments of the transaction.
    Fiserv and First Data Corporation are subject to, among other matters,
    changes in customer demand for their products and services; pricing and
    other actions by competitors; general changes in local, regional,
    national and international economic conditions and the impact they may
    have on Fiserv and First Data Corporation and their customers and
    Fiserv’s and First Data Corporation’s assessment of that impact; rapid
    technological developments and changes, and the ability of Fiserv’s and
    First Data Corporation’s technology to keep pace with a rapidly evolving
    marketplace; the impact of a security breach or operational failure on
    Fiserv’s and First Data Corporation’s business; the effect of proposed
    and enacted legislative and regulatory actions in the United States and
    internationally affecting the financial services industry as a whole
    and/or Fiserv and First Data Corporation and their subsidiaries
    individually or collectively; regulatory supervision and oversight, and
    Fiserv’s and First Data Corporation’s ability to comply with government
    regulations; the impact of Fiserv’s and First Data Corporation’s
    strategic initiatives; Fiserv’s and First Data Corporation’s ability to
    continue to introduce competitive new products and services on a timely,
    cost-effective basis; the ability to contain costs and expenses; the
    protection and validity of intellectual property rights; the outcome of
    pending and future litigation and governmental proceedings; acts of war
    and terrorism; and other factors included in “Risk Factors” in Fiserv’s
    and First Data Corporation’s respective filings with the SEC, including
    their respective Annual Reports on Form 10-K for the year ended December
    31, 2018, and in other documents that the companies file 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. Fiserv 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
    March 31,
    2019 2018
    Revenue
    Processing and services $ 1,293 $ 1,238
    Product 209   202  
    Total revenue 1,502   1,440  
     
    Expenses
    Cost of processing and services 624 568
    Cost of product 174 191
    Selling, general and administrative 341 305
    Gain on sale of business (10 ) (232 )
    Total expenses 1,129   832  
     
    Operating income 373 608
    Interest expense (59 ) (45 )
    Debt financing activities (59 )
    Non-operating income 3    
     

    Income before income taxes and income from investments in
    unconsolidated affiliates

    258 563
    Income tax provision (31 ) (140 )
    Loss from investments in unconsolidated affiliates (2 )  
     
    Net income $ 225   $ 423  
     
    GAAP earnings per share – diluted $ 0.56 $ 1.00
     
    Diluted shares used in computing earnings per share 399.1 421.6
     
    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
    March 31,
    2019 2018
     
    GAAP net income $ 225 $ 423
    Adjustments:
    Merger, integration and other costs 1 41 23
    Severance costs 7 5
    Amortization of acquisition-related intangible assets 45 40
    Debt financing activities 2 59
    Lending Transaction impact 3 (9 )
    Tax impact of adjustments 4 (34 ) (13 )
    Gain on sale of business 5 (10 ) (232 )
    Tax impact of gain on sale of business 4 2 78
    Unconsolidated affiliate activities 6 3
    Tax impact of unconsolidated affiliate activities 4 (1 )  
    Adjusted net income $ 337   $ 315  
     
    GAAP earnings per share $ 0.56 $ 1.00
    Adjustments – net of income taxes:
    Merger, integration and other costs 1 0.08 0.04
    Severance costs 0.01 0.01
    Amortization of acquisition-related intangible assets 0.09 0.07
    Debt financing activities 2 0.11
    Lending Transaction impact 3 (0.02 )
    Gain on sale of business 5 (0.02 ) (0.37 )
    Unconsolidated affiliate activities 6 0.01    
    Adjusted earnings per share $ 0.84   $ 0.75  
     
     

    1

    Merger, integration and other costs include acquisition and related
    integration costs of $30 million in 2019 and $15 million in 2018,
    and certain costs associated with the achievement of the company’s
    operational effectiveness objectives of $11 million in 2019 and $8
    million in 2018, primarily consisting of expenses related to data
    center consolidation activities. Acquisition and related integration
    costs in 2019 include $23 million, primarily consisting of legal and
    other professional service fees, related to the previously announced
    acquisition of First Data Corporation.
     
    2 Represents expenses associated with entering into and maintaining a
    bridge term loan facility for the purpose of refinancing certain
    indebtedness of First Data Corporation upon the closing date of the
    acquisition.
     
    3 Represents the earnings attributable to the disposed 55 percent
    interest of the company’s Lending Solutions business.
     
    4 The tax impact of adjustments is calculated using a tax rate of 22
    percent, which approximates the company’s annual effective tax rate,
    exclusive of the actual tax impacts associated with the gain on sale
    of business and unconsolidated affiliate activities.
     
    5 Represents the gain on the Lending Transaction, including contingent
    consideration received in 2019.
     
    6 Represents the company’s share of amortization of
    acquisition-related intangible assets on the Lending Transaction.
     
    See page 3 for disclosures related to the use of non-GAAP financial
    measures.
    Earnings per share is calculated using actual, unrounded amounts.
     
     
    Fiserv, Inc.
    Financial Results by Segment
    (In millions, unaudited)
       
    Three Months Ended
    March 31,
    2019 2018
    Total Company
    Revenue $ 1,502 $ 1,440
    Output Solutions postage reimbursements (69 ) (74 )
    Deferred revenue purchase accounting adjustments   2  
    Adjusted revenue $ 1,433   $ 1,368  
     
    Operating income $ 373 $ 608
    Merger, integration and other costs 42 23
    Severance costs 7 5
    Amortization of acquisition-related intangible assets 45 40
    Gain on sale of business (10 ) (232 )
    Adjusted operating income $ 457   $ 444  
    Operating margin 24.8 % 42.2 %
    Adjusted operating margin 31.9 % 32.5 %
     
    Payments and Industry Products (“Payments”)
    Revenue $ 914 $ 842
    Output Solutions postage reimbursements (69 ) (74 )
    Deferred revenue purchase accounting adjustments   2  
    Adjusted revenue $ 845   $ 770  
     
    Operating income $ 287 $ 271
    Merger, integration and other costs   1  
    Adjusted operating income $ 287   $ 272  
    Operating margin 31.4 % 32.2 %
    Adjusted operating margin 34.0 % 35.4 %
     
    Financial Institution Services (“Financial”)
    Revenue $ 598   $ 616  
     
    Operating income $ 199   $ 202  
    Operating margin 33.3 % 32.8 %
     
    Corporate and Other
    Revenue $ (10 ) $ (18 )
     
    Operating (loss) income $ (113 ) $ 135
    Merger, integration and other costs 42 22
    Severance costs 7 5
    Amortization of acquisition-related intangible assets 45 40
    Gain on sale of business (10 ) (232 )
    Adjusted operating loss $ (29 ) $ (30 )
     
    See page 3 for disclosures related to the use of non-GAAP financial
    measures.
    Operating margin percentages are calculated using actual, unrounded
    amounts.
     
     
    Fiserv, Inc.
    Condensed Consolidated Statements of Cash Flows
    (In millions, unaudited)
      Three Months Ended
    March 31,
    2019   2018
    Cash flows from operating activities
    Net income $ 225 $ 423
    Adjustments to reconcile net income to net cash provided by
    operating activities:
    Depreciation and other amortization 100 93
    Amortization of acquisition-related intangible assets 45 40
    Amortization of financing costs and debt discounts 60 1
    Share-based compensation 19 19
    Deferred income taxes 8 77
    Gain on sale of business (10 ) (232 )
    Loss from investments in unconsolidated affiliates 2
    Other operating activities (2 )
    Changes in assets and liabilities, net of effects from acquisitions
    and dispositions:
    Trade accounts receivable 6 67
    Prepaid expenses and other assets (26 ) (44 )
    Contract costs (58 ) (50 )
    Accounts payable and other liabilities (26 ) 38
    Contract liabilities 30   (60 )
    Net cash provided by operating activities 373   372  
     
    Cash flows from investing activities
    Capital expenditures, including capitalization of software costs (98 ) (77 )
    Proceeds from sale of business 419
    Payments for acquisition of business, including working capital
    adjustments
    56
    Purchases of investments (1 )
    Other investing activities 6   (10 )
    Net cash (used in) provided by investing activities (36 ) 331  
     
    Cash flows from financing activities
    Debt proceeds 587 509
    Debt repayments (680 ) (806 )
    Payments of debt financing, redemption and other costs (56 )
    Proceeds from issuance of treasury stock 32 28
    Purchases of treasury stock, including employee shares withheld for
    tax obligations
    (183 ) (427 )
    Net cash used in financing activities (300 ) (696 )
     
    Net change in cash and cash equivalents 37 7
    Net cash flows from discontinued operations 50
    Cash and cash equivalents, beginning balance 415   325  
    Cash and cash equivalents, ending balance $ 452   $ 382  
     
    Certain prior period amounts have been reclassified to conform to
    current period presentation.
     
     
    Fiserv, Inc.
    Condensed Consolidated Balance Sheets
    (In millions, unaudited)
       

    March 31,
    2019

    December 31,
    2018

    Assets
    Cash and cash equivalents $ 452 $ 415
    Trade accounts receivable – net 1,044 1,049
    Prepaid expenses and other current assets 779   760
    Total current assets 2,275 2,224
     
    Property and equipment – net 409 398
    Intangible assets – net 2,117 2,143
    Goodwill 5,703 5,702
    Contract costs – net 435 419
    Other long-term assets 737   376
    Total assets $ 11,676   $ 11,262
     
    Liabilities and Shareholders’ Equity
    Accounts payable and accrued expenses $ 1,718 $ 1,626
    Current maturities of long-term debt 7 4
    Contract liabilities 395   380
    Total current liabilities 2,120 2,010
     
    Long-term debt 5,868 5,955
    Deferred income taxes 745 745
    Long-term contract liabilities 103 89
    Other long-term liabilities 446   170
    Total liabilities 9,282 8,969
    Shareholders’ equity 2,394   2,293
    Total liabilities and shareholders’ equity $ 11,676   $ 11,262
     
     

    Fiserv, Inc.

    Selected Non-GAAP Financial Measures

    ($ in millions, unaudited)

         
    Internal Revenue Growth 1

    Three Months Ended
    March 31, 2019

    Payments Segment 4%
    Financial Segment 6%
    Total Company 5%
     
     

    1

    Internal revenue growth is measured as the increase in adjusted
    revenue (see page 9) for the current period excluding acquired
    revenue and revenue attributable to dispositions, divided by
    adjusted revenue from the prior year period excluding revenue
    attributable to dispositions. Revenue attributable to dispositions
    includes transition services revenue within Corporate and Other.
     
    In the first quarter of 2019, acquired revenue was $46 million (all
    in the Payments segment). Revenue attributable to dispositions was
    $9 million (all in Corporate and Other) and $54 million (all in the
    Financial segment) in the first quarter of 2019 and 2018,
    respectively, from the Lending Transaction.
     
         
    Free Cash Flow   Three Months Ended
    March 31,
    2019   2018
    Net cash provided by operating activities $ 373 $ 372
    Capital expenditures (98 ) (77 )
    Adjustments:
    Severance, merger and integration payments 35 27
    Tax payments on adjustments (8 ) (6 )
    Free cash flow $ 302   $ 316  
     

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

     
     

    Fiserv, Inc.

    Full Year Forward-Looking Non-GAAP Financial Measures

     

    Internal Revenue Growth – The company’s internal revenue growth
    outlook for 2019 excludes acquisitions, dispositions, and the impact of
    postage reimbursements in its Output Solutions business, and includes
    deferred revenue purchase accounting adjustments. These adjustments are
    subject to variability and are anticipated to increase 2019 GAAP revenue
    growth by approximately 1 percentage point as compared to the internal
    revenue growth rate.

    Adjusted Earnings Per Share – The company’s adjusted earnings per
    share outlook for 2019 excludes certain non-cash or other items which
    should enhance shareholders’ ability to evaluate the company’s
    performance, as such measures provide additional insights into the
    factors and trends affecting its business.

    Contacts

    Media Relations:
    Britt Zarling
    Vice President,
    Corporate Communications
    Fiserv, Inc.
    414-378-4040
    [email protected]

    Investor Relations:
    Tiffany Willis
    Vice President,
    Investor Relations
    Fiserv, Inc.
    678-375-4643
    [email protected]

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