FISV
$104.79
Fiserv
$.08
.08%
Earnings Details
3rd Quarter September 2016
Wednesday, October 26, 2016 4:01:04 PM
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Summary

Fiserv Reports In-line

Fiserv (FISV) reported 3rd Quarter September 2016 earnings of $1.14 per share on revenue of $1.4 billion. The consensus earnings estimate was $1.13 per share on revenue of $1.4 billion. The Earnings Whisper number was $1.14 per share. Revenue grew 5.1% on a year-over-year basis.

The company said it expects 2016 earnings of $4.43 to $4.46 per share. The company's previous guidance was earnings of $4.38 to $4.45 per share and the current consensus earnings estimate is $4.44 per share for the year ending December 31, 2016.

Fiserv Inc is a provider of financial services technology. The Company provides information management and electronic commerce systems and services, including transaction processing, electronic bill payment and presentment, among others.

Results
Reported Earnings
$1.14
Earnings Whisper
$1.14
Consensus Estimate
$1.13
Reported Revenue
$1.38 Bil
Revenue Estimate
$1.40 Bil
Growth
Earnings Growth
Revenue Growth
Power Rating
Grade
Earnings Release

Fiserv Reports Third Quarter 2016 Results

Internal revenue growth of 4 percent and adjusted EPS increase of 11 percent;

Operating cash flow increased 9 percent and free cash flow increased 12 percent year to date;

--Full year 2016 adjusted EPS outlook raised to 14 to 15 percent growth

Fiserv, Inc. (FISV), a leading global provider of financial services technology solutions, today reported financial results for the third quarter of 2016.

Third Quarter 2016 GAAP Results

GAAP revenue for the company increased 5 percent in the third quarter to $1.38 billion, with 8 percent growth in the Payments segment and 2 percent growth in the Financial segment, compared to the third quarter of 2015. GAAP revenue for the company increased 5 percent in the first nine months of 2016 to $4.07 billion, with 8 percent growth in the Payments segment and 1 percent growth in the Financial segment, compared to the prior year period.

GAAP earnings per share was $0.96 in the third quarter and $3.18 in the first nine months of 2016, increasing 4 percent and 46 percent, respectively, compared to the prior year periods. GAAP earnings per share in the third quarter of 2015 included an $0.08 per share gain on the sale of a subsidiary business at StoneRiver Group, L.P. ("StoneRiver"), a joint venture in which the company owns a 49% interest. During the first nine months, GAAP earnings per share also included a net investment gain of $0.39 per share in 2016 driven by the sale of a business interest at StoneRiver and debt extinguishment and refinancing costs of $0.25 per share in 2015.

GAAP operating margin was 26.8 percent in the third quarter and 26.3 percent in the first nine months of 2016, increasing 80 basis points and 100 basis points, respectively, compared to the prior year periods.

Net cash provided by operating activities was $1.04 billion in the first nine months of 2016 compared with $955 million in the prior year period, an increase of 9 percent.

"Strong operating performance in the quarter drove double-digit adjusted earnings per share growth and excellent free cash flow," said Jeffery Yabuki, President and Chief Executive Officer of Fiserv. "Outstanding sales results in the quarter should provide additional market momentum and growth."

Third Quarter 2016 Non-GAAP Results and Additional Information

Adjusted revenue increased 5 percent in both the third quarter and first nine months to $1.31 billion and $3.86 billion, respectively, compared to the prior year periods.

Internal revenue growth for the company was 4 percent in the third quarter, driven by 5 percent growth in the Payments segment and 2 percent growth in the Financial segment.

Internal revenue growth for the company was 4 percent in the first nine months of 2016, led by 6 percent growth in the Payments segment and 1 percent growth in the Financial segment.

Adjusted earnings per share increased 11 percent in the third quarter to $1.14 and 15 percent in the first nine months of 2016 to $3.28 compared to the prior year periods.

Adjusted operating margin decreased 30 basis points to 32.8 percent in the quarter and increased 20 basis points to 32.2 percent in the first nine months compared to the prior year periods.

Free cash flow increased 12 percent to $747 million in the first nine months of 2016 compared to the prior year period.

Sales performance increased 34 percent in the quarter and 21 percent in the first nine months of 2016 compared to the prior year periods.

The company repurchased 3.1 million shares of common stock for $329 million in the third quarter and 9.3 million shares of common stock for $933 million in the first nine months of 2016. As of September 30, 2016, the company had 8.1 million remaining shares authorized for repurchase.

Outlook for 2016

Fiserv expects 2016 internal revenue growth of 4 percent and adjusted earnings per share in a range of $4.43 to $4.46, which represents 14 to 15 percent growth over 2015.

"We continue to expect strong operating results despite a slight shortfall in revenue growth for the year. We anticipate revenue growth to accelerate in the fourth quarter and into 2017," said Yabuki.

Earnings Conference Call

The company will discuss its third quarter 2016 results on a conference call and webcast at 4 p.m. CT on Wednesday, October 26, 2016. To register for the event, go to www.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. (FISV) enables clients to achieve best-in-class results by driving quality and innovation in payments, processing services, risk and compliance, customer and channel management, and business insights and optimization. For more than 30 years, Fiserv has been a global leader in financial services technology. Fiserv is a FORTUNE(R) 500 company and this year was honored to be named a FORTUNE magazine’s World’s Most Admired Company for the third consecutive year. In 2015 the company was recognized among Forbes magazine’s America’s Best Employers. For more information, visit www.fiserv.com.

Use of Non-GAAP Financial Measures

In this earnings release, we supplement our 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" 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 enhance our shareholders’ ability to evaluate our performance as such measures provide additional insights into the factors and trends affecting our business. Therefore, we exclude 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 low visibility of the non-cash and other items described below that are excluded from the non-GAAP outlook measures. See page 11 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, gains or losses from unconsolidated affiliates, severance costs, charges associated with early debt extinguishment, merger and integration costs related to acquisitions, and certain costs associated with the achievement of our operational effectiveness objectives. 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 make operating decisions, including the allocation of resources to our various businesses.

Internal revenue growth and free cash flow are non-GAAP financial measures and are described on page 10. We believe internal revenue growth is useful because it presents revenue growth excluding the effects of acquisitions and dispositions and the impact of postage reimbursements in our Output Solutions business, and including deferred revenue purchase accounting adjustments. We believe 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. We believe this supplemental information enhances our shareholders’ ability to evaluate and understand our 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 press 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 may affect the company’s results include, among others: pricing and other actions by competitors; the capacity of the company’s technology to keep pace with a rapidly evolving marketplace; the impact of market and economic conditions on the financial services industry; the impact of a security breach or operational failure on the company’s business; the effect of legislative and regulatory actions in the United States and internationally; the company’s ability to comply with government regulations; 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; 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, 2015 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
Nine Months Ended
September 30,
September 30,
2016
2015
2016
2015
Revenue
Processing and services
$
1,160
$
1,125
$
3,441
$
3,301
Product
220
188
633
585
Total revenue
1,380
1,313
4,074
3,886
Expenses
Cost of processing and services
551
541
1,651
1,625
Cost of product
186
172
547
521
Selling, general and administrative
274
258
806
758
Total expenses
1,011
971
3,004
2,904
Operating income
369
342
1,070
982
Interest expense
(41 )
(41 )
(121 )
(131 )
Interest and investment (loss) income - net
--
--
(7 )
1
Loss on early debt extinguishment
--
--
--
(85 )
Income before income taxes and income
328
301
942
767
from
investment in unconsolidated affiliate
Income tax provision
(114 )
(117 )
(373 )
(279 )
Income from investment in unconsolidated affiliate
--
34
146
35
Net income
$
214
$
218
$
715
$
523
GAAP earnings per share - diluted
$
0.96
$
0.92
$
3.18
$
2.18
Diluted shares used in computing earnings per share
222.7
237.0
225.2
240.1
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
Nine Months Ended
September 30,
September 30,
2016
2015
2016
2015
GAAP net income
$
214
$
218
$
715
$
523
Adjustments:
Merger, integration and other costs (1)
18
15
41
28
Severance costs
3
4
11
13
Amortization of acquisition-related intangible assets
39
50
119
149
Debt extinguishment and refinancing costs
--
--
--
92
Tax impact of adjustments (2)
(21 )
(24 )
(60 )
(99 )
StoneRiver and other investment activity (3)
--
(32 )
(139 )
(32 )
Tax impact of StoneRiver and other investment activity (2)
--
14
52
14
Adjusted net income
$
253
$
245
$
739
$
688
GAAP earnings per share
$
0.96
$
0.92
$
3.18
$
2.18
Adjustments - net of income taxes:
Merger, integration and other costs(1)
0.05
0.04
0.12
0.08
Severance costs
0.01
0.01
0.03
0.04
Amortization of acquisition-related intangible assets
0.11
0.14
0.34
0.40
Debt extinguishment and refinancing costs
--
--
--
0.25
StoneRiver and other investment activity (3)
--
(0.08 )
(0.39 )
(0.08 )
Adjusted earnings per share
$
1.14
$
1.03
$
3.28
$
2.86

(1) Merger, integration and other costs include acquisition and related integration costs of $29 million in 2016, including a $10 million non-cash impairment charge during the first quarter associated with the decision to replace an existing software solution with software purchased in a business acquisition; certain costs associated with the achievement of the company’s operational effectiveness objectives, including expenses related to data center and real estate consolidation activities; and a non-cash expense in 2015 related to the modification of certain employee equity award agreements.

(2) The tax impact of adjustments is calculated using a tax rate of 35 percent, which approximates the company’s annual effective tax rate, exclusive of the actual tax impacts associated with StoneRiver transactions.

(3) Represents the company’s share of net gains on the sales of a business interest and a subsidiary business at StoneRiver, as well as a non-cash write-off of a $7 million investment in the first quarter of 2016.

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
Nine Months Ended
September 30,
September 30,
2016
2015
2016
2015
Total Company
Revenue
$
1,380
$
1,313
$
4,074
$
3,886
Output Solutions postage reimbursements
(72 )
(71 )
(221 )
(228 )
Deferred revenue purchase accounting adjustments
2
1
4
3
Adjusted revenue
$
1,310
$
1,243
$
3,857
$
3,661
Operating income
$
369
$
342
$
1,070
$
982
Merger, integration and other costs
18
15
41
28
Severance costs
3
4
11
13
Amortization of acquisition-related intangible assets
39
50
119
149
Adjusted operating income
$
429
$
411
$
1,241
$
1,172
Operating margin
26.8 %
26.0 %
26.3 %
25.3 %
Adjusted operating margin
32.8 %
33.1 %
32.2 %
32.0 %
Payments and Industry Products ("Payments")
Revenue
$
772
$
714
$
2,284
$
2,111
Output Solutions postage reimbursements
(72 )
(71 )
(221 )
(228 )
Deferred revenue purchase accounting adjustments
1
--
2
--
Adjusted revenue
$
701
$
643
$
2,065
$
1,883
Operating income
$
241
$
217
$
703
$
616
Merger, integration and other costs
1
--
2
--
Adjusted operating income
$
242
$
217
$
705
$
616
Operating margin
31.2 %
30.4 %
30.8 %
29.2 %
Adjusted operating margin
34.4 %
33.7 %
34.1 %
32.7 %
Financial Institution Services ("Financial")
Revenue
$
623
$
612
$
1,834
$
1,813
Deferred revenue purchase accounting adjustments
1
1
2
3
Adjusted revenue
$
624
$
613
$
1,836
$
1,816
Operating income
$
209
$
218
$
606
$
631
Operating margin
33.5 %
35.6 %
33.1 %
34.8 %
Adjusted operating margin
33.5 %
35.5 %
33.0 %
34.8 %
Corporate and Other
Revenue
$
(15 )
$
(13 )
$
(44 )
$
(38 )
Operating loss
$
(81 )
$
(93 )
$
(239 )
$
(265 )
Merger, integration and other costs
17
15
39
28
Severance costs
3
4
11
13
Amortization of acquisition-related intangible assets
39
50
119
149
Adjusted operating loss
$
(22 )
$
(24 )
$
(70 )
$
(75 )
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)
Nine Months Ended
September 30,
2016
2015
Cash flows from operating activities
Net income
$
715
$
523
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and other amortization
187
163
Amortization of acquisition-related intangible assets
119
149
Share-based compensation
54
51
Excess tax benefits from share-based awards
(46 )
(34 )
Deferred income taxes
7
(2 )
Income from investment in unconsolidated affiliate
(146 )
(35 )
Dividends from unconsolidated affiliate
140
36
Non-cash impairment charges
17
4
Loss on early debt extinguishment
--
85
Other operating activities
(2 )
3
Changes in assets and liabilities, net of effects from acquisitions:
Trade accounts receivable
(15 )
16
Prepaid expenses and other assets
(40 )
(64 )
Accounts payable and other liabilities
111
135
Deferred revenue
(59 )
(75 )
Net cash provided by operating activities
1,042
955
Cash flows from investing activities
Capital expenditures, including capitalization of software costs
(223 )
(292 )
Payments for acquisitions of businesses
(265 )
--
Other investing activities
2
(4 )
Net cash used in investing activities
(486 )
(296 )
Cash flows from financing activities
Debt proceeds
1,711
2,392
Debt repayments, including redemption and other costs
(1,380 )
(2,058 )
Proceeds from issuance of treasury stock
65
60
Purchases of treasury stock, including employee shares withheld
(970 )
(1,066 )
for tax obligations
Excess tax benefits from share-based awards
46
34
Other financing activities
--
(6 )
Net cash used in financing activities
(528 )
(644 )
Net change in cash and cash equivalents
28
15
Cash and cash equivalents, beginning balance
275
294
Cash and cash equivalents, ending balance
$
303
$
309
Fiserv, Inc.
Condensed Consolidated Balance Sheets
(In millions, unaudited)
September 30,
December 31,
2016
2015
Assets
Cash and cash equivalents
$
303
$
275
Trade accounts receivable - net
830
802
Prepaid expenses and other current assets
467
429
Total current assets
1,600
1,506
Property and equipment - net
403
396
Intangible assets - net
1,868
1,872
Goodwill
5,375
5,200
Other long-term assets
391
366
Total assets
$
9,637
$
9,340
Liabilities and Shareholders’ Equity
Accounts payable and accrued expenses
$
1,129
$
1,024
Current maturities of long-term debt
6
5
Deferred revenue
413
473
Total current liabilities
1,548
1,502
Long-term debt
4,624
4,288
Deferred income taxes
742
726
Other long-term liabilities
154
164
Total liabilities
7,068
6,680
Shareholders’ equity
2,569
2,660
Total liabilities and shareholders’ equity
$
9,637
$
9,340
Fiserv, Inc.
Selected Non-GAAP Financial Measures
($ in millions, unaudited)
Internal Revenue Growth (1)
Three Months Ended
Nine Months Ended
September 30, 2016
September 30, 2016
Payments Segment
5%
6%
Financial Segment
2%
1%
Total Company
4%
4%

(1) Internal revenue growth is measured as the increase in adjusted revenue (see page 7) 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. In the third quarter of 2016, acquired revenue was $25 million (all in the Payments segment), and revenue in the comparable prior year period attributable to dispositions was $2 million (all in the Financial segment). During the first nine months of 2016, acquired revenue was $64 million (all in the Payments segment), and revenue in the comparable prior year period attributable to dispositions was $6 million (all in the Financial segment).

Free Cash Flow
Nine Months Ended
September 30,
2016
2015
Net cash provided by operating activities
$
1,042
$
955
Capital expenditures (1)
(223 )
(292 )
Other adjustments (1, 2)
(72 )
3
Free cash flow
$
747
$
666

(1) 2015 includes $62 million of capital expenditures, primarily leasehold improvements and furniture and equipment related to the company’s Atlanta facility consolidation, of which $25 million is offset by landlord reimbursements reported in net cash provided by operating activities, and $37 million of non-reimbursable building expenditures is included in "other adjustments."

(2) Free cash flow excludes tax-effected severance, merger and integration payments; certain cash distributions from StoneRiver; cash tax benefits on early debt extinguishment; and other items which management believes may not be indicative of the future free cash flow of the company. "Other adjustments" removes cash distributions, net of related tax payments, from StoneRiver of $101 million and $32 million in the first nine months of 2016 and 2015, respectively.

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

Fiserv, Inc.

Forward-Looking Non-GAAP Financial Measures

Internal Revenue Growth - Fiserv’s internal revenue growth outlook for 2016 excludes the effects of acquisitions and dispositions and the impact of postage reimbursements in our Output Solutions business, and includes deferred revenue purchase accounting adjustments. These adjustments are subject to variability and are anticipated to impact 2016 revenue growth by approximately 1 percent.

Adjusted Earnings Per Share - Fiserv’s adjusted earnings per share outlook for 2016 excludes certain non-cash or other items to enhance our shareholders’ ability to evaluate our performance as such measures provide additional insights into the factors and trends affecting our business. Non-cash or other items may be significant and 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, gains or losses from unconsolidated affiliates, severance costs, charges associated with early debt extinguishment, merger and integration costs related to acquisitions, and certain costs associated with the achievement of our operational effectiveness objectives. As of September 30, 2016, we estimate that the annual amortization expense with respect to acquired intangible assets will approximate $160 million in 2016. Other adjustments to earnings per share that have been incurred to date are presented on page 6. Estimates of these other adjustments on a forward-looking basis are not available due to the variability, complexity and low visibility of these items.

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

FISV-E

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SOURCE: Fiserv, Inc.

Media Relations:
Britt Zarling
Vice President, Corporate Communications
Fiserv, Inc.
678-375-1595
britt.zarling@fiserv.com
or
Investor Relations:
Stephanie Gregor
Vice President, Investor Relations
Fiserv, Inc.
262-879-5969
stephanie.gregor@fiserv.com