FISV
$101.19
Fiserv
($1.14)
(1.11%)
Earnings Details
2nd Quarter June 2016
Tuesday, August 02, 2016 4:01:02 PM
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Summary

Fiserv Misses

Fiserv (FISV) reported 2nd Quarter June 2016 earnings of $1.08 per share on revenue of $1.4 billion. The consensus earnings estimate was $1.08 per share on revenue of $1.4 billion. The Earnings Whisper number was $1.09 per share. Revenue grew 5.0% on a year-over-year basis.

The company said it expects 2016 earnings of $4.38 to $4.45 per share. The company's previous guidance was earnings of $4.32 to $4.44 per share and the current consensus earnings estimate is $4.42 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
$1.08
Earnings Whisper
$1.09
Consensus Estimate
$1.08
Reported Revenue
$1.36 Bil
Revenue Estimate
$1.38 Bil
Growth
Earnings Growth
Revenue Growth
Power Rating
Grade
Earnings Release

Fiserv Reports Second Quarter 2016 Results

Internal revenue growth of 4 percent and adjusted EPS increase of 14 percent;

--Full year 2016 outlook affirmed and adjusted EPS guidance increased

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

Second Quarter 2016 GAAP Results

GAAP revenue for the company increased 5 percent in the second quarter to $1.36 billion, with 9 percent growth in the Payments segment and 1 percent growth in the Financial segment, compared to the second quarter of 2015. GAAP revenue for the company increased 5 percent in the first six months of 2016 to $2.69 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 $0.94 in the second quarter and $2.21 in the first six months of 2016, increasing 77 percent and 75 percent, respectively, compared to the prior year periods. GAAP earnings per share included a net investment gain of $0.39 per share in both the first quarter and first six months of 2016 driven by a sale of a business interest at StoneRiver Group, L.P. ("StoneRiver"), a joint venture in which the company owns a 49% interest, and debt extinguishment and refinancing costs of $0.25 per share in both the second quarter and first six months of 2015.

GAAP operating margin was 26.6 percent in the second quarter and 26.0 percent in the first six months of 2016, increasing 150 basis points and 110 basis points, respectively, compared to the prior year periods.

Net cash provided by operating activities was $687 million in the first six months of 2016 compared with $600 million in the prior year period, an increase of 15 percent.

"Our second quarter results were highlighted by strong growth in the Payments segment leading to double-digit gains in adjusted EPS," said Jeffery Yabuki, President and Chief Executive Officer of Fiserv. "Strong sales results in the quarter should add to our momentum in the second half of the year."

Second Quarter 2016 Non-GAAP Results and Additional Information

Adjusted revenue increased 6 percent in the second quarter to $1.29 billion and 5 percent in the first six months to $2.55 billion, compared to the prior year periods.

Internal revenue growth in the quarter was 4 percent for the company, driven by 6 percent growth in the Payments segment and 1 percent growth in the Financial segment.

Internal revenue growth was 4 percent in the first six months of 2016, led by 7 percent growth in the Payments segment and 1 percent growth in the Financial segment.

Adjusted earnings per share increased 14 percent in the second quarter to $1.08 and increased 17 percent in the first six months of 2016 to $2.14 compared to the prior year periods.

Adjusted operating margin increased 10 basis points to 31.9 percent in the quarter and increased 40 basis points to 31.9 percent in the first six months compared to the prior year periods.

Free cash flow was $442 million in the first six months of 2016 compared to $439 million in the prior year period. Cash distributions of $140 million in the first half of 2016 from StoneRiver related to the sale of a business interest have been excluded from the company’s free cash flow results.

The company repurchased 2.8 million shares of common stock for $283 million in the second quarter and 6.2 million shares of common stock for $604 million in the first six months of 2016. As of June 30, 2016, the company had 11.2 million remaining shares authorized for repurchase.

Outlook for 2016

Fiserv continues to expect 2016 internal revenue growth in a range of 5 to 6 percent. The company now expects 2016 adjusted earnings per share to be in a range of $4.38 to $4.45, which represents growth of 13 to 15 percent over $3.87 in 2015.

"We are on-track to achieve our full year outlook including internal revenue growth acceleration in the second half of the year," said Yabuki.

Earnings Conference Call

The company will discuss its second quarter 2016 results on a conference call and webcast at 4 p.m. CT on Tuesday, August 2, 2016. To register for the event, go to www.fiserv.com and click on the Q2 Earnings webcast link. Supplemental materials will be available in the "Investor Relations" section of the website.

About Fiserv

Fiserv, Inc. (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 incremental 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
Six Months Ended
June 30,
June 30,
2016
2015
2016
2015
Revenue
Processing and services
$
1,159
$
1,109
$
2,281
$
2,176
Product
204
189
413
397
Total revenue
1,363
1,298
2,694
2,573
Expenses
Cost of processing and services
547
542
1,100
1,084
Cost of product
180
168
361
349
Selling, general and administrative
274
262
532
500
Total expenses
1,001
972
1,993
1,933
Operating income
362
326
701
640
Interest expense
(40 )
(49 )
(80 )
(90 )
Interest and investment (loss) income - net
--
--
(7 )
1
Loss on early debt extinguishment
--
(85 )
--
(85 )
Income before income taxes and income
322
192
614
466
from
investment in unconsolidated affiliate
Income tax provision
(110 )
(66 )
(259 )
(162 )
Income from investment in unconsolidated affiliate
--
1
146
1
Net income
$
212
$
127
$
501
$
305
GAAP earnings per share - diluted
$
0.94
$
0.53
$
2.21
$
1.26
Diluted shares used in computing earnings per share
225.6
240.4
226.5
241.7
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
Six Months Ended
June 30,
June 30,
2016
2015
2016
2015
GAAP net income
$
212
$
127
$
501
$
305
Adjustments:
Merger, integration and other costs (1)
7
8
23
13
Severance costs
4
6
8
9
Amortization of acquisition-related intangible assets
40
50
80
99
Debt extinguishment and refinancing costs
--
92
--
92
Tax impact of adjustments (2)
(18 )
(55 )
(39 )
(75 )
StoneRiver and other investment activity (3)
--
--
(139 )
--
Tax impact of StoneRiver and other investment activity (2)
--
--
52
--
Adjusted net income
$
245
$
228
$
486
$
443
GAAP earnings per share
$
0.94
$
0.53
$
2.21
$
1.26
Adjustments - net of income taxes:
Merger, integration and other costs(1)
0.02
0.02
0.06
0.03
Severance costs
0.01
0.02
0.02
0.02
Amortization of acquisition-related intangible assets
0.11
0.13
0.23
0.26
Debt extinguishment and refinancing costs
--
0.25
--
0.25
StoneRiver and other investment activity (3)
--
--
(0.39 )
--
Adjusted earnings per share
$
1.08
$
0.95
$
2.14
$
1.83
(1)
Merger, integration and other costs include acquisition-related
integration costs of $16 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; incremental 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 a net gain on the sale of a
business interest at StoneRiver of $146 million, 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
Six Months Ended
June 30,
June 30,
2016
2015
2016
2015
Total Company
Revenue
$ 1,363
$
1,298
$ 2,694
$
2,573
Output Solutions postage reimbursements
(71 )
(74 )
(149 )
(157 )
Deferred revenue purchase accounting adjustments
2
1
2
2
Adjusted revenue
$ 1,294
$
1,225
$ 2,547
$
2,418
Operating income
$
362
$
326
$
701
$
640
Merger, integration and other costs
7
8
23
13
Severance costs
4
6
8
9
Amortization of acquisition-related intangible assets
40
50
80
99
Adjusted operating income
$
413
$
390
$
812
$
761
Operating margin
26.6
%
25.1
%
26.0
%
24.9
%
Adjusted operating margin
31.9
%
31.8
%
31.9
%
31.5
%
Payments and Industry Products ("Payments")
Revenue
$
763
$
701
$ 1,512
$
1,397
Output Solutions postage reimbursements
(71 )
(74 )
(149 )
(157 )
Deferred revenue purchase accounting adjustments
1
--
1
--
Adjusted revenue
$
693
$
627
$ 1,364
$
1,240
Operating income
$
237
$
208
$
462
$
399
Merger, integration and other costs
1
--
1
--
Adjusted operating income
$
238
$
208
$
463
$
399
Operating margin
31.1
%
29.7
%
30.5
%
28.6
%
Adjusted operating margin
34.3
%
33.2
%
33.9
%
32.2
%
Financial Institution Services ("Financial")
Revenue
$
612
$
608
$ 1,211
$
1,201
Deferred revenue purchase accounting adjustments
1
1
1
2
Adjusted revenue
$
613
$
609
$ 1,212
$
1,203
Operating income
$
202
$
209
$
397
$
413
Operating margin
33.0
%
34.5
%
32.8
%
34.4
%
Adjusted operating margin
33.0
%
34.5
%
32.8
%
34.4
%
Corporate and Other
Revenue
$
(12 )
$
(11 )
$
(29 )
$
(25 )
Operating loss
$
(77 )
$
(91 )
$
(158 )
$
(172 )
Merger, integration and other costs
6
8
22
13
Severance costs
4
6
8
9
Amortization of acquisition-related intangible assets
40
50
80
99
Adjusted operating loss
$
(27 )
$
(27 )
$
(48 )
$
(51 )
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)
Six Months Ended
June 30,
2016
2015
Cash flows from operating activities
Net income
$
501
$
305
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and other amortization
122
107
Amortization of acquisition-related intangible assets
80
99
Share-based compensation
39
36
Excess tax benefits from share-based awards
(37 )
(29 )
Deferred income taxes
5
(9 )
Income from investment in unconsolidated affiliate
(146 )
(1 )
Dividends from unconsolidated affiliate
140
--
Non-cash impairment charges
17
--
Loss on early debt extinguishment
--
85
Other operating activities
(2 )
1
Changes in assets and liabilities, net of effects from acquisitions:
Trade accounts receivable
3
53
Prepaid expenses and other assets
(38 )
(40 )
Accounts payable and other liabilities
37
38
Deferred revenue
(34 )
(45 )
Net cash provided by operating activities
687
600
Cash flows from investing activities
Capital expenditures, including capitalization of software costs
(145 )
(203 )
Payments for acquisitions of businesses
(265 )
--
Other investing activities
2
--
Net cash used in investing activities
(408 )
(203 )
Cash flows from financing activities
Debt proceeds
1,249
2,392
Debt repayments, including redemption and other costs
(991 )
(2,055 )
Proceeds from issuance of treasury stock
47
47
Purchases of treasury stock, including employee shares withheld
(633 )
(574 )
for tax obligations
Excess tax benefits from share-based awards
37
29
Net cash used in financing activities
(291 )
(161 )
Net change in cash and cash equivalents
(12 )
236
Cash and cash equivalents, beginning balance
275
294
Cash and cash equivalents, ending balance
$
263
$
530
Fiserv, Inc.
Condensed Consolidated Balance Sheets
(In millions, unaudited)
June 30,
December 31,
2016
2015
Assets
Cash and cash equivalents
$
263
$
275
Trade accounts receivable - net
812
802
Prepaid expenses and other current assets
411
429
Total current assets
1,486
1,506
Property and equipment - net
394
396
Intangible assets - net
1,893
1,872
Goodwill
5,380
5,200
Other long-term assets
377
366
Total assets
$ 9,530
$
9,340
Liabilities and Shareholders’ Equity
Accounts payable and accrued expenses
$ 1,006
$
1,024
Current maturities of long-term debt
6
5
Deferred revenue
440
473
Total current liabilities
1,452
1,502
Long-term debt
4,548
4,288
Deferred income taxes
734
726
Other long-term liabilities
154
164
Total liabilities
6,888
6,680
Shareholders’ equity
2,642
2,660
Total liabilities and shareholders’ equity
$ 9,530
$
9,340
Fiserv, Inc.
Selected Non-GAAP Financial Measures
($ in millions, unaudited)
Internal Revenue Growth (1)
Three Months Ended
Six Months Ended
June 30, 2016
June 30, 2016
Payments Segment
6%
7%
Financial Segment
1%
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 second quarter of 2016,
acquired revenue was $26 million (all in the Payments segment), and
revenue in the comparable prior year period attributable to
dispositions was $3 million (all in the Financial segment). During
the first six months of 2016, acquired revenue was $39 million (all
in the Payments segment), and revenue in the comparable prior year
period attributable to dispositions was $4 million (all in the
Financial segment).
Free Cash Flow
Six Months Ended
June 30,
2016
2015
Net cash provided by operating activities
$ 687
$ 600
Capital expenditures (1)
(145 )
(203 )
Other adjustments (1, 2)
(100 )
42
Free cash flow
$ 442
$ 439
(1)
2015 includes $43 million of capital expenditures, primarily
leasehold improvements and furniture and equipment related to the
company’s Atlanta facility consolidation, of which $24 million is
offset by landlord reimbursements reported in net cash provided by
operating activities, and $19 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;
and other items which management believes may not be indicative of
the future free cash flow of the company. "Other adjustments" in
2016 removes cash distributions, net of related tax payments, from
StoneRiver of $117 million.
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 June 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 high 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