Fiserv Reports Fourth Quarter and Full Year 2018 Results

GAAP revenue growth of 2 percent in the quarter and for the year;

GAAP EPS from continuing operations decrease of 43 percent in the
quarter and up slightly for the year;

Internal revenue growth of 4.5 percent in the quarter and for the year;

Adjusted EPS increase of 24 percent in the quarter and 25 percent for
the year;

Company expects 2019 internal revenue growth of 4.5 to 5 percent and
adjusted EPS growth of 10 to 14 percent

BROOKFIELD, Wis.–(BUSINESS WIRE)–Fiserv, Inc. (NASDAQ: FISV), a leading global provider of financial
services technology solutions, today reported financial results for the
fourth quarter and full year 2018. These final results are in line with
the preliminary results included in the press release from January 16,
2019.

Fourth Quarter and Full Year 2018 GAAP Results

GAAP revenue for the company increased 2 percent to $1.55 billion in the
fourth quarter of 2018 compared to the prior year period, with 9 percent
growth in the Payments segment and 8 percent decline in the Financial
segment. Full year 2018 GAAP revenue for the company increased 2 percent
to $5.82 billion versus last year, with 7 percent growth in the Payments
segment and 5 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 2018 for the Financial segment.

GAAP earnings per share from continuing operations was $0.71 in the
fourth quarter of 2018 and $2.87 for the full year, a decrease of 43
percent and up slightly, respectively, compared to the prior year
periods. GAAP earnings per share from continuing operations in 2018
included a gain of $0.37 per share on the Lending Transaction. GAAP
earnings per share from continuing operations in 2017 included discrete
tax benefits from the December 2017 enactment of The Tax Cuts and Jobs
Act of $0.65 per share and $0.64 per share in the fourth quarter and
full year, respectively. The company also completed a two-for-one stock
split in the first quarter of 2018. Accordingly, all share data and per
share amounts are presented on a split-adjusted basis.

GAAP operating margin was 27.8 percent in the fourth quarter of 2018 and
30.1 percent for the full year, decreasing 30 basis points and
increasing 320 basis points, respectively, compared to the prior year
periods. GAAP operating margin in 2018 included a $227 million gain
resulting from the Lending Transaction.

Net cash provided by operating activities was $1.55 billion in 2018,
which did not include $419 million of proceeds from the Lending
Transaction. Net cash provided by operating activities was $1.48 billion
in 2017, which included cash distributions of $45 million from
StoneRiver Group, L.P. (“StoneRiver”), a joint venture in which the
company owns a 49 percent interest.

“We are pleased with our 2018 results, which include acceleration of our
internal revenue growth rate along with our 33rd consecutive
year of double-digit adjusted earnings per share growth,” said Jeffery
Yabuki, President and Chief Executive Officer of Fiserv. “Sales results
in the quarter were our strongest in history setting us up for
continuing growth expansion.”

Fourth Quarter and Full Year 2018 Non-GAAP Results and Additional
Information

  • Adjusted revenue was $1.47 billion in the fourth quarter of 2018 and
    $5.54 billion for the full year, increasing 2 percent in each period
    compared to the prior year periods.
  • Internal revenue growth for the company was 4.5 percent in the fourth
    quarter of 2018, with 6 percent growth in the Payments segment and 3
    percent growth in the Financial segment.
  • Internal revenue growth for the company was 4.5 percent for the full
    year, with 5 percent growth in the Payments segment and 4 percent
    growth in the Financial segment.
  • Adjusted earnings per share increased 24 percent to $0.84 in the
    fourth quarter of 2018 and 25 percent to $3.10 for the full year
    compared to the prior year periods.
  • Adjusted operating margin was 33.4 percent in the fourth quarter of
    2018 compared to 34.0 percent in the fourth quarter of 2017, and was
    32.5 percent for the full year compared to 32.8 percent in 2017.
  • Free cash flow for 2018 increased 7 percent to $1.31 billion compared
    to the prior year.
  • Sales results were up 31 percent in the quarter and 5 percent for the
    year compared to the prior year periods.
  • The company repurchased 25.5 million shares of common stock for $1.91
    billion in 2018, which included 8.9 million shares of common stock for
    $689 million in the fourth quarter.
  • In January 2019, Fiserv was named one of FORTUNE Magazine World’s Most
    Admired Companies® for the sixth consecutive year. The
    company received high marks for its long-term investment value,
    financial soundness, people management and social responsibility, and
    was also noted for its use of corporate assets, quality of management
    and innovation.

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, regulatory
approvals and shareholder approval for both companies. The corresponding
press release and additional materials are available in the “Investor
Relations” section of fiserv.com.

Outlook for 2019

Fiserv expects internal revenue growth in a range of 4.5 to 5 percent
for 2019. 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 2019
does not include any impact related to its proposed transaction with
First Data Corporation.

“We enter 2019 with strong momentum and a continuing focus on providing
differentiated value for clients, associates and shareholders,” said
Yabuki.

Earnings Conference Call

The company will discuss its results on a conference call and webcast at
4 p.m. CT on Thursday, February 7, 2019. To register for the event, go
to fiserv.com
and click on the Q4 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, income from continuing operations,
net income, earnings per share from continuing operations, 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, income from continuing operations, net income,
earnings per share from continuing operations, 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 14 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, 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 13. 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, income from continuing operations, net income,
earnings per share from continuing operations, 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
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;
shareholder approval or other 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, 2017, 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
press release.

 
 
 
 
 
Fiserv, Inc.
Condensed Consolidated Statements of Income
(In millions, except per share amounts, unaudited)
                   
Three Months Ended
December 31,
Year Ended
December 31,
2018 2017 2018 2017
Revenue
Processing and services $ 1,307 $ 1,270 $ 4,975 $ 4,833
Product 244   246   848   863  
Total revenue 1,551   1,516   5,823   5,696  
 
Expenses
Cost of processing and services 628 576 2,324 2,291
Cost of product 194 202 745 733
Selling, general and administrative 298 313 1,228 1,150
Gain on sale of businesses     (227 ) (10 )
Total expenses 1,120   1,091   4,070   4,164  
 
Operating income 431 425 1,753 1,532
Interest expense (56 ) (45 ) (193 ) (176 )
Loss on early debt extinguishment (6 ) (14 )
Non-operating income 3     9   2  
 

Income from continuing operations before income taxes and
income from investments in unconsolidated affiliates

372 380 1,555 1,358
Income tax (provision) benefit (88 ) 151 (378 ) (158 )
Income from investments in unconsolidated affiliates 2   1   10   32  
Income from continuing operations 286 532 1,187 1,232
Income from discontinued operations   14     14  
 
Net income $ 286   $ 546   $ 1,187   $ 1,246  
 
GAAP earnings per share – diluted
Continuing operations $ 0.71 $ 1.25 $ 2.87 $ 2.86
Discontinued operations   0.03     0.03  
Total $ 0.71   $ 1.29   $ 2.87   $ 2.89  
 
Diluted shares used in computing earnings per share 404.7 424.9 413.7 431.3
 
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
December 31,
Year Ended
December 31,
2018     2017 2018     2017
 
GAAP income from continuing operations $ 286 $ 532 $ 1,187 $ 1,232
Adjustments:
Merger, integration and other costs 1 14 22 89 74
Severance costs 2 2 17 24
Amortization of acquisition-related intangible assets 43 42 163 159
Loss on early debt extinguishment 2 6 14
Lending transaction impact 3 (16 ) (50 )
Tax impact of adjustments 4 (15 ) (17 ) (63 ) (68 )
Gain on sale of businesses 5 (227 ) (10 )
Tax impact of gain on sale of businesses 4 77 5
Unconsolidated affiliate activities 6 4 (1 ) 7 (32 )
Tax impact of unconsolidated affiliate activities 4 (1 ) (2 ) 11
Tax reform 7   (275 ) 19   (275 )
Adjusted net income $ 339   $ 289   $ 1,281   $ 1,070  
 
GAAP earnings per share from continuing operations $ 0.71 $ 1.25 $ 2.87 $ 2.86
Adjustments – net of income taxes:
Merger, integration and other costs 1 0.03 0.03 0.17 0.11
Severance costs 0.01 0.03 0.04
Amortization of acquisition-related intangible assets 0.08 0.07 0.31 0.25
Loss on early debt extinguishment 2 0.01 0.03
Lending Transaction impact 3 (0.03 ) (0.08 )
Gain on sale of businesses 5 (0.37 ) (0.01 )
Unconsolidated affiliate activities 6 0.01 0.01 (0.05 )
Tax reform 7   (0.65 ) 0.05   (0.64 )
Adjusted earnings per share $ 0.84   $ 0.68   $ 3.10   $ 2.48  
 

1 Merger, integration and other costs include
acquisition and related integration costs of $46 million in 2018
and $47 million in 2017, and certain costs associated with the
achievement of the company’s operational effectiveness objectives
of $43 million in 2018 and $27 million in 2017, primarily
consisting of expenses related to data center consolidation
activities.

 

2 Represents the loss on early debt extinguishment
associated with the company’s cash tender offer for and redemption
of its $450 million aggregate principal amount of 4.625% senior
notes.

 

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 tax
rates of 22 percent and 33 percent in 2018 and 2017, respectively,
which approximates the company’s annual effective tax rate for the
respective years, exclusive of U.S. federal tax reform effects and
the actual tax impacts associated with the gain on sale of
businesses and unconsolidated affiliate activities.

 

5 Represents the gains on the Lending Transaction in
2018 and the sale of the company’s Australian item processing
business in 2017.

 

6 Represents the company’s share of the net gains on
the sales of businesses at StoneRiver and the company’s share of
amortization of acquisition-related intangible assets on the
Lending Transaction.

 

7 Represents discrete income tax effects associated
with U.S. federal tax reform and subsequent guidance issued by the
Internal Revenue Service.

 

See pages 3-4 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
December 31,
Year Ended
December 31,
2018 2017 2018 2017
Total Company
Revenue $ 1,551 $ 1,516 $ 5,823 $ 5,696
Output Solutions postage reimbursements (79 ) (77 ) (285 ) (281 )
Deferred revenue purchase accounting adjustments   4   3   8  
Adjusted revenue $ 1,472   $ 1,443   $ 5,541   $ 5,423  
 
Operating income $ 431 $ 425 $ 1,753 $ 1,532
Merger, integration and other costs 16 22 94 74
Severance costs 2 2 17 24
Amortization of acquisition-related intangible assets 43 42 163 159
Gain on sale of businesses     (227 ) (10 )
Adjusted operating income $ 492   $ 491   $ 1,800   $ 1,779  
Operating margin 27.8 % 28.1 % 30.1 % 26.9 %
Adjusted operating margin 33.4 % 34.0 % 32.5 % 32.8 %
 
Payments and Industry Products (“Payments”)
Revenue $ 944 $ 865 $ 3,467 $ 3,234
Output Solutions postage reimbursements (79 ) (77 ) (285 ) (281 )
Deferred revenue purchase accounting adjustments   4   3   8  
Adjusted revenue $ 865   $ 792   $ 3,185   $ 2,961  
 
Operating income $ 315 $ 284 $ 1,122 $ 1,034
Merger, integration and other costs   4   2   7  
Adjusted operating income $ 315   $ 288   $ 1,124   $ 1,041  
Operating margin 33.4 % 33.0 % 32.3 % 32.0 %
Adjusted operating margin 36.4 % 36.4 % 35.3 % 35.1 %
 
Financial Institution Services (“Financial”)
Revenue $ 615   $ 668   $ 2,395   $ 2,530  
 
Operating income $ 208   $ 235   $ 798   $ 849  
Operating margin 33.7 % 35.1 % 33.3 % 33.5 %
 
Corporate and Other
Revenue $ (8 ) $ (17 ) $ (39 ) $ (68 )
 
Operating loss $ (92 ) $ (94 ) $ (167 ) $ (351 )
Merger, integration and other costs 16 18 92 67
Severance costs 2 2 17 24
Amortization of acquisition-related intangible assets 43 42 163 159
Gain on sale of businesses     (227 ) (10 )
Adjusted operating loss $ (31 ) $ (32 ) $ (122 ) $ (111 )
 
See pages 3-4 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)
        Year Ended

December 31,

2018     2017
Cash flows from operating activities
Net income $ 1,187 $ 1,246
Adjustment for discontinued operations (14 )
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and other amortization 393 285
Amortization of acquisition-related intangible assets 163 159
Share-based compensation 73 63
Deferred income taxes 133 (247 )
Gain on sale of businesses (227 ) (10 )
Loss on early debt extinguishment 14
Income from investments in unconsolidated affiliates (10 ) (32 )
Dividends from unconsolidated affiliates 2 45
Non-cash impairment charges 3 18
Other operating activities (10 ) (4 )
Changes in assets and liabilities, net of effects from acquisitions
and dispositions:
Trade accounts receivable (108 ) (75 )
Prepaid expenses and other assets (6 ) (37 )
Contract costs (137 ) (29 )
Accounts payable and other liabilities 116 54
Contract liabilities (34 ) 61  
Net cash provided by operating activities 1,552   1,483  
 
Cash flows from investing activities
Capital expenditures, including capitalization of software costs (360 ) (287 )
Proceeds from sale of businesses 419 17
Payments for acquisitions of businesses, net of cash acquired (712 ) (384 )
Purchases of investments (3 ) (10 )
Other investing activities (7 ) 7  
Net cash used in investing activities (663 ) (657 )
 
Cash flows from financing activities
Debt proceeds 5,039 2,310
Debt repayments, including redemption and other costs (4,005 ) (1,985 )
Proceeds from issuance of treasury stock 75 78

Purchases of treasury stock, including employee shares withheld
for tax obligations

(1,946 ) (1,223 )
Other financing activities (5 )  
Net cash used in financing activities (842 ) (820 )
 
Change in cash and cash equivalents 47 6
Net cash flows from discontinued operations 43 19
Cash and cash equivalents, beginning balance 325   300  
Cash and cash equivalents, ending balance $ 415   $ 325  
 
Certain prior period amounts have been reclassified to conform to
current period presentation.

Contacts

Media Relations:
Britt Zarling
Vice President,
Corporate Communications
Fiserv, Inc.
678-375-1595
[email protected]

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

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