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Fiserv Reports Third Quarter 2021 Results

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GAAP revenue increased 10% in the quarter and 9% year to date;
GAAP EPS increased 64% in the quarter and 55% year to date;
Internal revenue growth was 10% in the quarter and 11% year to date;
Adjusted EPS increased 23% in the quarter and 29% year to date;
Company now expects 2021 internal revenue growth outlook of 11% and
improves adjusted EPS growth outlook to $5.55 to $5.60

BROOKFIELD, Wis., October 27, 2021--(BUSINESS WIRE)--Fiserv, Inc. (NASDAQ: FISV), a leading global provider of payments and financial services technology solutions, today reported financial results for the third quarter of 2021.

Third Quarter 2021 GAAP Results

GAAP revenue for the company increased 10% to $4.16 billion in the third quarter of 2021 compared to the prior year period, with 18% growth in the Acceptance segment, 5% growth in the Fintech segment and 6% growth in the Payments segment. GAAP revenue for the company increased 9% to $11.97 billion in the first nine months of 2021 compared to the prior year period, with 17% growth in the Acceptance segment, 4% growth in the Fintech segment and 5% growth in the Payments segment.

GAAP earnings per share was $0.64 in the third quarter and $1.49 in the first nine months of 2021, an increase of 64% and 55%, respectively, compared to the prior year periods. GAAP operating margin was 15.3% and 14.7% in the third quarter and first nine months of 2021, respectively, compared to 14.3% and 12.1% in the third quarter and first nine months of 2020, respectively. Net cash provided by operating activities was $2.69 billion in the first nine months of 2021 compared to $2.96 billion in the prior year period.

"We posted another strong quarter of double-digit adjusted revenue and adjusted EPS growth as we continue to invest in organic and inorganic growth and demonstrate unmatched execution," said Frank Bisignano, President and Chief Executive Officer of Fiserv.

Third Quarter 2021 Non-GAAP Results and Additional Information

  • Adjusted revenue increased 10% to $3.96 billion in the third quarter and 11% to $11.37 billion in the first nine months of 2021 compared to the prior year periods.

  • Internal revenue growth (organic, constant currency) was 10% in the third quarter of 2021, led by 18% growth in the Acceptance segment, 4% growth in the Fintech segment and 6% growth in the Payments segment.

  • Internal revenue growth was 11% in the first nine months of 2021, led by 21% growth in the Acceptance segment, 4% growth in the Fintech segment and 5% growth in the Payments segment.

  • Adjusted earnings per share increased 23% to $1.47 in the third quarter and 29% to $4.01 in the first nine months of 2021 compared to the prior year periods.

  • Adjusted operating margin increased 130 basis points to 34.2% in the third quarter and 330 basis points to 33.2% in the first nine months of 2021 compared to the prior year periods.

  • Free cash flow was $2.29 billion in the first nine months of 2021 compared to $2.59 billion in the prior year period.

  • The company repurchased 3.2 million shares of common stock for $365 million in the third quarter and 13.4 million shares of common stock for $1.57 billion in the first nine months of 2021.

  • In October 2021, the company entered into a definitive merger agreement to acquire BentoBox, a digital marketing and commerce platform for restaurants, to accelerate the omni-commerce capabilities of Clover®. The company expects the transaction to close during the fourth quarter of 2021, subject to customary approvals and closing conditions.

Outlook for 2021

Fiserv tightens its full year outlook for internal revenue growth to 11% and improves its adjusted earnings per share outlook to a range of $5.55 to $5.60, representing growth of 26% to 27%, for 2021.

"Given our strong financial results year to date and increased visibility into the fourth quarter, we are tightening our internal revenue growth and adjusted EPS outlook," said Bisignano. "The strength of our assets, our agility and our new product launches continue to accelerate our growth."

Earnings Conference Call

The company will discuss its third quarter 2021 results in a live webcast at 7 a.m. CT on Wednesday, October 27, 2021. The webcast, along with supplemental financial information, can be accessed on the investor relations section of the Fiserv website at investors.fiserv.com. A replay will be available approximately one hour after the conclusion of the live webcast.

About Fiserv

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

Use of Non-GAAP Financial Measures

In this news release, the company supplements its reporting of information determined in accordance with generally accepted accounting principles ("GAAP"), such as revenue, operating income, operating margin, net income attributable to Fiserv, earnings per share and net cash provided by operating activities, with "adjusted revenue," "internal revenue," "internal revenue growth," "organic revenue" (which is calculated in the same manner as internal revenue; see page 4 of this release), "organic revenue growth," "adjusted operating income," "adjusted operating margin," "adjusted net income," "adjusted earnings per share," "adjusted earnings per share growth," 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 its GAAP financial measures to calculate these unaudited non-GAAP measures. The corresponding reconciliations of these unaudited non-GAAP financial measures to the most comparable GAAP measures are included in this news 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 15 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; restructuring costs; severance costs; net charges associated with debt financing activities; merger and integration costs; gains or losses from the sale of businesses or investments; and certain discrete tax benefits and expenses. The company excludes these items to more clearly focus on the factors management believes are pertinent to the company's operations, and management uses this information to make operating decisions, including the allocation of resources to the company's various businesses.

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

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

These unaudited 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 attributable to Fiserv, 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, adjusted earnings per share growth and other statements regarding our future financial performance. Statements can generally be identified as forward-looking because they include words such as "believes," "anticipates," "expects," "could," "should," or words of similar meaning. Statements that describe the company's future plans, objectives or goals are also forward-looking statements.

Forward-looking statements are subject to assumptions, risks and uncertainties that may cause actual results to differ materially from those contemplated by such forward-looking statements. The factors that could cause the company’s actual results to differ materially include, among others, the following, many of which are, and may continue to be, amplified by the COVID-19 pandemic: the duration and intensity of the COVID-19 pandemic, including how quickly the global economy recovers from the impact of the pandemic; governmental and private sector responses to the COVID-19 pandemic and the impact of such responses on the company; the impact of the COVID-19 pandemic on the company's employees, clients, vendors, supply chain, operations and sales; the possibility that the company may be unable to achieve expected synergies and operating efficiencies from the acquisition of First Data within the expected time frames or that the integration of First Data may be more difficult, time-consuming or costly than expected; the company's ability to compete effectively against new and existing competitors and to continue to introduce competitive new products and services on a timely, cost-effective basis; changes in customer demand for the company's products and services; the ability of the company's technology to keep pace with a rapidly evolving marketplace; the successful management of the company's merchant alliance program which involves several alliances not under its sole control; the impact of a security breach or operational failure on the company's business including disruptions caused by other participants in the global financial system; the failure of the company's vendors and merchants to satisfy their obligations; the successful management of credit and fraud risks in the company's business and merchant alliances; changes in local, regional, national and international economic or political conditions and the impact they may have on the company and its customers; the effect of proposed and enacted legislative and regulatory actions affecting the company or the financial services industry as a whole; the company's ability to comply with government regulations and applicable card association and network rules; the protection and validity of intellectual property rights; the outcome of pending and future litigation and governmental proceedings; the company's ability to successfully identify, complete and integrate acquisitions, and to realize the anticipated benefits associated with the same; the impact of the company's strategic initiatives; the company's ability to attract and retain key personnel; volatility and disruptions in financial markets that may impact the company's ability to access preferred sources of financing and the terms on which the company is able to obtain financing or increase its costs of borrowing; adverse impacts from currency exchange rates or currency controls; changes in corporate tax and interest rates; and other factors included in "Risk Factors" in the company's Annual Report on Form 10-K for the year ended December 31, 2020, and in other documents that the company files with the Securities and Exchange Commission, which are available at http://www.sec.gov. You should consider these factors carefully in evaluating forward-looking statements and are cautioned not to place undue reliance on such statements. The company assumes no obligation to update any forward-looking statements, which speak only as of the date of this news release.

Fiserv, Inc.

Condensed Consolidated Statements of Income

(In millions, except per share amounts, unaudited)

Three Months Ended

September 30,

Nine Months Ended

September 30,

2021

2020

2021

2020

Revenue

Processing and services

$

3,407

$

3,153

$

9,822

$

9,118

Product

756

633

2,147

1,902

Total revenue

4,163

3,786

11,969

11,020

Expenses

Cost of processing and services

1,530

1,387

4,425

4,488

Cost of product

521

481

1,500

1,467

Selling, general and administrative

1,476

1,412

4,289

4,193

Gain on sale of businesses

(36

)

(464

)

Total expenses

3,527

3,244

10,214

9,684

Operating income

636

542

1,755

1,336

Interest expense, net

(172

)

(174

)

(523

)

(535

)

Other income

14

13

36

34

Income before income taxes and income from investments in unconsolidated affiliates

478

381

1,268

835

Income tax provision

(54

)

(124

)

(300

)

(176

)

Income from investments in unconsolidated affiliates

22

19

80

3

Net income

446

276

1,048

662

Less: net income attributable to noncontrolling interests

18

12

47

4

Net income attributable to Fiserv

$

428

$

264

$

1,001

$

658

GAAP earnings per share attributable to Fiserv - diluted

$

0.64

$

0.39

$

1.49

$

0.96

Diluted shares used in computing earnings per share attributable to Fiserv

669.7

680.3

674.1

684.1

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

September 30,

Nine Months Ended

September 30,

2021

2020

2021

2020

GAAP net income attributable to Fiserv

$

428

$

264

$

1,001

$

658

Adjustments:

Merger and integration costs 1

210

185

483

648

Severance costs 2

24

13

38

92

Amortization of acquisition-related intangible assets 3

490

477

1,509

1,523

Non wholly-owned entity activities 4

33

34

40

53

Tax impact of adjustments 5

(174

)

(162

)

(476

)

(532

)

Gain on sale of businesses 6

(36

)

(464

)

Tax impact of gain on sale of businesses 5

12

124

Discrete tax items 7

(24

)

32

110

32

Adjusted net income

$

987

$

819

$

2,705

$

2,134

GAAP earnings per share attributable to Fiserv

$

0.64

$

0.39

$

1.49

$

0.96

Adjustments - net of income taxes:

Merger and integration costs 1

0.24

0.21

0.55

0.73

Severance costs 2

0.03

0.02

0.04

0.10

Amortization of acquisition-related intangible assets 3

0.56

0.54

1.72

1.71

Non wholly-owned entity activities 4

0.04

0.04

0.05

0.06

Gain on sale of businesses 6

(0.04

)

(0.50

)

Discrete tax items 7

(0.04

)

0.05

0.16

0.05

Adjusted earnings per share

$

1.47

$

1.20

$

4.01

$

3.12

See pages 3-4 for disclosures related to the use of non-GAAP financial measures.
Earnings per share is calculated using actual, unrounded amounts.

1

Represents acquisition and related integration costs incurred in connection with various acquisitions, primarily related to the First Data acquisition. First Data integration costs in the third quarter and first nine months of 2021 primarily include $95 million and $210 million, respectively, of third party professional service fees associated with integration activities; $13 million and $41 million, respectively, of incremental share-based compensation, including the fair value of stock awards assumed by Fiserv; and $60 million and $153 million, respectively, of other integration-related compensation costs. First Data integration costs in the third quarter and first nine months of 2020 primarily include $51 million and $154 million, respectively, of third party professional services fees associated with integration activities; $34 million and $126 million, respectively, of incremental share-based compensation, including the fair value of stock awards assumed by Fiserv; $27 million and $105 million, respectively, of other integration-related compensation costs; $35 million and $115 million, respectively, of accelerated depreciation and amortization associated with the termination of certain vendor contracts; and $4 million and $44 million, respectively, of non-cash impairment charges associated with the early exit of certain leased facilities. The company expects to complete the integration activities associated with the achievement of cost synergies related to the First Data acquisition by the end of 2021.

2

Represents severance costs associated with the achievement of expense management initiatives, primarily related to the First Data acquisition.

3

Represents amortization of intangible assets acquired through various acquisitions, including customer relationships, software/technology and trade names. This adjustment does not exclude the amortization of other intangible assets such as contract costs (sales commissions and deferred conversion costs), capitalized and purchased software, and financing costs and debt discounts. See additional information on page 14 for an analysis of the company's amortization expense.

4

Represents the company’s share of amortization of acquisition-related intangible assets at its unconsolidated affiliates, as well as the minority interest share of amortization of acquisition-related intangible assets at its subsidiaries in which the company holds a controlling financial interest. This adjustment during the third quarter and first nine months of 2021 also includes net gains totaling $2 million and $75 million, respectively, related to the fair value remeasurement and sale of certain equity investments.

5

The tax impact of adjustments is calculated using a tax rate of 23%, which approximates the company's anticipated annual effective tax rate, exclusive of the actual tax impacts associated with the gain on the sale of businesses.

6

Represents the gain associated with the sale of a 60% interest in the Investment Services business in February 2020 and the dissolution of the Banc of America Merchant Services joint venture in July 2020.

7

Represents certain discrete tax items, such as foreign derived intangible income tax benefits from a subsidiary restructuring and the revaluation of deferred taxes due to a change in the respective statutory tax rates in the United Kingdom and Argentina.

Fiserv, Inc.

Financial Results by Segment

(In millions, unaudited)

Three Months Ended

September 30,

Nine Months Ended

September 30,

2021

2020

2021

2020

Total Company

Revenue

$

4,163

$

3,786

$

11,969

$

11,020

Adjustments:

Output Solutions postage reimbursements

(209

)

(207

)

(616

)

(640

)

Deferred revenue purchase accounting adjustments

8

11

21

34

Merchant Services adjustment 1

(126

)

Adjusted revenue

$

3,962

$

3,590

$

11,374

$

10,288

Operating income

$

636

$

542

$

1,755

$

1,336

Adjustments:

Merger and integration costs

206

185

479

648

Severance costs

24

13

38

92

Amortization of acquisition-related intangible assets

490

477

1,509

1,523

Merchant Services adjustment 1

(59

)

Gain on sale of businesses

(36

)

(464

)

Adjusted operating income

$

1,356

$

1,181

$

3,781

$

3,076

Operating margin

15.3

%

14.3

%

14.7

%

12.1

%

Adjusted operating margin

34.2

%

32.9

%

33.2

%

29.9

%

Merchant Acceptance ("Acceptance")

Revenue

$

1,716

$

1,454

$

4,779

$

4,078

Adjustments:

Deferred revenue purchase accounting adjustments

2

6

Merchant Services adjustment 1

(126

)

Adjusted revenue

$

1,716

$

1,456

$

4,779

$

3,958

Operating income

$

552

$

423

$

1,463

$

985

Adjustments:

Merger and integration costs

2

5

Merchant Services adjustment 1

(59

)

Adjusted operating income

$

552

$

425

$

1,463

$

931

Operating margin

32.2

%

29.1

%

30.6

%

24.1

%

Adjusted operating margin

32.2

%

29.2

%

30.6

%

23.5

%

Financial Technology ("Fintech") 2

Revenue

$

761

$

727

$

2,251

$

2,159

Operating income

$

275

$

265

$

794

$

721

Operating margin

36.0

%

36.4

%

35.3

%

33.4

%

Fiserv, Inc.

Financial Results by Segment (cont.)

(In millions, unaudited)

Three Months Ended

September 30,

Nine Months Ended

September 30,

2021

2020

2021

2020

Payments and Network ("Payments")

Revenue

$

1,471

$

1,387

$

4,297

$

4,093

Adjustments:

Deferred revenue purchase accounting adjustments

8

9

21

28

Adjusted revenue

$

1,479

$

1,396

$

4,318

$

4,121

Operating income

$

643

$

599

$

1,850

$

1,712

Adjustments:

Merger and integration costs

7

9

21

29

Adjusted operating income

$

650

$

608

$

1,871

$

1,741

Operating margin

43.7

%

43.2

%

43.1

%

41.8

%

Adjusted operating margin

44.0

%

43.5

%

43.4

%

42.3

%

Corporate and Other

Revenue

$

215

$

218

$

642

$

690

Adjustments:

Output Solutions postage reimbursements

(209

)

(207

)

(616

)

(640

)

Adjusted revenue

$

6

$

11

$

26

$

50

Operating loss

$

(834

)

$

(745

)

$

(2,352

)

$

(2,082

)

Adjustments:

Merger and integration costs

199

174

458

614

Severance costs

24

13

38

92

Amortization of acquisition-related intangible assets

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