10-QPeriod: Q2 FY2004

FISERV INC Quarterly Report for Q2 Ended Jun 30, 2004

Filed July 22, 2004For Securities:FISV

Summary

Fiserv Inc. reported strong financial performance for the quarter ended June 30, 2004, with total revenues reaching $946 million, a significant increase of 31% year-over-year. This growth was driven primarily by its Financial and Health segments, with impressive internal revenue growth rates of 11% and 50% respectively, excluding the impact of acquisitions. Net income also saw a healthy rise of 21% to $95 million, translating to diluted earnings per share of $0.48. The company demonstrated robust cash flow generation, with free cash flow increasing by 40% to $251.6 million for the first six months of the year, which was largely used to repay long-term debt. Despite the positive financial results, investors should note potential headwinds. The Investment Services segment experienced a significant decline in operating income due to legal fees and expenses related to an SEC inquiry into Fiserv Securities, Inc. concerning mutual fund trading practices. While the company estimates cumulative revenues from these practices at $4.6 million, the potential for fines and penalties could materially impact future results. The company also continues to integrate acquisitions, which contributed to overall revenue growth, particularly in the Health segment.

Key Highlights

  • 1Total revenues for the quarter grew 31% year-over-year to $946 million.
  • 2Net income increased by 21% to $95 million, with diluted EPS at $0.48.
  • 3Strong internal revenue growth of 10% for the first six months, excluding acquisitions, highlighting core business expansion.
  • 4The Health segment showed exceptional growth (162% for six months), driven by pharmacy services, though with lower operating margins.
  • 5Free cash flow surged 40% to $251.6 million for the first six months, used primarily for debt reduction.
  • 6The Investment Services segment's operating income declined due to legal expenses and an SEC inquiry into Fiserv Securities, Inc.
  • 7The company successfully renegotiated its credit facility, providing $700 million in revolving credit.

Frequently Asked Questions

The Health segment's substantial revenue growth, particularly in the pharmacy services business, was driven by the inclusion of prescription ingredient costs in both revenues and cost of revenues, alongside strong internal revenue growth and acquisitions. While this business has lower operating margins, it significantly contributed to top-line expansion.

Fiserv Securities, Inc. (FSI), a broker-dealer subsidiary, is responding to an SEC inquiry regarding industry-wide mutual fund trading practices. While FSI estimates cumulative revenues associated with these practices at $4.6 million, potential fines and penalties could materially adversely impact the company's quarterly operating results. This led to a decrease in operating income for the Investment Services segment.

Fiserv demonstrated strong free cash flow generation, increasing by 40% to $251.6 million in the first six months of 2004. The company primarily used this cash flow to repay long-term debt, reducing it by $210.6 million. Additionally, Fiserv entered into a new $700 million credit facility, enhancing its liquidity and financial flexibility.

The Financial and Health segments are the primary drivers of Fiserv's operating income growth. The Financial segment showed a consistent 22% year-to-date operating income increase, benefiting from strong revenue growth. The Health segment also contributed significantly with a 65% year-to-date increase, despite lower operating margins in its newer pharmacy services business.