10-QPeriod: Q3 FY2004

FISERV INC Quarterly Report for Q3 Ended Sep 30, 2004

Filed October 22, 2004For Securities:FISV

Summary

Fiserv, Inc. reported strong financial performance for the nine months ended September 30, 2004, with total revenues increasing by 31% to $2.84 billion. Net income saw a substantial rise of 20.2% to $280.2 million, and diluted earnings per share grew to $1.42. The company's operating income also improved by 22% year-over-year, reaching $477.9 million, driven by significant growth in its Financial and Health segments. Internal revenue growth, excluding acquisitions, was a healthy 9% for the year-to-date period, primarily fueled by the Health segment's pharmacy services. Despite overall positive results, investors should note a $10 million charge recorded in the third quarter related to an SEC investigation into Fiserv Securities, Inc. (FSI) concerning mutual fund trading practices. This charge reduced diluted EPS by $0.05. The company has reserved a total of $16 million for this matter and does not anticipate further material liability. Fiserv's liquidity remains strong, with free cash flow increasing by 24% to $395.9 million for the nine-month period, which was used primarily for debt repayment. The company also refinanced its credit facility, securing $700 million in revolving credit.

Key Highlights

  • 1Total revenues increased by 31% to $2.84 billion for the nine months ended September 30, 2004.
  • 2Net income rose by 20.2% to $280.2 million, with diluted EPS reaching $1.42.
  • 3Operating income grew by 22% to $477.9 million, driven by strong performance in the Financial and Health segments.
  • 4Internal revenue growth was 9% for the first nine months of 2004, with the Health segment showing significant expansion.
  • 5A $10 million charge was recorded in Q3 2004 due to an SEC investigation into Fiserv Securities, Inc. (FSI), impacting diluted EPS by $0.05.
  • 6Free cash flow increased by 24% to $395.9 million for the nine-month period.
  • 7The company secured a new $700 million credit facility, replacing its previous one.

Frequently Asked Questions

Fiserv's total processing and services revenues increased by 31% to $2.56 billion. This growth was a combination of significant acquisitions and strong internal revenue growth, which was 9% for the period. The Health segment, particularly its pharmacy services business, was a primary driver of this internal growth, while the Financial segment also contributed positively, albeit with some headwinds in specific areas like item processing and lending volumes.

Fiserv Securities, Inc. (FSI), a broker-dealer subsidiary, is responding to SEC inquiries as part of an industry-wide review of mutual fund trading practices. FSI has recorded an additional $10 million charge in Q3 2004, bringing the total reserve to $16 million for this matter. This charge negatively impacted diluted EPS by $0.05 for the quarter. Fiserv does not anticipate any further material liability arising from this investigation.

Fiserv's liquidity remains strong, as evidenced by a 24% increase in free cash flow to $395.9 million for the first nine months of 2004. This increase was driven by higher net income and depreciation, along with reduced capital expenditures. The company used its free cash flow primarily to repay long-term debt. Additionally, Fiserv entered into a new $700 million credit facility, providing enhanced financial flexibility.

Total cost of revenues increased by 34% year-over-year, largely due to acquisitions that brought in businesses with different cost structures, such as higher prescription costs and other operating expenses. While overall operating income increased, the operating margin in the Health segment decreased from 13% to 9% year-to-date due to lower margins in its pharmacy services business. Conversely, the Financial segment saw its operating margin improve from 23% to 26% year-to-date.