10-QPeriod: Q2 FY2005

FISERV INC Quarterly Report for Q2 Ended Jun 30, 2005

Filed July 29, 2005For Securities:FISV

Summary

Fiserv Inc. reported a strong second quarter of 2005, demonstrating robust revenue growth driven primarily by its Financial and Health segments. Total revenues increased by 10% year-over-year, with processing and services revenues up 10% to $913.1 million for the quarter. Operating income saw a significant 16% increase, reflecting improved operating margins, particularly in the Financial segment. The company also completed the sale of its securities clearing businesses, generating substantial proceeds and impacting the discontinued operations line item. This strategic divestiture, along with a realized gain from an investment sale, contributed positively to net income, though the company also navigated increased operational expenses, notably in prescription costs within the Health segment. Looking ahead, Fiserv announced a pending acquisition of BillMatrix Corp. for approximately $350 million, signaling continued strategic growth. The company also continued its share repurchase program, underscoring its commitment to returning value to shareholders. Despite a slight decrease in free cash flow year-over-year, primarily due to tax payment timing and increased accounts receivable, the company maintains a strong liquidity position and compliance with debt covenants. Investors should note the company's ongoing strategic focus on core segments and its proactive approach to capital allocation.

Key Highlights

  • 1Total revenues increased by 10% to $996.4 million for the three months ended June 30, 2005, compared to $919.8 million in the prior year period.
  • 2Operating income grew by 16% to $187.2 million for the three months ended June 30, 2005, compared to $161.9 million in the prior year period.
  • 3The company completed the sale of its securities clearing businesses in March 2005, resulting in a net loss from discontinued operations of $0.4 million for the six-month period, but generated significant cash proceeds.
  • 4A one-time realized gain of $43.5 million from the sale of investment in Bisys Group, Inc. common stock boosted net income for the six-month period.
  • 5Internal revenue growth for the second quarter was 8%, primarily driven by new clients, cross-sales, and increased transaction volumes, though it moderated from the prior year's 11%.
  • 6Fiserv announced a definitive agreement to acquire BillMatrix Corp. for approximately $350 million, expected to close in the third quarter of 2005.
  • 7The company repurchased $263.2 million of its common stock during the first six months of 2005 and received authorization for an additional 10 million shares repurchase.

Frequently Asked Questions

The sale of the securities clearing businesses, completed in March 2005, resulted in the operations being reported as discontinued. While this led to a small net loss of $0.4 million for the six-month period due to sale-related expenses and taxes, the transaction generated significant cash proceeds ($344.9 million at closing, plus a $68.0 million distribution prior to sale) which positively impacted the company's liquidity and allowed for strategic investments and share repurchases.

Fiserv's processing and services revenues saw growth across its segments. The Financial segment grew by 9% in Q2 and 7% year-to-date, driven by loan settlement services and software licenses. The Health segment grew by 13% in Q2 and 15% year-to-date, although its internal revenue growth rate moderated compared to the prior year due to strong prior year comparables and increased competition. The Investment segment also showed steady growth with a 10% increase in Q2.

Fiserv is pursuing future growth through both organic means and strategic acquisitions. The company is actively expanding its client base and transaction volumes within its core segments. Additionally, the announced agreement to acquire BillMatrix Corp. for approximately $350 million indicates a continued focus on strategic expansion, which is expected to close in the third quarter of 2005.

Fiserv generated $180.0 million in free cash flow for the first six months of 2005, a decrease from the prior year, largely due to changes in tax payments and increased accounts receivable. However, the company maintains a strong liquidity position with $566.6 million in cash and cash equivalents as of June 30, 2005. They also have a $700 million credit facility and have actively engaged in share repurchases, demonstrating a commitment to shareholder returns and financial flexibility.