10-QPeriod: Q1 FY2006

FISERV INC Quarterly Report for Q1 Ended Mar 31, 2006

Filed April 28, 2006For Securities:FISV

Summary

Fiserv Inc. (FISV) reported its first quarter 2006 results, showing solid revenue growth driven by both organic increases and strategic acquisitions. Total revenues rose by 13% year-over-year, with notable strength in Product revenues (+20%) and Processing and services revenues (+10%). The company successfully integrated acquisitions, contributing to its overall expansion. Despite an increase in operating expenses, partly due to the adoption of SFAS 123R (Share-Based Payment), operating income saw a modest increase of 3%. The company also demonstrated strong free cash flow generation, which was utilized to fund share repurchases. Key financial metrics indicate a healthy operational performance, with management highlighting continued focus on growth through acquisitions and expense management. The company's liquidity remains robust, supported by a significant credit facility and substantial cash on hand. Investors should note the impact of the adoption of SFAS 123R on earnings and the ongoing strategy to reinvest earnings for future business opportunities rather than paying dividends.

Key Highlights

  • 1Total revenues increased 13% to $1,096.7 million for Q1 2006 compared to Q1 2005, driven by a 10% internal revenue growth rate and contributions from acquisitions.
  • 2Processing and services revenue grew 10% to $761.0 million, and Product revenue surged 20% to $335.6 million, reflecting strong demand and acquisition impacts.
  • 3Operating income increased slightly by 3% to $193.0 million, with operating margin at 18%. The adoption of SFAS 123R increased operating expenses.
  • 4Free cash flow from continuing operations rose significantly to $143.3 million, up from $103.3 million in the prior year period, allowing for substantial share repurchases.
  • 5Long-term debt stood at $757.9 million as of March 31, 2006, with $479.9 million utilized under a $900 million revolving credit facility.
  • 6The company repurchased approximately 5.4 million shares for $228.9 million during the quarter, continuing its share repurchase program.
  • 7The Health segment's operating margin decreased due to investments in consumer-directed health care initiatives and health plan business process outsourcing start-ups.

Frequently Asked Questions

Revenue growth was primarily driven by a combination of internal revenue growth, which was 10% for the company, and revenue from recent acquisitions. Sales to new clients, cross-sales to existing clients, and increased transaction volumes from existing clients were key factors.

The adoption of SFAS 123R on January 1, 2006, required Fiserv to expense share-based compensation. This resulted in approximately $10.1 million of incremental share-based compensation expense in selling, general, and administrative expenses, negatively impacting operating income and margins by approximately 1 percentage point for the quarter.

Fiserv's current policy is to retain earnings to support future business opportunities, rather than paying dividends. The company is actively engaged in share repurchases, funded by operating cash flow and its credit facility, and also plans to pursue acquisitions vigorously.

The company completed the sale of its securities clearing businesses in March 2005. The results for these businesses are reported as discontinued operations for all periods presented, with a net loss recorded on the sale in the first quarter of 2005. There were no significant activities related to discontinued operations in the first quarter of 2006.