10-QPeriod: Q3 FY2006

FISERV INC Quarterly Report for Q3 Ended Sep 30, 2006

Filed November 2, 2006For Securities:FISV

Summary

Fiserv Inc. reported solid revenue growth in its third quarter and the first nine months of 2006, driven by both its processing and services, and product segments. Total revenues increased by 14% in the third quarter and 12% year-to-date, with internal growth complemented by strategic acquisitions. The company also demonstrated strong operating income growth in the third quarter, though year-to-date operating income saw a more modest increase. A notable impact on expenses and operating margins was the adoption of SFAS 123R, which requires expensing of share-based compensation, leading to incremental costs in 2006. Financially, Fiserv maintained a strong liquidity position with significant cash flow from operations and available credit facilities. The company actively engaged in share repurchases, reflecting confidence in its financial health and commitment to returning value to shareholders. Despite the increase in certain expenses due to accounting standard adoption and investments in growth areas, the company's overall financial performance indicates a stable and growing business with a focus on strategic expansion and shareholder returns.

Key Highlights

  • 1Total revenues increased by 14% year-over-year to $1.16 billion for the third quarter of 2006 and by 12% year-over-year to $3.35 billion for the first nine months.
  • 2Processing and services revenue grew 6% in Q3 and 7% year-to-date, driven by new clients and increased transaction volumes.
  • 3Product revenue saw significant increases of 36% in Q3 and 26% year-to-date, largely due to growth in the Health segment's pharmacy and worker's compensation businesses.
  • 4Operating income increased by 8% to $185.7 million in Q3, but grew only 3% to $562.9 million year-to-date, impacted by increased share-based compensation expenses and specific business segment dynamics.
  • 5Net income for the nine months ended September 30, 2006, was $343.9 million, a decrease from $365.9 million in the prior year, with diluted EPS at $1.93.
  • 6The company generated $452.6 million in cash flow from operating activities year-to-date, a 15% increase, and reported $302.6 million in free cash flow.
  • 7Fiserv continued its share repurchase program, buying back $421.4 million worth of stock in the first nine months of 2006.

Frequently Asked Questions

Revenue growth was driven by both Processing and services revenue, which increased by 6% due to higher transaction volumes and new clients, and Product revenue, which saw a substantial 36% increase, primarily from the Health segment's pharmacy and worker's compensation businesses.

The adoption of SFAS 123R (Share-Based Payment) on January 1, 2006, required Fiserv to expense share-based compensation. This resulted in incremental expenses, particularly impacting Selling, General, and Administrative (SG&A) expenses and the overall operating margin for 2006 compared to 2005. The company noted an additional $15.7 million in share-based compensation expense year-to-date.

Fiserv maintained a strong liquidity position, with year-to-date cash flow from operations increasing by 15% to $452.6 million. The company had $367.7 million available for borrowing through its revolving credit facility and commercial paper program at September 30, 2006, indicating ample resources to meet operating needs and pursue growth.

The report mentions that acquisitions contributed to revenue growth, and Fiserv made payments of $183.9 million related to acquisitions and contingent payments. However, it does not detail specific acquisitions or divestitures in this filing period, other than the finalization of a gain related to the 2005 sale of its securities clearing businesses.