10-QPeriod: Q1 FY2008

FISERV INC Quarterly Report for Q1 Ended Mar 31, 2008

Filed May 9, 2008For Securities:FISV

Summary

Fiserv Inc. reported a significant increase in total revenues for the first quarter of 2008, driven largely by the acquisition of CheckFree Corporation in late 2007. Total revenues surged by 39% to $1.31 billion, with a substantial portion attributed to the Payments and Financial Institutions Services segments. While overall revenue grew, the company also saw a considerable increase in total expenses, impacting operating margins, particularly in the Insurance segment. The most notable aspect for investors is the substantial boost in net income per diluted share, which jumped to $1.99 from $0.66 in the prior year. This was primarily due to significant gains from the divestiture of discontinued operations, specifically Fiserv Health and Fiserv ISS, which contributed $231 million (after-tax) in the current quarter. Despite these one-time gains, income from continuing operations saw a slight decline, impacted by increased amortization expenses related to recent acquisitions and merger costs.

Key Highlights

  • 1Total revenues increased by 39% to $1.31 billion in Q1 2008, driven by acquisitions, notably CheckFree.
  • 2Net income per diluted share significantly increased to $1.99, up from $0.66 in Q1 2007, largely due to gains from asset sales.
  • 3Discontinued operations generated a substantial after-tax gain of $231 million from the sales of Fiserv Health and Fiserv ISS.
  • 4Operating income from continuing operations grew by 28% to $226 million, but operating margin decreased by 1.5 percentage points due to increased amortization and merger costs.
  • 5Interest expense more than quadrupled year-over-year, increasing from $9 million to $68 million, primarily due to debt incurred for the CheckFree acquisition.
  • 6The company has a strong liquidity position, with $371 million in cash and cash equivalents and $637 million available under its revolving credit facility.
  • 7Fiserv continues to manage its debt, reducing total long-term debt by approximately $630 million in the first quarter of 2008.

Frequently Asked Questions

The primary driver of Fiserv's revenue growth in the first quarter of 2008 was the acquisition of CheckFree Corporation in December 2007, along with the acquisition of a workers' compensation transaction processing business in the third quarter of 2007. These acquisitions contributed significantly to the Payments and Financial Institutions Services segments.

The sales of Fiserv Health and Fiserv ISS, reported as discontinued operations, resulted in a significant after-tax gain of $231 million in the first quarter of 2008. This gain substantially boosted the company's overall net income and net income per diluted share for the quarter.

The decrease in operating margin, particularly noted in the Insurance segment, is attributed to several factors including increased amortization expenses related to acquired intangible assets (primarily from the CheckFree acquisition), merger and integration costs associated with that acquisition, and the impact of higher-volume, lower-margin product revenues in the workers' compensation businesses. Specifically, the inclusion of prescription product costs in both revenues and expenses in the Insurance segment negatively impacted its operating margins.

Fiserv has a stated policy of using operating cash flow to fund capital expenditures and repay debt, rather than paying dividends. In the first quarter of 2008, the company reduced its long-term debt by approximately $630 million, using operating cash flow and proceeds from asset sales. As of March 31, 2008, the company had $371 million in cash and cash equivalents and $637 million available under its revolving credit facility, indicating a strong liquidity position.