10-QPeriod: Q2 FY2008

FISERV INC Quarterly Report for Q2 Ended Jun 30, 2008

Filed August 7, 2008For Securities:FISV

Summary

Fiserv Inc. (FISV) reported a significant increase in total revenues for the six months ended June 30, 2008, driven by the acquisition of CheckFree Corporation. Total revenues grew 38% year-over-year, largely due to the CheckFree acquisition and another smaller acquisition, with organic revenue growth (internal revenue growth) showing a more modest 2%. While revenue and operating income increased across most segments, particularly in Payments, the company's operating margin saw a slight decline due to increased amortization expenses from acquisitions and integration costs. The company also continued its divestiture of non-core assets, completing the sale of a majority of its health businesses (Fiserv Health) and a portion of its investment support services segment (Fiserv ISS). A significant subsequent event was the July 14, 2008 sale of a 51% interest in its Insurance segment, which will lead to de-consolidation starting in the third quarter of 2008. Despite increased interest expense from debt taken on for acquisitions, the company's liquidity remains strong, supported by operating cash flows and proceeds from divestitures.

Financial Highlights

26 data points
Beta

Revenue

$1.29B

77.1% Gross Margin

Net Income

$100.00M

7.7% Net Margin

EPS (Diluted)

$0.15

Cash & Equivalents

$211.00M

Free Cash Flow

$303.00M

Financial Statements
Beta
Revenue$1.29B
Cost of Revenue$296.00M
Gross Profit$996.00M
SG&A Expenses$216.00M
Operating Expenses$1.06B
Operating Income$227.00M
Net Income$100.00M
EPS (Basic)$0.15
EPS (Diluted)$0.15
Shares Outstanding (Basic)653.60M
Shares Outstanding (Diluted)659.20M

Key Highlights

  • 1Total revenues increased by 38% to $2.605 billion for the first six months of 2008, primarily driven by the acquisition of CheckFree Corporation.
  • 2Operating income grew by 25% to $450 million for the first six months of 2008, but the operating margin declined slightly due to acquisition-related costs and amortization.
  • 3The company completed the sale of Fiserv Health and a portion of Fiserv ISS, and subsequent to the quarter, sold a 51% interest in its Insurance segment.
  • 4Interest expense significantly increased by $110 million for the first six months of 2008 due to debt incurred for the CheckFree acquisition.
  • 5Net income from continuing operations decreased slightly to $196 million for the first six months of 2008, while net income from discontinued operations saw a substantial increase to $232 million due to gains on asset sales.
  • 6The company maintained strong liquidity, with $211 million in cash and cash equivalents and $636 million available under its revolving credit facility as of June 30, 2008.
  • 7Internal revenue growth was modest at 1% and 2% for the second quarter and first six months of 2008, respectively, indicating that most of the top-line growth was acquisition-driven.

Frequently Asked Questions

The primary driver of the significant revenue increase was the acquisition of CheckFree Corporation, which closed on December 3, 2007. This acquisition, along with another smaller acquisition in the workers' compensation space, contributed substantially to the reported revenue growth.

The company's debt increased significantly in the prior year to finance the CheckFree acquisition. This resulted in a substantial rise in interest expense by $110 million for the first six months of 2008 compared to the same period in 2007. However, the company has been actively repaying debt using operating cash flow and proceeds from asset sales, reducing total long-term debt to $4.5 billion from $5.4 billion at the end of 2007.

The company has been divesting non-core assets, including Fiserv Health and parts of Fiserv ISS. These sales have generated significant gains, contributing $232 million to net income from discontinued operations for the first six months of 2008. More recently, a 51% stake in the Insurance segment was sold, which will result in de-consolidation and reporting of equity earnings from the third quarter of 2008 onwards.

The company's liquidity position is strong. As of June 30, 2008, it held $211 million in cash and cash equivalents and had $636 million available under its revolving credit facility. Combined with ongoing operating cash flows and proceeds from recent divestitures, management believes these resources are sufficient to fund operating expenses, debt service requirements, and capital expenditures.