Fiserv Reports Strong Earnings for Third Quarter of 2005
Fiserv Reports Strong Earnings for Third Quarter of 2005
October 20, 2005
BROOKFIELD, Wis.--(BUSINESS WIRE)--Oct. 20, 2005--Fiserv, Inc. (Nasdaq:FISV - News) announced today strong earnings for the third quarter of 2005.
Net income per share-diluted from continuing operations for the third quarter of 2005 was $0.58 per share, compared to $0.53 per share for the third quarter of 2004. Processing and services revenues were $925.3 million, an increase of 10% over the third quarter of 2004.
For the nine month period ended Sept. 30, 2005, Fiserv processing and services revenues were $2.7 billion, a 10% increase over the first nine months of 2004. Net income per share-diluted from continuing operations (excluding realized gain from sale of investment of $0.14 per share) was $1.74 per share compared to $1.50 per share for the first nine months of 2004.
"We are very pleased with our third quarter results and we are forecasting full year 2005 earnings per share from continuing operations of $2.28 to $2.31 (excluding $0.14 per share from a realized gain from sale of investment). Our businesses continued their strong performance and the ongoing emphasis on our organic growth initiatives is producing positive results in 2005," said Leslie M. Muma, president and chief executive officer of Fiserv. "We are also very excited about our recent acquisitions, including BillMatrix in our Financial segment which serves the rapidly growing electronic bill payment space and adds to our extensive payment capabilities."
Fiserv also completed the acquisitions of J.W. Hutton, an insurance recovery management services provider in the Health segment, and VerticalPoint, a provider of software solutions to automate new business and underwriting workflows for insurance carriers and their distribution channels in the Financial segment.
Fiserv repurchased 4.4 million shares of its common stock in the third quarter of 2005 and a total of 10.8 million shares in 2005. The Company has 7.4 million shares authorized for repurchase at Sept. 30, 2005 under the current stock buy-back plan.
OUTLOOK FOR THE FULL YEAR
Fiserv has updated its earnings and revenue outlook for the full year. For the full year of 2005, processing and services revenues are estimated to be approximately $3.66 billion to $3.68 billion ($940 to $960 million for the fourth quarter) and net income per share-diluted from continuing operations is estimated to be $2.28 to $2.31 per share (excluding realized gain from sale of investment of $0.14 per share) ($0.54 to $0.57 per share for the fourth quarter). These estimates for the full year exclude any positive earnings associated with the anticipated receipt of a large contract termination fee from a client being acquired by another financial institution. Internal revenue growth rates for the full year 2005 are projected to be in the mid-single digits in the Financial and Investment segments and low double digits in the Health segment.
RENEWED AND NEW CLIENT RELATIONSHIPS
Significant client renewals and other new relationships gained in the third quarter include the following: Toyota Credit Canada, Inc. expanded its relationship with the LeMans unit of Fiserv to include the LeMans Loan Origination System; Fiserv's Personix unit will provide output services to Putnam Investments through an agreement that will give Personix a significant new distribution center in the Boston area; Fiserv's IPS-Sendero unit signed license agreements with HSBC Australia and Arab National Bank of Riyadh, Saudi Arabia, for risk management software; Fiserv Imagesoft extended its relationship with Viewpointe Archive Services LLC through additional licenses of its FraudGuard Positive PayPlus product in support of Viewpointe member banks; Sterling Financial Corp., a $2.8 billion diversified financial services corporation based in Lancaster, Pa., expanded its already significant relationship with Fiserv to include the Enterprise Relationship Management Software Suite; and mBank, a $276 million-asset financial institution based in Manistique, Mich., chose Fiserv for a comprehensive technology package that includes core processing, Internet banking, ATM/debit processing and branch capture of check images. In addition, Fiserv's Information Technology, Inc. (ITI) unit signed agreements with three banks to provide software for in-house core account processing: Capital Bank, a $927 million asset institution in Raleigh, N.C.; Penn Security Bank & Trust Co., a $567 million asset bank in Scranton, Pa., and Progressive Bank, a $275 million asset bank in Winnsboro, La.
EARNINGS CONFERENCE CALL
An analyst conference call to review the third quarter results will be held Friday, Oct. 21, at 9 a.m. Central time. A live Webcast of the call will be available to the public on the Fiserv Website at www.fiserv.com.
USE OF NON-GAAP FINANCIAL INFORMATION
The Company reports its financial results in accordance with GAAP. However, the Company uses certain non-GAAP performance measures, including free cash flow, internal revenue growth, adjusted operating margin and adjusted earnings per share, to provide investors a more complete understanding of the Company's underlying operational results. These non-GAAP measures are indicators management uses to provide additional meaningful comparisons between current results and prior reported results, and as a basis for planning and forecasting for future periods. As an example, the Company uses adjusted earnings per share to present the impact of certain transactions or events that management expects to be infrequently occurring, such as the realized gain on sale of investment occurring in the first quarter of 2005. The Company believes this adjusted measure is more indicative of the Company's operating performance. The presentation of this additional information is not meant to be considered in isolation or as a substitute for comparable metrics prepared in accordance with GAAP in the United States.
ABOUT FISERV
Fiserv, Inc. (Nasdaq:FISV - News) provides information management systems and services to the financial and health benefits industries, including transaction processing, outsourcing, business process outsourcing and software and systems solutions. The company serves more than 16,000 clients worldwide, including banks, credit unions, financial planners/investment advisers, insurance companies and agents, self-insured employers, lenders and savings institutions. Headquartered in Brookfield, Wis., Fiserv reported $3.4 billion in processing and services revenues for 2004.
Fiserv was ranked the largest provider of information technology services to the U.S. financial services industry in the 2004 FinTech 100 survey by the American Banker newspaper and the Financial Insights research firm. Fiserv can be found on the Internet at www.fiserv.com.
The disclosures in this press release contain forward-looking statements, specifically statements regarding the estimated earnings per share-diluted for the fourth quarter and full year of 2005, revenue outlook for the full year and fourth quarter of 2005, anticipated effective income tax rate for the fourth quarter of 2005, internal revenue growth rates for the full year 2005, anticipated contract termination fee, estimated flood claims processing volumes for the fourth quarter of 2005 and anticipated net investment income in the Investment segment for the fourth quarter of 2005. These statements are covered by the safe harbor included in the Private Securities Litigation Reform Act of 1995. Such forward-looking statements are subject to inherent assumptions, risks and uncertainties that may cause actual results to differ materially from those contemplated by such forward-looking statements. The factors that may cause actual results to differ materially from those contemplated by the forward-looking statements include, among others, changes in customers' demand for the Corporation's products, pricing and other actions by competitors and general changes in economic conditions. These factors should be considered in evaluating the forward-looking statements, and undue reliance should not be placed on such statements.
FISERV, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (1)
(In thousands, except per share amounts)
(Unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
2005 2004 2005 2004
----------- ----------- ----------- -----------
Revenues:
Processing and services $925,287 $843,095 $2,720,701 $2,484,493
Customer reimbursements 86,358 91,597 260,484 278,849
----------- ----------- ----------- -----------
Total revenues 1,011,645 934,692 2,981,185 2,763,342
----------- ----------- ----------- -----------
Cost of revenues:
Salaries, commissions
and payroll related
costs 356,214 328,095 1,048,391 982,250
Customer reimbursement
expenses 86,358 91,597 260,484 278,849
Data processing costs
and equipment rentals 52,054 49,598 157,486 155,287
Prescription costs 139,125 114,920 394,306 319,305
Other operating
expenses 162,092 132,345 441,286 393,413
Depreciation and
amortization 44,283 44,439 132,452 137,290
----------- ----------- ----------- -----------
Total cost of revenues 840,126 760,994 2,434,405 2,266,394
----------- ----------- ----------- -----------
Operating income 171,519 173,698 546,780 496,948
Interest expense - net (3,429) (4,395) (8,371) (13,613)
Realized gain from sale
of investment (2) - - 43,452 -
----------- ----------- ----------- -----------
Income from continuing
operations, before
income taxes 168,090 169,303 581,861 483,335
Income tax provision 58,751 65,008 218,880 187,236
----------- ----------- ----------- -----------
Income from continuing
operations 109,339 104,295 362,981 296,099
Income (loss) from
discontinued
operations, net of tax 3,600 (11,938) 2,981 (15,910)
----------- ----------- ----------- -----------
Net income $112,939 $92,357 $365,962 $280,189
=========== =========== =========== ===========
Diluted net income
(loss) per share:
Continuing
operations
(excluding
realized gain from
sale of
investment) $0.58 $0.53 $1.74 $1.50
Discontinued
operations 0.02 (0.06) 0.02 (0.08)
----------- ----------- ----------- -----------
Total (excluding
realized gain from
sale of
investment) 0.60 0.47 1.76 1.42
Realized gain from
sale of investment - - 0.14 -
----------- ----------- ----------- -----------
Total $0.60 $0.47 $1.90 $1.42
=========== =========== =========== ===========
Diluted shares used in
computing net income
(loss) per share 189,676 197,472 192,799 197,305
(1) The securities clearing businesses' revenues and cost of revenues
are excluded above from "Revenues" and "Cost of revenues" and are
included in "Income (loss) from discontinued operations, net of
tax" for all periods presented, as these businesses were sold on
March 24, 2005.
(2) Represents the sale of the Company's remaining 3.2 million shares
of Bisys Group, Inc. common stock.
FISERV, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
(Unaudited)
September 30, December 31,
2005 2004
------------- -------------
ASSETS
Cash and cash equivalents $174,013 $516,127
Accounts receivable - net 518,200 437,764
Prepaid expenses and other assets 104,902 100,810
Investments 2,257,225 1,984,536
Property and equipment - net 210,491 200,709
Intangible assets - net 606,589 532,539
Goodwill - net 2,241,484 1,859,347
Assets of discontinued operations held for
sale - 2,751,517
------------- -------------
TOTAL $6,112,904 $8,383,349
============= =============
LIABILITIES AND SHAREHOLDERS' EQUITY
Accounts payable $232,819 $202,616
Short-term borrowings 50,000 100,000
Accrued expenses 334,838 363,513
Accrued income taxes 6,291 44,955
Deferred revenues 206,842 226,080
Customer funds held and retirement account
deposits 2,025,545 1,829,639
Deferred income taxes 170,222 134,330
Long-term debt 588,667 505,327
Liabilities of discontinued operations held
for sale - 2,412,467
------------- -------------
TOTAL LIABILITIES 3,615,224 5,818,927
SHAREHOLDERS' EQUITY
Preferred stock, no par value:
25,000,000 shares authorized; none issued - -
Common stock, $0.01 par value:
450,000,000 shares authorized;
197,455,043 and 195,940,360 shares issued 1,975 1,959
Additional paid-in capital 704,001 679,573
Accumulated other comprehensive income 190 26,695
Accumulated earnings 2,286,501 1,920,539
Treasury stock, at cost, 11,861,670 and
1,691,500 shares (494,987) (64,344)
------------- -------------
TOTAL SHAREHOLDERS' EQUITY 2,497,680 2,564,422
------------- -------------
TOTAL $6,112,904 $8,383,349
============= =============
FISERV, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
Nine months
ended September 30,
2005 2004
------------- -------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $365,962 $280,189
Adjustment for discontinued operations (2,981) 15,910
Adjustments to reconcile net income to net
cash provided by operating activities:
Realized gain from sale of investment (43,452) -
Deferred income taxes 16,646 45,337
Depreciation and amortization 132,452 137,290
Changes in assets and liabilities, net of
effects from acquisitions and
dispositions of businesses:
Accounts receivable (48,238) (13,943)
Prepaid expenses and other assets (6,925) 574
Accounts payable and accrued expenses 5,079 25,070
Deferred revenues (18,829) (8,359)
Accrued income taxes (9,737) 31,703
------------- -------------
Net cash provided by operating activities 389,977 513,771
------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures, including
capitalization of software costs for
external customers (109,481) (108,379)
Payment for acquisitions of businesses, net
of cash acquired (495,040) (51,096)
Proceeds from sale of businesses, net of
expenses paid 283,273 -
Cash distribution received from
discontinued operations prior to sale 68,000 -
Investments (278,712) (172,010)
------------- -------------
Net cash used in investing activities (531,960) (331,485)
------------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of short-term debt - net (50,000) -
Proceeds from (repayments of) long-term
debt - net 83,163 (209,759)
Issuance of common stock and treasury stock 29,302 26,530
Purchases of treasury stock (458,502) -
Customer funds held and retirement account
deposits 195,906 247,468
------------- -------------
Net cash provided by (used in) financing
activities (200,131) 64,239
------------- -------------
Change in cash and cash equivalents (342,114) 246,525
Beginning balance 516,127 162,668
------------- -------------
Ending balance $174,013 $409,193
============= =============
FISERV, INC. AND SUBSIDIARIES
SELECTED FINANCIAL AND SEGMENT INFORMATION (1)
(In thousands, unaudited)
Nine Months Ended
Free Cash Flow September 30,
2005 2004
------------- -------------
Net cash provided by operating activities $389,977 $513,771
Capital expenditures, including
capitalization of software costs for
external customers (109,481) (108,379)
------------- -------------
Free cash flow $280,496 $405,392
============= =============
Free cash flow is measured as net cash provided by operating
activities less capital expenditures including capitalization of
software costs for external customers, as reported in the Company's
condensed consolidated statements of cash flows. Free cash flow is a
non-GAAP financial measure that the Company believes is useful to
investors because it provides another measure of available cash flow
after the Company has satisfied the capital requirements of its
operations.
Three Months Ended Nine Months Ended
September 30, September 30,
2005 2004 2005 2004
----------- ----------- ----------- -----------
Processing and services
revenues:
Financial institution
outsourcing, systems
and services
("Financial") (2) $634,070 $587,740 $1,874,653 $1,742,400
Health plan management
services ("Health") 258,507 224,066 745,875 648,917
Investment support
services
("Investment") 32,710 31,289 100,173 93,176
----------- ----------- ----------- -----------
Total $925,287 $843,095 $2,720,701 $2,484,493
=========== =========== =========== ===========
Operating income:
Financial (2) $145,844 $148,779 $466,149 $426,230
Health 20,126 19,641 61,259 56,269
Investment 5,549 5,278 19,372 14,449
----------- ----------- ----------- -----------
Total $171,519 $173,698 $546,780 $496,948
=========== =========== =========== ===========
(1) The securities clearing businesses, sold on March 24, 2005, are
not included in the segment results.
(2) Included in the Financial segment results are early contract
termination and assignment fees of $4.4 million for the three
months ended September 30, 2005 compared to $12.3 million for the
comparable period in 2004 and $26.4 million for the nine-months
ended September 30, 2005 compared to $31.8 million for the
comparable period in 2004. These clients were acquired by other
financial institutions and represent a small portion of Fiserv's
more than 6,000 core financial institution processing clients.
This segment's businesses generally enter into three to five-year
contracts with its clients that contain early contract termination
fees. These fees are very unpredictable and can vary significantly
from period to period based on the number of terminated contracts
and how early in the contract term a contract is terminated. The
Financial segment's early contract termination fees were $4.6
million in the fourth quarter of 2004.
FISERV, INC. AND SUBSIDIARIES
INTERNAL REVENUE GROWTH PERCENTAGES BY SEGMENT (1)
(Unaudited)
Three months ended Nine months ended
September 30, September 30,
----------------------- -----------------------
2005 2004 2005 2004
----------------------- -----------------------
Financial 5% 2% 6% 2%
Health 12% 28% 12% 39%
Investment 5% 13% 8% 7%
----------------------- -----------------------
TOTAL 7% 8% 8% 10%
----------------------- -----------------------
Pro forma (2) Pro forma (2)
Three months ended Nine months ended
September 30, September 30,
----------------------- -----------------------
2005 2004 2005 2004
----------------------- -----------------------
Financial 5% 2% 6% 2%
Health 3% 10% 4% 11%
Investment 5% 13% 8% 7%
----------------------- -----------------------
TOTAL 5% 3% 6% 3%
======================= =======================
(1) Internal revenue growth percentages are measured as the increase
in total processing and services revenue for the current period
less "acquired revenue from acquisitions" divided by total
processing and services revenues from the prior year period plus
"acquired revenue from acquisitions." "Acquired revenue from
acquisitions" was $20.8 million ($13.7 million in the Financial
segment and $7.1 million in the Health segment) for the third
quarter of 2005 and $44.7 million ($26.7 million in the Financial
segment and $18.0 million in the Health segment) for the nine
months ended September 30, 2005 and represents pre-acquisition
normalized revenue of acquired companies, less dispositions, for
the comparable prior year period. The securities clearing
businesses, sold on March 24, 2005, are not included in the
internal revenue growth percentages by segment.
(2) The pro forma internal revenue growth percentages exclude the
positive impact of the prescription cost which is included in both
revenues and cost of revenues in the Health segment.
Actual and pro forma internal revenue growth percentages are non-GAAP
financial measures that the Company believes are useful to investors
because they provide a breakdown of internal and acquisition-related
revenue growth including and excluding prescription costs in revenue.
Third Quarter and Year to Date Results and Outlook for the Fourth Quarter of 2005
The 2005 third quarter earnings from continuing operations were positively impacted by an income tax benefit of $6.3 million, or $0.03 per share, due to the realization of certain one-time tax benefits associated with a number of factors including tax law changes, tax audits closing and finalization of various tax returns. The Company's fourth quarter effective tax rate is anticipated to be 38.4%; In the third quarter of 2005, there was a decrease in termination fees in the Financial segment of $7.9 million, or $0.03 per share diluted, compared to the third quarter of 2004; The Financial segment software license revenues were particularly strong in the first half of 2005 and returned to more normal levels in the third quarter, as anticipated; Flood claims processing revenues, included in the Financial segment, were exceptionally high in the first half of 2005 and, as anticipated, returned closer to historical levels in the third quarter of 2005. We expect increases in our flood claims processing revenues in the fourth quarter of 2005 and in 2006 as a result of hurricanes Katrina and Rita; and As we forecasted in our second quarter conference call, the Investment segment net investment income was lower in the third quarter of 2005 than the second quarter of 2005 due to unusually high investment balances experienced in the second quarter. We expect the investment balances in the fourth quarter of 2005 to be consistent with the balances experienced in the third quarter.
Segment Results
Financial Segment: The Company's largest operating segment, the financial institution outsourcing, systems and services segment ("Financial"), continued its strong operating performance during the third quarter of 2005 with processing and services revenue growth of 8% compared to the third quarter of 2004 and an operating margin of 23%. The third quarter 2005 operating margin of 23% decreased from 25% in the second quarter of 2005 primarily due to lower software license sales, increased product development costs in the Company's lending businesses, additional costs related to ramping up the Australian item processing contract and reduced termination fees. On a year to date basis, the Financial segment increased processing and services revenues by 8% and operating income by 9% over the prior year period and operating margins were 25% compared to 24% in 2004.
The internal revenue growth rate for the Financial segment was 5% for the third quarter of 2005 and 6% on a year to date basis, both increasing over the respective prior year comparable periods. The third quarter 2005 internal revenue growth rate of 5% was negatively impacted by approximately 1% due to lower termination fees than 2004. The largest contributors to the increased 2005 year to date internal revenue growth rate in this segment were increased volumes and new clients in the lending division's loan settlement services businesses, incremental revenue associated with the Australian check processing business that began operations in mid-April, strong software license revenues in the first half of 2005 and higher than normal revenues associated with flood insurance claims processing in the first half of 2005.
Health Segment: The Health plan management services segment ("Health") processing and services revenues increased 15% in both the third quarter and on a year to date basis in 2005 compared to 2004. The Health segment operating margin, excluding the impact of prescription costs, was 17%, on a year to date basis, in both 2005 and 2004.
The pro forma internal revenue growth rate, which excludes the positive impact of the prescription cost that is included in revenues and cost of revenues, was 3% in the third quarter of 2005 and on a year to date basis was 4%. The decrease in the third quarter and year to date 2005 internal revenue growth rates compared to 2004 was primarily due to significant growth of our pharmacy services businesses in early 2004 due to the signing of some very large clients. In addition, growth of the health plan administration businesses has been negatively impacted by increased competition in the large commercial employer market.
Investment Segment: The Investment support services segment processing and services revenues and operating income both increased 5% in the third quarter of 2005 and on a year to date basis processing and services revenues increased 8% and operating income increased 34% compared to the prior year periods. Operating income increased for the nine-months ended September 30, 2005 compared to the prior period due primarily to a temporary increase in cash investment balances, in April and May 2005, that improved net investment income in the second quarter and continued new client growth, especially in the custody and trading services for registered investment advisors.
Contact:
Fiserv, Inc.
Leslie M. Muma, 262-879-5000
Source: Fiserv, Inc.