Fiserv(FISV) - 2024 Q3 - Quarterly Results

Third Quarter 2024 Financial Highlights Fiserv achieved strong organic revenue and adjusted EPS growth in Q3 and year-to-date, despite a Q3 GAAP EPS decline due to a non-cash impairment Key Financial Metrics (GAAP & Adjusted) Fiserv achieved 7% GAAP revenue growth in Q3 and year-to-date, with strong organic revenue and adjusted EPS growth despite a Q3 GAAP EPS decline due to a non-cash impairment Overview of Key Financial Metrics for Q3 2024 and Year-to-Date | Metric | Q3 2024 | YTD 2024 | | :--- | :--- | :--- | | GAAP Revenue Growth | 7% | 7% | | GAAP EPS Change | -37% | +6% | | Organic Revenue Growth | 15% | 17% | | Adjusted EPS Growth | 17% | 18% | | Operating Cash Flow Growth (YTD) | - | +24% | | Free Cash Flow Growth (YTD) | - | +23% | - Q3 GAAP EPS decreased 37% to $0.98, primarily due to a $570 million non-cash equity method investment impairment charge[1][3] - Year-to-date operating cash flow increased 24% to $4.41 billion, and free cash flow increased 23% to $3.34 billion[1] 2024 Outlook Revision Fiserv raised its full-year 2024 organic revenue growth outlook to 16% to 17% and adjusted EPS outlook to $8.73 to $8.80, reflecting confidence in future performance - The company raised its 2024 organic revenue growth outlook to 16% to 17%[1][9] - The company raised its 2024 adjusted EPS outlook to $8.73 to $8.80, representing 16% to 17% growth[1][9] GAAP Financial Performance Fiserv's Q3 2024 GAAP revenue increased to $5.215 billion, but net income attributable to Fiserv decreased due to a significant loss from equity method investments Consolidated Income Statement In Q3 2024, Fiserv's total GAAP revenue grew to $5.215 billion and operating income increased to $1.602 billion, but net income attributable to Fiserv declined to $564 million due to a significant $626 million loss from equity method investments Summary of Consolidated Income Statement for Q3 2024 and Year-to-Date (in millions USD) | Metric | Q3 2024 | Q3 2023 | YTD 2024 | YTD 2023 | | :--- | :--- | :--- | :--- | :--- | | Total Revenue | $5,215 | $4,873 | $15,205 | $14,176 | | Operating Income | $1,602 | $1,503 | $4,211 | $3,568 | | Net Income Attributable to Fiserv | $564 | $952 | $2,193 | $2,198 | | GAAP Diluted EPS | $0.98 | $1.56 | $3.74 | $3.54 | - In Q3 2024, loss from equity method investments was $626 million, compared to $2 million in Q3 2023, which was the primary reason for the decline in net income[26] Segment-wise GAAP Performance Both Merchant Solutions and Financial Solutions segments achieved strong GAAP revenue growth and improved operating margins in Q3 2024 and year-to-date Merchant Solutions Segment The Merchant Solutions segment achieved 9% GAAP revenue growth in Q3 and 10% year-to-date, with significant improvements in GAAP operating margin for both periods - Merchant Solutions segment GAAP revenue grew 9% in Q3 and 10% year-to-date[2] Merchant Solutions Segment GAAP Operating Margin | Period | 2024 | 2023 | | :--- | :--- | :--- | | Q3 | 37.7% | 34.8% | | YTD | 36.2% | 32.9% | Financial Solutions Segment The Financial Solutions segment achieved 5% GAAP revenue growth in Q3 and year-to-date, with slight improvements in GAAP operating margin for both periods - Financial Solutions segment GAAP revenue grew 5% in Q3 and year-to-date[2] Financial Solutions Segment GAAP Operating Margin | Period | 2024 | 2023 | | :--- | :--- | :--- | | Q3 | 47.4% | 46.9% | | YTD | 45.8% | 45.1% | Cash Flow from Operations Net cash provided by operating activities increased 24% to $4.41 billion in the first nine months of 2024, demonstrating strong operational cash generation - Net cash provided by operating activities increased 24% to $4.41 billion in the first nine months of 2024, compared to $3.57 billion in the prior year period[7][43] Non-GAAP Financial Performance and Reconciliations Fiserv's non-GAAP financial performance highlights strong adjusted net income and EPS growth, robust organic revenue, and significant free cash flow generation, with detailed reconciliations provided Adjusted Earnings Per Share Reconciliation Q3 2024 adjusted net income was $1.325 billion, with adjusted EPS of $2.30, a 17% increase year-over-year, primarily due to adjustments for acquisition-related intangible asset amortization and a non-cash equity method investment impairment Adjusted Net Income and EPS (in millions USD, except per share amounts) | Metric | Q3 2024 | Q3 2023 | YTD 2024 | YTD 2023 | | :--- | :--- | :--- | :--- | :--- | | GAAP Net Income Attributable to Fiserv | $564 | $952 | $2,193 | $2,198 | | Total Adjustments (after tax) | $761 | $244 | $1,493 | $1,113 | | Adjusted Net Income | $1,325 | $1,196 | $3,686 | $3,311 | | GAAP Diluted EPS | $0.98 | $1.56 | $3.74 | $3.54 | | Adjusted EPS | $2.30 | $1.96 | $6.29 | $5.34 | - A $610 million non-cash equity method investment impairment in Q3 2024 (primarily related to the Wells Fargo Merchant Services joint venture) was a significant adjustment[30][31] Adjusted Operating Metrics Fiserv achieved strong adjusted operating margin expansion across the company and its segments, with the total company adjusted operating margin increasing by 170 basis points in both Q3 and year-to-date Total Company Adjusted Operating Metrics Total company adjusted revenue grew 7% in Q3 and year-to-date, with adjusted operating margin expanding by 170 basis points in both periods to 40.2% and 38.2% respectively Total Company Adjusted Revenue (in millions USD) | Period | 2024 | 2023 | Growth | | :--- | :--- | :--- | :--- | | Q3 | $4,884 | $4,571 | 7% | | YTD | $14,221 | $13,265 | 7% | Total Company Adjusted Operating Margin | Period | 2024 | 2023 | Growth | | :--- | :--- | :--- | :--- | | Q3 | 40.2% | 38.5% | +170 bps | | YTD | 38.2% | 36.5% | +170 bps | Merchant Solutions Adjusted Operating Metrics The Merchant Solutions segment's adjusted operating margin increased by 290 basis points to 37.7% in Q3 and by 330 basis points to 36.2% year-to-date Merchant Solutions Segment Adjusted Operating Margin | Period | 2024 | 2023 | Growth | | :--- | :--- | :--- | :--- | | Q3 | 37.7% | 34.8% | +290 bps | | YTD | 36.2% | 32.9% | +330 bps | Financial Solutions Adjusted Operating Metrics The Financial Solutions segment's adjusted operating margin increased by 40 basis points to 47.4% in Q3 and by 60 basis points to 45.8% year-to-date Financial Solutions Segment Adjusted Operating Margin | Period | 2024 | 2023 | Growth | | :--- | :--- | :--- | :--- | | Q3 | 47.4% | 47.0% | +40 bps | | YTD | 45.8% | 45.2% | +60 bps | Corporate and Other Adjusted Operating Metrics Corporate and Other adjusted revenue decreased in both Q3 and year-to-date, with adjusted operating losses expanding in both periods Corporate and Other Adjusted Revenue (in millions USD) | Period | 2024 | 2023 | | :--- | :--- | :--- | | Q3 | $3 | $5 | | YTD | $13 | $18 | Corporate and Other Adjusted Operating Loss (in millions USD) | Period | 2024 | 2023 | | :--- | :--- | :--- | | Q3 | $(112) | $(110) | | YTD | $(394) | $(349) | Organic Revenue Growth The company achieved strong organic revenue growth of 15% in Q3 and 17% year-to-date, with the Merchant Solutions segment showing exceptional performance at 24% growth in Q3 and 29% year-to-date Organic Revenue Growth Rates | Segment | Q3 2024 Growth | YTD 2024 Growth | | :--- | :--- | :--- | | Total Company | 15% | 17% | | Merchant Solutions | 24% | 29% | | Financial Solutions | 6% | 6% | Free Cash Flow Free cash flow increased 23% to $3.34 billion in the first nine months of 2024, indicating strong cash generation capability after capital expenditures - Free cash flow increased 23% to $3.34 billion in the first nine months of 2024, compared to $2.72 billion in the prior year period[10][51] Total Amortization Total amortization expenses remained largely consistent in Q3 2024 and year-to-date compared to the prior year, with acquisition-related intangible asset amortization being the largest component Total Amortization Expenses (in millions USD) | Amortization Type | Q3 2024 | Q3 2023 | YTD 2024 | YTD 2023 | | :--- | :--- | :--- | :--- | :--- | | Acquisition-related Intangible Assets | $345 | $393 | $1,089 | $1,261 | | Capitalized Software and Other Intangible Assets | $164 | $133 | $464 | $360 | | Purchased Software | $57 | $53 | $175 | $167 | | Financing Costs and Debt Discount | $11 | $10 | $33 | $30 | | Sales Commissions | $29 | $28 | $84 | $83 | | Deferred Conversion Costs | $33 | $21 | $82 | $61 | | Total Amortization | $639 | $638 | $1,927 | $1,962 | Financial Position The company's financial position as of September 30, 2024, shows a decrease in total assets and liabilities, primarily driven by a significant reduction in settlement assets and obligations Condensed Consolidated Balance Sheets As of September 30, 2024, total assets decreased to $79.792 billion from $90.890 billion at December 31, 2023, mainly due to a substantial reduction in settlement assets, with total liabilities also decreasing due to reduced settlement obligations Condensed Consolidated Balance Sheets (in millions USD) | Metric | September 30, 2024 | December 31, 2023 | | :--- | :--- | :--- | | Total Assets | $79,792 | $90,890 | | Total Liabilities | $51,389 | $60,221 | | Fiserv Shareholders' Equity | $27,751 | $29,857 | | Settlement Assets | $17,434 | $27,681 | | Settlement Obligations | $17,434 | $27,681 | - Settlement assets and settlement obligations both significantly decreased from $27.681 billion at the end of 2023 to $17.434 billion as of September 30, 2024[46] 2024 Financial Outlook Fiserv has revised its 2024 financial outlook upwards, projecting stronger organic revenue growth and adjusted EPS, while anticipating a reduction in acquisition-related intangible asset amortization Revised Outlook for Organic Revenue Growth Fiserv raised its full-year 2024 organic revenue growth outlook to 16% to 17%, driven by strong performance and confidence in future growth - The 2024 organic revenue growth outlook has been raised to 16% to 17%[9][56] Composition of 2024 Organic Revenue Growth Outlook | Metric | Growth Rate | | :--- | :--- | | 2024 Revenue | 7.5% - 8.5% | | Postage Reimbursement | (0.5)% | | 2024 Adjusted Revenue | 7% - 8% | | Foreign Currency Impact | 8.5% | | Acquisition Adjustment | 0.0% | | Divestiture Adjustment | 0.5% | | 2024 Organic Revenue | 16% - 17% | Revised Outlook for Adjusted EPS The company raised its 2024 adjusted EPS outlook to $8.73 to $8.80, representing an anticipated 16% to 17% growth over 2023 adjusted EPS, with acquisition-related intangible asset amortization expected to decrease by approximately 15% compared to 2023 - The 2024 adjusted EPS outlook is $8.73 to $8.80[9][60] - The 2024 adjusted EPS growth outlook is 16% to 17%[60] - Acquisition-related intangible asset amortization is expected to decrease by approximately 15% in 2024 compared to 2023[56] 2023 Adjusted Financials Baseline The 2024 adjusted EPS outlook is benchmarked against the 2023 adjusted EPS of $7.52, which is reconciled from GAAP net income by excluding several non-GAAP items 2023 GAAP to Adjusted Net Income and EPS (in millions USD, except per share amounts) | Metric | 2023 Amount | | :--- | :--- | | 2023 GAAP Net Income Attributable to Fiserv | $3,068 | | Total Adjustments (after tax) | $1,564 | | 2023 Adjusted Net Income | $4,632 | | 2023 GAAP Diluted EPS | $4.98 | | 2023 Adjusted EPS | $7.52 | Company Information and Disclosures This section provides an overview of Fiserv, details its segment realignment, explains the use of non-GAAP financial measures, and includes important forward-looking statements and risk factors About Fiserv Fiserv, Inc. is a Fortune 500 company and a leading global provider of payments and financial technology solutions, offering a wide range of services including account processing, digital banking, card issuing, payments, e-commerce, merchant acquiring, and the Clover cloud-based point-of-sale platform, consistently recognized as a top fintech provider and one of Fortune's World's Most Admired Companies - Fiserv is a leading global provider of payments and financial technology solutions, offering a wide range of services including account processing, digital banking, card issuing processing, payments, e-commerce, merchant acquiring, and the Clover platform[13] - Ranked No. 1 on the IDC FinTech Top 100 list for 2024 for the second consecutive year[10] - Named one of Fortune's "World's Most Admired Companies" for nine of the past 10 years[13] Segment Realignment Fiserv realigned its reportable segments in Q1 2024 to better reflect business changes and enhance operational performance in delivering integrated products and solutions to financial institution clients, with 2023 comparative period results restated accordingly - The company realigned its reportable segments in Q1 2024 to enhance operational performance[11] - The new reportable segments are Merchant Solutions and Financial Solutions[11] - Segment results for the three and nine months ended September 30, 2023, have been restated to reflect this realignment[11] Use of Non-GAAP Financial Measures Fiserv utilizes non-GAAP financial measures such as adjusted revenue, organic revenue growth, adjusted operating income, adjusted EPS, and free cash flow to provide additional performance insights by excluding certain non-cash or other items, noting that these metrics are not substitutes for GAAP results and may not be comparable to similar measures reported by other companies - Non-GAAP financial measures are used to enhance shareholders' ability to assess the company's performance by excluding certain non-cash or other items[14] - Adjustments include acquisition-related intangible asset amortization, non-cash impairment charges, severance costs, acquisition and integration costs, gains or losses on business dispositions, and certain discrete tax benefits and expenses[16] - Organic revenue growth excludes the impact of foreign currency fluctuations, acquisitions, and dispositions; free cash flow measures funds available for debt service and strategic capital decisions[18] - These non-GAAP measures may not be comparable to similar measures reported by other companies and should not be considered a substitute for GAAP measures[19] Forward-Looking Statements This press release contains forward-looking statements subject to assumptions, risks, and uncertainties that could cause actual results to differ materially from expectations, and the company undertakes no obligation to update any such statements - Forward-looking statements in the press release relate to future financial performance, including anticipated organic revenue growth and adjusted EPS[20] - These statements are subject to assumptions, risks, and uncertainties that could cause actual results to differ materially from forward-looking statements[21] - Risk factors include competition, changes in client demand, technological advancements, security breaches, economic conditions, regulatory actions, litigation, acquisition integration, and financial market volatility[22] - The company undertakes no obligation to update any forward-looking statements[22]