Fiserv(FISV) - 2024 Q3 - Quarterly Report

PART I – FINANCIAL INFORMATION This part presents Fiserv, Inc.'s unaudited consolidated financial statements and management's discussion and analysis for the period Item 1. Financial Statements (Unaudited) This section presents Fiserv, Inc.'s unaudited consolidated financial statements for the three and nine months ended September 30, 2024 and 2023, including statements of income, comprehensive income, balance sheets, cash flows, and detailed notes. Key financial highlights include a decrease in net income attributable to Fiserv, Inc. for Q3 2024 compared to Q3 2023, primarily due to a significant non-cash impairment charge related to an unconsolidated affiliate, while total revenue saw growth. The balance sheet shows a decrease in total assets, largely driven by settlement assets, and a corresponding decrease in total liabilities. Operating cash flow significantly increased for the nine-month period Consolidated Statements of Income This section presents the company's consolidated statements of income for the specified periods, detailing key financial figures | Metric (In millions, except per share data) | Three Months Ended Sep 30, 2024 | Three Months Ended Sep 30, 2023 | Nine Months Ended Sep 30, 2024 | Nine Months Ended Sep 30, 2023 | | :---------------------------------------- | :------------------------------ | :------------------------------ | :----------------------------- | :----------------------------- | | Revenue: | | | | | | Processing and services | $4,237 | $4,008 | $12,377 | $11,605 | | Product | $978 | $865 | $2,828 | $2,571 | | Total revenue | $5,215 | $4,873 | $15,205 | $14,176 | | Operating income | $1,602 | $1,503 | $4,211 | $3,568 | | Interest expense, net | $(326) | $(258) | $(872) | $(692) | | Other expense, net | $(5) | $(35) | $(17) | $(81) | | Income before income taxes | $1,271 | $1,210 | $3,322 | $2,795 | | Income tax provision | $(74) | $(239) | $(448) | $(544) | | Loss from investments in unconsolidated affiliates | $(626) | $(2) | $(642) | $(11) | | Net income | $571 | $969 | $2,232 | $2,240 | | Net income attributable to Fiserv, Inc. | $564 | $952 | $2,193 | $2,198 | | Net income attributable to Fiserv, Inc. per share: | | | | | | Basic | $0.98 | $1.57 | $3.76 | $3.57 | | Diluted | $0.98 | $1.56 | $3.74 | $3.54 | Consolidated Statements of Comprehensive Income This section presents the company's consolidated statements of comprehensive income for the specified periods, detailing key financial figures | Metric (In millions) | Three Months Ended Sep 30, 2024 | Three Months Ended Sep 30, 2023 | Nine Months Ended Sep 30, 2024 | Nine Months Ended Sep 30, 2023 | | :------------------- | :------------------------------ | :------------------------------ | :----------------------------- | :----------------------------- | | Net income | $571 | $969 | $2,232 | $2,240 | | Other comprehensive (loss) income: | | | | | | Foreign currency translation | $210 | $(261) | $(110) | $(11) | | Total other comprehensive (loss) income | $262 | $(283) | $(170) | $21 | | Comprehensive income | $833 | $686 | $2,062 | $2,261 | | Comprehensive income attributable to Fiserv, Inc. | $805 | $686 | $2,020 | $2,221 | Consolidated Balance Sheets This section presents the company's consolidated balance sheets for the specified periods, detailing key financial figures | Metric (In millions) | September 30, 2024 | December 31, 2023 | | :------------------- | :----------------- | :---------------- | | Assets | | | | Cash and cash equivalents | $1,228 | $1,204 | | Trade accounts receivable, net | $3,714 | $3,582 | | Prepaid expenses and other current assets | $2,749 | $2,344 | | Settlement assets | $17,434 | $27,681 | | Total current assets | $25,125 | $34,811 | | Property and equipment, net | $2,377 | $2,161 | | Customer relationships, net | $6,218 | $7,075 | | Other intangible assets, net | $4,104 | $4,135 | | Goodwill | $37,133 | $37,205 | | Investments in unconsolidated affiliates | $1,585 | $2,262 | | Total assets | $79,792 | $90,890 | | Liabilities and Equity | | | | Accounts payable and other current liabilities | $4,161 | $4,355 | | Short-term and current maturities of long-term debt | $1,200 | $755 |\ | Contract liabilities | $770 | $761 | | Settlement obligations | $17,434 | $27,681 | | Total current liabilities | $23,565 | $33,552 | | Long-term debt | $24,085 | $22,363 | | Deferred income taxes | $2,526 | $3,078 | | Total liabilities | $51,389 | $60,221 | | Total Fiserv, Inc. shareholders' equity | $27,751 | $29,857 | | Noncontrolling interests | $652 | $651 | | Total equity | $28,403 | $30,508 | | Total liabilities and equity | $79,792 | $90,890 | Consolidated Statements of Cash Flows This section presents the company's consolidated statements of cash flows for the specified periods, detailing key financial figures | Metric (In millions) | Nine Months Ended Sep 30, 2024 | Nine Months Ended Sep 30, 2023 | | :------------------- | :----------------------------- | :----------------------------- | | Net income | $2,232 | $2,240 | | Net cash provided by operating activities | $4,410 | $3,567 | | Net cash used in investing activities | $(1,740) | $(710) | | Net cash used in financing activities | $(2,185) | $(3,036) | | Net change in cash and cash equivalents | $510 | $(187) | | Cash and cash equivalents, ending balance | $3,473 | $3,005 | Notes to Consolidated Financial Statements This section provides detailed notes to the consolidated financial statements, offering further context and breakdowns of accounting policies, financial instruments, and segment information 1. Basis of Presentation and Summary of Significant Accounting Policies This note outlines the basis for preparing the unaudited interim financial statements, emphasizing that they include all necessary adjustments for fair presentation and should be read in conjunction with the annual 10-K. It details the segment realignment effective Q1 2024, consolidating principles, use of estimates, and accounting policies for cash, receivables, settlement assets, goodwill, foreign currency, derivatives, defined benefit plans, and interest expense - The Company realigned its reportable segments in Q1 2024 into Merchant Solutions and Financial Solutions to enhance operational performance and delivery of integrated products[20] - Foreign currency remeasurement losses from highly inflationary economies (e.g., Argentina) were $22 million for Q3 2024 (vs $38 million in Q3 2023) and $75 million for 9M 2024 (vs $88 million in 9M 2023), included in other expense, net[38] - The Company terminated its U.K. and U.S. defined benefit pension plans effective September 30, 2023, and expects to recognize a net non-cash pre-tax pension settlement charge of approximately $140 million upon completion in Q4 2024[41][42] 2. Recent Accounting Pronouncements This note discusses recently adopted and issued accounting pronouncements. The Company adopted ASU 2022-03 (Fair Value Measurement of Equity Securities Subject to Contractual Sale Restrictions) effective January 1, 2024, with no material impact. It is currently assessing the impact of ASU 2023-07 (Segment Reporting) and ASU 2023-09 (Income Tax Disclosures), effective for fiscal years beginning after December 15, 2023, and December 15, 2024, respectively - ASU 2022-03, Fair Value Measurement, was adopted effective January 1, 2024, with no material impact on financial statements[44] - The Company is assessing the impact of ASU 2023-07 (Segment Reporting) and ASU 2023-09 (Income Tax Disclosures), which will enhance and expand disclosure requirements[45][46] 3. Revenue Recognition This note details the Company's revenue recognition policies, disaggregating revenue by business line and reportable segment (Merchant and Financial). It also provides information on contract balances and transaction prices allocated to remaining performance obligations, noting that the majority of revenue is earned domestically Revenue by Business Line (In millions) | Business Line | Three Months Ended Sep 30, 2024 | Three Months Ended Sep 30, 2023 | Nine Months Ended Sep 30, 2024 | Nine Months Ended Sep 30, 2023 | | :-------------- | :------------------------------ | :------------------------------ | :----------------------------- | :----------------------------- | | Small Business | $1,627 | $1,492 | $4,719 | $4,201 | | Enterprise | $558 | $478 | $1,563 | $1,410 | | Processing | $284 | $289 | $850 | $850 | | Total Merchant segment revenue | $2,469 | $2,259 | $7,132 | $6,461 | | Digital Payments | $987 | $940 | $2,894 | $2,724 | | Issuing | $789 | $756 | $2,316 | $2,217 | | Banking | $636 | $606 | $1,866 | $1,829 | | Total Financial segment revenue | $2,412 | $2,302 | $7,076 | $6,770 | | Corporate and Other | $334 | $312 | $997 | $945 | | Total Revenue | $5,215 | $4,873 | $15,205 | $14,176 | - The Company recognized $659 million of revenue during the nine months ended September 30, 2024, that was included in the contract liabilities balance at the beginning of the period[50] Estimated Processing and Services Revenue from Remaining Performance Obligations (In millions) | Year Ending December 31, | Amount | | :----------------------- | :----- | | Remainder of 2024 | $632 | | 2025 | $2,283 | | 2026 | $1,739 | | 2027 | $1,226 | | Thereafter | $1,412 | 4. Acquisitions and Dispositions This note summarizes the Company's acquisition and disposition activities. In late 2023, Fiserv acquired Skytef and Sled for an aggregate of $17 million, expanding its Merchant segment in Latin America. In July 2023, the Company sold its financial reconciliation business for $232 million, recognizing a pre-tax gain of $177 million - Acquired Skytef and Sled in late 2023 for an aggregate of $17 million, expanding the Merchant segment's distribution network and payment service capabilities in Latin America[53] - Sold its financial reconciliation business in July 2023 for $232 million cash, recognizing a pre-tax gain of $177 million[54] 5. Intangible Assets This note provides a breakdown of identifiable intangible assets, including customer relationships, acquired software and technology, trade names, purchased software, and capitalized software. Total net book value of intangible assets decreased from $11,210 million at December 31, 2023, to $10,322 million at September 30, 2024, primarily due to amortization Identifiable Intangible Assets (In millions) | Category | September 30, 2024 Net Book Value | December 31, 2023 Net Book Value | | :-------------------------- | :-------------------------------- | :------------------------------- | | Customer relationships | $6,218 | $7,075 | | Acquired software and technology | $831 | $1,000 | | Trade names | $241 | $285 | | Purchased software | $501 | $567 | | Capitalized software and other intangibles | $2,531 | $2,283 | | Total | $10,322 | $11,210 | - Amortization expense for identifiable intangible assets was $566 million for Q3 2024 (vs $579 million in Q3 2023) and $1.7 billion for 9M 2024 (vs $1.8 billion in 9M 2023)[55] 6. Investments in Unconsolidated Affiliates This note details the Company's equity method investments, primarily in merchant alliances. In Q3 2024, the Company recorded a $570 million non-cash impairment charge on its 40% ownership interest in the Wells Fargo Merchant Services (WFMS) alliance due to a non-renewal notice from Wells Fargo, effective April 1, 2025. The Company expects to receive a cash payment or assets equal to the fair value of its share of WFMS upon expiration - Wells Fargo provided notice of non-renewal for the WFMS merchant alliance, effective April 1, 2025, leading to an expected cash payment or assets for Fiserv's 40% ownership[58][129] - A $570 million non-cash impairment charge was recorded in Q3 2024 due to an other-than-temporary decline in the carrying value of the WFMS equity method investment[59][129] - The Company's investment in merchant alliances decreased from $1.9 billion at December 31, 2023, to $1.3 billion at September 30, 2024[60] 7. Derivatives and Hedging Instruments This note describes the Company's use of derivative instruments to manage exposure to interest rate and foreign currency fluctuations. It utilizes cash flow hedges (forward exchange contracts for Indian Rupee, Treasury Locks for interest rates), net investment hedges (fixed-to-fixed cross-currency rate swaps and foreign currency-denominated debt for Euro, Singapore Dollar, Canadian Dollar, British Pound), and fair value hedges (fixed-to-fixed cross-currency rate swaps for British Pound and Euro-denominated debt) - The Company uses forward exchange contracts as cash flow hedges for Indian Rupee exposure, with a notional amount of $451 million at September 30, 2024[63] - Fixed-to-fixed cross-currency rate swap contracts and foreign currency-denominated debt are designated as net investment hedges for Euro, Singapore Dollar, Canadian Dollar, and British Pound exposures[65][66] - Fair value hedges include fixed-to-fixed cross-currency rate swap contracts to mitigate spot foreign exchange rate risk on British Pound and Euro-denominated senior notes[69] 8. Fair Value Measurements This note outlines the fair value measurements for various assets and liabilities, including derivative instruments, contingent consideration, and the obligation to purchase a redeemable noncontrolling interest. It also provides fair value disclosures for debt and details the Company's debt guarantee arrangements for its Lending Joint Ventures Assets and Liabilities Measured at Fair Value on a Recurring Basis (In millions) | Item | Classification | Fair Value Hierarchy | Sep 30, 2024 | Dec 31, 2023 | | :---------------------------------------- | :---------------------------------------- | :------------------- | :----------- | :----------- | | Assets: | | | | | | Forward exchange contracts (cash flow hedges) | Prepaid expenses and other current assets | Level 2 | $1 | $2 | | Cross-currency rate swap contract (fair value hedge) | Prepaid expenses and other current assets | Level 2 | $31 | — | | Cross-currency rate swap contract (fair value hedge) | Other long-term assets | Level 2 | — | $3 | | Liabilities: | | | | | | Cross-currency rate swap contracts (fair value hedges) | Accounts payable and other current liabilities | Level 2 | $2 | — | | Cross-currency rate swap contracts (net investment hedges) | Accounts payable and other current liabilities | Level 2 | $27 | — | | Cross-currency rate swap contracts (fair value hedges) | Other long-term liabilities | Level 2 | $2 | $1 | | Cross-currency rate swap contracts (net investment hedges) | Other long-term liabilities | Level 2 | $57 | $61 | | Contingent consideration | Accounts payable and other current liabilities | Level 3 | — | $2 | | Obligation to purchase redeemable noncontrolling interest | Accounts payable and other current liabilities | Level 3 | $95 | — | | Contingent debt guarantee | Other long-term liabilities | Level 3 | $17 | $23 | - The estimated fair value of total debt (excluding finance leases) was $24.1 billion at September 30, 2024, compared to a carrying value of $24.3 billion[73] - The Company guarantees $509 million of debt for its Lending Joint Ventures, with a non-contingent liability of $24 million and a contingent liability for expected credit losses of $17 million at September 30, 2024[75][76][192] 9. Accounts Payable and Other Current Liabilities This note provides a detailed breakdown of accounts payable and other current liabilities. Total current liabilities decreased from $4,355 million at December 31, 2023, to $4,161 million at September 30, 2024, primarily due to a decrease in transferable federal tax credits and accrued interest, partially offset by an increase in other accrued expenses and client deposits Accounts Payable and Other Current Liabilities (In millions) | Category | September 30, 2024 | December 31, 2023 | | :---------------------------------------- | :----------------- | :---------------- | | Trade accounts payable | $483 | $449 | | Client deposits | $984 | $931 | | Transferable federal tax credits | $337 | $804 | | Accrued compensation and benefits | $303 | $344 | | Accrued taxes | $267 | $203 | | Accrued interest | $183 | $298 | | Accrued payment network fees | $276 | $232 | | Operating lease liabilities | $109 | $118 | | Accrued professional fees | $114 | $96 | | Obligation to purchase redeemable noncontrolling interest | $95 | — | | Other accrued expenses | $1,010 | $880 | | Total | $4,161 | $4,355 | 10. Debt This note details the Company's debt structure, including short-term and long-term debt. Total debt increased from $23,118 million at December 31, 2023, to $25,285 million at September 30, 2024, driven by new senior note issuances in March and August 2024 totaling $3.75 billion, used for general corporate purposes, commercial paper repayment, and share repurchases. The Company was in compliance with all financial debt covenants Company Debt (In millions) | Category | September 30, 2024 | December 31, 2023 | | :---------------------------------------- | :----------------- | :---------------- | | Short-term and current maturities of long-term debt: | | | | Foreign lines of credit | $868 | $442 | | Finance lease and other financing obligations | $332 | $313 | | Total short-term and current maturities | $1,200 | $755 | | Long-term debt: | | | | Senior notes (various maturities) | $21,917 | $19,888 | | U.S. dollar commercial paper notes | $317 | $418 | | Euro commercial paper notes | $1,329 | $1,321 | | Revolving credit facility | $70 | $74 | | Unamortized discount and deferred financing costs | $(160) | $(145) | | Finance lease and other financing obligations | $659 | $652 | | Total long-term debt | $24,085 | $22,363 | | Total Debt | $25,285 | $23,118 | - Issued $1.75 billion in senior notes in August 2024 and $2.0 billion in senior notes in March 2024, with proceeds used for general corporate purposes, commercial paper repayment, and share repurchases[80][81][179][180][181] - Foreign lines of credit, primarily in Latin America, increased to $868 million at September 30, 2024, from $442 million at December 31, 2023, with a weighted-average interest rate of 34.503%[88][185] 11. Redeemable Noncontrolling Interest This note describes the activity related to a redeemable noncontrolling interest in a merchant alliance joint venture. Effective June 2024, the joint venture agreement was terminated, and the Company redeemed the minority partner's 1% interest in exchange for future distribution of certain merchant contracts. This resulted in a reclassification of the obligation to a current liability and an adjustment to additional paid-in capital - The Company terminated a merchant alliance joint venture agreement in June 2024, redeeming a 1% redeemable noncontrolling interest in exchange for future merchant contracts[90] - The redeemable noncontrolling interest balance decreased from $161 million at the beginning of 2024 to $0 at September 30, 2024, due to reclassification to a current liability ($95 million) and an adjustment to estimated redemption value ($66 million)[91] 12. Equity This note provides detailed tables showing changes in Fiserv, Inc. shareholders' equity and noncontrolling interests for the three and nine months ended September 30, 2024 and 2023. Key movements include net income, other comprehensive income/loss, share-based compensation, and significant treasury stock purchases Fiserv, Inc. Shareholders' Equity (In millions) | Metric | Sep 30, 2024 | Dec 31, 2023 | | :---------------------------------------- | :----------- | :----------- | | Common Stock | $8 | $8 | | Additional Paid-In Capital | $23,003 | $23,103 | | Accumulated Other Comprehensive Loss | $(956) | $(783) | | Retained Earnings | $22,637 | $20,444 | | Treasury Stock | $(16,941) | $(12,915) | | Total Fiserv, Inc. Shareholders' Equity | $27,751 | $29,857 | | Noncontrolling Interests | $652 | $651 | | Total Equity | $28,403 | $30,508 | - Treasury stock increased by $4,026 million from December 31, 2023, to September 30, 2024, reflecting significant share repurchases[15][93] - Accumulated other comprehensive loss increased from $(783) million at December 31, 2023, to $(956) million at September 30, 2024, primarily due to other comprehensive loss before reclassifications[15][93] 13. Accumulated Other Comprehensive Loss This note provides a detailed breakdown of changes in accumulated other comprehensive loss by component (derivatives, foreign currency translation, pension plans). The total accumulated other comprehensive loss increased from $(783) million at December 31, 2023, to $(956) million at September 30, 2024, primarily driven by foreign currency translation losses and pension plan adjustments Changes in Accumulated Other Comprehensive Loss (In millions) | Component | Balance at Dec 31, 2023 | Net current-period other comprehensive income (loss) 9M 2024 | Balance at Sep 30, 2024 | | :---------------- | :---------------------- | :----------------------------------------------------------- | :---------------------- | | Derivatives | $(78) | $2 | $(76) | | Foreign Currency Translation | $(688) | $(96) | $(784) | | Pension Plans | $(17) | $(79) | $(96) | | Total | $(783) | $(173) | $(956) | 14. Share-Based Compensation This note details the Company's share-based compensation expense and activity. Share-based compensation expense was $88 million for Q3 2024 (vs $76 million in Q3 2023) and $273 million for 9M 2024 (vs $275 million in 9M 2023). The remaining unrecognized compensation cost is $412 million, expected to be recognized over 1.9 years - Share-based compensation expense was $88 million for Q3 2024 (up from $76 million in Q3 2023) and $273 million for 9M 2024 (down from $275 million in 9M 2023)[95] - Total remaining unrecognized compensation cost for share-based awards is $412 million, with a weighted-average recognition period of 1.9 years[95] Share-Based Compensation Activity (Nine Months Ended Sep 30, 2024) | Category | Restricted Stock Units and Awards (Shares in thousands) | Performance Share Units (Shares in thousands) | Stock Options (Shares in thousands) | | :-------------------------------- | :-------------------------------------------- | :------------------------------------ | :---------------------------------- | | Units/options - Dec 31, 2023 | 5,419 | 3,219 | 3,865 | | Granted | 2,243 | 334 | — | | Forfeited | (333) | (512) | (10) | | Vested/Exercised | (2,446) | (1,052) | (2,153) | | Units/options - Sep 30, 2024 | 4,883 | 1,989 | 1,702 | 15. Income Taxes This note outlines the Company's income tax provision and effective income tax rate. The effective income tax rate significantly decreased to 5.8% for Q3 2024 (vs 19.8% in Q3 2023) and 13.5% for 9M 2024 (vs 19.5% in 9M 2023), primarily due to a $142 million deferred tax benefit associated with a $570 million non-cash impairment charge on investments in unconsolidated affiliates Income Tax Provision and Effective Income Tax Rate (In millions) | Metric | Three Months Ended Sep 30, 2024 | Three Months Ended Sep 30, 2023 | Nine Months Ended Sep 30, 2024 | Nine Months Ended Sep 30, 2023 | | :---------------------- | :------------------------------ | :------------------------------ | :----------------------------- | :----------------------------- | | Income tax provision | $74 | $239 | $448 | $544 | | Effective income tax rate | 5.8% | 19.8% | 13.5% | 19.5% | - The lower effective tax rate in 2024 was driven by a $142 million deferred tax benefit related to a $570 million non-cash impairment charge on unconsolidated affiliates[97] - The Company's potential liability for unrecognized tax benefits was approximately $88 million at September 30, 2024, with a possible decrease of up to $5 million over the next twelve months[99] 16. Shares Used in Computing Net Income Per Share Attributable to Fiserv, Inc. This note provides the weighted-average common shares outstanding used for basic and diluted net income per share calculations. Diluted shares decreased by 5% for Q3 2024 and 6% for 9M 2024 compared to the prior year, primarily due to the Company's share repurchase program Shares Used in Computing Net Income Per Share (In millions) | Metric | Three Months Ended Sep 30, 2024 | Three Months Ended Sep 30, 2023 | Nine Months Ended Sep 30, 2024 | Nine Months Ended Sep 30, 2023 | | :---------------------------------------- | :------------------------------ | :------------------------------ | :----------------------------- | :----------------------------- | | Weighted-average common shares outstanding - basic | 573.7 | 606.2 | 582.5 | 616.2 | | Common stock equivalents | 3.2 | 4.1 | 3.2 | 4.1 | | Weighted-average common shares outstanding - diluted | 576.9 | 610.3 | 585.7 | 620.3 | - Diluted weighted-average outstanding shares decreased by 5% in Q3 2024 and 6% in 9M 2024 compared to 2023, driven by the share repurchase program[101][168] 17. Cash Flow Information This note provides supplemental cash flow information, including interest and income taxes paid, and non-cash investing and financing activities. Interest paid increased to $983 million for 9M 2024 (vs $703 million in 9M 2023), and net income taxes paid increased to $1,015 million (vs $966 million in 9M 2023) Supplemental Cash Flow Information (In millions) | Metric | Nine Months Ended Sep 30, 2024 | Nine Months Ended Sep 30, 2023 | | :---------------------------------------- | :----------------------------- | :----------------------------- | | Interest paid | $983 | $703 | | Net income taxes paid | $1,015 | $966 | | Treasury stock purchases settled after balance sheet date | $39 | $6 | | Software obtained under financing arrangements | $96 | $175 | | Right-of-use assets obtained for operating leases | $74 | $69 | | Right-of-use assets obtained for finance leases | $197 | $242 | 18. Commitments and Contingencies This note addresses the Company's commitments and contingencies, including legal proceedings, electronic payments transactions, and indemnifications. The Company maintains an accrual of $29 million for legal proceedings, with a possible exposure range of $0 to $110 million, which management does not expect to materially impact financial statements. Subscriber funds for electronic payments, not on the balance sheet, totaled $677 million at September 30, 2024 - The Company has an accrual of $29 million for legal proceedings, with a possible exposure range of $0 to $110 million, not expected to materially impact financial statements[103][199] - Subscriber funds for electronic payments, held off-balance sheet, totaled $677 million at September 30, 2024, a significant decrease from $3.5 billion at December 31, 2023[104] 19. Related Party Transactions This note details related party transactions, primarily with merchant alliances and a share repurchase from an affiliate of a board member. Processing and other service fees charged to equity method merchant alliances were $36 million for Q3 2024 (vs $44 million in Q3 2023) and $113 million for 9M 2024 (vs $135 million in 9M 2023). In August 2023, the Company repurchased $500 million of common stock from ValueAct Capital Master Fund, L.P - Processing and other service fees charged to equity method merchant alliances were $36 million for Q3 2024 (down from $44 million in Q3 2023) and $113 million for 9M 2024 (down from $135 million in 9M 2023)[108] - In August 2023, the Company repurchased 4.1 million shares of common stock for $500 million from ValueAct Capital Master Fund, L.P., an affiliate of a board member[109] 20. Business Segment Information This note provides detailed financial information for the Company's two reportable segments: Merchant Solutions and Financial Solutions, following a realignment in Q1 2024. It also describes the Corporate and Other segment, which includes unallocated expenses and certain gains/losses. Both Merchant and Financial segments showed revenue and operating income growth for the three and nine months ended September 30, 2024 - The Company's operations are comprised of two reportable segments: Merchant Solutions and Financial Solutions, following a Q1 2024 realignment[110][121] Segment Revenue and Operating Income (In millions) | Segment | Total Revenue Q3 2024 | Total Revenue Q3 2023 | Operating Income Q3 2024 | Operating Income Q3 2023 | | :---------------- | :-------------------- | :-------------------- | :----------------------- | :----------------------- | | Merchant | $2,469 | $2,259 | $931 | $786 | | Financial | $2,412 | $2,302 | $1,143 | $1,079 | | Corporate and Other | $334 | $312 | $(472) | $(362) | | Total | $5,215 | $4,873 | $1,602 | $1,503 | | Segment | Total Revenue 9M 2024 | Total Revenue 9M 2023 | Operating Income 9M 2024 | Operating Income 9M 2023 | | :---------------- | :-------------------- | :-------------------- | :----------------------- | :----------------------- | | Merchant | $7,132 | $6,461 | $2,582 | $2,123 | | Financial | $7,076 | $6,770 | $3,244 | $3,050 | | Corporate and Other | $997 | $945 | $(1,615) | $(1,605) | | Total | $15,205 | $14,176 | $4,211 | $3,568 | - Merchant segment operating margin increased by 290 basis points to 37.7% in Q3 2024 and 330 basis points to 36.2% in 9M 2024, driven by operating leverage and productivity[149][159] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's perspective on Fiserv's financial condition and results of operations for the three and nine months ended September 30, 2024. It covers an overview of the company, recent acquisitions and dispositions, industry trends, critical accounting policies, detailed results of operations, and liquidity and capital resources. The discussion highlights revenue growth driven by both Merchant and Financial segments, improved operating margins, and significant share repurchases, alongside the impact of a non-cash impairment charge and increased interest expenses Forward-Looking Statements This section outlines the inherent risks and uncertainties associated with forward-looking statements in the report, covering various operational and market factors - The report contains forward-looking statements subject to significant risks and uncertainties, including competition, customer demand, technology evolution, security breaches, economic conditions, regulatory actions, and acquisition integration[117] Overview This section provides a high-level description of Fiserv's business as a global provider of payments and financial services technology solutions, highlighting key industry trends and segment realignment - Fiserv is a global provider of payments and financial services technology solutions, serving merchants, banks, credit unions, and public sector clients with non-discretionary products and services[118][120] - The Company realigned its reportable segments in Q1 2024 into Merchant Solutions and Financial Solutions to enhance operational performance[121] - Key industry trends include the rapid growth of digital payments, e-commerce, real-time payments, and increasing demand for integrated, flexible systems from merchants and financial institutions[131][132][136][137] Changes in Critical Accounting Policies and Estimates This section discusses the ongoing evaluation of accounting policies and estimates, noting a new critical policy for equity method investments due to a material impairment charge - The Company continually evaluates accounting policies and estimates, with a new critical accounting policy identified for equity method investments due to a material impairment charge[143][144] - A $570 million pre-tax non-cash impairment charge was recorded in Q3 2024 for an equity method investment (WFMS) due to an other-than-temporary decline in value[145][146] Results of Operations This section analyzes the company's financial performance, detailing revenue growth, operating income, and the impact of a significant non-cash impairment charge on net income and diluted EPS Key Financial Performance (In millions, except percentages) | Metric | Q3 2024 | Q3 2023 | Change ($) | Change (%) | 9M 2024 | 9M 2023 | Change ($) | Change (%) | | :---------------------------------------- | :------ | :------ | :--------- | :--------- | :------ | :------ | :--------- | :--------- | | Total Revenue | $5,215 | $4,873 | $342 | 7% | $15,205 | $14,176 | $1,029 | 7% | | Operating Income | $1,602 | $1,503 | $99 | 7% | $4,211 | $3,568 | $643 | 18% | | Operating Margin | 30.7% | 30.8% | (10) bps | | 27.7% | 25.2% | 250 bps | | | Net Income attributable to Fiserv, Inc. | $564 | $952 | $(388) | (41)% | $2,193 | $2,198 | $(5) | —% | | Diluted EPS | $0.98 | $1.56 | | | $3.74 | $3.54 | | | - Total revenue increased by 7% for both Q3 and 9M 2024, driven by higher processing revenue in Merchant and Financial segments, partially offset by foreign currency fluctuations[151] - Net income attributable to Fiserv, Inc. decreased by 41% in Q3 2024, primarily due to a $570 million non-cash impairment charge related to the Wells Fargo Merchant Services alliance[148][166] Liquidity and Capital Resources This section examines the company's cash flow generation, capital allocation strategies, including share repurchases, and overall financial flexibility to meet its operational and investment needs - Operating cash flow increased by 24% to $4.4 billion for the first nine months of 2024, driven by increased profitability and favorable working capital fluctuations[170] - The Company repurchased $4.3 billion of common stock during the first nine months of 2024, with approximately 24.2 million shares remaining under the existing repurchase authorization[173][174] Cash and Cash Equivalents (In millions) | Category | September 30, 2024 | December 31, 2023 | | :--------- | :----------------- | :---------------- | | Available | $617 | $450 | | Unavailable | $611 | $754 | | Total | $1,228 | $1,204 | Item 3. Quantitative and Qualitative Disclosures About Market Risk This section discusses the Company's exposure to market risks, primarily from fluctuations in interest rates and foreign currency exchange rates. Fiserv uses derivative instruments like forward exchange contracts and cross-currency rate swap contracts to manage these risks. Major currency exposures include the Argentine Peso, Brazilian Real, British Pound, Euro, and Indian Rupee, with particular concern for devaluation in highly inflationary economies like Argentina - The Company is exposed to market risks from interest rate and foreign currency exchange rate fluctuations, managed through derivative instruments[194] - Major currency exposures include Argentine Peso, Brazilian Real, British Pound, Euro, and Indian Rupee, with risks from devaluation in highly inflationary economies[195] - No significant changes to quantitative and qualitative analyses about market risk occurred during the nine months ended September 30, 2024[196] Item 4. Controls and Procedures This section confirms the effectiveness of the Company's disclosure controls and procedures as of September 30, 2024, based on an evaluation by management, including the CEO and CFO. It also states that there were no material changes in internal control over financial reporting during the three months ended September 30, 2024 Evaluation of Disclosure Controls and Procedures This section confirms the effectiveness of the Company's disclosure controls and procedures as of September 30, 2024, following evaluation by management - The CEO and CFO evaluated and concluded that the Company's disclosure controls and procedures were effective as of September 30, 2024[197] Changes in Internal Control Over Financial Reporting This section states that no material changes in internal control over financial reporting occurred during the third quarter of 2024 - There were no changes in internal control over financial reporting during Q3 2024 that materially affected or are reasonably likely to materially affect the Company's internal control[198] PART II – OTHER INFORMATION This part covers legal proceedings, equity security sales, other information, exhibits, and official signatures Item 1. Legal Proceedings This section states that the Company is involved in various lawsuits in the normal course of business. Management believes that any liabilities resulting from these legal proceedings are not expected to have a material adverse effect on the consolidated financial statements - The Company is a defendant in lawsuits in the normal course of business[199] - Management does not expect liabilities from legal proceedings to have a material adverse effect on consolidated financial statements[199] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds This section provides information on the Company's common stock repurchases during the three months ended September 30, 2024. Fiserv repurchased 7,618,298 shares at an average price of $164.81 per share, with 24,157,625 shares remaining under the existing authorization Common Stock Repurchases (Three Months Ended Sep 30, 2024) | Period | Total Number of Shares Purchased | Average Price Paid per Share | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs | | :---------------- | :------------------------------- | :--------------------------- | :------------------------------------------------------------------------------- | | July 1-31, 2024 | 2,540,854 | $154.47 | 2,540,854 | | August 1-31, 2024 | 2,990,000 | $164.81 | 2,990,000 | | September 1-30, 2024 | 2,087,444 | $174.71 | 2,087,444 | | Total | 7,618,298 | | 7,618,298 | - As of September 30, 2024, approximately 24.2 million shares remained under the Company's existing repurchase authorization, approved on February 22, 2023[201] Item 5. Other Information This section states that none of the Company's directors or Section 16 officers adopted or terminated a Rule 10b5-1 Trading Plan or "non-Rule 10b5-1 trading arrangement" during the three months ended September 30, 2024 - No directors or Section 16 officers adopted or terminated Rule 10b5-1 Trading Plans or non-Rule 10b5-1 trading arrangements during Q3 2024[202] Item 6. Exhibits This section lists the exhibits filed as part of the Quarterly Report on Form 10-Q, including supplemental indentures for senior notes, certifications from the CEO and CFO, and various Inline XBRL documents - Exhibits include supplemental indentures for senior notes issued in August 2024, certifications (302 and 906) from the CEO and CFO, and Inline XBRL documents for financial statements[205][206] Signatures This section contains the signatures of the registrant's Chief Financial Officer, Robert W. Hau, and Chief Accounting Officer, Kenneth F. Best, certifying the filing of the report on October 23, 2024 - The report was signed by Robert W. Hau, Chief Financial Officer, and Kenneth F. Best, Chief Accounting Officer, on October 23, 2024[210]