Fiserv Inc 10-Q for FY2020 Q2

Fiserv Inc (FISV)

10-Q 2020-08-06 For: 2020-06-30

Added on April 04, 2026

About this 10-Q

Fiserv Inc filed this 10-Q on August 6, 2020, covering the quarter ended June 30, 2020 (FY2020 Q2).

Headline figures

Quarter ended June 30, 2020, as reported in this filing, compared with the same period a year earlier where the filing states it.

Revenue: $3.47B; up 129.2% from $1.51B a year earlier
Net income: $2M; down 99.1% from net income of $223M a year earlier
Diluted EPS: $0.00; compared with $0.56 a year earlier

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Wisconsin		39-1506125
(State or Other Jurisdiction of Incorporation or Organization)		(I. R. S. Employer Identification No.)



255 Fiserv Drive	Brookfield,	WI	53045
(Address of Principal Executive Offices and zip code)



Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, par value $0.01 per share	FISV	The NASDAQ Stock Market LLC
0.375% Senior Notes due 2023	FISV23	The NASDAQ Stock Market LLC
1.125% Senior Notes due 2027	FISV27	The NASDAQ Stock Market LLC
1.625% Senior Notes due 2030	FISV30	The NASDAQ Stock Market LLC
2.250% Senior Notes due 2025	FISV25	The NASDAQ Stock Market LLC
3.000% Senior Notes due 2031	FISV31	The NASDAQ Stock Market LLC



Large accelerated filer	☒	Accelerated filer	☐
Non-accelerated filer	☐	Smaller reporting company	☐
		Emerging growth company	☐



		Page
PART I – FINANCIAL INFORMATION

Item 1.	Financial Statements (Unaudited)
	Consolidated Statements of Income	1
	Consolidated Statements of Comprehensive (Loss) Income	2
	Consolidated Balance Sheets	3
	Consolidated Statements of Cash Flows	4
	Notes to Consolidated Financial Statements	5
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	30
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	45
Item 4.	Controls and Procedures	45

PART II – OTHER INFORMATION

Item 1.	Legal Proceedings	46
Item 1A.	Risk Factors	46
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	48
Item 6.	Exhibits	48

	Exhibit Index
	Signatures



☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.



☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.



	Three Months Ended June 30,						Six Months Ended June 30,
	2020			2019			2020			2019
Revenue:
Processing and services ⁽¹⁾	$	2,890		$	1,328		$	5,965		$	2,621
Product	575			184			1,269			393
Total revenue	3,465			1,512			7,234			3,014
Expenses:
Cost of processing and services	1,466			617			3,101			1,241
Cost of product	454			168			986			342
Selling, general and administrative	1,377			343			2,781			684
(Gain) loss on sale of businesses	3			—			(428		)	(10		)
Total expenses	3,300			1,128			6,440			2,257
Operating income	165			384			794			757
Interest expense, net	(174		)	(58		)	(361		)	(115		)
Debt financing activities	—			(37		)	—			(96		)
Other income	1			2			21			3
Income (loss) before income taxes and loss from investments in unconsolidated affiliates	(8		)	291			454			549
Income tax (provision) benefit	27			(60		)	(52		)	(91		)
Loss from investments in unconsolidated affiliates	(10		)	(8		)	(16		)	(10		)
Net income	9			223			386			448
Net income (loss) attributable to noncontrolling interests and redeemable noncontrolling interests	7			—			(8		)	—
Net income attributable to Fiserv, Inc.	$	2		$	223		$	394		$	448

Net income attributable to Fiserv, Inc. per share – basic	$	—		$	0.57		$	0.58		$	1.14
Net income attributable to Fiserv, Inc. per share – diluted	$	—		$	0.56		$	0.57		$	1.12

Shares used in computing net income attributable to Fiserv, Inc. per share:
Basic	670.0			392.5			674.1			392.1
Diluted	680.8			399.6			686.0			399.4


⁽¹⁾	Includes processing and other fees charged to related party investments accounted for under the equity method of $55 million and $9 million for the three months ended June 30, 2020 and 2019, respectively, and $112 million and $18 million for the six months ended June 30, 2020 and 2019, respectively (see Note 21).



	June 30, 2020			December 31, 2019
Assets
Cash and cash equivalents	$	869		$	893
Trade accounts receivable, less allowance for doubtful accounts	2,512			2,782
Prepaid expenses and other current assets	1,114			1,503
Settlement assets	12,987			11,868
Total current assets	17,482			17,046
Property and equipment, net	1,688			1,606
Customer relationships, net	12,897			14,042
Other intangible assets, net	3,739			3,600
Goodwill	36,088			36,038
Contract costs, net	606			533
Investments in unconsolidated affiliates	2,763			2,720
Other long-term assets	1,830			1,954
Total assets	$	77,093		$	77,539
Liabilities and Equity
Accounts payable and accrued expenses	$	2,933		$	3,080
Short-term and current maturities of long-term debt	359			287
Contract liabilities	481			492
Settlement obligations	12,987			11,868
Total current liabilities	16,760			15,727
Long-term debt	21,515			21,612
Deferred income taxes	4,481			4,247
Long-term contract liabilities	159			155
Other long-term liabilities	892			941
Total liabilities	43,807			42,682
Commitments and Contingencies (see Note 20)
Redeemable Noncontrolling Interests	258			262
Fiserv, Inc. Shareholders’ Equity:
Preferred stock, no par value: 25.0 million shares authorized; none issued	—			—
Common stock, $0.01 par value: 1,800.0 million shares authorized; 791.4 million shares issued	8			8
Additional paid-in capital	23,771			23,741
Accumulated other comprehensive loss	(644		)	(180		)
Retained earnings	12,877			12,528
Treasury stock, at cost, 122.0 million and 111.5 million shares	(4,429		)	(3,118		)
Total Fiserv, Inc. shareholders’ equity	31,583			32,979
Noncontrolling interests	1,445			1,616
Total equity	33,028			34,595
Total liabilities and equity	$	77,093		$	77,539



(In millions)	Reportable Segments
Three Months Ended June 30, 2020	Acceptance		Fintech		Payments		Corporate and Other			Total

Type of Revenue
Processing	$	1,038	$	349	$	1,063	$	13		$	2,463
Hardware, print and card production	159		9		160		—			328
Professional services	8		115		58		—			181
Software maintenance	—		141		—		—			141
License and termination fees	6		52		18		—			76
Output solutions postage	—		—		—		198			198
Other	12		48		21		(3		)	78
Total Revenue	$	1,223	$	714	$	1,320	$	208		$	3,465



(In millions)	Reportable Segments
Three Months Ended June 30, 2019	Fintech		Payments		Corporate and Other		Total

Type of Revenue
Processing	$	342	$	516	$	46	$	904
Hardware, print and card production	11		75		—		86
Professional services	125		26		2		153
Software maintenance	143		—		4		147
License and termination fees	60		18		—		78
Output solutions postage	—		—		67		67
Other	50		27		—		77
Total Revenue	$	731	$	662	$	119	$	1,512



(In millions)	Reportable Segments
Six Months Ended June 30, 2020	Acceptance		Fintech		Payments		Corporate and Other			Total

Type of Revenue
Processing	$	2,221	$	700	$	2,153	$	38		$	5,112
Hardware, print and card production	352		21		352		—			725
Professional services	11		227		115		1			354
Software maintenance	—		282		1		2			285
License and termination fees	12		98		40		—			150
Output solutions postage	—		—		—		433			433
Other	28		104		45		(2		)	175
Total Revenue	$	2,624	$	1,432	$	2,706	$	472		$	7,234



(In millions)	Reportable Segments
Six Months Ended June 30, 2019	Fintech		Payments		Corporate and Other		Total

Type of Revenue
Processing	$	684	$	1,027	$	89	$	1,800
Hardware, print and card production	23		150		—		173
Professional services	238		49		4		291
Software maintenance	286		1		8		295
License and termination fees	120		31		—		151
Output solutions postage	—		—		144		144
Other	105		55		—		160
Total Revenue	$	1,456	$	1,313	$	245	$	3,014



(In millions)	June 30, 2020		December 31, 2019
Contract assets	$	387	$	382
Contract liabilities	640		647



(In millions)
Year ending December 31,
Remainder of 2020	$	980
2021	1,724
2022	1,340
2023	1,032
Thereafter	1,956



(In millions)
Fair value of stock exchanged for shares of Fiserv, Inc. ⁽¹⁾	$	29,293
Repayment of First Data debt	16,414
Fair value of vested portion of First Data stock awards exchanged for Fiserv, Inc. awards⁽²⁾	768
Total purchase price	$	46,475


⁽¹⁾	The fair value of the 286 million shares of the Company’s common stock issued as of the acquisition date was determined based on a per share price of $102.30, which was the closing price of the Company’s common stock on July 26, 2019, the last trading day before the acquisition closed the morning of July 29, 2019. This includes a nominal amount of cash paid in lieu of fractional shares.


⁽²⁾	Represents the portion of the fair value of the replacement awards related to services provided prior to the acquisition. The remaining portion of the fair value is associated with future service and will be recognized as expense over the future service period.



(In millions)
Assets acquired ⁽¹⁾
Cash and cash equivalents	$	310
Trade accounts receivable	1,747
Prepaid expenses and other current assets	1,047
Settlement assets	10,398
Property and equipment	1,156
Customer relationships	13,458
Other intangible assets	2,814
Goodwill	30,797
Investments in unconsolidated affiliates	2,676
Other long-term assets	1,223
Total assets acquired	$	65,626

Liabilities assumed ⁽¹⁾
Accounts payable and accrued expenses	$	1,612
Short-term and current maturities of long-term debt ⁽²⁾	243
Contract liabilities	71
Settlement obligations	10,398
Deferred income taxes	3,690
Long-term contract liabilities	16
Long-term debt and other long-term liabilities ⁽³⁾	1,261
Total liabilities assumed	$	17,291

Net assets acquired	$	48,335
Redeemable noncontrolling interests	252
Noncontrolling interests	1,608
Total purchase price	$	46,475


⁽¹⁾	In connection with the acquisition of First Data, the Company acquired two businesses which it intended to sell and subsequently sold in October 2019. Therefore, such businesses were classified as held for sale and were included within prepaid expenses and other current assets and accounts payable and accrued expenses in the above preliminary allocation of purchase price.


⁽²⁾	Includes foreign lines of credit, current portion of finance lease obligations and other financing obligations.


⁽³⁾	Includes the receivable securitized loan and the long-term portion of finance lease obligations.


•	The cost approach, which estimates value by determining the current cost of replacing an asset with another of equivalent economic utility, was used, as appropriate, for property and equipment. The cost to replace a given asset reflects the estimated reproduction or replacement cost for the property, less an allowance for loss in value due to depreciation.


•	The market approach, which estimates value by leveraging comparable land sale data/listings and qualitatively comparing them to the in-scope properties, was used to value the land.


•	An income approach was applied to derive fair value for both consolidated investments with a noncontrolling interest and equity method investments accounted for under the equity method of accounting. The significant assumptions used include the estimated annual cash flows, the discount rate, the long-term growth rate and operating margin, among other factors.



(In millions)	Gross Carrying Amount		Weighted-Average Useful Life
Customer relationships	$	13,458	15 years
Acquired software and technology	2,324		7 years
Trade names	490		9 years
Total	$	16,272	14 years



(In millions, except for per share data)	Three Months Ended June 30, 2019		Six Months Ended June 30, 2019
Total revenue	$	3,988	$	7,796
Net income	303		285
Net income attributable to Fiserv, Inc.	275		233
Net income per share attributable to Fiserv, Inc.:
Basic	$	0.41	$	0.34
Diluted	$	0.40	$	0.34


•	a net increase in amortization expense that would have been recognized due to acquired intangible assets;


•	an adjustment to interest expense to reflect (i) the additional borrowings of the Company in conjunction with the acquisition and (ii) the repayment of First Data’s historical debt in conjunction with the acquisition;


•	an increase in the three and six months ended June 30, 2019 for one-time costs directly attributable to the acquisition, including an adjustment to recognize a loss in connection with the extinguishment of First Data debt;


•	a reduction in operating revenues due to the elimination of deferred revenues assigned no value at the acquisition date;


•	an adjustment to stock compensation expense to reflect the cost of the replacement awards as if they had been issued on January 1, 2019; and


•	the related income tax effects of the adjustments noted above.



(In millions)	Gross Carrying Amount		Accumulated Amortization		Net Book Value
June 30, 2020	Gross Carrying Amount		Accumulated Amortization		Net Book Value
Customer relationships	$	15,821	$	2,924	$	12,897
Acquired software and technology	2,543		723		1,820
Trade names	616		138		478
Capitalized software development costs	1,104		363		741
Purchased software	917		217		700
Total	$	21,001	$	4,365	$	16,636


⁽¹⁾	Amounts have been restated to reflect the Segment Realignment effective in the first quarter of 2020 (see Note 22).



			Fair Value
(In millions)	Classification	Fair Value Hierarchy	June 30, 2020		December 31, 2019
Assets
Cash flow hedges	Prepaid expenses and other current assets	Level 2	$	—	$	4
Liabilities
Cash flow hedges	Accounts payable and accrued expenses	Level 2	$	2	$	—
Contingent consideration	Other long-term liabilities	Level 3	43		1
Contingent debt guarantee	Other long-term liabilities	Level 3	11		—


⁽¹⁾	Selling profit includes $24 million and $52 million recorded within product revenue with a corresponding charge of $12 million and $26 million recorded in cost of product in the consolidated statements of income for the three and six months ended June 30, 2020, respectively. Interest income is included within product revenue in the consolidated statements of income.


⁽²⁾	Operating lease income includes a nominal amount of variable lease income and is included within product revenue in the consolidated statements of income for the three and six months ended June 30, 2020.