Fiserv Reports Second Quarter Results

Fiserv, Inc. (NASDAQ: FISV), a leading provider of technology solutions, today reported financial results for the second quarter of 2007. Total revenues increased 12 percent to $1.18 billion for the second quarter of 2007 compared with $1.06 billion in 2006. For the first six months of 2007, total revenues were $2.37 billion compared with $2.12 billion in 2006. Total earnings per share for the second quarter of 2007 were $0.64, with earnings per share from continuing operations of $0.62. Adjusted earnings per share from continuing operations for the second quarter of 2007 increased 15 percent to $0.68 compared with $0.59 in 2006. Total earnings per share for the first six months of 2007 were $1.30, with earnings per share from continuing operations of $1.25. Adjusted earnings per share from continuing operations were $1.31 in the first six months of 2007 compared with $1.20 in 2006. Adjusted earnings per share in 2007 exclude a $0.06 charge in the insurance segment in the second quarter of 2007. Overall adjusted operating margin for the quarter increased 110 basis points to 23.4 percent compared with 22.3 percent in the prior year. Financial segment adjusted operating margin was up 180 basis points to 25.4 percent for the quarter and was up 240 basis points to 25.1 percent for the first six months compared with the prior period. Adjusted internal revenue growth for the financial segment was 5 percent for the quarter. "Our businesses delivered solid performance in the quarter and we remain on track to achieve our full-year targets,” said Jeffery Yabuki, President and Chief Executive Officer of Fiserv. "Our financial segment once again led the company’s performance with continued growth in revenue and margin expansion.” Other business and operating highlights for the second quarter of 2007 included: Free cash flow from continuing operations for the first half of 2007 was up 14 percent over 2006 to $209 million; The company repurchased 3.4 million shares of its common stock in the second quarter at an average price of $54.88, bringing the total shares repurchased to more than 6.0 million for the first six months of 2007; Fiserv EFT completed 44 new sales in the quarter, with 89 percent made within the Fiserv core client base; Fiserv signed 62 new clients in the quarter for its electronic bill payment services and now has more than 560 electronic bill pay clients; Wachovia Corporation selected Fiserv to provide item processing production services for its Western United States region, including the recent acquisitions of Western Financial and GoldenWest Financial. In addition, Fiserv continues to provide complete remittance and lockbox processing services for Wachovia’s growing payments business; GMAC ResCap migrated the 1.2 million loan account portfolio of Homecomings Financial onto the Fiserv Loan Servicing Platform and signed a five-year contract renewal for the continued use of the platform; Pittsburgh-based Dollar Bank signed a seven-year agreement to license the Fiserv Loan Servicing Platform in order to consolidate the servicing of its 28,000 consumer and 18,000 mortgage loans onto a single technology platform. FISERV INVESTMENT SUPPORT SERVICES (FISERV ISS) SALE IMPACT As announced previously, the company also signed definitive agreements in the quarter to sell its Fiserv ISS operations in two separate transactions. One transaction is expected to close by the end of 2007 and the other in early 2008. The company anticipates gross proceeds from the transactions of approximately $350 million (approximately $250 million after taxes and transaction-related expenses). This amount includes return of the net capital and excludes contingent payments. The company also has the opportunity to earn additional cash consideration of up to $100 million in 2008 based on the achievement of certain revenue targets over the twelve months subsequent to closing. Fiserv ISS results are reported in discontinued operations. Fiserv ISS generated $0.02 in earnings per share in the quarter. Those results were negatively impacted by incremental transaction-related expenses of $1.6 million, or $0.01 per share in the quarter. "The announced sale of our Fiserv ISS business will allow us to better focus on businesses where we have a clear long-term competitive advantage. We will redeploy the capital from the sale to enhance long-term shareholder value,” said Yabuki. OUTLOOK FOR 2007 The company has revised its full-year 2007 continuing operations earnings per share guidance to reflect the results of Fiserv ISS as discontinued operations. This guidance excludes the charge of $16.9 million ($0.06 per share) in the second quarter in the insurance segment: Previous 2007 EPS Guidance $2.86 - $2.94 per share Less: Discontinued Operations Related to Fiserv ISS ($0.12 per share) New 2007 Adjusted EPS Guidance-Continuing Operations $2.74 - $2.82 per share "The announced sale of Fiserv ISS should be slightly accretive to our 2007 adjusted earnings per share from continuing operations growth rate. We now expect full-year growth within a range of 14-17 percent over 2006,” said Yabuki. EARNINGS CONFERENCE CALL The company will discuss its second quarter 2007 results on a conference call and web cast at 4 p.m. CDT on July 25. To register for the event and to access supporting materials, go to www.fiserv.com and click on the link for the event in the "Upcoming Events” Section of the home page. From there, click "Access Event.” USE OF NON-GAAP FINANCIAL INFORMATION The company reports its financial results in accordance with GAAP. In addition, the company uses certain non-GAAP performance measures, including "adjusted earnings per share,” "free cash flow,” "adjusted internal revenue growth,” and "adjusted operating income and margin,” to provide investors a more complete understanding of the company’s underlying operational results. These non-GAAP measures are indicators that 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. The company believes these adjusted measures are 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 measures prepared in accordance with GAAP in the United States. About Fiserv, Inc. Fiserv, Inc. (NASDAQ: FISV), a Fortune 500 company, provides information management systems and services to the financial and insurance industries. Leading services include transaction processing, outsourcing, business process outsourcing (BPO), software and systems solutions. The company serves more than 18,000 clients worldwide and is the leading provider of core processing solutions for U.S. banks, credit unions and thrifts. Fiserv was ranked the largest provider of information technology services to the financial services industry worldwide in the 2004, 2005 and 2006 FinTech 100 surveys. Headquartered in Brookfield, Wis., Fiserv reported more than $4.4 billion in total revenue for 2006. For more information, please visit www.fiserv.com. FORWARD-LOOKING STATEMENTS This press release contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, including statements regarding the timing of, and proceeds from, the sale of Fiserv ISS, and estimated adjusted earnings per share in 2007. Forward-looking statements are subject to assumptions, risks and uncertainties that may cause actual results to differ materially from those contemplated by such forward-looking statements. The factors that may adversely affect the company’s results include, among others, the company’s ability to complete the sale of the Fiserv ISS business, changes in clients’ demand for the company’s products or services, pricing or other actions by competitors, the potential impact of the company’s Fiserv 2.0 initiatives, general changes in economic conditions and other factors included in the company’s filings with the SEC, including its Annual Report on Form 10-K. You should consider these factors carefully in evaluating forward-looking statements, and are cautioned not to place undue reliance on such statements. The company assumes no obligation to update any forward-looking statements, which speak only as of the date of this press release. FISERV, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF INCOME(1) (In thousands, except per share amounts, unaudited)   Three Months Ended Six Months Ended June 30, June 30, 2007 2006 2007 2006 Revenues Processing and services $751,225 $705,734 $1,495,952 $1,432,429 Product 428,911 351,760 869,165 687,384 Total revenues 1,180,136 1,057,494 2,365,117 2,119,813 Expenses Cost of processing and services 471,963 465,148 946,935 928,216 Cost of product 362,367 278,209 732,177 550,303 Selling, general and administrative (2) 164,686 137,569 317,040 277,804 Total expenses 999,016 880,926 1,996,152 1,756,323 Operating income 181,120 176,568 368,965 363,490 Interest expense – net (11,445) (10,351) (20,555) (18,494) Income from continuing operations before income taxes 169,675 166,217 348,410 344,996 Income tax provision 65,032 61,639 134,695 129,604 Income from continuing operations 104,643 104,578 213,715 215,392 Income from discontinued operations – net of tax (1) 3,593 13,091 8,084 18,488 Net income $108,236 $117,669 $221,799 $233,880   Earnings per share Continuing operations $0.62 $0.59 $1.25 $1.20 Discontinued operations (1) 0.02 0.07 0.05 0.10 Total $0.64 $0.66 $1.30 $1.30 Adjusted earnings per share – continuing operations Earnings per share $0.62 $0.59 $1.25 $1.20 Unusual item (2) 0.06 - 0.06 - Adjusted earnings per share – continuing operations $0.68 $0.59 $1.31 $1.20   Diluted shares used in computing earnings per share 169,907 177,551 171,272 179,667 (1) In May 2007, the company signed agreements to sell its Investment Support Services business. As a result, all periods presented reflect the Investment Support Services (Fiserv ISS) business as discontinued operations. During the second quarter, the company recorded $1.6 million ($0.01 per share) of transaction related expenses associated with the sale of Fiserv ISS. For the second quarter and first six months of 2006, earnings per share from discontinued operations included $0.04 related to the company’s securities clearing businesses, which were previously sold. (2) Included in selling, general and administrative expenses are pre-tax charges of $16.9 million recorded in the second quarter of 2007 related to ceasing an investment in a new technology platform ($13.1 million) in the health plan management business and other facility shutdown and severance expenses ($3.8 million) in the Insurance segment. Adjusted earnings per share is a non-GAAP financial measure that the company believes is useful to investors because it presents the impact of certain transactions or events that management expects to occur infrequently, or to adjust for items in order to provide meaningful comparisons between current results and prior-year reported results. FISERV, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (1) (In thousands, unaudited)   June 30, Dec. 31, 2007 2006 Assets Cash and cash equivalents $151,580 $149,440 Trade accounts receivable – net 564,180 578,498 Deferred income taxes 32,535 30,335 Prepaid expenses and other current assets 156,278 141,512 Assets of discontinued operations held for sale (1) 2,271,729 2,113,455 Total current assets 3,176,302 3,013,240 Property and equipment – net 238,246 241,924 Intangible assets – net 593,105 592,801 Goodwill 2,390,693 2,361,485 Other long-term assets 54,980 42,248 Total $6,453,326 $6,251,698   Liabilities and Shareholders’ Equity Trade accounts payable $231,150 $228,265 Accrued expenses 301,925 338,247 Deferred revenues 249,922 258,102 Customer funds held 44,282 51,736 Liabilities of discontinued operations held for sale (1) 2,102,985 1,944,026 Total current liabilities 2,930,264 2,820,376 Long-term debt 879,800 747,256 Deferred income taxes 196,718 195,553 Other long-term liabilities 54,546 62,891 Total Liabilities 4,061,328 3,826,076 Shareholders’ Equity 2,391,998 2,425,622 Total $6,453,326 $6,251,698 (1) Investment Support Services assets and liabilities are reported in "Assets and liabilities of discontinued operations held for sale” for all periods presented. FISERV, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS – CONTINUING OPERATIONS (1) (In thousands, unaudited) Six Months Ended June 30, 2007 2006 Cash flows from operating activities Net income $221,799 $233,880 Adjustment for discontinued operations (8,084) (18,488) Adjustments to reconcile net income to net cash provided by operating activities: Deferred income taxes (8,800) 8,520 Share-based compensation 15,895 18,734 Excess tax benefit from exercise of options (9,952) (3,278) Depreciation and amortization 101,256 87,505 Changes in assets and liabilities, net of effects from acquisitions and dispositions of businesses: Trade accounts receivable 13,237 (13,478) Prepaid expenses and other assets (6,535) (9,096) Trade accounts payable and other liabilities (18,870) (16,386) Deferred revenues (9,310) (12,007) Net cash provided by operating activities 290,636 275,906 Cash flows from investing activities Capital expenditures, including capitalization of software costs for external customers (81,839) (93,232) Payment for acquisitions of businesses, net of cash acquired (45,449) (101,035) Dividend from discontinued operations - 28,000 Other investing activities (57) (2,031) Net cash used in investing activities (127,345) (168,298) Cash flows from financing activities Proceeds from long-term debt – net 127,457 187,568 Issuance of common stock and treasury stock 30,705 18,255 Purchases of treasury stock (321,811) (349,539) Excess tax benefit from exercise of options 9,952 3,278 Customer funds held (7,454) 3,243 Net cash used in financing activities (161,151) (137,195) Change in cash and cash equivalents 2,140 (29,587) Beginning balance 149,440 169,532 Ending balance $151,580 $139,945 (1) Investment Support Services cash flows are excluded from the above Consolidated Statements of Cash Flows for all periods presented. FISERV, INC. AND SUBSIDIARIES SELECTED FINANCIAL INFORMATION (Dollars in thousands, unaudited)   Three Months Ended June 30, Six Months Ended June 30, Segment 2007 2006 2007 2006 Revenues Financial Institution Services ("Financial”) (1) $753,766 $708,315 $1,521,016 $1,408,173 Insurance Services ("Insurance”) (2),(3) 426,370 349,179 844,101 711,640 Total $1,180,136 $1,057,494 $2,365,117 $2,119,813 Operating income Financial (1) $165,581 $144,741 $325,521 $274,917 Insurance (2),(3) 15,539 31,827 43,444 88,573 Total $181,120 $176,568 $368,965 $363,490 Operating margin Financial (1) 22% 20% 21% 20% Insurance (2),(3) 4% 9% 5% 12% Total 15% 17% 16% 17% (1) Included in the financial segment results were early contract termination fees of $12.9 million for the three months ended and $21.9 million for the six months ended June 30, 2007, respectively, compared with $5.6 million and $9.5 million for the comparable periods in 2006. This segment’s businesses generally enter into three- to five-year contracts that contain early contract termination fees. These fees are very unpredictable and can vary significantly from period to period based on the number and size of terminated contracts and how early in the contract term a contract is terminated. (2) Included in the Insurance segment results was a decline of $30.6 million in higher-margin flood claim processing revenues from $32.3 million in the first six months of 2006 to $1.7 million in 2007, and $16.9 million in charges recorded in the second quarter of 2007 related to ceasing an investment in a new technology platform ($13.1 million) and other facility shutdown and severance expenses ($3.8 million). (3) Supplemental financial information for the health plan management business that is included in the Insurance segment is as follows: Three Months Ended June 30, Six Months Ended June 30, 2007 2006 2007 2006 Revenues $353,442 $289,454 $704,756 $570,682 Operating income (2) 4,999 17,535 24,528 38,288 Operating margin (2) 1% 6% 3% 7% Free cash flow Free cash flow is measured as net income excluding discontinued operations, plus share-based compensation, depreciation and amortization, less capital expenditures, plus or minus changes in working capital-net 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 measures the company’s cash flow after it has satisfied the capital requirements of its operations. Six Months Ended June 30, 2007 2006 Net income $221,799 $233,880 Adjustment for discontinued operations (8,084) (18,488) Share-based compensation 15,895 18,734 Depreciation and amortization 101,256 87,505 Capital expenditures (81,839) (93,232) Free cash flow before changes in working capital 249,027 228,399 Changes in working capital-net (40,230) (45,725) Free cash flow $208,797 $182,674 FISERV, INC. AND SUBSIDIARIES ADJUSTED OPERATING INCOME AND MARGIN INFORMATION (Dollars in thousands, unaudited)   Three Months Ended June 30, Six Months Ended June 30, Segment 2007 2006 2007 2006 Adjusted operating income (1) Financial $165,581 $144,741 $325,521 $274,917 Insurance (2) (3) 32,439 31,827 60,344 88,573 Total $198,020 $176,568 $385,865 $363,490 Adjusted operating margin (1) Financial 25% 24% 25% 23% Insurance (2) (3) 17% 18% 16% 23% Total 23% 22% 23% 23% Customer reimbursements (1) Financial $101,306 $95,903 $223,407 $197,244 Insurance 4,875 2,348 9,054 5,060 Total $106,181 $98,251 $232,461 $202,304 Prescription product costs in Insurance segment (1) $226,942 $166,388 $447,358 $320,438 (1) Adjusted operating margin excludes customer reimbursements and prescription product costs which are included in revenues and expenses. Customer reimbursements consist primarily of pass-through costs such as postage and data communication expenses. Prescription product costs are incurred in the health plan management business that is included in the Insurance segment. Adjusted operating income and margin for 2007 excluded pre-tax charges of $16.9 million recorded in the second quarter related to ceasing an investment in a new technology platform ($13.1 million) in the health plan management business and other facility shutdown and severance expenses ($3.8 million) in the Insurance segment. Total charges related to the health plan management business included in the Insurance segment are $14.0 million. (2) Included in the Insurance segment results is a decline of $30.6 million in higher-margin flood claim processing revenues from $32.3 million in the first six months of 2006 to $1.7 million in 2007. (3) Supplemental financial information for the health plan management business that is included in the Insurance segment is as follows: Three Months Ended June 30, Six Months Ended June 30, 2007 2006 2007 2006 Adjusted operating income (1) $18,999 $17,535 $38,528 $38,288 Adjusted operating margin (1) 15% 14% 15% 15% Adjusted operating income and margin are non-GAAP financial measures that the company believes are useful to investors because they provide more insight into how management views the underlying operating performance of the company and presents the impact of certain transactions or events that management expects to occur infrequently, or to adjust for items in order to provide meaningful comparisons between current results and prior-year reported results. In analyzing the company’s performance, management excludes the impact of pass-through customer reimbursements and prescription product costs that are presented in revenue and expenses under GAAP. FISERV, INC. AND SUBSIDIARIES INTERNAL REVENUE GROWTH PERCENTAGES BY SEGMENT (1) (Unaudited)   Three Months Ended June 30, Six Months Ended June 30, Segment 2007 2006 2007 2006 Financial 4% 7% 5% 7% Insurance 16% 9% 13% 12% Total 8% 8% 8% 9%   Adjusted (2) Three Months Ended June 30, Adjusted (2) Six Months Ended June 30, 2007 2006 2007 2006 Financial 5% 5% 6% 6% Insurance (2%) (4%) (8%)(3) 3% Total 4% 3% 2%(3) 5% (1) Internal revenue growth percentages are measured as the increase in total revenues for the current period less "acquired revenue from acquisitions” divided by total revenues from the prior year period plus "acquired revenue from acquisitions.” "Acquired revenue from acquisitions” was $35.8 million ($17.8 million in the Financial segment and $18.0 million in the Insurance segment) for the second quarter of 2007 and $72.9 million ($36.5 million in the Financial segment and $36.4 million in the Insurance segment) for the six months ended June 30, 2007 and represents pre-acquisition adjusted revenue of acquired companies, less dispositions, for the comparable prior year period. Acquired revenues in the Financial segment include customer reimbursement pass-through costs of $10.6 million and $22.7 million in the second quarter of 2006 and six months ended June 30, 2006, respectively. (2) The adjusted internal revenue growth percentages exclude the impact of customer reimbursements and prescription product costs, which are included in revenues and expenses under GAAP. See footnote 1 to the Adjusted Operating Income and Margin Information table. (3) Flood claim processing revenue was $1.7 million, $32.3 million and $10.8 million in the first six months of 2007, 2006 and 2005, respectively. Flood claim processing revenue negatively impacted adjusted internal revenue growth in the Insurance segment by 7 percentage points in the first six months of 2007 and positively impacted adjusted internal revenue growth in the segment by 6 percentage points in the first six months of 2006. Excluding flood claim processing revenue, the adjusted internal revenue growth (decline) rate for the company and the Insurance segment would have been 4 percent and (1) percent in the first six months of 2007, respectively, and 4 percent and (3) percent in the first six months of 2006, respectively. The health plan management business that is included in the Insurance segment had adjusted internal revenue growth of 1 percent and 2 percent in the second quarter of 2007 and 2006, respectively, and 1 percent and 2 percent in the first six months of 2007 and 2006, respectively. Actual and adjusted internal revenue growth percentages are non-GAAP financial measures that the company believes are useful to investors because they present internal revenue growth both including and excluding customer reimbursements and prescription product costs that must be presented in revenue under GAAP. In addition, the company believes that the presentation of its adjusted internal revenue growth rate both including and excluding flood claims processing revenue is useful to investors because it enables them to understand the impact of these revenues, which can significantly impact the company’s internal revenue growth rate. FISERV, INC. AND SUBSIDIARIES SUPPLEMENTAL 2006 AND 2007 HISTORICAL FINANCIAL INFORMATION BY QUARTER (1) (In thousands, except per share amounts, unaudited)   First Quarter 2006 Second Quarter 2006 Third Quarter 2006 Fourth Quarter 2006 Full Year 2006 First Quarter 2007 Revenues Processing and services $726,695 $705,734 $729,376 $727,535 $2,889,340 $744,727 Product 335,624 351,760 393,141 437,166 1,517,691 440,254 Total revenues 1,062,319 1,057,494 1,122,517 1,164,701 4,407,031 1,184,981 Expenses Cost of processing and services 463,068 465,148 465,809 474,146 1,868,171 474,972 Cost of product 272,094 278,209 336,424 364,534 1,251,261 369,810 Selling, general and administrative 140,235 137,569 139,905 150,653 568,362 152,354 Total expenses 875,397 880,926 942,138 989,333 3,687,794 997,136 Operating income 186,922 176,568 180,379 175,368 719,237 187,845 Interest expense – net (8,143) (10,351) (11,582) (10,596) (40,672) (9,110) Income from continuing operations before income taxes 178,779 166,217 168,797 164,772 678,565 178,735 Income tax provision 67,965 61,639 63,641 63,925 257,170 69,663 Income from continuing operations 110,814 104,578 105,156 100,847 421,395 109,072 Income from discontinued operations – net of tax(1) 5,397 13,091 4,932 5,099 28,519 4,491 Net income $116,211 $117,669 $110,088 $105,946 $449,914 $113,563   Earnings per share – diluted Continuing operations $0.61 $0.59 $0.60 $0.58 $2.37 $0.63 Discontinued operations (1) 0.03 0.07 0.03 0.03 0.16 0.03 Total $0.64 $0.66 $0.63 $0.61 $2.53 $0.66 Adjusted earnings per share Earnings per share – continuing operations $0.61 $0.59 $0.60 $0.58 $2.37 $0.63 Unusual item (2) - - - 0.03 0.03 - Adjusted earnings per share – continuing operations $0.61 $0.59 $0.60 $0.61 $2.41 $0.63   Diluted shares used in computing earnings per share 181,783 177,551 175,875 174,906 177,529 172,637 (1) In May 2007, the company signed agreements to sell its Investment Support Services business. As a result, all periods presented reflect this business as discontinued operations. Earnings per share from discontinued operations included $0.04 in the second quarter and full year of 2006 related to the company’s securities clearing businesses, which were previously sold. (2) Represents pre-tax charges of $9.0 million recorded in the fourth quarter of 2006 in selling, general and administrative expenses related to the write down of assets and facility shutdown costs in the company’s lending division. SEGMENT RESULTS Financial Segment Financial segment revenues were $754 million in the quarter, up 6 percent compared with 2006. Financial segment adjusted internal revenue growth was 5 percent for the quarter. Operating income increased 14 percent to $166 million in the quarter. Year-to-date adjusted operating margins were 25.1 percent, up 240 basis points compared with 2006. Adjusted operating margins for the quarter were up 180 basis points to 25.4 percent compared with the second quarter of 2006. The increase in operating income and margins in 2007 was driven primarily by strong growth in the company’s banking and payment processing businesses. Insurance Segment Insurance segment revenues were $426 million for the quarter, an increase of 22 percent compared with the second quarter of 2006. Adjusted internal revenues in the insurance segment declined by 2 percent in the quarter, due primarily to the ongoing competitive pressure in the large national accounts client portion of the health plan management businesses. Insurance segment adjusted operating income was $32 million in the second quarters of both 2007 and 2006. Adjusted operating income in the second quarter of 2007 excluded $17 million of charges related to the termination of an investment in a new technology platform ($13 million) in the health plan management business and other facility shutdown and severance expenses ($4 million) in the insurance segment. These charges had a negative impact of $0.06 per share in the quarter. (FISV-E)