filings.toolsItem 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Forward-Looking Statements
This quarterly report contains “forward-looking statements” intended to qualify for the safe harbor from liability established by the Private Securities Litigation Reform Act of 1995. Forward-looking statements include those that express a plan, belief, expectation, estimation, anticipation, intent, contingency, future development or similar expression, and can generally be identified as forward-looking because they include words such as “believes,” “anticipates,” “expects,” “could,” “should,” or words of similar meaning. Statements that describe our future plans, objectives or goals are also forward-looking statements.
The forward-looking statements in this report involve significant risks and uncertainties, and a number of factors, both foreseen and unforeseen, that could cause actual results to differ materially from our current expectations. The factors that may affect our results include, among others, the following, many of which may continue to be amplified by the COVID-19 pandemic: the continuing impact of the COVID-19 pandemic on our employees, clients, vendors, supply chain, operations and sales; our ability to compete effectively against new and existing competitors and to continue to introduce competitive new products and services on a timely, cost-effective basis; changes in customer demand for our products and services; the ability of our technology to keep pace with a rapidly evolving marketplace; the success of our merchant alliances, some of which we do not control; the impact of a security breach or operational failure on our business including disruptions caused by other participants in the global financial system; the failure of our vendors and merchants to satisfy their obligations; the successful management of credit and fraud risks in our business and merchant alliances; changes in local, regional, national and international economic or political conditions, including those resulting from heightened inflation, rising interest rates, a recession, or intensified international hostilities, and the impact they may have on us and our customers; the effect of proposed and enacted legislative and regulatory actions affecting us or the financial services industry as a whole; our ability to comply with government regulations and applicable card association and network rules; the protection and validity of intellectual property rights; the outcome of pending and future litigation and governmental proceedings; our ability to successfully identify, complete and integrate acquisitions, and to realize the anticipated benefits associated with the same; the impact of our strategic initiatives; our ability to attract and retain key personnel; volatility and disruptions in financial markets that may impact our ability to access preferred sources of financing and the terms on which we are able to obtain financing or increase our costs of borrowing; adverse impacts from currency exchange rates or currency controls; changes in corporate tax and interest rates; and other factors included in "Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2021 and in other documents that we file with the Securities and Exchange Commission, which are available at http://www.sec.gov. You should consider these factors carefully in evaluating forward-looking statements and are cautioned not to place undue reliance on such statements, which speak only as of the date of this report. We undertake no obligation to update forward-looking statements to reflect events or circumstances occurring after the date of this report.
Management’s discussion and analysis of financial condition and results of operations is provided as a supplement to our unaudited consolidated financial statements and accompanying notes to help provide an understanding of our financial condition, the changes in our financial condition and our results of operations. Our discussion is organized as follows:
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Overview. This section contains background information on our company and the services and products that we provide, acquisitions and dispositions, and the trends affecting our industry in order to provide context for management’s discussion and analysis of our financial condition and results of operations.
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Changes in critical accounting policies and estimates. This section contains a discussion of changes since our Annual Report on Form 10-K for the year ended December 31, 2021 in the accounting policies that we believe are important to our financial condition and results of operations and that require judgment and estimates on the part of management in their application.
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Results of operations. This section contains an analysis of our results of operations presented in the accompanying unaudited consolidated statements of income by comparing the results for the three and nine months ended September 30, 2022 to the comparable period in 2021.
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Liquidity and capital resources. This section provides an analysis of our cash flows and a discussion of our outstanding debt at September 30, 2022.
Overview
Company Background
We are a leading global provider of payments and financial services technology solutions. We serve clients around the globe, including merchants, banks, credit unions, financial technology companies and corporate clients. We provide account processing and digital banking solutions; card issuer processing and network services; payments; e-commerce; merchant acquiring and processing; and the Clover® cloud-based point-of-sale (“POS”) and business management platform.
We aspire to move money and information in a way that moves the world by delivering superior value for our clients through leading technology, targeted innovation and excellence in everything we do. We are focused on driving growth and creating value by assembling a high-performing and diverse team, integrating our solutions, delivering operational excellence, allocating capital in a disciplined manner, including share repurchase and merger and acquisition activity, and delivering breakthrough innovation.
Our operations are comprised of the Merchant Acceptance (“Acceptance”) segment, the Financial Technology (“Fintech”) segment and the Payments and Network (“Payments”) segment.
The businesses in our Acceptance segment provide a wide range of commerce-enabling solutions to merchants of all sizes and types around the world. These solutions include POS merchant acquiring and digital commerce services; mobile payment services; security and fraud protection products; CaratSM, our omnichannel commerce ecosystem; Clover, our cloud-based POS and business management platform, which includes a marketplace for proprietary and third-party business applications; and Clover Connect, our independent software vendor (“ISV”) platform. We distribute the products and services in the global Acceptance segment businesses through a variety of channels, including direct sales teams, strategic partnerships with agent sales forces, ISVs, financial institutions, and other strategic partners in the form of joint venture alliances, revenue sharing alliances, and referral agreements. Merchants, financial institutions and distribution partners in the Acceptance segment are frequently clients of our other segments.
The businesses in our Fintech segment provide financial institutions around the world with the technology solutions they need to run their operations, including products and services that enable financial institutions to process customer deposit and loan accounts and manage an institution's general ledger and central information files. As a complement to the core account processing functionality, the global Fintech segment businesses also provide digital banking, financial and risk management, professional services and consulting, item processing and source capture, and other products and services that support numerous types of financial transactions. Certain of the businesses in the Fintech segment provide products or services to corporate clients to facilitate the management of financial processes and transactions. Many of the products and services offered in the Fintech segment are integrated with products and services provided by our other segments.
The businesses in our Payments segment provide financial institutions and corporate clients around the world with the products and services required to process digital payment transactions. This includes card transactions such as debit, credit and prepaid card processing and services; a range of network services, security and fraud protection products; and card production and print services. In addition, the Payments segment businesses offer non-card digital payment software and services, including bill payment, account-to-account transfers, person-to-person payments, electronic billing, and security and fraud protection products. Clients of the global Payments segment businesses reflect a wide range of industries, including merchants, distribution partners and financial institution customers in our other segments.
Corporate and Other supports the reportable segments described above, and consists of amortization of acquisition-related intangible assets, unallocated corporate expenses and other activities that are not considered when we evaluate segment performance, such as gains or losses on sales of businesses, certain assets or investments, costs associated with acquisition and divestiture activity, certain transition services revenue associated with various dispositions, and our Output Solutions postage reimbursements.
Acquisitions and Dispositions
We frequently review our portfolio to ensure we have the necessary business assets to execute our strategy. We expect to acquire businesses when we identify: a compelling strategic need, such as a product, service or technology that helps meet client demand; an opportunity to change industry dynamics; a way to achieve business scale; or similar considerations. We expect to divest businesses that are not in line with our market, product or financial strategies.
2022 Acquisitions
On September 1, 2022, we acquired NexTable, Inc. (“NexTable”), a provider of cloud-based reservation and table management solutions for restaurants. NexTable is included within the Acceptance segment and expands our end-to-end restaurant solutions.
On June 1, 2022, we acquired The LR2 Group, LLC (“City POS”), an independent sales organization (“ISO”) that promotes payment processing services and facilitates the sale of point-of-sale equipment for merchants. City POS is included within the Acceptance segment and expands the reach of our merchant services business. On April 1, 2022, we acquired a remaining ownership interest in Finxact, Inc. (“Finxact”), a developer of cloud-native banking solutions powering digital transformation throughout the financial services sector. Finxact is included within the Fintech segment and advances our digital banking strategy, expanding our account processing, digital, and payments solutions. We acquired these businesses for an aggregate purchase price of approximately $686 million, net of $27 million of acquired cash, and including earn-out provisions at an aggregate fair value of approximately $6 million.
2022 Dispositions
On September 30, 2022, we sold our Korea operations, which were reported in our Acceptance segment. On October 17, 2022, we sold Fiserv Costa Rica, S.A. and our Systems Integration Services operations, which provides information technology engineering services in the United States (“U.S.”) and India, to a single buyer. As part of the agreement, the buyer will provide us with ongoing services and support. These divestitures were the result of a strategic review of our business portfolio.
2021 Acquisitions
On November 22, 2021, we acquired BentoBox CMS, Inc. (“BentoBox”), a digital marketing and commerce platform that helps restaurants connect with their guests. BentoBox is included within the Acceptance segment and further expands our Clover dining solutions and commerce and business management capabilities. On November 15, 2021, we acquired a remaining ownership interest in NetPay Solutions Group (“NetPay”), a multi-channel payment service provider offering a range of capabilities around onboarding, customer lifecycle, risk management and settlement to businesses of all sizes. NetPay is included within the Acceptance segment and further expands our merchant services business. On October 1, 2021, we acquired Integrity Payments, LLC (“AIP”), an ISO that promotes payment processing services for merchants and is included within the Acceptance segment. On June 14, 2021, we acquired Spend Labs Inc. (“SpendLabs”), a mobile-native, cloud-based software provider of commercial card payment solutions. SpendLabs is included within the Payments segment and further expands our digital capabilities across mobile and desktop devices for small and mid-sized businesses. On May 4, 2021, we acquired Pineapple Payments Holdings, LLC (“Pineapple Payments”), an ISO that provides payment processing, proprietary technology, and payment acceptance solutions for merchants. Pineapple Payments is included within the Acceptance segment and expands the reach of our payment solutions through its technology- and relationship-led distribution channels. On March 1, 2021, we acquired Radius8, Inc. (“Radius8”), a provider of a platform that uses consumer location and other information to drive incremental merchant transactions. Radius8 is included within the Acceptance segment and enhances our ability to help merchants increase sales, expand mobile application registration and improve one-to-one target marketing. On January 22, 2021, we acquired a remaining ownership interest in Ondot Systems, Inc. (“Ondot”), a digital experience platform provider for financial institutions. Ondot is included within the Payments segment and further expands our digital capabilities, enhancing our suite of integrated payments, banking and merchant solutions. We acquired these businesses for an aggregate purchase price of $882 million, net of $43 million of acquired cash, and including earn-out provisions at an aggregate fair value of $34 million. The results of operations for these acquired businesses are included in our consolidated results from the respective dates of acquisition.
Industry Trends
The global payments landscape continues to evolve, with rapidly advancing technologies and a steady expansion of digital payments, e-commerce and innovation in real-time payments infrastructure. Because of this growth, competition also continues to evolve. Business and consumer expectations continue to rise, with a focus on convenience and security. To meet these expectations, payments companies are focused on modernizing their technology, expanding the use of data and enhancing the customer experience.
Merchants
The rapid growth in and globalization of mobile and e-commerce, driven by consumers’ desire for simpler, more efficient shopping experiences, has created an opportunity for merchants to reach consumers in high-growth online and mobile settings, which often requires a merchant acquiring provider to enable and optimize the acceptance of payments. Merchants are demanding simpler, integrated, and modern POS systems to help manage their everyday business operations. When combined with the ever-increasing ways a consumer can pay for goods and services, merchants have sought modern POS systems to streamline this complexity. Furthermore, merchants can now search, discover, compare, purchase and even install a new POS system through direct, digital-only experiences. This direct, digital-only channel is quickly becoming a source of new merchant acquisition opportunities, especially with respect to smaller merchants.
In addition, there are numerous software-as-a-service (“SaaS”) solutions in the industry, many of which have chosen to integrate merchant acquiring within their software as a way to further monetize their client relationships. SaaS solutions that integrate payments are often referred to as ISVs, and we believe there are thousands of these potential distribution partnership opportunities available to us.
We believe that our merchant acquiring products and solutions create compelling value propositions for merchant clients of all sizes, from small and mid-sized businesses to medium-sized regional businesses to global enterprise merchants, and across all verticals. Furthermore, we believe that our sizable and diverse client base, combined with valued partnerships with merchant acquiring businesses of small, medium and large financial institutions, and non-financial institutions, gives us a solid foundation for growth.
Financial Institutions
Financial service providers regularly introduce and implement new payment, deposit, risk management, lending and investment products, and the distinctions among the products and services traditionally offered by different types of financial institutions continue to narrow as they seek to serve the same customers. At the same time, the evolving global regulatory and cybersecurity landscape has continued to create a challenging operating environment for financial institutions. These conditions are driving heightened interest in solutions that help financial institutions win and retain customers, generate incremental revenue, comply with regulations and enhance operating efficiency. Examples of these solutions include electronic payments and delivery methods such as internet, mobile and tablet banking, sometimes referred to as “digital channels,” which enable financial institutions to offer their customers an industry-leading digital banking experience.
The focus on digital channels by both financial institutions and their customers, as well as the growing volume and types of payment transactions in the marketplace, continues to elevate the data and transaction processing needs of financial institutions. We expect that financial institutions will continue to invest significant capital and human resources to process transactions, manage information, maintain regulatory compliance and offer innovative new services to their customers in this rapidly evolving and competitive environment. We anticipate that we will benefit over the long term from the trend of financial institutions moving from in-house technology to outsourced solutions as they seek to remain current on technology changes in an evolving marketplace. We believe that economies of scale in developing and maintaining the infrastructure, technology, products, services and networks necessary to be competitive in such an environment are essential to justify these investments, and we anticipate that demand for products that facilitate customer interaction with financial institutions, including a unified, seamless customer experience across mobile and online channels, will continue to increase, which we expect to create revenue opportunities for us.
In addition to the trends described above, during the past 25 years, the number of financial institutions in the U.S. has declined at a relatively steady rate of approximately 3% per year, primarily as a result of voluntary mergers and acquisitions. Rather than reducing the overall market, these consolidations transfer accounts among financial institutions. If a client loss occurs due to merger or acquisition, we typically receive a contract termination fee based on the size of the client and how early in the contract term the contract is terminated. These fees can vary from period to period with the variance depending on the quantum of financial institution merger activity in a given period and whether or not our clients are involved in the activity. Our focus on long-term client relationships and recurring, transaction-oriented products and services has also reduced the impact that consolidation in the financial services industry has had on us. We believe that the integration of our products and services creates a compelling value proposition for our clients by providing, among other things, new sources of revenue and opportunities to reduce their costs. Furthermore, we believe that our sizable and diverse client base, combined with our position as a leading provider of non-discretionary, recurring revenue-based products and services, gives us a solid foundation for growth.
Recent Market Conditions
The coronavirus (“COVID-19”) pandemic has and may continue to impact our employees, clients, vendors, supply chain, operations and sales. Further developments surrounding COVID-19 are uncertain and may impact our future operational and financial performance and remain difficult to predict.
The effects of the macroeconomic environment, including supply chain shortages, higher inflation and interest rates and other global economic conditions, have impacted, and may continue to impact, our business, consumer spending and the economy as a whole. In 2021, we began observing increasing shortages and delays in the global supply chain for components and inputs necessary to our businesses, such as semiconductors, paper and plastic, and we may experience difficulty procuring those components and inputs in the future on a timely basis or at historical prices. In addition to intensified political instability globally, the U.S. and other countries in which we operate are experiencing higher inflation and interest rates and slower growth in 2022. We continue to monitor and actively manage our business in response to these unpredictable geopolitical and market conditions as they may adversely impact our operations and financial results.
In addition, operating results for certain foreign countries in which we operate may be adversely impacted by fluctuations in exchange rates for currencies other than the U.S. dollar, including the Euro and British pound sterling. In recent months, the U.S. dollar has strengthened against certain foreign currencies in countries in which we operate, which negatively impacts our revenue and earnings. While the majority of our revenue is earned domestically, we continually monitor the foreign exchange rate environment in an effort to help mitigate these risks.
Changes in Critical Accounting Policies and Estimates
Our consolidated financial statements and accompanying notes have been prepared in accordance with accounting principles generally accepted in the United States, which require management to make estimates, judgments and assumptions that affect the reported amount of assets, liabilities, revenue and expenses. In our Annual Report on Form 10-K for the year ended December 31, 2021, we identified our critical accounting policies and estimates. We continually evaluate the accounting policies and estimates that we use to prepare our consolidated financial statements, including for recently adopted accounting pronouncements, and base our estimates on historical experience and assumptions that we believe are reasonable in light of current circumstances. Actual amounts and results could differ materially from these estimates. There have been no material changes to our critical accounting policies and estimates from those disclosed in our Annual Report on Form 10-K for the year ended December 31, 2021.
Results of Operations
The following table presents certain amounts included in our consolidated statements of income, the relative percentage that those amounts represent to revenue and the change in those amounts from year to year. This information should be read together with the unaudited consolidated financial statements and accompanying notes. The unaudited financial results presented below have been affected by acquisitions, dispositions, and foreign currency fluctuations.
| Three Months Ended September 30, | |||||||||||||||||||||||||||||||||||
| 2022 | 2021 | Percentage of Revenue (1) | Increase (Decrease) | ||||||||||||||||||||||||||||||||
| (In millions) | 2022 | 2021 | $ | % | |||||||||||||||||||||||||||||||
| Revenue: | |||||||||||||||||||||||||||||||||||
| Processing and services | $ | 3,678 | $ | 3,407 | 81.4 | % | 81.8 | % | $ | 271 | 8 | % | |||||||||||||||||||||||
| Product | 840 | 756 | 18.6 | % | 18.2 | % | 84 | 11 | % | ||||||||||||||||||||||||||
| Total revenue | 4,518 | 4,163 | 100.0 | % | 100.0 | % | 355 | 9 | % | ||||||||||||||||||||||||||
| Expenses: | |||||||||||||||||||||||||||||||||||
| Cost of processing and services | 1,443 | 1,530 | 39.2 | % | 44.9 | % | (87) | (6) | % | ||||||||||||||||||||||||||
| Cost of product | 553 | 521 | 65.8 | % | 68.9 | % | 32 | 6 | % | ||||||||||||||||||||||||||
| Sub-total | 1,996 | 2,051 | 44.2 | % | 49.3 | % | (55) | (3) | % | ||||||||||||||||||||||||||
| Selling, general and administrative | 1,547 | 1,476 | 34.2 | % | 35.5 | % | 71 | 5 | % | ||||||||||||||||||||||||||
| Net loss on sale of business and other assets | 120 | — | 2.7 | % | — | % | 120 | — | % | ||||||||||||||||||||||||||
| Total expenses | 3,663 | 3,527 | 81.1 | % | 84.7 | % | 136 | 4 | % | ||||||||||||||||||||||||||
| Operating income | 855 | 636 | 18.9 | % | 15.3 | % | 219 | 34 | % | ||||||||||||||||||||||||||
| Interest expense, net | (190) | (172) | (4.2) | % | (4.1) | % | 18 | 10 | % | ||||||||||||||||||||||||||
| Other (expense) income | (13) | 14 | (0.3) | % | 0.3 | % | (27) | n/m | |||||||||||||||||||||||||||
| Income before income taxes and income (loss) from investments in unconsolidated affiliates | 652 | 478 | 14.4 | % | 11.5 | % | 174 | 36 | % | ||||||||||||||||||||||||||
| Income tax provision | (147) | (54) | (3.3) | % | (1.3) | % | 93 | n/m | |||||||||||||||||||||||||||
| Income (loss) from investments in unconsolidated affiliates | (12) | 22 | (0.3) | % | 0.5 | % | (34) | n/m | |||||||||||||||||||||||||||
| Net income | 493 | 446 | 10.9 | % | 10.7 | % | 47 | 11 | % | ||||||||||||||||||||||||||
| Less: net income attributable to noncontrolling interests | 12 | 18 | 0.3 | % | 0.4 | % | (6) | (33) | % | ||||||||||||||||||||||||||
| Net income attributable to Fiserv, Inc. | $ | 481 | $ | 428 | 10.6 | % | 10.3 | % | $ | 53 | 12 | % | |||||||||||||||||||||||
(1)Percentage of revenue is calculated as the relevant revenue, expense or income amount divided by total revenue, except for cost of processing and services and cost of product amounts, which are divided by the related component of revenue.
| Nine Months Ended September 30, | |||||||||||||||||||||||||||||||||||
| 2022 | 2021 | Percentage of Revenue (1) | Increase (Decrease) | ||||||||||||||||||||||||||||||||
| (In millions) | 2022 | 2021 | $ | % | |||||||||||||||||||||||||||||||
| Revenue: | |||||||||||||||||||||||||||||||||||
| Processing and services | $ | 10,738 | $ | 9,822 | 81.9 | % | 82.1 | % | $ | 916 | 9 | % | |||||||||||||||||||||||
| Product | 2,368 | 2,147 | 18.1 | % | 17.9 | % | 221 | 10 | % | ||||||||||||||||||||||||||
| Total revenue | 13,106 | 11,969 | 100.0 | % | 100.0 | % | 1,137 | 9 | % | ||||||||||||||||||||||||||
| Expenses: | |||||||||||||||||||||||||||||||||||
| Cost of processing and services | 4,381 | 4,425 | 40.8 | % | 45.1 | % | (44) | (1) | % | ||||||||||||||||||||||||||
| Cost of product | 1,631 | 1,500 | 68.9 | % | 69.9 | % | 131 | 9 | % | ||||||||||||||||||||||||||
| Sub-total | 6,012 | 5,925 | 45.9 | % | 49.5 | % | 87 | 1 | % | ||||||||||||||||||||||||||
| Selling, general and administrative | 4,560 | 4,289 | 34.8 | % | 35.8 | % | 271 | 6 | % | ||||||||||||||||||||||||||
| Net gain on sale of business and other assets | (27) | — | (0.2) | % | — | % | (27) | n/m | |||||||||||||||||||||||||||
| Total expenses | 10,545 | 10,214 | 80.5 | % | 85.3 | % | 331 | 3 | % | ||||||||||||||||||||||||||
| Operating income | 2,561 | 1,755 | 19.5 | % | 14.7 | % | 806 | 46 | % | ||||||||||||||||||||||||||
| Interest expense, net | (534) | (523) | (4.1) | % | (4.4) | % | 11 | 2 | % | ||||||||||||||||||||||||||
| Other (expense) income | (83) | 36 | (0.6) | % | 0.3 | % | (119) | n/m | |||||||||||||||||||||||||||
| Income before income taxes and income from investments in unconsolidated affiliates | 1,944 | 1,268 | 14.8 | % | 10.6 | % | 676 | 53 | % | ||||||||||||||||||||||||||
| Income tax provision | (382) | (300) | (2.9) | % | (2.5) | % | (82) | 27 | % | ||||||||||||||||||||||||||
| Income from investments in unconsolidated affiliates | 222 | 80 | 1.7 | % | 0.7 | % | 142 | n/m | |||||||||||||||||||||||||||
| Net income | 1,784 | 1,048 | 13.6 | % | 8.8 | % | 736 | 70 | % | ||||||||||||||||||||||||||
| Less: net income attributable to noncontrolling interests | 36 | 47 | 0.3 | % | 0.4 | % | (11) | (23) | % | ||||||||||||||||||||||||||
| Net income attributable to Fiserv, Inc. | $ | 1,748 | $ | 1,001 | 13.3 | % | 8.4 | % | $ | 747 | 75 | % | |||||||||||||||||||||||
(1)Percentage of revenue is calculated as the relevant revenue, expense or income amount divided by total revenue, except for cost of processing and services and cost of product amounts, which are divided by the related component of revenue.
| Three Months Ended September 30, | |||||||||||||||||||||||||||||
| (In millions) | Acceptance | Fintech | Payments | Corporate and Other | Total | ||||||||||||||||||||||||
| Total revenue: | |||||||||||||||||||||||||||||
| 2022 | $ | 1,878 | $ | 766 | $ | 1,617 | $ | 257 | $ | 4,518 | |||||||||||||||||||
| 2021 | 1,716 | 761 | 1,471 | 215 | 4,163 | ||||||||||||||||||||||||
| Revenue growth | $ | 162 | $ | 5 | $ | 146 | $ | 42 | $ | 355 | |||||||||||||||||||
| Revenue growth percentage | 9 | % | 1 | % | 10 | % | 9 | % | |||||||||||||||||||||
| Operating income (loss): | |||||||||||||||||||||||||||||
| 2022 | $ | 610 | $ | 261 | $ | 738 | $ | (754) | $ | 855 | |||||||||||||||||||
| 2021 | 552 | 275 | 643 | (834) | 636 | ||||||||||||||||||||||||
| Operating income growth (decline) | $ | 58 | $ | (14) | $ | 95 | $ | 80 | $ | 219 | |||||||||||||||||||
| Operating income growth (decline) percentage | 11 | % | (5) | % | 15 | % | 34 | % | |||||||||||||||||||||
| Operating margin: | |||||||||||||||||||||||||||||
| 2022 | 32.4 | % | 34.1 | % | 45.6 | % | 18.9 | % | |||||||||||||||||||||
| 2021 | 32.2 | % | 36.0 | % | 43.7 | % | 15.3 | % | |||||||||||||||||||||
| Operating margin growth (decline) (1) | 20 | bps | (190) | bps | 190 | bps | 360 | bps | |||||||||||||||||||||
| Nine Months Ended September 30, | |||||||||||||||||||||||||||||
| (In millions) | Acceptance | Fintech | Payments | Corporate and Other | Total | ||||||||||||||||||||||||
| Total revenue: | |||||||||||||||||||||||||||||
| 2022 | $ | 5,432 | $ | 2,347 | $ | 4,597 | $ | 730 | $ | 13,106 | |||||||||||||||||||
| 2021 | 4,779 | 2,251 | 4,297 | 642 | 11,969 | ||||||||||||||||||||||||
| Revenue growth | $ | 653 | $ | 96 | $ | 300 | $ | 88 | $ | 1,137 | |||||||||||||||||||
| Revenue growth percentage | 14 | % | 4 | % | 7 | % | 9 | % | |||||||||||||||||||||
| Operating income (loss): | |||||||||||||||||||||||||||||
| 2022 | $ | 1,673 | $ | 817 | $ | 2,018 | $ | (1,947) | $ | 2,561 | |||||||||||||||||||
| 2021 | 1,463 | 794 | 1,850 | (2,352) | 1,755 | ||||||||||||||||||||||||
| Operating income growth | $ | 210 | $ | 23 | $ | 168 | $ | 405 | $ | 806 | |||||||||||||||||||
| Operating income growth percentage | 14 | % | 3 | % | 9 | % | 46 | % | |||||||||||||||||||||
| Operating margin: | |||||||||||||||||||||||||||||
| 2022 | 30.8 | % | 34.8 | % | 43.9 | % | 19.5 | % | |||||||||||||||||||||
| 2021 | 30.6 | % | 35.3 | % | 43.1 | % | 14.7 | % | |||||||||||||||||||||
| Operating margin growth (decline) (1) | 20 | bps | (50) | bps | 80 | bps | 480 | bps | |||||||||||||||||||||
(1)Represents the basis point growth or decline in operating margin.
Operating margin percentages are calculated using actual, unrounded amounts.
Total Revenue
Total revenue increased $355 million, or 9%, in the third quarter of 2022 and $1,137 million, or 9%, in the first nine months of 2022 compared to 2021. The revenue increase was driven by higher processing revenue and product sales across all of our business segments, and was partially offset by a 2% decrease in both the third quarter and first nine months of 2022 due to foreign exchange fluctuations.
Revenue in our Acceptance segment increased $162 million, or 9%, in the third quarter of 2022 and $653 million, or 14%, in the first nine months of 2022 compared to 2021. The revenue increase was driven by higher global merchant acquiring payment and transaction volumes, including an increase in global accounts and locations.
Revenue in our Fintech segment increased $5 million, or 1%, in the third quarter of 2022 and $96 million, or 4%, in the first nine months of 2022 compared to 2021. The revenue increase was primarily driven by higher processing revenue across our Fintech businesses of 2% and 3%, in the third quarter and first nine months of 2022, respectively. The revenue growth in the third quarter of 2022 was partially offset by a 1% decrease in license and termination fee revenue compared to 2021.
Revenue in our Payments segment increased $146 million, or 10%, in the third quarter of 2022 and $300 million, or 7%, in the first nine months of 2022 compared to 2021. In the third quarter and first nine months of 2022, our debit processing business contributed 5% and 4%, respectively, to Payments revenue growth driven by new client wins on our network services; our credit processing business contributed 2% and 1%, respectively, primarily driven by an increase in active accounts; and our Output Solutions business contributed 3% and 2%, respectively, primarily driven by new client growth.
Revenue at Corporate and Other increased $42 million, or 20%, in the third quarter of 2022 and $88 million, or 14%, in the first nine months of 2022 compared to 2021, primarily due to increased postage revenue.
Total Expenses
Total expenses increased $136 million, or 4%, in the third quarter of 2022 and $331 million, or 3%, in the first nine months of 2022 compared to 2021. Total expenses as a percentage of total revenue decreased 360 basis points to 81.1% in the third quarter of 2022 and 480 basis points to 80.5% in the first nine months of 2022 compared to 2021. Total expenses as a percentage of total revenue were favorably impacted in the third quarter and first nine months of 2022 by a $156 million and $368 million, respectively, reduction in acquisition and integration related expense. Total expenses as a percentage of total revenue for the first nine months of 2022 were also favorably impacted by operating leverage accompanying scalable revenue growth, partially offset by increased costs associated with our continued investment in businesses for growth.
Cost of processing and services as a percentage of processing and services revenue decreased to 39.2% in the third quarter of 2022 compared to 44.9% in the third quarter of 2021 and to 40.8% in the first nine months of 2022 compared to 45.1% in the first nine months of 2021. Cost of processing and services as a percentage of processing and services revenue was favorably impacted in the third quarter and first nine months of 2022 by a reduction in acquisition and integration related expenses of approximately 330 basis points and 240 basis points, respectively, as well as strong operating leverage across our businesses. The favorable impact was partially offset by an increase in severance costs of approximately 60 basis points in the first nine months of 2022.
Cost of product as a percentage of product revenue decreased to 65.8% in the third quarter of 2022 compared to 68.9% in the third quarter of 2021 and to 68.9% in the first nine months of 2022 compared to 69.9% in the first nine months of 2021. The cost of product as a percentage of product revenue improved in the third quarter and first nine months of 2022 as a result of revenue mix, including a decrease in lower margin hardware revenue in the third quarter of 2022.
Selling, general and administrative expenses as a percentage of total revenue decreased to 34.2% in the third quarter of 2022 compared to 35.5% in the third quarter of 2021 and to 34.8% in the first nine months of 2022 compared to 35.8% in the first nine months of 2021. The decrease in selling, general and administrative expenses as a percentage of total revenue in the third quarter and first nine months of 2022 was primarily due to a reduction in amortization of acquisition-related intangible assets of approximately 100 basis points in both the third quarter and first nine months of 2022.
The $120 million pre-tax loss on sale of business in the third quarter of 2022 resulted from the sale of our Korea operations. This loss was offset in the first nine months of 2022 from the $147 million pre-tax gain on sale of assets, which resulted from the sale of certain merchant contracts in conjunction with the mutual termination of one of our merchant alliance joint ventures.
Operating Income and Operating Margin
Total operating income increased $219 million, or 34%, in the third quarter of 2022 and $806 million, or 46%, in the first nine months of 2022 compared to 2021. Total operating margin increased 360 basis points to 18.9% in the third quarter of 2022 and 480 basis points to 19.5% in the first nine months of 2022 compared to 2021. Total operating income and total operating margin benefited from revenue growth in the third quarter and first nine months of 2022, along with a reduction in acquisition and integration related expenses. Total operating margin in the third quarter and first nine months of 2022 was slightly offset by costs associated with our continued investments in our businesses for growth as well as increased severance costs.
Operating income in our Acceptance segment increased $58 million, or 11%, in the third quarter of 2022 and $210 million, or 14%, in the first nine months of 2022 compared to 2021. Operating margin increased 20 basis points to 32.4% in the third quarter of 2022 and 20 basis points to 30.8% in the first nine months of 2022 compared to 2021. Operating income growth in our Acceptance segment was primarily due to revenue growth in the first nine months of 2022.
Operating income in our Fintech segment decreased $14 million, or 5%, in the third quarter of 2022 and increased $23 million, or 3%, in the first nine months of 2022 compared to 2021. Operating margin decreased 190 basis points to 34.1% in the third quarter of 2022 and decreased 50 basis points to 34.8% in the first nine months of 2022 compared to 2021. Operating income and margin were unfavorably impacted from a decrease in license and termination fee revenue of approximately 100 basis points in the third quarter of 2022 compared to the prior year period. Operating margin in the third quarter and first nine months of 2022 were also reduced by increased costs related to our continuing investment in the business, including an impact of 110 basis points and 70 basis points, respectively, related to the recent acquisition of Finxact.
Operating income in our Payments segment increased $95 million, or 15%, in the third quarter of 2022 and $168 million, or 9%, in the first nine months of 2022 compared to 2021. Operating margin increased 190 basis points to 45.6% in the third quarter of 2022 and 80 basis points to 43.9% in the first nine months of 2022 compared to 2021. Payments segment operating income and margin growth in the third quarter and first nine months of 2022 was primarily due to scalable revenue growth from our debit and credit processing businesses along with a reduction in lower margin revenue in our prepaid business.
The operating loss in Corporate and Other decreased $80 million in the third quarter of 2022 and $405 million in the first nine months of 2022 compared to 2021. Corporate and Other was favorably impacted by approximately $200 million and $480 million reduction in acquisition and integration related costs and amortization of acquisition related intangible assets in the third quarter and first nine months of 2022, respectively. The operating loss in the third quarter of 2022 included a $120 million loss on the sale of our Korea operations and $96 million of increased severance costs in the first nine months of 2022.
Interest Expense, Net
Interest expense, net increased $18 million, or 10%, in the third quarter of 2022 and $11 million, or 2% in the first nine months of 2022 compared to 2021 primarily due to higher interest rates on outstanding borrowings.
Other (Expense) Income
Other expense increased $119 million in the first nine months of 2022 compared to 2021. Other (expense) income includes net foreign currency transaction gains and losses, gains or losses from a change in fair value of investments in certain equity securities, and amounts related to debt guarantee arrangements of certain joint ventures. Net foreign currency transaction (losses) gains were ($35 million) and $8 million in the first nine months of 2022 and 2021, respectively. Other expense in the first nine months of 2022 also includes net pre-tax expense of $57 million associated with joint venture debt guarantees. Other income in the first nine months of 2021 included $12 million related to a pre-tax gain on the remeasurement of a previously held investment in Ondot to fair value upon acquiring the remaining ownership interest in the entity.
Income Tax Provision
Income tax provision as a percentage of income before income taxes and income (loss) from investments in unconsolidated affiliates was 22.5% and 11.3% in the third quarter of 2022 and 2021, respectively, and was 19.7% and 23.7% for the first nine months of 2022 and 2021, respectively. For the three months ended September 30, 2021, the effective tax rate included discrete tax benefits from subsidiary restructurings and changes in uncertain tax positions.
The effective income tax rate for each of the nine months ended September 30, 2022 and 2021 includes discrete tax benefits from subsidiary restructurings and equity compensation related tax benefits. The effective income tax rate for the nine months ended September 30, 2021 also included $134 million of income tax expense attributed to the revaluation of certain net deferred tax liabilities, primarily related to intangible assets and investments in joint ventures recognized at fair value in connection with the acquisition of First Data, reflecting the effect of enacted corporate income tax rate changes in the United Kingdom (tax rate increase from 19% to 25% starting in 2023) and Argentina (tax rate increase from 25% to 35%).
Income (Loss) from Investments in Unconsolidated Affiliates
Our share of net income (loss) from affiliates accounted for using the equity method is reported as income (loss) from investments in unconsolidated affiliates, and the related tax expense is reported within the income tax provision in the consolidated statements of income. Income (loss) from investments in unconsolidated affiliates, including acquired intangible asset amortization from valuations in purchase accounting, was ($12 million) and $22 million in the third quarter of 2022 and 2021, respectively, and $222 million and $80 million in the first nine months of 2022 and 2021, respectively*.* Loss from investments in unconsolidated affiliates in the third quarter of 2022 includes our share, or $15 million, of expenses associated with debt refinancing activities at our unconsolidated affiliates. Income from investments in unconsolidated affiliates in the first nine months of 2022 includes pre-tax gains totaling $209 million, primarily related to the acquisition-date fair value remeasurement of our previously held equity interest in Finxact of $110 million, as well as $80 million resulting from the dilution of our ownership interest in conjunction with the Sagent, M&C, LLC transaction with a third party. Income from
investments in unconsolidated affiliates in the first nine months of 2021 included a $33 million pre-tax gain resulting from the sale of our remaining ownership interest in InvestCloud, as well as a $28 million pre-tax gain resulting from the dilution of our ownership interest in connection with the Tegra118 merger with a third party.
Net Income Attributable to Noncontrolling Interests
Net income attributable to noncontrolling interests and redeemable noncontrolling interests relates to the minority partners’ share of the net income in our consolidated subsidiaries. Net income attributable to noncontrolling interests, including acquired intangible asset amortization from valuations in purchase accounting, was $12 million and $18 million in the third quarter of 2022 and 2021, respectively, and $36 million and $47 million in the first nine months of 2022 and 2021, respectively.
Net Income Per Share – Diluted
Net income attributable to Fiserv, Inc. per share-diluted was $0.75 and $0.64 in the third quarter of 2022 and 2021, respectively, and $2.68 and $1.49 in the first nine months of 2022 and 2021, respectively. Net income attributable to Fiserv, Inc. per share-diluted in the first nine months of 2021 included $134 million of certain discrete tax expenses discussed above, as well as higher acquisition and integration related expenses.
Liquidity and Capital Resources
General
Our primary liquidity needs in the ordinary course of business are to: (i) fund normal operating expenses; (ii) meet the interest and principal requirements of our outstanding indebtedness, including finance leases; and (iii) fund capital expenditures and operating lease payments. We believe these needs will be satisfied in both the short term and the long term using cash flow generated by our operations, along with our cash and cash equivalents of $893 million, proceeds from the issuance of U.S. dollar and Euro commercial paper, and available capacity under our revolving credit facility of $2.3 billion (net of $3.7 billion of capacity designated for outstanding borrowings under our commercial paper programs and letters of credit) at September 30, 2022.
The following table summarizes our operating cash flow and capital expenditure amounts for the nine months ended September 30, 2022 and 2021, respectively:
| Nine Months Ended September 30, | Increase (Decrease) | ||||||||||||||||||||||
| (In millions) | 2022 | 2021 | $ | % | |||||||||||||||||||
| Net income | $ | 1,784 | $ | 1,048 | $ | 736 | |||||||||||||||||
| Depreciation and amortization | 2,431 | 2,456 | (25) | ||||||||||||||||||||
| Share-based compensation | 244 | 190 | 54 | ||||||||||||||||||||
| Deferred income taxes | (402) | (266) | (136) | ||||||||||||||||||||
| Net gain on sale of business and other assets | (27) | — | (27) | ||||||||||||||||||||
| Income from investments in unconsolidated affiliates | (222) | (80) | (142) | ||||||||||||||||||||
| Distributions from unconsolidated affiliates | 58 | 17 | 41 | ||||||||||||||||||||
| Non-cash impairment charges | — | 6 | (6) | ||||||||||||||||||||
| Net changes in working capital and other | (881) | (680) | (201) | ||||||||||||||||||||
| Operating cash flow | $ | 2,985 | $ | 2,691 | $ | 294 | 11 | % | |||||||||||||||
| Capital expenditures, including capitalized software and other intangibles | $ | 1,148 | $ | 814 | $ | 334 | 41 | % | |||||||||||||||
Our net cash provided by operating activities, or operating cash flow, was $3.0 billion in the first nine months of 2022, an increase of 11% compared to $2.7 billion in the first nine months of 2021. This increase was primarily attributable to improved operating results, partially offset by higher working capital use compared to the prior period, including increased accounts receivable corresponding to revenue growth.
Our current policy is to use our operating cash flow primarily to fund capital expenditures, share repurchases, acquisitions and to repay debt rather than to pay dividends. Our capital expenditures were approximately 9% and 7% of our total revenue for the first nine months of 2022 and 2021, respectively.
Share Repurchases
We repurchased $1.8 billion and $1.6 billion (including the repurchase described below) of our common stock during the first nine months of 2022 and 2021, respectively. As of September 30, 2022, we had approximately 24.5 million shares remaining under our current repurchase authorization. Shares repurchased are generally held for issuance in connection with our equity plans.
In May 2021, New Omaha Holdings L.P. (“New Omaha”), a shareholder of ours, completed an underwritten secondary public offering of 23.0 million shares of our common stock (the “offering”). We repurchased from the underwriters 5.0 million shares of our common stock that were subject to the offering. The share repurchase totaled $588 million and was funded with cash on hand. The repurchased shares were cancelled and no longer outstanding following the completion of the share repurchase.
Acquisitions and Dispositions
Acquisitions
We acquired NexTable in September 2022, City POS in June 2022 and a remaining ownership interest in Finxact in April 2022, for an aggregate purchase price of approximately $686 million, net of $27 million of acquired cash, and including earn-out provisions at an aggregate fair value of approximately $6 million. We funded these acquisitions by utilizing a combination of available cash and commercial paper notes.
We acquired BentoBox in November 2021, AIP in October 2021, SpendLabs in June 2021, Pineapple Payments in May 2021 and Radius8 in March 2021. Additionally, we acquired a remaining ownership interest in NetPay in November 2021 and a remaining ownership interest in Ondot in January 2021, in which we previously held noncontrolling equity interests. We acquired these businesses for an aggregate purchase price of $882 million, net of $43 million of acquired cash, and including earn-out provisions at an aggregate fair value of $34 million. We funded these acquisitions by utilizing a combination of available cash, commercial paper notes and existing availability under our revolving credit facility. The results of operations for these acquired businesses are included in our consolidated results from the respective dates of acquisition.
Dispositions
In September 2022, we sold our Korea operations for $50 million, consisting of $43 million in net cash and an equity interest in the buyer of $7 million. In March 2022, we mutually agreed to terminate a merchant alliance joint venture with a minority partner. Upon termination of the joint venture, we received proceeds of $175 million from the sale of certain merchant contracts. The net proceeds from these dispositions were primarily used to pay down indebtedness and repurchase shares of our common stock.
We previously maintained a noncontrolling interest in Tegra118, LLC (“Tegra118”) which was accounted for under the equity method. In February 2021, Tegra118 completed a merger with a third party, resulting in a dilution of our ownership interest in the combined new entity, Wealthtech Holdings, LLC, which was subsequently renamed as InvestCloud. In connection with the transaction, we made an additional capital contribution, funded under our revolving credit facility, of $200 million into the combined entity and, in June 2021, we sold our entire ownership interest in InvestCloud for $466 million. The net proceeds from the sale were primarily used to pay down outstanding borrowings on our term loan facility.
Indebtedness
| (In millions) | September 30, 2022 | December 31, 2021 | |||||||||
| Short-term and current maturities of long-term debt: | |||||||||||
| Foreign lines of credit | $ | 257 | $ | 240 | |||||||
| Finance lease and other financing obligations | 271 | 268 | |||||||||
| Total short-term and current maturities of long-term debt | $ | 528 | $ | 508 | |||||||
| Long-term debt: | |||||||||||
| 3.500% senior notes due October 2022 | $ | — | $ | 700 | |||||||
| 0.375% senior notes due July 2023 (Euro-denominated) | 485 | 566 | |||||||||
| 3.800% senior notes due October 2023 | 1,000 | 1,000 | |||||||||
| 2.750% senior notes due July 2024 | 2,000 | 2,000 | |||||||||
| 3.850% senior notes due June 2025 | 900 | 900 | |||||||||
| 2.250% senior notes due July 2025 (British Pound-denominated) | 569 | 705 | |||||||||
| 3.200% senior notes due July 2026 | 2,000 | 2,000 | |||||||||
| 2.250% senior notes due June 2027 | 1,000 | 1,000 | |||||||||
| 1.125% senior notes due July 2027 (Euro-denominated) | 485 | 566 | |||||||||
| 4.200% senior notes due October 2028 | 1,000 | 1,000 | |||||||||
| 3.500% senior notes due July 2029 | 3,000 | 3,000 | |||||||||
| 2.650% senior notes due June 2030 | 1,000 | 1,000 | |||||||||
| 1.625% senior notes due July 2030 (Euro-denominated) | 485 | 566 | |||||||||
| 3.000% senior notes due July 2031 (British Pound-denominated) | 569 | 705 | |||||||||
| 4.400% senior notes due July 2049 | 2,000 | 2,000 | |||||||||
| U.S. dollar commercial paper notes | 2,578 | 916 | |||||||||
| Euro commercial paper notes | 1,082 | 905 | |||||||||
| Revolving credit facility | 45 | 97 | |||||||||
| Receivable securitized loan | — | 500 | |||||||||
| Term loan facility | 200 | 200 | |||||||||
| Unamortized discount and deferred financing costs | (116) | (125) | |||||||||
| Finance lease and other financing obligations | 565 | 528 | |||||||||
| Total long-term debt | $ | 20,847 | $ | 20,729 | |||||||
At September 30, 2022, our debt consisted primarily of $16.5 billion of fixed-rate senior notes and $3.7 billion of outstanding borrowings under our commercial paper programs. Interest on our U.S. dollar-denominated senior notes is paid semi-annually, while interest on our Euro and British Pound-denominated senior notes is paid annually. Interest on our revolving credit facility and commercial paper notes is generally paid weekly, or more frequently on occasion, and interest on our term loan is paid monthly. Outstanding borrowings under our 0.375% Euro-denominated senior notes due in July 2023 and U.S dollar and Euro commercial paper programs are classified in the consolidated balance sheet as long-term, as we have the intent to refinance these borrowings on a long-term basis through the continued issuance of new commercial paper notes upon maturity, and we also have the ability to refinance such borrowings under our revolving credit facility, as further discussed below.
In July 2022, we redeemed $700 million in aggregate principal amount of our outstanding 3.50% senior notes due in October 2022 at a redemption price equal to 100% of the aggregate principal amount of the notes being redeemed, plus accrued and unpaid interest. We financed the redemption of these notes using proceeds from the issuance of U.S. dollar commercial paper. We also repaid $485 million, representing all amounts outstanding on our receivable securitized loan, in July 2022 using proceeds from the issuance of U.S. dollar commercial paper and terminated the underlying receivables financing agreement.
In June 2022, we entered into a new senior unsecured multicurrency revolving credit facility with substantially the same syndicate of banks that were lenders under our existing amended and restated revolving credit facility, which we voluntarily terminated and replaced. The new credit agreement matures in June 2027 and provides for a maximum aggregate principal amount of availability of $6.0 billion.
The indentures governing our senior notes contain covenants that, among other matters, limit (i) our ability to consolidate or merge with or into, or convey, transfer or lease all or substantially all of our properties and assets to, another person, (ii) our and certain of our subsidiaries’ ability to create or assume liens, and (iii) our and certain of our subsidiaries’ ability to engage in sale and leaseback transactions. We may, at our option, redeem the senior notes, in whole or in part, at any time prior to the applicable maturity date.
The new revolving credit facility contains various restrictions and covenants that require us, among other things, to limit our consolidated indebtedness as of the end of each fiscal quarter to no more than 3.75 times our consolidated net income before interest, taxes, depreciation, amortization, non-cash charges and expenses and certain other adjustments (“EBITDA”) during the period of four fiscal quarters then ended, subject to certain exceptions.
The term loan facility contains various restrictions and covenants that require us to, among other things, (i) limit our consolidated indebtedness as of the end of each fiscal quarter to no more than 3.5 times our EBITDA during the period of four fiscal quarters then ended, subject to certain exceptions, and (ii) maintain EBITDA of at least 3.0 times our consolidated interest expense as of the end of each fiscal quarter for the period of four fiscal quarters then ended.
During the first nine months of 2022, we were in compliance with all financial debt covenants. Our ability to meet future debt covenant requirements will depend on our continued ability to generate earnings and cash flows. We expect to remain in compliance with all terms and conditions associated with our outstanding debt, including financial debt covenants.
Variable Rate Debt
Our variable rate debt consisted of the following at September 30, 2022:
| (In millions) | Maturity | Weighted-Average Interest Rate | Outstanding Borrowings | ||||||||||||||
| Foreign lines of credit | n/a | 33.53% | $ | 257 | |||||||||||||
| U.S. dollar commercial paper notes | various | 3.37% | 2,578 | ||||||||||||||
| Euro commercial paper notes | various | 0.80% | 1,082 | ||||||||||||||
| Revolving credit facility | June 2027 | 4.23% | 45 | ||||||||||||||
| Term loan facility | July 2024 | 4.31% | 200 | ||||||||||||||
| Total variable rate debt | 4.62% | $ | 4,162 | ||||||||||||||
We maintain short-term lines of credit with foreign banks and alliance partners primarily to fund settlement activity. These arrangements are primarily associated with our international operations and are in various functional currencies, the most significant of which is the Argentine peso.
We maintain U.S. dollar and Euro unsecured commercial paper programs with various maturities generally ranging from one day to four months. Outstanding borrowings under our commercial paper programs bear interest based on the prevailing rates at the time of issuance. In August 2022, we increased our U.S. commercial paper program borrowing capacity to $6.0 billion to align with the maximum amount of availability under our revolving credit facility.
As discussed above, we maintain a revolving credit facility with aggregate commitments available for $6.0 billion of total capacity. Borrowings under the credit facility bear interest at a variable rate based on a Secured Overnight Financing Rate (“SOFR”) or a base rate in the case of U.S. dollar borrowings, in each case plus a specified margin based on our long-term debt rating in effect from time to time. We are required to pay a facility fee based on the aggregate commitments in effect under the credit agreement from time to time.
We maintain a term loan credit agreement with a syndicate of financial institutions. Outstanding borrowings under the term loan bear interest at a variable rate based on one-month LIBOR or a base rate, in each case plus a specified margin based on our long-term debt rating in effect from time to time.
Cash and Cash Equivalents
Investments, exclusive of settlement assets, with original maturities of three months or less that are readily convertible to cash are considered to be cash equivalents as reflected within our consolidated balance sheets. At September 30, 2022 and December 31, 2021, we held $893 million and $835 million in cash and cash equivalents, respectively.
The table below details the cash and cash equivalents at:
| September 30, 2022 | December 31, 2021 | ||||||||||||||||||||||||||||||||||
| (In millions) | Domestic | International | Total | Domestic | International | Total | |||||||||||||||||||||||||||||
| Available | $ | 114 | $ | 163 | $ | 277 | $ | 180 | $ | 221 | $ | 401 | |||||||||||||||||||||||
| Unavailable (1) | 228 | 388 | 616 | 138 | 296 | 434 | |||||||||||||||||||||||||||||
| Total | $ | 342 | $ | 551 | $ | 893 | $ | 318 | $ | 517 | $ | 835 |
(1)Represents cash held by our joint ventures that is not available to fund operations outside of those entities unless the board of directors of the relevant entity declares a dividend, as well as cash held by other entities that are subject to foreign exchange controls in certain countries or regulatory capital requirements.
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