Riding the cycles.

Author:Hewitt, Janet Reilley
Position:Profile - Fiserv president and CEO Leslie Muma

Leslie Muma is one of the founders of Fiserv Inc., Brookfield, Wisconsin, and its president and CEO. The financial services technology firm employs more than 19,000 people globally and is buying up companies left and right. The key to success: good management and great vision.

IN 1984, LESLIE MUMA AND HIS PARTNER GEORGE DALTON FOUND THE HOLY GRAIL OF BUSINESS MODELS. They built their new company, Fiserv, on the principle of recurring revenue. And their Wisconsin-based company has been kicking off recurring revenue ever since.

The notion from the beginning, as Muma, Fiserv's president and chief executive officer, explains, was to buy up the little localized bank and thrift data-processing companies around the country in order to build a national company. Muma and Dalton both were running such smaller companies, and they saw the signs of serious consolidation coming in financial services just as it started to gain a full head of steam. This was back when banking was banking. And thrifts were thrifts. And mortgage banks were still stand-alone companies, in many cases.

What they built has become a powerhouse company in financial services. And today financial services no longer follows the boundaries of bank, savings and loan or mortgage bank. Financial services means all the transactions tied to how people use, store and invest their money. So today the vision of a company built around recurring revenue from financial services-related transaction processing is the sweet spot in terms of positioning a viable company.

In the midst of today's sour economic environment, does Muma worry he will disappoint shareholders with weak numbers in 2003? As it turns out, Fiserv's business model has made it almost bullet-proof even in down times.

When we interviewed Muma in his boardroom recently, this is what he said: "When we put the company together, we believed very strongly in building it on recurring revenue. The fact that it's pretty resistant to economic swings is just the nature of the beast. I don't think that was really in our mind when we built the company. What we were looking for was recurring."

A presentation that Muma delivered to Merrill Lynch as an update on Fiserv showed that 80 percent of the company's revenues today come from electronic transaction processing, account/transaction processing and check/back-office processing. Revenue from those sources are 85 percent to 90 percent recurring.

The remaining 20 percent of Fiserv Inc. revenues come from support systems and services (including things like loan origination systems, imaging systems and automated home-valuation services). This smaller revenue source is 70 percent to 75 percent recurring.

In other words, they have built a money-making machine of a company.

The cold winter afternoon we showed up on Fiserv Drive in Brookfield, Wisconsin, to talk to Muma about his company was the afternoon before the release of the firm's fourth-quarter earnings. Muma was clearly in a good mood, but not giving any sneak previews.

But as it turned out, Fiserv's numbers were impressive. The company announced record earnings for 2002.

The company posted revenues (excluding customer reimbursements) in 2002 of $2.278 billion--an 18 percent increase over the prior year. The final quarter of last year saw revenues jump 16 percent over the fourth quarter of 2001.

Shareholders and Wall Street analysts had to be happy finally to see a company posting strong year-end numbers, and the guidance for this year also anticipates healthy gains.

The earnings release states, "Net income per share-diluted (excluding realized gains from sale of investment) for the year ended December 31, 2002, was $1.36 per share, compared to $1.07 per share for 2001." Muma added, "Our earnings per share target for 2003 (before any realized gains from sale of investment) is $1.58 to $1.62 per share."

The acquisition path

As you enter the large lobby of the...

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