Q4 2019 Earnings Call
Welcome to the fights over 2019 fourth quarter earnings Conference call. All participants will be in listen only mode until the question and answer session begins following the presentation. As a reminder, today's call is being recorded at this time I will turn the call over to Peter Pulliam Senior Vice President of Investor Relations at Pfizer.
Thank you I mean and good afternoon, everyone.
With me today, Jeff you bulky, our chairman and Chief Executive.
The signal, our president and Chief operating officer about how our Chief Financial Officer.
Earnings release, and supplemental presentation for the quarter and full year are available on the Investor Relations section of Spicer Dot com.
My remarks today will include forward looking statements about among other matters expected operating and financial results strategic initiatives and expected benefits and synergies from our recent acquisition to first data.
Forward looking statements may differ materially from actual results and are subject to a number of risks and uncertainties.
You refer to our earnings release for discussion of these risk factors.
Please refer to our materials for today's call for an explanation of the non-GAAP financial measures discussed in this call along with a reconciliation of those measures to the nearest ethical GAAP measures unless stated otherwise performance references made throughout this call for year over year comparisons in all references to internal revenue growth on a constant currency basis.
Also note that non-GAAP financial measures included in our earnings release and supplemental materials include the fourth quarter of 2018, and full year 2019, and 2018 results for first data, which had been prepared by making certain adjustments to the sum of historical first data insights or GAAP financial information.
Additional historical combined financial information please refer to the form 8-K, which we filed on October Threerd.
A reminder, will host an Investor conference on March 25th in New York City, We expect presentation to run from about 30 I am to noon will also host a lunch. Following the program. We look forward to see new at this important event.
I'll turn the call over to Jeff.
Thanks, Peter and good afternoon, everyone.
2019 was a Europe transformation growth and excellent financial performance was just over a year ago that we announced our plans to transform the industry through the acquisition of first data and just over 180 days since we've closed.
Got the announcement, we shared our belief that first data was a stronger business than people understood and that the industrial logic of the combination was incredibly compelling.
We continue to get positive market feedback as we center on creating long term and differentiated value for clients. Although the transaction has only been closed for a short time, we've made substantial progress against our goals and our even more bullish about the scope of opportunities for the combined company.
Our key tenants of shareholder value high quality recurring revenue growth expanding operating margins strong free cash flow and disciplined capital allocation running full display in 2019.
Our financial performance included internal revenue growth of 6% adjusted operating margin expansion of 100 basis points and we achieved our 34th year in a row of double digit adjusted earnings per share growth.
Importantly, free cash flow was up 16% to more than $3 billion driven by excellent free cash flow conversion of 118%.
Sales were strong accelerating the 15% growth in the quarter and up 10% for the year, we repaid debt as promised divested several businesses and restarted our programmatic share buybacks earlier than anticipated.
These outstanding results combined to deliver total shareholder returns of 57% in 2019.
Was also up 118% and 226% for the three and five year periods respectively.
Turning to 2020, our performance outlook of higher internal revenue growth superior operating margin expansion adjusted EPS growth in the mid Twentys and strong free cash flow is a great start to what we believe will be an outstanding decade for your company.
Results for the fourth quarter were right in line with guidance. We provided in Q3 internal revenue growth, 5% was led by another excellent quarter in our merchant business up 9% in the quarter and 10% for the full year.
Adjusted earnings per share in the quarter was up 18% to $1.13 cents and adjusted operating margin was up 100 basis points to 31.4%.
Free cash flow was outstanding reaching nearly $1 billion in the quarter.
Full year internal revenue growth was up a very strong 6%.
Adjusted earnings per share was up 16% to $4 and adjusted operating margin was up 100 basis points to 29.7%.
Free cash flow for the full year increased 16% to $3.3 billion. We are intensely focused on growing high quality free cash flow allocating that capital in a way that optimizes long term shareholder value on both an overall and per share basis.
We continue to see strategic operational and market proof points, which taken together reinforces the power of the combination momentum is strong and our opportunity to differentiate is greater than ever the privilege relationships. We have in our account processing businesses are critical and our strategy to serve clients exceptionally.
Well one of our key priorities is to deeply integrate high value solutions, such as our bank merchant offering which enables our clients to generate revenue while serving their most important customers along those lines. We signed 24, new account processing clients in the quarter, including 10 on DNA such as adverse.
Farm credit bank with more than $34 billion in assets American Eagle financial credit Union, the largest community based credit Union in Connecticut with $1.8 billion an asset.
Ended bank with $3.6 billion and assets.
Our Clover platform has continued its stellar growth increasing its annualized gross payment volume by more than 40% year over year payment devices shipped was up 25% for the year and the adoption of add on Clover services continues to increase across the growing base, we recognize the strategic importance of tech.
LNG oriented merchant acquiring.
Focused on sustainably growing our eyes fee and ecommerce footprints through both sales and innovation.
We continue to see digital momentum signing more than 80, new direct E commerce clients for the year and 23 in the fourth quarter alone.
Ecommerce transactions were up 30% for the year, reflecting the continuing strength of digital commerce globally.
Our focus on delivering customer based digital innovation led to the recent connected commerce announcement, enabling Exxon and Amazon Alexa to team up the gas Bob utilizing voice based technology.
We continue to see significant growth potential in our integrated payments business, where our highest partners grew more than 25% for the year importantly bias fee revenue grew by nearly 60% in 2019, and we expect to see continuing strong growth moving forward.
Our merchant business also continues to perform well outside the United States signing Delta Airlines for acquiring services across several international regions. We also renewed our important merchant JV relationship in January with IC.
One of India's leading banks, which positions us for further expansion in that important growth market.
Hey Bank. This one of the first institutions to have been granted a virtual banking license in Hong Kong and has chosen Pfizer to manage its card processing.
At Vietcong Bank, one of Vietnam's, leading banks with more than 17 million accounts went live in January on our flexible and scalable signature international core processing platform.
With that let me turn the call to Frank to provide an update on our integration and synergy progress.
Thanks, Jeff and good afternoon, it's wonderful to be here today discussing the creation of news five serves to best in class integration.
We are making great progress serving clients enhancing our growth profile through revenue synergies and moving the needle on cost actions at the same time as you can see from our strong 2019 results. We remain focused on profitably growing our existing business to deliver shareholder.
Yes.
We were excited to starts in a decade by being named as a Fortune magazine world's most admired company for the seven year Anoro.
This recognition is a testament to the hard work dedication and commitment of our associates around the world.
And personal and very proud the proud to be part of this team.
As you know, we said initial five year target of at least $500 million of revenue synergies and $900 million of cost benefits.
Hi remains that we are highly highly confident in achieving these targets and continue to identify ways in which we can over achieve in terms of both quantum and timing.
We continue to advance a growing list of revenue synergies designed to deliver additional client value and incremental revenue growth. These initiatives represents a solid mix of near and long term opportunities, which should enable us to serve clients in a way.
That will drive enhanced growth and profitability size here.
Over the next decade.
We continue to see better than expected results Bank merchant program for five serve account processing clients.
We signed 44, new clients in the fourth quarter more than tripling the signings in Q3 and signed over 50 for the year.
We are seeing a good balance between de novo programs and competitive takeaways, what's you're running about one third of the signings higher and anticipate at this stage.
We exited the year with more than 300 institutions in the pipeline and continue to believe will exceed the 200 million dollar revenue synergy target for this very important initiatives.
In addition to make bank merchant services, there is a large opportunity to cross sell solutions around the world, where one or both of the original firms has an influential relationships.
Samples include Checkfree dovetail payment hub.
In a credit card processing and output solutions.
We continue to be bullish on the revenue synergy opportunities emerging from network innovation, the combination of star and Excel as the third largest debit network in the US provides us with significant opportunity to differentiate with issuers and merchants.
Importantly, we are on track to deliver at least $100 million of revenue synergies in 2020.
And our well on track to meet or exceed our initial 500 million dollar revenue target.
We are also making excellent progress against our cost synergy objective of at least $900 million.
How initial focus is to stream streamlined cost structure through enhanced efficiency.
Increased operational rigor.
And a significant focus on a $4 billion of annual vendor spend.
We have gained $46 million of cost synergies in 2019.
And are continuing to grow at a level of annualized run rate savings.
We expect incremental cost synergies of more than $300 million in 2020, and given the combination of visibility in actions to date also anticipate very strong cost synergy performance in 2021.
We are pleased would outperformance to date and have increasing confidence in our objective to exceed the original synergy targets over the five year period.
We will provide a full update of both cost and revenue synergy targets and our March Investor Conference.
Since the time of the transaction announcement, we have guy and questions on how the original Pfizer operational effectiveness program, which intersect with the cost synergy program.
We see a number of opportunities to operate our businesses more efficiently, while enhancing our client experience through innovation, such as RP, a cloud and process reengineering, which we believe will also provide additional economic.
Attuned study beyond the cost synergy program.
An important 2020 priority is to continue working collaboratively with bank of America on the joint venture dissolution, which is slated for June 2020.
This discussions are progressing very well and both parties are focused on ensuring the delivery of great service to our shared clients. We continue to believe that the financial impact of the VAM separation will be generally accretive to our results over the next few years.
Overall, there's nothing more important than delivering on the promise of new Pfizer.
Unifying purpose across the enterprise is to build an extraordinary company for our clients associates and shareholders.
With that let me turn the call over to Bob to provide detail on our financial results.
Thank you Frank and good afternoon.
Let me start off by saying that we feel great about our financial performance and have confidence in our ability to create sustained value for clients and shareholders.
Internal revenue growth was 5% as expected in the quarter and 6% for the year.
We're pleased to see modest contributions from a revenue synergies, which we believe we believe will accelerate to at least $100 million in twentytwenty.
Adjusted operating income increased 7% to $1.2 billion in the quarter and was up 8% to $4.3 billion for the year, which includes an early contribution from synergies.
Adjusted operating margin in the quarter was up 100 basis points to 31.4%.
The improvement was driven by a combination of continued revenue growth the lapping of prior years tax reinvestment in the early benefits from synergies, partially offset by the expected lower periodic revenue compared to the fourth quarter last year.
Adjusted operating margin for the full year was up 100 basis points to 29.7% driven by improved revenue growth cost efficiencies and a modest impact from early synergy realization.
Adjusted earnings per share was up a very strong 18% to $1.13 cents in the quarter and increased 16% to $4 for the year, which also marked 34th consecutive year of double digit adjusted EPS growth.
These results include a negative impact from foreign currency of two cents and 11 cents per share for the quarter and full year respectively.
As you know we intend to modify our segment structure in 2020, and we'll report our future results on that basis, we expect to file an 8-K in March that will provide the new segments, along with comparable financial information on a quarterly basis for 2018 and 2019.
Now onto the segments.
Internal revenue growth in the first data segment continued to be strong and 6% in the quarter and 7% for the year. This performance included outstanding results in the former GBS segment, delivering 9% growth in the quarter and 10% for the full year.
Internal revenue growth in GBS, North America was a very solid 6% in both the quarter and year.
And as we mentioned in our Q3 call. We don't intend to provide this level of sub segment detail beginning in 2020.
Global merchant acquiring both at the physical point of sale and in digital markets were important contributors to our 2018 growth with strong performance in India, Brazil and Argentina.
Additionally, we saw solid performance in our domestic business, including continuing strength in our digital Commerce solutions.
Our ideas feet partners grew by more than 25% for the year translates almost 25000, new ASV merchant locations.
Importantly, the number of global contracted merchant locations in 2019 expanded by double digits.
We also continued to expand our leadership position in card issuing with worldwide accounts on file up solidly in the mid single digits for the full year.
Segment, adjusted operating income increased 6% to $708 million in the quarter and was up 5% to $2.7 billion for the year.
Adjusted operating margin in the segment was up 50 basis points to 31.9% in the quarter and 30.7% for the year driven primarily by strong revenue growth.
And original Spicer payments segment delivered the internal revenue growth of 4% in the quarter and 5% for the year impacted as expected in the quarter by lower periodic revenue.
We saw strong strong segment growth performance in card services output solutions and some early network revenue synergy benefits.
Adjusted operating income for the segment was excellent growing 12% to $353 million in the quarter up 11% to $1.3 billion for the year.
Adjusted operating in operating margin in the quarter was outstanding up a very strong 250 basis points to 39.2% and was up 70 basis points to 36.3% in the year.
This increase was generally from growth in high quality revenue reduction of last year's tax funded investments and the benefits from productivity and early synergy performance.
Transactional businesses performed well with debit transactions up in the high single digits for the quarter and year and Mobiliti ASP subscribers increased 11% in the quarter to more than 9 million.
PDP transactions, which include both pop money Enzo continued their rapid growth doubling versus Q4 last year in up 18% sequentially.
While transactions tripled in 2019, and the number of live clients increased tenfold compared to a year ago.
Signings were also very strong for the year almost doubling to more than 360, which included 112 in the fourth quarter alone.
Internal revenue in the financial segment for the quarter. It was flat as expected driven by much lower periodic revenue, partially offset by gains in high quality recurring revenue.
For the full year internal revenue growth was solid 3% led by our account and item processing businesses.
Adjusted operating income in the financial segment was flat in the quarter at $207 million. It was up 1% to 805 million for the year.
Adjusted operating margin was up 40 basis points in the quarter to 34.1% with the benefit of growing recurring revenue and operational effectiveness more than offsetting the impact of lower periodic revenue.
Adjusted operating margin for the full year was up 20 basis points to 33.5%, which is the highest level obtained in the last several years.
The adjusted corporate operating loss in the quarter was flat to the prior year at $100 million in down 11% to $414 million for the full year, primarily due to combination of cost synergies and operational efficiency benefits in both emerging companies.
The adjusted effective tax rate came in slightly better than expected at 22.8% for the quarter and 21.4% for the year, primarily due to higher than expected benefits and stock based compensation.
Due to the transaction close we expect this benefit to be reduced in 2020 and become a bit of a tax rate headwinds with the largest impact in Q1.
Accordingly, we expect our adjusted effective tax rate for 2020 to be in the range of 20% to 23%.
Free cash flow of $984 million in the quarter was driven by a combination strong operating results and some benefit from settlement timing in our merchant business.
Full year free cash flow is a very strong 16% to $3.3 billion and free cash flow conversion was 118%.
We expect to see continued free cash flow benefits from the utilization of the first data tax and a well in 2020.
We repurchased 2.2 million shares for $238 million in the quarter and 4.2 million shares nearly $400 million in the year.
I'm pleased to have re entered a more regular cadence and share repurchase which should carry into 2020.
As of December 31, we had 680 million shares outstanding and 22 million shares remaining authorized for repurchase.
Total debt outstanding which is about 78% fixed rate was $21.9 billion and debt to adjusted EBITDA was 3.8 times as of December 30 Onest.
We repaid nearly $600 million debt in the quarter and remain committed to returning our historic leverage level within 18 to 24 months through a combination of debt repayment and strong EBITDA growth.
In December we announced an agreement to sell a 60% interest in our investment services business to motive partners.
Along with entering into a joint venture we expect to receive approximately $510 million of net after tax proceeds from the sale, which will be primarily redeployed to share repurchase.
Overall, the net expected dilution from our for 2019 divestitures should be about five cents in twentytwenty.
We will continue to use our portfolio management discipline to ensure we have the optimal mix of businesses to deliver sustained client and shareholder value in your company.
In conjunction with the first data merger, we recorded a non cash impairment charge and the GAAP results in the quarter associated with an international core accomplished.
Core account processing platform.
Lastly, using the midpoint of our 2020 adjusted EPS guidance, we will have already achieved approximately 25% accretion from the first data transaction.
We will remain on track to.
To meet or exceed our commitment of more than 40% accretion over the five years synergy period with that let me turn the call over to Jeff. Thanks, Bob as we mentioned upfront market momentum continued in Q4 with a 15% increase in sales for the second quarter in a row and with strong performance across several areas and.
Putting banks solutions card services merchant solutions and biller.
Q4 results are even more noteworthy considering original five serves sales results in the comparable period, we're at a record level on a combined basis sales was up 10% for the year and our pipeline remains strong we are seeing synergy opportunities grow as the market explores the benefits of new Pfizer.
For which we believe will lead to incremental revenue growth in 2020 and beyond.
For original Pfizer integrated sales was up 41% sequentially and up 5% for the year.
During the fourth quarter, we achieved $11 million of operational effectiveness benefits and $47 million of savings in 2019, which completes our five year $250 million program one year early.
As you know we provided a preliminary view of 2020 performance in Q3, and our actual 2020 outlook is right in line with that preview.
We expect constant currency internal revenue growth of 6% to 8% for the year with growth rate acceleration coming from continuing strength in our global merchant business, the cumulative impact of sales and implementations and the achievement of in your revenue synergies.
We expect 2020 adjusted earnings per share growth of 23% to 27% or $4.86 a $5 into subs off the revised 2019 result of $3, a 95 cents, which reflects that nest divestiture impact Bob mentioned earlier.
Our outlook also contains negative FX impact of approximately seven to eight cents per share, which is incremental to the decline in 2019.
We expect adjusted operating margin to expand by at least 250 basis points and that free cash flow conversion will be greater than 112% for the year.
For modeling purposes, we expect our Q1 results to be pressured by the comparison against last year strongest quarter, which also had a high level of nonrecurring and periodic revenue. Additionally, we expect revenue growth and earnings to build sequentially throughout the year as action plans are executed and cost and revenue.
Synergies fold into our results overall, we expect the quantum of these benefits and the impact RPL to be sustainably higher in the second half of the year, which should also provide a strong jumping off point as we enter 2021.
2019 was a watershed year for Pfizer, we were again named a world's most admired company achieved our 34th consecutive year of double digit earnings per share growth and most importantly acquired first data in a market defining transaction that significantly advanced our aspiration of moving money and info.
Commission in a way that moves the world.
We're excited to enter a new decade of growth and opportunity. We believe we have assembled the strongest client centric solutions in the industry. The best Associate team and are focused on delivering above market returns for you our shareholders.
As we close let me thank our more than 40000 talented associates around the world, who worked relentlessly to serve clients and to deliver Pfizer out our best with that Ivy, Let's open the line for questions. Thank you we would now like to open the lines for any questions. If you do have a question. Please hit star one and.
Record your name clearly when prompted again, that's star one to ask a question.
Our first question in queue as Brett Huff from Stephens. Your line is open.
Good afternoon, guys and congrats on a nice quarter in a first quarter first annual outlook.
Thanks, Brett.
Just quick questions on as we look in kind of Numerate and Frank you talked about this as you think about the various categories of revenue synergies.
You mentioned network synergies card issuing things like that.
Would you order the priority of those for US and now that you kind of been in finances for six months or so and give us a little bit more color on each of those buckets.
Well.
Bank merchant and the merchant opportunity, we would put at the highest level.
And you see that performing and how we're signing it up and when Jeff and I thought about this we always thought that that we would have a strategic advantage with the clover platform and al out great privileged position in core price.
So, saying account processing and along without the bank relationships.
Second.
The bringing together. These two networks is a very very unique opportunity that takes us we were already in some cases number three when you put it together where a powerful number three.
But we havent is merchant businesses that affords our clients opportunity so youre watching the client centricity.
These opportunities that are that are good for our shareholders and good proud clients.
And then the ability to take the privilege physicians both companies said, what the long list of assets output is a very strong product you know we know that we can have check free and.
Payments.
Dove tail, all those are very strong opportunities and the cross sell and as Jeff talks about the market reaction is every time, where together with the client we get this very deep feeling of even more we can do for them and so we look forward to it.
Yesterday talking more deeply about.
Brett I would say I think Frank is exactly right. The only other thing I would say is as we continue to have the privilege of spending more time together, we are identifying more and more unique opportunities. We currently have more than 80 different synergy.
Revenue synergy opportunities in play and that list continues to grow and so the beauty of this is not only do we see opportunities to deliver value as we've talked about whether it's in the bank merchants and network and output kind of some of the nearer in opportunities, but the ability to drive concur.
Renewing value through the wonderful solutions and people that we have in the organization, we're increasingly bullish and again, we'll spend more time on that in March.
That's great. My quick follow up is that the longer bigger picture longer term idea of owning both the the funding account in the merchant point of sale that was I know one of the things on the list that intrigue about the combination as you again as your six months into this what is your view on that has it changed has evolved at all gotten more concrete thanks for the questions.
Sure, Brian and I would say that it continues to evolve we believe that there is again kind of a unique even more increased privileged position, where you can have access to the transactional accounts with all of the evolution that's happening in the payment space around real time.
Any movement and we continue to see that has a very interesting future opportunity.
And that would be incremental to the kinds of opportunities that we see today and so were we continue to be very excited about that great. Thanks, guys. Thank you.
Next David Koning with Baird. Your line is open, yes, hey, guys great year. Thanks.
Yes, yes, I guess.
My first question when we think a 60% growth I mean, it's very encouraging and is it both segments, both Pfizer and first data accelerating like it is for Pfizer is going to be Fiveish in first data seven to nine is that kind of what we should be thinking of yet so Dave I would say that.
That is Bob talked about we will be moving away from our traditional segment structure and we'll move to new segmentation and we would expect.
Each of those areas to continue to grow I would say if you went back to the the old kind of the original structures, we would expect to see our payments or payment segment have incremental growth really driven by strength in in in our digital and mobile capabilities in sale.
In network some of those areas so around CCAR, sorry around card processing in on balance. So we would expect that to grow as we've talked about before we would expect to see some level of improvement in the traditional financial segment, but as you know that segment both produces good solid.
Returns and margins on a standalone basis, but also does the double duty of being a hub for us to deliver future.
And integrated value through other solutions, whether it be bank merchant.
Card or any other capabilities that we have so a longer answer, but yes, we would expect to see acceleration in each of the different traditional segments.
Our balance.
Great. Thank you and just a quick follow a free cash flow incredibly strong over 112% I think is what you said youre guiding to and I know that includes a little bit and no well is there a way to think of what that is without the NFL maybe in a longer term basis is still like 105 or something like that I would say in Bob will certainly add in here there is no.
Reason to believe that our free cash flow performance will be below what it had been historically.
Okay.
Which is in that range, yes, absolutely the right way to look at it and as I mentioned in my prepared remarks day, we've got the I know well benefit.
Repeating we occurring and 2020.
And have expectation of leased 112%.
Longstanding above 100% for the company going back many many years.
To see that come forward, yes, I would say, Dave the only other caveat to keep in mind and it's not an annual caveat, but it's a quarterly caveat in that depending on the days that the quarter's end and and everything else you could have some merchant settlement moving up and down so you'll have a little bit more of that between core.
Orders, but on an annual basis, we are absolutely committed to running free cash ahead of normal earnings great. Thanks, guys. Thank you.
Thank you next Sam Darrin Peller with Wolfe Research your line is open.
Hey, Thanks, guys I just want to start off the Q4 results Hey, how are you.
If you if you normalize for the periodic revenues you talked about I guess, what would you what kind of impact that out on the quarters internal growth of 5% and then just thinking about the outlook to 60% range I mean, what would go right for the top end to that what do you expect to be or you just being conservative for the six part of its a little bit more color would be great. Thanks, guys. You're so if you think about.
If you think about the.
It's hard to talk about it in terms of the entire business because obviously a fair amount of a periodic revenue comes out of the traditional or the original Pfizer business, but in the original Pfizer business, it's kind of a little bit more than a point.
Revenue growth, we gave up because of the periodic revenue and we also have had a drag most of the year in our biller solutions business, where we had a large client grow over from the prior year and so those kinds of negatives are running through certainly running through Q4 and.
And did have an impact again consistent with what we laid out in Q3, but on an absolute basis that would have in the case going into going into 2020.
We feel we feel really good about where we sit we had 15% sales growth in Q4, we had 15% sales growth in Q3, and one of the great things about that as we were worried what might happen what the market frees up and what we saw is very strong growth and so that 30% growth in the last six.
Onto the year it will start to see some of that roll in and one of the levers that you could move us up on the continuum is faster implementations faster growth of those clients as you know almost all of our clients end up.
End up ramping up I think the other thing would be do we see higher levels of performance outside the us than we're planning for today I think that could move us up move us up on the continuum and and I think the last thing would be faster realization of revenue synergies and so as Frank talk.
About whether its bank merchant network output those kinds of areas could all conspire to have higher growth kind of move us up to the move us up to the top end, but nothing has changed from where we sat at Q3. We think this range is prudent but our perspective is still the same as it was.
In Q3.
All right that's really off we'll just one quick follow up the 40% growth and Clover I mean that continues to be extremely strong and does that still just the organic trend of follow through from what first data already built or.
Are you starting to see some benefit from cross selling through the Pfizer banks or any other cross selling upfront. Thanks, yes, yes. Thanks, Darrin I would say that there has been exactly no impact on the Clover GPV growth in fact, each of the quarters for the year Clover grew above 40% really stellar.
Hormones and.
Annualized run rate in excess of 100 100 billion dollar so we feel quite good about that.
And.
While we're excited about the progress that we made on bank merchant Theres really been no contribution yet and really I don't think we'll start to see any movement in contribution until the second half of next year and even that will take time to ramp as you've seen it up and clover.
Historically it for the great work that Frank and the team has done but we do believe that's going to be a meaningful.
Meaningful tailwind to growth over the next several years.
That's great. Thanks again, guys. Thanks Darren.
Thank you next CFO, David Togut from Evercore ISI. Your line is open.
Thanks, Good afternoon.
As you sit down with your banking credit Union Ceos to discuss 2020 spending priorities.
What would you characterize as the top spending priorities for your bank in credit Union clients.
How does your solution set match up against those and then number two how would you characterize the overall demand environment.
For 2020 in the core Pfizer financial sector.
Based upon your conversations with bank and credit Union CEO.
Yes. Thanks, Thanks, David I would say that the priorities for financial institutions in the US are continuing as they were I would say everything digital whether it is on the consumer side, the small business side. The commercial side, that's really job one can.
Continuing to make the institutions more efficient through straight through processing right digital really requires a straight through processing, we're seeing a lot of discussion around around money movement, Frank made reference to the dovetail payments hub as one of the interesting cross sell opportunity.
Is that we have as a result of the combination.
Not really illustrative of modernizing the back office. So we continue to see that as as a important priority and then third I would say, it's all about cyber making sure that banks, how are arguing everything they can to solidify their position around safety and soundness.
Yes, right, which is instrumental to the banking system. So I would say those would be the top three priorities. We're also seeing some modernization going on behind the scenes around the infrastructure thats required to operate in a digital kind of a think about a digital real time 24 by seven world but.
That is still secondary to the cost to the first three items.
That we talked about so that trend continues we think we are very well positioned in what we are doing today around digital we've been talking about a for a while whether it's around mobility architects solution, it's helping to re energize.
The the account processing the core banking space, both in the the bank and credit Union side, we're making a lot of progress in our security solutions and some of our some of our other solutions that are around safety and soundness. So again, good progress there and third by payments have been a big.
Deal for Us and so we continue to make progress overall, I would say that on balance to spend environment.
If you would have asked me six months ago, given where interest rates removing.
I would have thought that we would see in a more muted spend environment. The spending environment has actually held up I think part of it is we're getting used to a lower spread world and banks realize they have to continue to spend you of course are seeing discretionary spending being pulled from places that may not be in the top.
Priorities, but on balance we remain bullish going into 2020 on the spend front of without segment of the of the base, including the synergy work bank merchant and other areas.
We're bullish and optimistic going into the year.
Thanks, Thank you Ramsey El aside from Barclays. Your line is open.
Hi, Thanks, I wanted to ask about the competitive takeaways, specifically on the merchant services cross selling into the banks.
What how can you kind of.
Characterize the sort of secret ingredient to picking off those relationships as it is it clover is it more just focus sales attention is it bundling with other services like what's giving you the sort of torque in those negotiations in order to sort of pick off customers.
So I would say that we have we have for years talked about the importance of the core processing the have to a strategically privileged relationship and so I would say.
At the top of the houses that relationship that we have with clients.
However, it's really been complemented beautifully by the technological innovation that Clover brings to the party and offers banks and opportunity to bring Apple like innovation to there to their commercial to their commercial clients.
To their small businesses. So from that perspective, those two items have been have been very important thirdly, because of the privileged position. We have we been driving deeper integration integration into digital capability integration into commercial cash management and if we're working on innovation into.
Our notify alerting hub, we're working on innovation, that's going to allow banks to have deeper relationships with these small businesses and commercial customers. So from that perspective, I would say that combination is what's allowed us to get off to such a good start both both as free.
We've talked about in the de Novo space as well as in the competitive space. So on balance good and we're also seeing what I would have anticipated or why did anticipate that we would see smaller banks take take the lead and while they have almost 20% of the convey.
Versions are institutions that are greater than 1 billion of assets. So from that perspective, we feel good about the place and the reaction from the market.
Okay. That's super helpful and then.
In light of some of the recent divestiture activity.
How would you describe the collection of assets that you have now under the combined companies or is it sort of where you wanted to be or should we expect kind of a steady stream of of incremental divestitures as we move forward, Yes, Ramsey, we're still in the process of of reviewing strategic fit and really.
Making sure that we have the bandwidth to put.
Effort into some of these businesses. So if you take the investment services business, which was obviously the large divestiture, we announced in the fourth quarter. That's what we think Thats a fantastic business, we we think with the right leadership and the right capital.
That is a wonderful business, which is why we kept a 40% of the business, but we believe that needed additional management and the opportunity cost for US was two great given everything we have that that Bob and Frank and I've been talking about so from that perspective that was important I would say that way.
While you may see us do some trimming overtime.
We don't I am I don't we're not sitting here with a list of big divestitures that are coming.
We're really looking and we like our portfolio a lot I think we've talked about it we think we actually have the best solution set an industry in terms of of growth capability, but really most important around client centricity and the ability to move our clients forward with our solution.
Perfect. Thanks, so much thank you.
Thank you Jeff can't Wells from Guggenheim Securities. Your line is open.
Hi, good afternoon.
Hey, Thanks for taking my question John.
You just touched on this but wanted to ask you on some being.
About what you're seeing right on device or shouted platform and clearly we seem to be ready to number moves over the past couple of years, which you position by sort of quite well capture market share.
So just wondering if you could frame something for US where are you seeing the most significant change quite demand over time is it coming.
From smaller financial to share coming from mid sized buys members come from larger five so just curious if you can.
Hopeless figure that out because we're just trying to figure out who's capturing share any should the buckets looking out at like Bob should be great. If you could give us your thoughts on where you think you're taking share appreciate it out.
Thanks, Jeff Thats, a really interesting question, yes, I would say that that we are we are taking share.
On balance in the areas, where we have market strength and I use that.
I use that to script or because it's less about is it in the small end of the base or in the large end of the base. So am I say the base I mean, the market sorry.
And and instead, it's in places, where we have solutions strength that delivers value for clients. So if you are a small E commerce.
Action or a very large ecommerce merchants and I think I think we indicated we signed roughly 80, new ecommerce logos during the year.
Some of those are smaller and some of them are very important household names that we're all familiar with and so and so what we're seeing is more consistency around.
The decision, making as being made in the market. So really looking for quality more than any segment will except something that is in quality. So from that perspective, whether it be whether it be a solution like.
Checkfree, RFP or dovetail or or our eyes fee solution, our ecommerce solution or clover, you're seeing youre seeing choices being made based on the quality of the solution.
As it relates to kind of deeper into the segments I would say I feel right now across the enterprise that were.
Doing well gaining share in the places that matter to us strategically.
And that we're well positioned to continue to do that especially as we bring things together probably the most important trend that we're seeing is if you think about the.
The low below the top 60 or 70 banks here, just continuing to see more move towards outsourcing right. We have fantastic capabilities as an outsourcer that got even better through our combination with first data and so we're seeing more and more capability and back some of the more interesting.
Opportunities that we have synergistically arent back, bringing things together with with solutions that the original Pfizer had that we didnt offer on a hosted array sp basis.
Great appreciate that and then I think you shut in your prepared remarks that you're growing by 25% integrated if I, if I heard that correctly, which are at least on strong. So could you talk a little more about that maybe tell us what's driving that Ben.
Also about the maybe a little bit about the go forward picture for yourself and integrate I'm just curious as to whether there's any specific verticals for example, where you're seeing the strongest momentum and how sustainable you feel that growth is overall sure. So Jeff let me quickly.
Give you the data and then I think Frank can add a little bit more color on that in the is the integrated payment space. I think we said we increased the number of is the merchants by 25% and transaction growth was our sorry revenue growth was up 60, right. So a very strong year in that space.
Base.
We continue to to make it a priority kind of taking on the way first data that Frank and his team had done we see lots of opportunity to grow but let me, let me have Frank give a little bit more color on the yes.
The it's a very as Jeff said in the earlier points very technical product.
It is not a vertical attempt here there is not.
Look at one single vertical it's really across centralize the technology solution. So I feel very comfortable Dow solution plays and you know all all all spaces and we are winning across all spaces from.
Well car washes too.
Two retailers have different sizes and shapes, so it's not a vertical specific capability.
Okay. Thanks for all the color and congrats on the results. Thanks, Joe Thanks.
Thank you, Brian King Bryan Keane from Deutsche Bank. Your line is open.
Hi, guys I want to ask about the Pfizer's Standalone I know Pfizer's started the year guide to 4.5% to 5% internal revenue growth, but there's been some moving pieces with divestitures and obviously acquisitions came in so just hoping to get to report card on how hot Pfizer's Standalone did.
Versus original expectations.
Yes, Thanks, Brian I would say that on balance it was probably slightly lower than we would have anticipated at the beginning of the year. The comparables are a little bit more difficult because of upon the combination. We made some changes that had an impact some of the revenue.
To the revenue recognition.
And and therefore some of the growth. So we had some some impact there, but I would say on balance slightly less than we would've expected.
I'd also say that when we when we closed in July we made a series of decisions around allocating resources to places.
That we didnt have in our sites originally and so from our perspective, we thought it was most important to make sure that we were getting the integration right that we are focused on laying the track for synergies both on the cost stand on the revenue side and then third just makes.
Ensure that we're continuing to invest and how these capabilities ready to drive more growth this year, which we think which we think they will.
Got it got unhelpful and then wanted to ask on the adjusted operating margin expansion of at least 250 basis points. How much that is from the core companies versus the synergies is there way to break that down.
Yes, Brian I would say that we're doing everything in our power.
To make sure that we're running the company on a kind of a combined single view, but the reality is I think we said in our prepared remarks that we expected at least 300 million of cost synergies this year and so therefore, a large part.
Of the unusual gain in.
In margin is going to come from that I will also tell you that embedded in that our investments that we are making that are required to drive revenue synergies.
That that are kind of consuming some of the gains in margin. So that 300 is not a net number of all of the investments we have to make up but but again to get to your exact question a large part of that would be coming from.
From the synergies.
But we as a normal entity would continue to do the things that we would do to drive margin. If you think about original Pfizer greater than 50 basis points per year.
Right right and just to be cleared the 300 million in cost synergies is that up from previous expectations.
We have never guided in any year, we've said, we expected to do $900 million over five years.
And so we did 46 I think we did 46 in the first five months that we were a combined company. We've said in our prepared remarks, we do.
At least 300 this year. So we'll after 17 months will be roughly at least $346 million.
Okay helpful. Looking forward at the analyst day, Thanks, guys.
Thank you Brian.
Thank you Jason Kupferberg. Your line is open with bank of America.
Hey, Thanks, guys. Good afternoon I'm just wanted to follow up on I think it was Darrens question earlier, just on the outlook for the 2020 organic I think last quarter. You had said at least 7% now we're refining it maybe around the edges, a little bit and I guess, 6% is is in the equation here just any particular reason.
Why six percentage is part of the guidance kind of sounds like you're thinking that the high end the 8%, it's a lot more likely than the low end at six but just wanted to understand the nuance there in terms of how that the commentary evolved incrementally from last quarter.
Sure. So thanks, Jason I would say in.
Tried to make this point clear in the prepared remarks that nothing has changed from our preliminary view that we gave in Q3, we continue to be confident in the numbers that we provided we do believe it's prudent to Havel range.
That is.
That encompasses kind of two percentage points and therefore, we thought six to eight made sense. The centerpoint is.
Not not accidentally 7% and and so we we feel good about where we are and 7% as a very healthy gain over where we ended this year and we feel like we.
If we execute well and we believe we will that we will not only increase our internal revenue growth rate. This year, but we will be well positioned jumping off into 2021, given our commentary about how synergies will lay in.
And stronger performance in the second half of the year.
Okay. That's that's very helpful. Just a quick follow up.
Distribution initiatives for Clover, any metrics you might be able to share there in terms of the percent of new activations that are maybe coming through digital channels now versus through.
Nickel bank branches or how that mix is kind of evolving I know that was a big.
Focus for state heading into the merger.
I would say, we still are very bullish on digital distribution as an opportunity for us and we actually think that opportunity grew in the combination of Pfizer urban first data.
Because of the fact that we now have not only more digital distribution points through the.
Through the cost management and.
And retail digital capabilities of the banks and credit unions that we will sign up.
And the ability to be more targeted on on the data that we would use.
So we continue to believe that all makes sense. However, I would say that as we sit here today.
The results of digital are quite low probably a measurable relative to the successes that that we have had in other parts of the business and so we will continue to grow that and and that the results at least for the next couple of years are not contingent on.
Dramatically increasing digital distribution, we see that to be a journey. We're early in the journey and we will continue to work at a knock it down.
Okay I appreciate the thoughts. Thank you. Thank you.
Thank you Andrew Jeffrey from Suntrust. Your line is open.
Hi, Good afternoon, guys. Appreciate you squeezing me in here.
Jeff Jeff lot of good stuff in terms of where you're investing and where do you think the sweet spot is and I just wonder if I could get your perspective.
On the competitive environment. There there are few things I think that have emerged.
Late.
Cheminova launched a new solution for neo banks, a SaaS based solution. We saw the world mind Ingenico deal yesterday, we saw big Commerce tap Barclay card were payments also the rest will developments for the most bar should they become an us domestic I just wonder.
Kind of kicked off this consolidation trend that now it seems like there are some new entrants can you just fremont your strengths and investment priorities against competitive backdrop.
Sure Great question.
We.
Im not sure we can take credit for kicking off this entire trend, but I do think we can take credit newer first though well. Thank you I do think we can take credit for understanding between Frank and me in the rest of our team that the world was changing and that we felt like getting on the train or.
Early would be good for good for us good for our clients and obviously, a good for our shareholders and so.
The things that are happening right now are generally consistent with what we would have expected in terms of the overall transformation.
When we think about when we think about this transformation that's going on we see some things happening around the fringes, we see people coming together to create more.
In some cases more capacity to invest in some cases more unique partnerships all of that recognizing.
The change that's going on and as part of why we your we earmarked $500 million, an incremental innovation to make sure that not only did could we generate a significant amount of free cash flow. So that we could allocate that to.
Sons, and other inorganic uses of capital, but that we would be very.
Focused on investing while we are restructuring and reshaping the company for the future. So we actually take a fair amount of comfort in the things that are going on the market because they do confirm for us at the world is changing and I think you will see us look for our inherit.
<unk> competitive advantages so.
We think we have a treasure trove of data and so whether it's around fraud or better authorization rates or better ability to know your customer better ability to make make decisions on the basis of transactional data, we think thats quite important investing in.
And in advancing our ecommerce capabilities, whether it is some of the voice that we talked about today, but really leveraging the unique strengths that we have because we have the ability to take advantage of the platforms that that that we're operating today and making them better so whether it is whether it is.
Moving to the cloud or using AI and RPK as ways to get there faster we have all of that we have all of that capability.
We're quite excited to do it.
And I think we'll be able to share some of that in March but I do think we're going to continue to see announcements that talk talk to the fact that the world is changing and it's incumbent upon us to make sure. We're staying in front of that change, but really focused on the areas, where we have strong competitive positions and that will make a stronger.
Okay I appreciate that thank you.
Thank you George Mihalos from Suntrust from Cowen I apologize your line is open.
Thanks, Thanks for squeezing me in guys just had a follow up question as it relates to the speech and on all the progress you're making there appreciate the the commentary on the revenue growth being up I think 60% you said, but can you actually size that business for us in terms of revenue dollars I think the last time that first day to did that was.
Back in 2018, when I think it was around 50 million or so.
Yes, I would say George that.
Compared to the 14 and a half billion or so of revenue that we have it's certainly a small it's a certainly on a relatively small base, but that relatively small base is growing quite comfortably and we're excited about that and we're also excited about using some of the differentiate differential sorry the.
Competitively differentiated services that they have across other parts of the ecosystem. So.
It's it is it sort of again, a relatively small base, but but growing at very very nice clip and and as you know the space on balance relative to merchant acquiring globally, it's still quite small.
Yes I.
Appreciate that and then just just a quick follow up a housekeeping item for for Bob the nickel of dilution from the investment services majority sale that is net of the 500 million.
Being redeployed in buyback right.
Yes, that's correct, but more importantly, that's actually an aggregation afford divestitures in total so investment services being part of that but yes. The capital redeployment is included in that that calculation.
Okay, great. Thanks, guys. Thanks George.
Thank you and Chris Shutler with William Blair. Your line is open.
Hi, Thanks for squeezing me in guys just one quick one.
Really good sales numbers again, the 10% for the year would you confirms that is a annual contract value not TCV.
And.
If so could you give us comparable numbers for the last couple of years I think you previously reported on the TCP basis, yes.
You're right, Chris and we have we have changed our methodology.
To align with how first data.
I talked about and reported sales and so.
But we have not talked about the quantum we've always only talked about percent growth, but I would say that that percent growth is.
Obviously up 10% for the year, but importantly up 30% over the last six months.
Okay. Thank you. Thank you.
Thank you Kartik.
From Northcoast research your line is open.
Hey, good afternoon.
Microchip and what does that just ask a little bit about first data SMB portfolio, especially in the US I know Frank in the past you've talked about attrition and retention rate of that portfolio and I'm, just wondering where it stands today and just your opportunity maybe improve the yield in that portfolio.
Yep.
You know.
As you probably remember the long journey that we took.
But today, we're in a much different place only started on the journey I think we talk about.
Being a gainer of share.
And growing our portfolio here.
I think when you look at what attrition rates have done versus when we first started.
Practically in half.
So you know we are we are much different portfolio than when I talk two years ago, and I think you see it and the growth in a merchant numbers that we haven't total and I think kartik what are the things. It's interesting when you when you dig in and look at the data is you do not only is clover really an attractive.
An attractive vehicle in the acquiring market, but the fact, the fact is is that we see better retention.
And and the beauty there is it's a platform right. So we have add on services that we talk about so better retention more services happier clients. So it really is both sides and it's one of the things that the first data team. The original first data team had done quite well.
And then just one last one Jeff just as far as capital use of capital is concerned I know you said you going back to buying back shares I'm wondering what's your thoughts are on repaying debt in 2020, maybe if you have equal or.
It is something in mind for debt for the company as we end this year.
So kartik I would say that we.
We've been very consistent since the time, we announced that we were going into this transformative combination.
We we would repay debt and grow EBITDA at a healthy clip to get our to get our debt to EBITDA ratio down to our historic levels and I think we said we would do that over an 18 to 24 month period. We ended the year 3.8 times.
Bob paid down $600 million of debt in the in the fourth quarter and so we'll continue to move down that path. The good news is as we were able to move back to our programatic buying.
The very beginning of the fourth quarter and so we think we have the firepower to do both and certainly will will meet our commitments to the agencies.
Thank you very much appreciate it thanks Kartik.
Thank you next we have Lisa Ellis from Moffett Nathanson Your line is open.
Hi, Thank you for assets, leading men I think.
You mentioned that you've signed 80, new direct merchant E com wins for the year in 23 in the fourth quarter alone. This isn't a metric that for state. Historically reported. So is this kind of growth a change from the historic when rates on direct merchant E com and in it so I assume it is.
What are you doing differently in and you are you executing against a specific strategy to diversify away from a processing for pay faxon going more direct merchant and that business. Thank you surely so thanks, I would say that.
While we have not what we have not shared that metric previously.
As you know well.
We think it's important that people understand that not only do we have strength through our very important joint venture partners, but that on a direct basis, we are able to win business worldwide and we think the fact that we won 80 logos for the year and it and this is 80 new logos to the.
From what you think is quite important again 24.
In Q4, a range granted a range of size of merchants, but some very important names so from that perspective.
I would say, it's a continuation of the strategy that Frank and his team started.
But we have been putting more and I don't want I mean me I mean, the collective company, just putting more focus and energy.
Part of it is having a stronger technology platform part of it is more focused on innovation part of it is more sales focus part of it is better service to existing clients and so it's the entire gamut that that Frank and the team started.
We're continuing to make it a high priority as you and I have discussed.
E Commerce and technology based acquiring on balances at very high priority for the company just like SMB is and everything else, but obviously this space is important and being a consistent share gainer is our absolute objective.
Thank you and then maybe my quick follow up on the issuer processing business is realizing there's still sort of split in the current reporting across a couple different segments can you just provide a little bit of color on how the combined issuer processing businesses are doing and specifically combined revenue growth trajectory and how you're tracking so.
Far on these synergies that you've been expecting across those two businesses as well both domestically and internationally thinking sure. So Lisa I would say that.
It probably will make more sense to cover this in depth in the little bit more depth in March but at a high level. We are not we have not combined our respective original issuer processing businesses. They run different platforms are different value propositions.
We are looking to combine capabilities and move them more ubiquitous ssli across platforms, where it makes sense. We're looking to make sure that we have the right clients on the right platforms, where it makes sense and so we like the fact that we now both sides of the original organizations have more tools in the tool chest.
To go out and serve clients and win business I would say that that on the traditional.
The traditional the original first data issuer processing business, specifically on the credit side, we're seeing some really interesting opportunities in the market. It's one of the places that that you will see us invest kind of and thinking about more as nexgen.
Nexgen capabilities, there so very important specifically on the credit side and also we're seeing a better than anticipated responsiveness in the in the Pfizer original clients, both domestically and internationally.
In providing those kinds of capabilities, whether they be more integrated into the into the core systems in the us but outside the U.S sold into our larger.
Our larger signature or other relationships, we're seeing that to be a little bit better than we would've expected at this point.
Excellent. Thank you. Thanks, a lot. Thank you and thanks, everyone for joining us. This afternoon. We appreciate your support we're excited for the future. If you have additional questions. Please don't hesitate to contact our Investor relations team have a great evening.
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