Q2 2021 Fiserv Inc Earnings Call
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Please standby the conference will begin shortly again, please standby the conference will begin shortly thank you.
Yeah.
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Welcome to the Fiserv 2021 second quarter earnings Conference call, all participants will be in a 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 Sue.
Leukergy senior Vice President of Investor Relations at Fiserv.
Thank you and good morning.
Neither of the Colo today of signs of as Ignacio <unk>, President and Chief Executive Officer, and Bob Hau, Our Chief Financial Officer.
Our earnings release and supplemental materials for.
For the quarter either during the bull on the Investor Relations section of price after the call.
Our remarks today will include forward looking statements about among other matters the.
And compared to the COVID-19 pandemic on our business expected operating and financial results strategic.
<unk> initiatives and expected benefits and synergies from the first data acquisition.
Forward looking statements may differ materially from actual results and are subject to a number of risks and uncertainties you should refer to our earnings release for the discussion of these risk factors.
Please refer to our earnings release and supplemental materials for today's call for an explanation of the non-GAAP financial measures discussed in this call.
And with the reconciliation of those measures to the nearest applicable GAAP measure.
Unless otherwise stated performance references.
It will be a comparison and all references to internal revenue growth are.
On a constant currency basis.
And now I'll turn the call over to Frank.
Thank you shoot second.
The second quarter was the very strong quarter for us across the company.
Total company adjusted revenue.
Yeah, and 20% adjusted.
The operating margin grew 510 basis points, resulting in adjusted operating income growth of 41%.
Adjusted EPS grew 47% to $1.37.
Free cash flow and the quarter.
<unk> was in line with last year, just under 900 million, including the impact of a diminished the NOL.
Second quarter sales were up 31% with growth across the business.
Our strong second quarter was driven by a combination of.
Quarter continued economic recovery and strong execution of our business strategy.
On the macroeconomic side, we saw continued recovery in the U S with uneven recovery and other parts of the world.
The shift to digital commerce drove consumer demand.
As for seamless experiences across challenge.
Amidst these trends we executed on our strategy is to continue to win business and grow share.
We serve as the operating system for commerce across our client base ranging from micro merchants to the world.
World's largest corporations financial institutions banks and credit unions, Fintech and governments. This enables us to focus not only on growth and our core.
But also on new services and business models and the Jason.
The disease.
Given the strong results to date and our solid pipeline, we are raising our outlook range for internal revenue growth and now expect 10% to 12% growth for 2021.
From 9% to 12% previously.
Additionally, we are raising our adjusted EPS full year outlook and now expect the range of $5.50 to $5.60 up from 535 to 550 previously.
The increased adjusted.
The <unk>.
As guidance outlook represents a 24% to 27% growth versus last year.
Drilling down to the business segments. The quarter was led by our merchants to accept and segment, which posted internal revenue growth of 40.
The 1% year over year.
Normalizing.
For the year ago comps the segment posted a 13% growth in the quarter on a 2 year basis of.
Above our pre pandemic the run rate.
Both North America and international.
Adjusted largely grew in line with the segment average North America purchase volume was up 33% and the quarter.
Led by strength and retail Petro and restaurants.
1 of the trends that the pandemic has accelerated as the shift the omni.
E Commerce consumers are increasingly looking to engage with merchants and whatever way is most convenient.
It serves the ability to support clients with leading solutions and both brick and mortar and e-commerce environments is a differentiator.
We saw the man of.
The station of this trend during the second quarter.
As offline commerce recovered with volumes growing 46% versus 2020 and 11% versus 2019.
Online Commerce volume also grew unabated at 21% year.
Year over year, highlighting the criticality of equipment and merchants with omni channel commerce capabilities.
We the nominee commerce as the reason we were honored with the omni channel provider of the year award from the straw heck of a group of leading payments industry analysts.
All of this firm.
As you know Clover and carrier and Clover connect our 5 serves 3 lead and platforms for small and medium sized merchants enterprises and ISP as respectively.
Starting with Clover G PV and the quarter.
<unk> grew 96% year over year.
Reflecting a 30% CAGR since $2000.19 billion to $184 billion on an annualized basis.
And the SMB space, we continue to build.
The out vertical specific solutions and retail restaurant and services.
Our vertical sector strategy aims and expanding beyond the buy button offering and integrated suite of products that help merchants generate revenue and run their business.
The value added services on the Clover platform include corporate capital corporate debt.
Our order ahead, and Clover and inventory as well as that of a unique app marketplace, which provides access to services such as payroll management.
ILC.
And marketing that enable us to increase the share of the merchants wallet and become the platform of choice.
And on the enterprise side current.
Enterprise Omni channel ecosystem continued its strong momentum and the second quarter with new wins and continues.
Innovation and key verticals.
And restaurants.
Powers digital commerce for 10 of the top 15 U S ours.
Karen has helped Burger king expand as mobile payments experience into Latin America.
And restaurant brands.
And international expansion and the U K and other parts of the Omega.
And grocery.
And now serve as 9 of the top 10 grocers, we have helped new clients such as wake Vern all of the.
And the company is of a whole Delhaize U.
As a expanding their digital grocery ordering capabilities with new payments types.
Evidence of carriage commitment to the grocery industry and transform digital experience is exemplified by carriage, the leading online and E. T program that as process too.
<unk> 5 billion and G T the year to date.
And retail where character of 7 of the top 10 retailers as we expand the merchant services by working with clients such as Adidas on innovative solutions, including a new consumer.
And the recommendation engine.
This engine connect digital experiences to local stores enabled by the integration of radius of it.
And the acquisition, we completed and the first quarter of this year.
Current has also established new at scale.
The leadership with crypto wallets, where we powered <unk> funds in and funds out solutions for it as capability, we help consumers more of the move more than 4 billion and payments volume in and out of wallets sort of the past 12 months and the second quarter alone.
We moved 2 billion of volume demonstrating the sharp ramp and digital currency movement.
Moving to the Clover connect.
As we focused the offering momentum continued and the second Florida with ISP volume up 122% year over year.
We signed 53, new ISP partners and the quarter, Brian and the new I as the partnerships the 95 year to date.
We're signing up buyers of these that are new to payments and.
And those that are converting from competitors and year to date and almost half of value.
Our competitive takeaways.
ISP partners derive great value and getting access to our partner management tool copilot and integrating the clover.
And our Investor day, we talked to about a merchant acceptance growth strategy for international.
We remain focused on growing our global market presence, what world Class Bank partners and through direct channels of.
Paul while leveraging the strength from common platforms and connections.
And the quarter, we announced the JV with Deutsche Bank in Germany that offers us access.
Access to over 800000 merchants, many of whom will power without clover platform.
And Asia Pacific Region, we won a multi country of acquiring processing mandate from Citibank for at the new integrated digital commerce offering spring.
City.
Early in July we began onboarding and processing payments transactions as part of the merchant acquiring services agreement signed with Brazil, It's gosh of bank in April of this year.
The Onboarding began and 70 days after contract.
<unk> once again, demonstrating our speed to market.
In addition to the success as I mentioned above and a merchant acceptance segment yesterday, we announced the truth of the strategic relationship with Goldman Sachs to integrate cross border payments functionality.
<unk> signed throughout beat of the accounts receivable and accounts payable solution snap day.
As you know the payments as the vast and growing market right. What's the opportunity. We believe that partnership with Goldman Sachs. We can deliver a best in class B to b payment capabilities.
The abilities enhancing visibility operational efficiencies and cost savings for all of large and mid market business clients.
Moving to the payments and network segment, we posted internal revenue growth of 7% over the second quarter of last year.
Year of positives and the quarter included the continued growth of himself and continued.
The strength and debit transaction volume.
Initial recovery and credit account volumes and international growth with some weakness and bill pay although results improved sequentially.
The differentiated and industry, leading businesses within out payments and network portfolio and agile execution or the key reasons why we continue to win with clients.
We are proceeding well with onboarding of $120 million of.
Issuing wins, we told you about on our Investor day.
We completed boarding of Atlantic as in Q2 and have completed several stages of migrating both the alliance data and Genesis financials of the office environment and why.
And 12 months after announcing.
And saying these 3 banner wins, we are poised to recognize revenue on all 3 clients and the third quarter of this year.
We continue to grow our relationship with innovative growth stage fin techs.
Digital banks and consumer.
And more lenders and.
June we signed an agreement with prosper of Fintech pioneer and Premier AI, driven and consumer lending marketplace for credit card processing services.
This space as the growth focus for us our revenue with Fintech issuers.
Grew over 300 per cent during the first half of this year versus the same period in 2019.
On Investor day, you'll recall that driving best in class integrated digital consumer journeys is the key differentiator.
And imperative for our clients Inc.
Experiences are the new currency of loyalty customers gravitate towards institutions and they could give them a unified seamless experience across both channels and products.
Did that and yesterday, we announce.
Sure as enhanced Pfizer of digital capabilities for integrated digital banking and card management. This and rich mobile first suite will enable financial institutions to offer their consumer and business customers of best in class digital banking experience.
And our designs for the way customers expect to engage.
To introduce these enhanced capabilities, we rapidly integrated 2 recent acquisitions on dot and spend and labs and the result is the single unified platform for consumer and small business small and midsize.
The business card holders they enable the expense and business Garden management. This offering allows us to deliver a single point of access for all banking products Alan.
And our enhanced <unk> digital capabilities will span all 3 business segments and.
Payments.
Side of a leading digital of cardholder experience.
And financial technology like driving the penetration of our core account processing and digital surrounds and merchant acceptance by increasing the uptake of value added services from integrating spend labs without clover.
The platform.
We expect to see incremental usage and engagement and services revenue on the <unk> platform as a result.
Before I close out the payments segment I would like to mention the strong growth, we're seeing and our debit network star and excel as we are winning.
Winning new issues through our ability to support all transaction types, including best in class fraud management and chargeback products.
Moving to the financial and technology segment, the quarter wasn't line went out of expectations posting internal revenue growth of 5.
Per cent, including an 80 basis points of headwind from periodic revenue.
I wanted to highlight some key achievements in the quarter that reflect our strong market position.
We added 10, new core account processing clients and the quarter, including E on the DNA platform.
And for in the over 1 billion dollar of asset size market.
As the smaller and of the banking industry, consolidates, where you're moving up the assets and winning share and the 1% to 50 billion the arm market.
1 such win as Sun stream business services of services.
Service entity, which spans 12 financial institutions and provides business and technology services to farm credit associations totaling more than $115 billion and assets.
Sun stream will be converted into the DNA and the number of surround solutions.
Continuing out of strong momentum in the de Novo Bank market, we signed the LCA financial services and newly created the newly chartered bank focused on small business.
While we continue to win without digital surround solutions ability as the new pair.
And digital banking.
And go retail and business online and mobile platform.
We had our first try and go live on the ability of platform and the second quarter with more than 100 clients signed up.
We are also fully embraced.
Paradigm openness as the strategy.
The Pfizer of developer studio as aimed at attracting the developer community to build innovative products using the range of the API as we expose across cards and payments banking small medium and large businesses.
Additionally, we are building of pre integrated Fintech and marketplace, well financial institution clients can acquire test and deploy third party apps seamlessly easily and quickly.
As the open this strategy creates the net.
As to revenue opportunity within our existing client base, while widening the value added services opportunity.
With that let me update you on our integration efforts during the <unk>.
Second quarter, we've already action and 1.1 billion of core.
And over 1.1 billion of cost savings and are well on our way to completing our $1.2 billion dollar cost synergy objective by the end of this year.
With the majority of and into our integration work behind US we are focused on driving further growth and sustainable value.
<unk> and the years ahead.
On the revenue side, we're pleased with the level of synergies salads, which accelerated in the second quarter.
As of the end of the second quarter, we've already action and 325 million in annual revenue synergies and how sooner.
Synergy sales pipeline is growing robustly, and we expect to meet or exceed our 600 millions of dollars target over the 5 year as opposed to the merger.
Revenue synergies in the quarter were driven by payments debit network and card sales.
Across our 3 major client segments, and 5 corporate and government.
Additionally, as the partner of choice, we continue to see momentum and our bank merchant program.
Now, let me pass the discussions of Bob for more.
Sales and our financial results.
Thank you Frank and good morning, everyone.
If you're following along on our slides I will cover some detail on each of our segments starting with slide 4.
We had a very strong second quarter, thanks to our broad portfolio of products and services as.
And the positioning of our assets and strong execution across the business.
Total company internal revenue growth was 18% and the quarter with growth across all segments and led by the merchant acceptance segment, which grew 41%.
Year to day total company internal revenue grew 11.
Well as the scent also.
Also led by the merchant acceptance segment, which grew 23 per cent.
Second quarter adjusted operating income was up a strong 41% to $1.3 billion and adjusted operating margin increased by a very strong 510 basis points to $33.9.
7%.
This margin improvement was driven by our outstanding revenue results and our continued and disciplined cost synergy execution, which produced $90 million of incremental cost synergies during the quarter as well as strong operating performance.
First half adjusted operating income increased 20.
Per cent per cent to $2.4 billion.
Adjusted operating margin through the end of June expanded 440 basis points to 32, 7%.
Second quarter adjusted earnings per share increased 47% to $1.37.
Compared to 93.
<unk> and the prior year.
Through June 30th adjusted earnings per share increased 32% to $2.54.
Putting us on the pace to achieve our 36th consecutive year of double digit adjusted earnings per share growth.
A testament to the incredible resiliency of this company.
<unk> free cash flow in the quarter of $897 million was in line with last year with free cash flow for the first 6 months of the year up 4% to $172 billion.
Free cash flow conversion was 97% to adjusted net income.
<unk> of 1.
Company and $72 million impact from reduced net operating loss carryforwards.
Year to day free cash flow conversion came in at 100% and.
We continue to expect at least 108% free cash flow conversion for 2021.
Now looking at our segment results.
100, internal revenue growth and the merchant acceptance segment was a stellar 41% and the quarter and 23% year to day.
Our results were driven by a strong performance of our SMB platform Clover or.
Enterprise platform carrot, and our ISP platform Clover connect.
These results.
We're driven by our strong global performance, despite uneven economic recovery outside North America.
The second quarter was a record quarter for Clover, and addition to a very strong 96% annualized <unk> growth. This quarter was also the highest shifting the volume for Clover hardware, having recently.
And our 2 millionth <unk> device.
Moving to care it we want and 52, new global Enterprise E Commerce clients on our platform and the quarter.
Including existing clients carat, 1 or expanded business with brands, such as portrayed Aldi and the Archstone.
In India.
Sure Eric 1 of the business of of leading digital food delivery platform.
Our ISP volume and the quarter through Covid connect grew 122% year over year, and we're winning both Isps that are new to the payments as well as competitive takeaways.
Adjusted operating income and the acceptance.
The segment increased 135% of $524 million and the quarter and adjusted operating margin was up more than 12 full percentage points. The 31, 4% driven by the strength and the top line.
Through June 30th adjusted operating income improved 80%.
Except for the $911 million and adjusted operating margin grew 950 basis points to 29, 7%.
The payments and network segment posted internal revenue growth of 7% and this quarter, resulting in year to date growth of 4%.
The debit transaction.
<unk> grew a strong 31% and the quarter and this was a low double digit sequential grower versus last quarter.
We continue to build upon the strong momentum of transaction growth and account to account transfers and Peter <unk> solutions.
Versus prior year, zelle transactions and the quarter were up 90.
<unk> percent and the number of clients live on Zelle was up 88% and the quarter.
Our bill pay business saw a sequential improvement and growth from Q1 and as expected to continue to improve through the second half of this year.
We continue to expect to see the full year internal revenue growth for.
For the network segment to be toward the upper end of the medium term growth rate of 5% to 8%.
Adjusted operating income for the segment was up 14% the $636 million.
And adjusted operating margin was up 260 basis points to 44, 6% and the quarter.
The 10 year to date adjusted operating income was up 8% to $1.2 billion.
And adjusted operating margin was up 140 basis points to 43%.
The results were driven by positive of more months excuse me positive momentum and our issuer business and the impact of revenue.
<unk> and cost synergies.
The financial Technology segment internal revenue grew in line with expectations at 5% and the second quarter as continued growth and high quality recurring revenue was partially offset by lower periodic revenue, which created an 80 basis points of headwind to internal revenue.
Revenue growth.
For the first half of the year internal revenue growth for the financial Technology segment is now 4%, reaching the lower and over medium term outlook for the segment of 4% to 6%.
Demand for our digital banking capabilities and for our deep offering of digital solutions.
Revenue continues to build momentum.
As Frank mentioned, we added 10, new core account processing clients in the quarter.
Total mobile subscribers across our leading digital platforms mobility and architect grew 9% and the quarter.
Mobile deposits and Q2 grew 12%.
As can sort of the prior year, while self service ATM deposits grew 70% over last year.
Adjusted operating income was up a strong 8% and the quarter to $273 million and up 14% year to date to $519 million.
The adjusted operating margin and this segment.
Increased a robust 80 basis points and the quarter to 36, 2% and 300 basis points to 34, 9% through the end of June due to a combination of revenue growth operational effectiveness benefits and cost synergies.
The adjusted corporate.
Operating loss was $124 million and the quarter in line with our expectations up from last year largely out of higher variable compensation expenses.
The adjusted effective tax rate and the quarter was 21, 3%, increasing 80 basis points versus prior year.
And also.
Also expect our full year adjusted effective tax rate will be fairly consistent with 2020 right.
And at the lower end of our previously forecasted range of 21% to 22%.
During the quarter, we continued our disciplined capital allocation strategy by repurchasing 5 million shares for 500.
$88 million and we of more than 55 million shares remaining authorized for repurchase.
We completed 2 acquisitions and the quarter spend labs, and mobile native cloud based commercial card payments and software company and pineapple payments of leading independent sales organization focused on integrated.
Additionally, we divested our remaining interest and the investment services business and received pre tax proceeds of $466 million from.
From the transaction.
Total debt outstanding was $28 billion on June 30, and the debt to adjusted EBITDA ratio decreased to 3.3 times.
Times, putting us well on track to achieve our targeted leverage of less than 3 times by the end of this year.
We are fully committed to our long standing capital allocation strategy, which includes maintaining a strong balance sheet, making organic investments and innovative solutions and pursuing high value acquisitions.
Importantly share repurchase remains of our benchmark for capital deployment.
With that let me turn the call back to Frank.
Thanks, Bob.
I am very proud of the results we've delivered the <unk>.
Quality of our assets.
As focus on innovation our agility.
Speed of new client implementation with examples like cost share.
As Atlantic as and Genesis put us and a great spot to serve our clients.
As speed to market with the enhanced by share of digital capabilities from banking and card management.
And Matt announced yesterday, along with the integration of business and expense management and to the Clover platform all of which leverage the full capabilities of recent acquisitions on dot and spans of labs and to our continued success.
In.
In addition to delivering on our financial results, we continue to focus on our people and non out communities.
Earlier this month <unk> was named by Forbes as the best employer for diversity, recognizing our commitment to putting diversity at the forefront.
And about values, and having implemented and long term initiatives to create a more inclusive environment.
During the quarter, we published our first annual corporate social responsibility report, which is available on the corporate social responsibility section of our website.
We also expanded of back to business Grant program beyond the original locations that were selected in 2020.
In May we partner with the New York matched to recognize small businesses as part of the Asian American and Pacific.
Islander heritage month.
And in June we awarded grants the businesses and Tulsa as part of the Centennial observation of the Tulsa race massacre.
None of these achievements would have been impossible without our world class talent I think got more than 40000 associates around.
Around the world for their commitment and courage as we stand together to deliver value for clients our colleagues and you.
You our shareholders.
And finally before I close I want to congratulate the Milwaukee Bucks for.
And can be a championship at Fiserv Forum last week the.
The box out terrific partners and as.
The partnership goes way beyond and putting our name on their arena Clover and has been deployed throughout my answer for them for food and beverage concessions.
Providing attendees with seamless quick and easy transactions. They also partnered with us for several back the business events earlier this year.
Congratulations to the entire Milwaukee Bucks the organization.
With that operator, let's open up and the line for questions.
Thank you we would now like to open the phone lines for questions. If you would like to ask a question you May press star 1 on your phone if you would like to withdraw your question Press Star 2 and our first question comes from Lisa Ellis from Moffett Nathan. Please go ahead.
Hi, Good morning, Thanks, guys. Good to hear from you I wanted to follow up.
On the 2.
To your cake or callout for the merchant acceptance segment I believe you said, it's running now at a 13% internal revenue growth on the 2 year CAGR of base. That's 1 wanted to just confirm that number and then too.
Wanted to kind of drill into it a little bit given that that's above your.
The medium term outlook for that segment, which as per Investor day was 9% to 12 per cent can you just highlight like what Youre seeing say in North America versus ex U S and.
Are there any unusual dynamics and this quarter or you know do you see that sustainable going forward and you know kind of what's different about the business now then.
Like the prior to the pandemic when I believe it was running closer to about 10 per cent. Thank you.
Well I think it starts with the.
And you know the U S has been the strong spot and the recovery right now.
And you heard us talk about unevenness outside the U S.
But I do think it would be.
You saw a robust are you sort of robust even last July when it all began and coming back.
Do you think you got and focus on.
The 3 legs and and the U S and internationally the 3 legs of our Clover.
Eric.
And Paul over Kinect right and all of those were continuing the investments continued build out.
And and we're seeing and show up and the clients office. So I would say, it's really driven by U S and you see that we'd say U S and international.
Nationals of the quarter, you know performed fundamental evenly that was a spotty.
Even this meaning that every country was the same and you can kind of map to where recoveries are happen or not.
So I think it's all about our platform strategy and our.
Our client strategy.
And that's driving that's driving the outcomes and and think of teams and teams galvanized very well around that.
And at least just to hit the first part of that question the 13% as an average growth rate. If you look at Q2 of last year was actually down.
16% over the prior year, we're now up 41% over 2020% of the average 13% there.
Terrific. Thank you.
Next we will go to the line of Dave Koning from Baird. Please go ahead.
Yeah, Hey, guys, Congrats and go box.
Boston and 6.
There we go.
And that was fine and well.
Yeah, and maybe my first question.
Just on the merchant segment momentum I guess, a little bit like what Lisa was asking about I went back several years in the second half usually has quarters that look a lot like Q2, so usually Q.
3 and Q4 look a lot like Q2, but the question I guess is is the momentum building I mean, you mentioned international still has room to improve U S momentum seems kind of off the charts BAMS actually grew faster year over year than your core and merchant business for the first time, probably and many many years.
Is it are we in of momentum situation.
And of that Q3, and Q4 could actually be better than Q2. This this year compared to the when normally it's the same.
I think the answer to that yes, I mean.
Paul.
There is concern and the world right I mean, so that's a little bit and how we think about it when we talk.
The way.
And.
<unk>.
So there is a degree of us saying.
The world is not as of the woods yet.
I think they've learned kind of you know.
Grow with this.
So you know the.
It's highly possible.
And what Youre, saying could happen I mean, we're driving the business.
To get the results were getting you see you see all of the partnerships, where we're aligning to 2 to bring more.
So yeah, I'd say as possible.
But you know the world the World has funding and that's right now too.
Yeah.
Great and I guess secondly.
Just as a follow up.
The past I guess, the handful of quarters that different times KKR has sold theyre down too much.
A much smaller position and they were a year or 2 ago, but you know on the heels of now of really good quarter. What do you think there their thoughts are.
But selling though.
I'd start off with the.
First and foremost I do not and anticipate them conducting additional secondary offerings of.
Their holdings or just under 10% now and they have told us they intend to sell shares on the open market over time and of routine.
And and pragmatic way going forward.
So you know I don't think we're going to see and the other secondary.
Sounds great. Thanks, guys.
Thank you. Thank you.
Next we'll go to Timothy Thiago from Credit Suisse. Please go ahead.
Thanks, a lot and thank you for taking the question.
Over the last year or so we've seen the few merchant acquirers become public they have pretty fast growth and some more niche verticals. So online gambling regulated financial services clearly the first data of fiserv merchant acquiring business as extremely well diversified and as a much much larger scale, meaning that any 1 vertical couldn't.
Be overly meaningful, but maybe you could just touch on your approach to participation in those types of verticals the extent to which you either are or will how much. It could help your business what are the pros and cons et cetera. Thanks a lot.
Well I think and I think we're in every vertical.
And we have.
So I mean, when we can.
Talk about growth there to ISR retail, but wearing gaming where across the board.
Have a business of this size and scale.
That is and serving all markets.
And you know and you know when you look at out of capability.
We do a good job of bringing base capability and then you know segmented enjoyed verticals specifically need.
So I think I think you know we are we are completely.
Uh huh.
And again and we are deployed against growth I mean, we're deployed against growth.
Where we invest as where we believe the growth of your segments of our timber.
Tim I think 1 of the keys for our growth and quite frankly, how we.
Work through the pandemic and continue to grow the business.
As meaningfully as we're very well diversified in terms of the way we go to market, whether that's our direct channel share our bank partners to our non financial institution partners joint ventures et cetera, but also extremely well diversified across verticals and participate essentially and all of them and.
The have offerings, the get us revenue growth across the very wide spectrum.
Alright excellent. Thank you so much really appreciate that as of minor follow up was there any comment you could give on the the assessment of timing on the Contra revenue any impact in Q2, given the the difference and quarter over quarter growth Q1.
And the Q2 some of those impacts that we saw last year.
Yeah, you'll recall, a weird of pretty significant impact in Q2 of last year negative impact in Q2 that rebounded and the second half of.
Last year, and we're seeing of the opposite now as we saw a big rebound.
And in second quarter of this year, we do have a tailwind that will be muted a bit and the second half of the year. We don't have the quite the same snap.
Snapback in the second half as we did and snack and second half of last year, So call it roughly of.
The 12.
Points of margin improvement we saw this year over Q2 of last year about 4 points of that was the brand assessment fees and then that will be of a bit of a headwind for us and the second half of the year, but we certainly see margin expansion continuing into the second half.
Perfect. That's really helpful. Thank you so much both of you.
Thank you next we'll go to the line of James Faucette from Morgan Stanley. Please go ahead.
Hey, Thanks, a lot and.
Really appreciate your comments this morning, I know, Bob talked a little bit about capital allocation, but I'm wondering if you can.
Just let us help us think about how priorities or at least the way that you allocate may be changing if at all especially given.
Kind of what's happening from Mike.
From our perspective as your stocks a little cheaper now and so maybe that speaks to wanting to do buybacks while on the other hand, we're kind of continuing to see.
The massive flows of capital into competitors, both through the private and public markets.
And the likes so just wondering if theres any evolution there on your thinking of how to prioritize use of capital going forward.
Well I'd start with the.
The.
3.
<unk> 3 on.
The leverage.
That will be well well behind us.
And we did talk about at Investor day.
The 30 billion of free cash.
And so I think you'll also see us.
Continuing the strategy of taking Silicon valley digital expertise and capability integrated and how combination and fundamentally creating the.
Experiences that nobody and L peer group and do you.
The sharp.
Over the back in the day and when I talked about.
And on that I did say that the acquisition of on that and then subsequently spend and labs, but and that specifically would bring a closure of like affect our company and the fact that so you'll see us deploy capital to the other cycles.
Type of acquisitions, but I want to bring clarity to what I mean and of Clover type.
We've created a single instance for consumers to be able to get every banking product they have and.
And have card functionality that surpasses the.
The close street by a lot. So we have tremendous everything from digital issuance to the ability to put.
Put it in the wallet I think you've got to really think about what we're doing there and then we will invest in these product quite heavily right.
And do you know.
And I think you'll see us.
You know continue to do those type of acquisitions that drive the digital presence, but we've done things unparalleled through those acquisitions. So you know we've talked about 30 billion and you see the properties of Bot you see.
And so integrated and of those properties and integrate them for growth.
And I think you'll see as always though using a buyback.
Buyback as a benchmark.
I think this quarter as perhaps.
Prototypical example, as digital enhancement and digital innovation that Frank talked about.
And as prepared remarks, and just referenced as a combination of investing and our business organically internal investment and advancing our digital banking capability with mobility, bringing more feature function capability to our mobile capability.
Adding to that.
Inorganic investment the acquisitions.
CSA and lab and on Dot.
In the quarter that we also repurchased 5 million share. So the $30 billion of capital available we've had and we have this year and for the next 4 of 5 years allows us to buy back shares, making organic investments and M&A.
And.
Develop internal products and internal innovation and generally very high return.
That's great color. Thank you very much the both of you.
Thank you.
Thank you and next we'll go to Dan Donlan from Mizuho. Please go ahead.
Hey, guys. Good morning, Great results.
And thanks, so and yes.
Yeah, no problem. So did I hear that correctly, you said that this quarter was a record shipment quarter for Clover.
Correct.
And so it sounds like it.
It sounds like it's more idiosyncratic share gains than anything market of reopening related.
Can you comment a little bit on.
Who you're gaining share from maybe specific verticals and then maybe kind of of the trajectory of you went from 36% and Q1 to 96 in Q2.
Should we think about the remainder of the year. Thank you.
Paul.
And I'll start off with.
Yes.
Look at and I think I think COVID-19 as a platform of choice and Clover as a partner platform of choice and we did talk about you know all of that Clover would get.
The other other distribution channels and that distributions can be and our own outside the U S. It could do and L. I S V partners.
Maybe just and then just and our base core business.
And our own.
I mean, you know when you.
The question of share when you're as big as we are we're competing with everybody and you know we feel that cover over as at the top of the list of what people.
And we want as a product. So I think it is about the differentiated product and the capability that gets it.
And the type of the numbers you saw.
And this quarter.
And then Dan just to add the the 96% growth year over year remember this as the quarter as comparing.
Turning to the second quarter of last year, which was obviously a very difficult year across the board.
I think the.
And the number here as of 38% CAGR over the last 2 years. So obviously clover growing incredibly well continue to expect that to be of lift and a share gainer for.
<unk>.
As we lead with <unk> and the marketplace.
We're seeing benefits of.
The continued innovation and continued investments and Clover and.
And as new business formation, ticks and post pandemic as.
Merchants that were not transacting at.
And for US what we're very much come back our investments and clover dining et cetera.
Pay off when the economy recovers people think of cover and and allow us to serve them with clover devices, hitting a record shipment as well as giving us that nice lift.
And the overall G P V.
Yes.
At all and I agree it's definitely everywhere great stuff. Thank you.
Yeah.
Thank you next day of Darrin Peller from Wolfe Research. Please go ahead.
Thanks, guys.
Let me just shift to the Fintech segment per minute, which for several quarters was really and the 3% to 4% range and did show the acceleration to.
Great.
And you guys have talked about it being something that can do 4% to 6% growth and we're seeing some signs of improvement now.
You talked a lot about digital banking and your release also and so I'm curious from a structural standpoint, given all of the new competition out there.
Just if you could touch on the assets you have and your.
The <unk> and in your view of confidence level around that segment actually being in that 4 to 6 or better versus low single digit over time that'd be great. Thanks, Yeah well.
You see a number of things going on and an authentic segment, but let me let me bring you know and I want to bring complete clarity on the digital.
Cable Bill because I think it affects both the core and digital.
Business and ultimately you know.
What what we have of deep belief is that we're here to help.
Our clients serve their clients so the ability.
A lot of 2100 mobility.
Banks and bring them.
Our fully integrated hard experience at the highest level of Ford the beyond that.
And bringing that in a way.
And that maybe the assemble and to think about it as you know everything you can imagine and 1 application that allows you to do everything from the originate transactions to digital part issuance to digital forward view.
And for a cash all of the same place that Youre doing your bill pay.
And Youre doing and your zelle transactions. So we're going to take 2100 and mobility clients 1300, current valet and bringing that to them and then that will be what we are and those are my Angela institutions.
We believe that will also help our clients increase their digital adoption and quotient with their clients. So we see this as a game changer.
So it's early innings of yet.
What.
We got banks up and running on it and we will deploy and then you hear us talking about on top of all of that or 4.
The financial institutions, we bring and ability that sits on top of all of it but the most important I think to think about is.
<unk>.
Our quarters are strategic the.
The front and.
Israel, we believe the tip of the sphere and where we win.
Our clients serve their clients and you know I mean, you saw what we posted now but I look forward to continue.
And to generate more revenue through better function and we bring to clients that allow them to do more with their clients. You know and then you know.
And you got you got and integration of of spend lab and to Clover, which allows the these are our digital platform. So we're talking about digital platforms and 1 of our cash.
And.
The digital platform. So you know.
And I think what you should take away there as an element of this company that the digitally agile and can deliver and you saw and on those credit conversions you know I think those are good true.
It speeds.
For those size and scope cautious unparalleled.
And 70 days from signing or boarding merchants for them every day and the.
And you look at us taking spend and labs and on that and I think you know.
Track you know, we're going to have that same effect that clover had where and when I look years out from now.
Okay.
Back to the the.
Sorry go ahead.
And I don't know Bob go ahead. Please I was just.
Got to bring it back to the the 5% growth obviously, we had a good quarter hitting 5%.
The cater the periodic revenue <unk>.
Headwind would abate I think it was 150 basis points last quarter. We said, we expected this quarter to be half of that.
Saw 80 basis points.
And of the second half of the year, we see that no longer being the headwind and through the first half of the.
The year, we're now at 4%. So we reached the bottom end of that medium term guidance and continue to be quite comfortable that we will be in that 4% to 6% range this year and and for things that <unk> talked about the investments, we're making and digital banking.
And it gives us an opportunity.
And to continue to see that good mid single digit growth going forward.
Great Hey, Frank just a quick follow up on just on M&A I mean, what of your thoughts on doing more tuck ins that keep improving the tech stack and.
Thinking about maybe even just accretive to revenue growth, maybe even dilutive to EPS just type deals just really add to.
And the long term growth strategy.
As well.
And I feel you know obviously.
You've watched over time the type of properties, we buy you know ally as.
And as of the strategy was born out of acquisition and now it's a winning strategy Clover was born.
Position and I think you'd have to argue that the bigger than winning strategy. You'll watch these assets on data and spent a lot of so I think you just kind of continue I don't think I don't think of it it needs to be dilutive to EPS I think we know how to make it accretive pretty darn quick.
And and what you know.
What I just talked about was kind of the dream of the acquisition and when we put the companies together that we could take and asset like and on that and spread it all the way through because of what a great bank partner and we were and that we could bring it all the way from.
And out of that 2.
2.2 of Fintech. So I think you should expect us to continue to do more of like that and I think we have of skill at it that we keep the talent we grow the talent and we build a bigger digital gene pool and the process.
Great.
Yes.
Thank you. Our next question comes from Jason Kupferberg from Bank of America. Please go ahead.
Jason and either.
Yes can you hear me.
Good morning.
Yes can you comment just on any.
The July trends and the acceptance segment and the impact some of the Delta variant and then also just on the revenue yield dynamics I know those were positive and the second quarter and acceptance of how should we think about that for Q2, as well where volumes and revenues being a little bit more and sank.
Yes so.
In terms of July trends and our.
Our merchant segment I'd say.
And obviously through what 2006 days or so of information yesterday, the day before slightly better than June So continued improvement.
And in growth and and I'm talking about versus 2019.
You do of 2020.
And the compare you get some real odd variations on the comparison point. So we're looking at versus prior year as well as versus 2019, but slight improvement in July versus what we saw in June and consistent with what we've got loaded in our full year outlook with that.
Growth rate and the EPS growth call it mid 20%, 25% 26%.
<unk> growth.
<unk> growth over 2019 and.
And then in terms of yield.
Sorry.
The recovery so to speak and Q2 versus what we saw in Q1.
And as our SMB portfolio continues to grow nicely I think thats going to be consistent and the second half of the year.
Okay. So we should expect that as positive dynamics the companion.
And I just wanted to switch over to the payments segment for a minute and I know youre reiterating the higher end of the 5% to 8% target range.
You'd probably have to do 10, and 11% and the second half as to get there I know you've got some.
New portfolio as ramping up but just talk about the visibility on that acceleration relative to where you were and the first half.
Yeah, I mean I think.
Youll see the credit momentum and your share is talking about.
The debt will have a good.
The second half.
Revenue from from that you see you know and.
General and.
And that's on the wins and then and you see general credit momentum.
Beginning in and our portfolio debit.
EBITDA networks, you know I've talked about the strength of them and and we feel very very strongly about what's going on there and debit transaction growth.
So when you put all of those in the calculus, you and all your stores to go from 2 to 7 and you should expect us to continue our trajectory north.
Okay.
Thanks, guys.
Thanks, Jason.
Thank you our last question comes from Ramsey El <unk> from Barclays. Please go ahead.
Guys. Thanks for squeezing me in here I wanted to ask about your payment mix and the acceptance segments sort of on the.
And sort of in a post pandemic environment.
And that's maybe not 100% there yet, but when you think about digital versus offline debit versus credit SMB versus enterprise do you expect kind of a different mix and your business after the pandemic and and how does that feed into your kind of longer term growth algorithm.
Ramsey I think.
We certainly have seen.
A broad movement to digital and everything it's why you hear us talk about the investments were.
We're making and mobile capability and integrating our digital banking and card management experience.
And I know, we're in the more digital transactions.
E Commerce et cetera, as certainly I believe the pandemic.
Brought forward.
Multiple periods of transition into that space and I do think that it was not transitory as changes are here to stay and.
The more C as people.
Return to whatever normal is going to be what the heck that continued transition growth rate happens, but obviously, we're seeing great growth and zelle.
We're seeing more and more transactions on account to account transfers.
<unk>.
And good E Comm volume you heard us talk about and our merchant space up 21%. So.
Getting mobile first capability and digital experiences.
It was a focus of ours over the last several quarters and we're bringing a number of.
And we will do a single instance.
Right now and continue to see that integration going forward.
Great. Let me squeeze 1 quick last 1 and here which is.
Do you see the fed's revisiting the Durbin routing rules as kind of opening up of market opportunity for star and excel.
Yes.
Short and sweet.
Yeah, obviously ramsay remains to be seen the timing and when that will happen, but the.
Does look to be a real opportunity for us, yes, and I think I think the thing is.
Our capabilities around fraud.
And <unk> and chargeback management and our capabilities.
The biggest.
The issue is very deep.
And.
I think I think that many times and the third network as very valuable to everybody both.
And the merchants and issuers and so and as foreign itself, we've invested heavily in them.
And that's why we get the type of transaction growth you're seeing there so.
And we like we really really love the debit network.
Great fantastic. Thanks.
So.
Thank you for joining us. This morning, we appreciate your support if you have further questions. Please don't hesitate to contact our Investor relations team stay safe and have a great day.
Thank you all for participating in today's conference you may disconnect your line and enjoy the rest of your day.
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