Q3 2021 Fiserv Inc Earnings Call
Please standby today's conference will begin shortly again, please standby today's conference will begin shortly.
Okay.
[music].
Welcome to the Fiserv 2021 third quarter earnings Conference call, all participants will be in a listen only mode until the question 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 shoot Leukergy Senior Vice President of Investor Relations at Fiserv.
Thank you and good morning.
On the call today, Frank Bisignano, our President and Chief Executive Officer, and Bob Hau, our chief.
<unk> finance.
Our earnings release and supplemental materials for the quarter on available on the Investor Relations section of sites.
Please refer to the materials.
<unk> of the non-GAAP financial measures discussed in this call.
Along with the reconciliation of those measures to the nearest uptake of both gas Michelle.
Unless otherwise stated.
<unk>, yes, it will be a comparison.
Our remarks today will include forward looking statements.
<unk> alone.
Thank you <unk>.
The results as.
Strategic.
Forward looking statements may differ materially.
Actual results are now subject to a number of risks and uncertainties.
You should refer to our earnings release for a discussion of each risk factor.
Before I turn the call over to Frank.
These going forward.
Using the Kevin <unk> constant currency revenue to replace <unk>.
There is no change in how we calculate this measure.
Just to change in terminology.
And now over to track.
Thank you Hugh.
Thank you all for listening in as we share our results for the quarter and highlights progress against our growth agenda.
As you know we serve as the operating system for Commerce and money movement across our client base of banks.
And texts and businesses ranging from SMB to mid market to large enterprises.
We help our clients grow by extending our platform to capture new services and new money flows.
We're also seeing real benefits from the ongoing economic recovery, especially here in the U S.
We remain optimistic and continue to invest in growth.
Turning to our performance, we had a strong third quarter.
Total company adjusted revenue up 10%.
Adjusted operating margin expanded 130 basis points to $34 <unk> per se.
Adjusted EPS grew 23% to $1 47.
We obtained our highest quarter of actions revenue synergies of $95 million to date, we have achieved four $120 million of actions revenue synergies.
70% of the increased commitment of 600 million, but a five year period following the merger.
As we invested to accelerate growth free cash flow came in at $572 million for the quarter and Q3 billion year to date free.
Free cash flow was driven by a combination of the following.
Increased capital expenditure and the areas of technology innovation hubs and the integration of newly acquired capabilities set.
The working capital increase driven by revenue growth and finally.
Reduced benefit of net operating loss carryforwards.
On the back of our results and the strength of our investments we are tightening our outlook for organic revenue growth and raising the lower end of our outlook for adjusted EPS.
We now expect organic constant currency growth of 11% for the full year and adjusted earnings per share between $5 55, and $5 60 sets. This raises the lower end about higher adjusted earnings per share outlook by <unk>.
Yes.
A growth of 26% to 27% over last year.
Turning to the business segments, let me start with merchant acceptance, we continue to grow beyond the buy button by investing in world class Omni channel capabilities.
Solution around vertical and horizontal business needs and capturing new flows.
Achieve all of this throughout three growth platforms Clover for small business Clover connector Isd and carries for enterprises.
Driving into outperformance merchant acceptance lesser quarter.
Posting organic revenue growth of 18% year over year with North America and international largely in line with the segment average for the quarter.
Our global merchant locations have been growing at a healthy clip up 10% in the quarter on a year over year basis, driven by positive net new merchants across all regions.
The quarter was driven by growth in global volume and transactions of 15% and 12% respectively.
North America volume and transactions grew 14% and 9% respectively.
Respectively led by strength in travel restaurants and Petro.
Excluding the impact of the loss of a large processing client through one about GBS, North America volume and transaction growth in the quarter would've been 19% and 14% respectively.
Next let's go deeper by platform starting with Clover.
<unk> grew 47% year over year, or 39% CAGR since 2000 $19 billion to $196 billion on an annualized basis.
In the SMB space.
<unk> focus in building vertical specific solutions offering an integrated suite of products that help merchants generate revenue and run their business.
As part of our vertical strategy.
Theres into an agreement to acquire Bento box of digital marketing and commerce platform focused on driving growth in engagement for restaurants. This transaction will expand out clover dining solutions and industry, leading commerce and business management capabilities, which already.
Enable nearly 200000 restaurants of all sizes to deliver unique and differentiated dining experience from quick and casual dining.
We expect the acquisition to close in the fourth quarter subject to regulatory approval and customary closing conditions. Additionally, we continue to focus on building value added services for the Clover platform, including Clover capital over a dining clover ordering.
<unk> and Clover inventory as well as unique Clover app marketplace.
On the enterprise side.
Enterprise.
<unk> platform continued its strong momentum in the third quarter with new wins product innovation and a gradual recovery in cross border Commerce.
Global ecommerce volume grew unabated in the quarter, driven by cross border and international growth of 25% on a year over year basis as volumes recover from the pandemic close what secular tailwind expected to sustain our momentum.
<unk> channel transactions, such as order ahead, and buy online pickup in store, 35% in the quarter.
We had notable e-commerce wins in the quarter, including Johnson, and Johnson and Caesars Entertainment.
We also expanded our existing global acquiring relationship with Microsoft to be their provider for network tokens.
In the quarter, we added Paypal and venmo and digital wallet payout options to our global just surface platform cement in carry as the leader in digital payouts with over 10 billion processed year to date, an increase of 230%.
Year over year basis.
Additionally, we are building a new partnership with fact, leading crypto and consumer wallet solution provider.
<unk> will utilize <unk> industry, leading funds in funds out solution and together by serving backed will develop new crypto use cases for both the merchant and Fi clients.
Moving to cover Kinect the strength of our ISC focused offering shows through the third quarter with Isd volume up 71% year over year.
Oliver to that allows us to bring together two strong five serve assets the world class hardware and software platform, our Clover, along with the best in class partner management and operational tool of co pilot, which gives <unk> a unique view into all.
The merchants activities ranging from merchant application processing to support.
Our commitment to being the best partner from entities is resonating, we signed 47, new Isps in the third quarter, bringing our total wins to 142 year to date, we continue signing of Isps that are new to payments and winning against the competition.
This quarter more than half of our wins were competitive takeaways.
Before I address our international progress I'd like to highlight another focus area in our merchant business point of sale lending.
We are leveraging our position as the operating platform for business at small medium and large tool off our rating job by al pay later options.
We are expanding our referral relationships, while simplifying the merchant experience through integrations without platforms like Clover.
We currently have referral agreements would hit citizens pay it Greg.
We're also working with clients to bring their be NPL offerings to market.
For example, we are partnering with synchrony to offer buy now pay later solutions on our card processing platform optics.
<unk> also recently announced acceptance of private label cards Clover.
On our Investor day, we talked to you about our merchant acceptance growth strategy or international.
We remain focused on growing our global market presence with World Class Bank partners.
Direct channels, all while leveraging the strength of common platforms and connections.
The global expansion of Clover platform into APAC, Latin America and India.
<unk> currently in flight.
Track the rollout Clover in India by the third quarter of 2022 tremendous opportunity given the size and growth potential of the market.
Cover is already in market in Argentina is expected to launch in Brazil next year, thereby covering the two largest markets in Latin America.
In EMEA, our Clover, then market across the U K, Germany, and Netherlands, and Ireland with a further boost expected with the rollout of the Deutsche Bank JV that we announced last quarter.
Among the key APAC deal is completed and the color is an omnichannel merchant acquirer processing mandate from bank of China.
Our fast growing Macau market.
Moving to EMEA.
<unk> partnered with post finance one of the largest financial institutions in Switzerland to provide credit card acquiring services to their Swiss merchant clients.
Starting with the initial 4000 merchants that accept public finance cards today with plans to expand to the entire merchant base of 60000 overtime.
<unk> is also supporting restaurant.
Owner of iconic brands, including Burger King and pop by as the company expands its footprint across Europe when Omnichannel approach.
Pfizer will provide acquiring services for Burger King in the U K and the Nordics and popeye's in the UK.
We closed on the merchant segment as you may recall in April.
We wanted a 20 year deal to become the exclusive provider of merchant acquiring services for kasha.
Economic data.
Federal one of the largest Brazilian banks, we're pleased to report that the implementation of this mandate started at the beginning of August and it's going extremely well with 65000 merchants onboard it as of last week.
Moving to the payments and network segment organic revenue grew 6% in the quarter, resulting in year to date growth of 5%.
Our payments segment consists of three businesses.
Global credit processing and output solutions, which we call issuer solutions, which is 40% of the segment.
Debit processing and debit networks, which we call referred to as card services also one third of the segment and the third business is comprised of digital solutions built a great.
Prepaid business.
Our issuer solutions business, which grew just below the overall payment segment average is seeing the benefit but we continued credit recovery with general purpose credit gross active accounts up in the high single digits note that our credit issuer solutions.
Venue is driven by number of accounts not credit volume.
However, as credit volumes recover the number of accounts will follow.
Looking ahead, we expect growth in the business to be driven by the continued ramp of last year's notable wins, including three of.
The top 25, just your wins, which we announced last year.
Also recently completed Pmt's conversion of Bbva's card portfolios to our platform.
A retail private label portfolio also continues to recover from its COVID-19 lows, although at a slower pace than we anticipated at the beginning of the year.
Within card services, which grew organic revenue a couple of points faster than the overall payment segment average we saw strong growth in debit transaction driving our issuance and network businesses. Looking ahead, we expect sustained growth for this business.
At Broadridge.
Total addressable market.
For instance, in the cooler I'll start debit network signed an agreement with leading U S. Consumer Fintech time to become its preferred unaffiliated network for debit.
We believe that aligning with one of the largest fin tech issue is a testimony to scale and technical capabilities of the store network and physicians that network well for future growth.
This was also one of our political action synergy revenues in the quarter.
During our Investor day, we discussed the opportunity to offer a fully managed by advisor credit card issuing option to commit anything at bis and shared that we were actively exploring this market. We are pleased to announce Delaware currently piloting our agent credit pro.
Graham offering branded credit choice and will launch in Q1 2022.
Credit choices, a fully managed credit card issuing as a service solution that allows <unk> to offer their customers an anti branded credit card experience that is fully integrated into their debit solution, but without the operational burden.
But running their own credit card portfolio.
Credit choice, leveraging our scale distribution and a world class card issuing surround solutions, such as <unk> and spent labs to expand into a sizable new addressable market for Pfizer, where they are.
Economic per card for <unk>.
Similarly richer than in processing.
We have already seen strong early interest from clients with hundreds of prospects in the pipeline.
On our Q2 call we spoke to you about a rich mobile first consumer and business offerings powered by recent acquisitions and spend labs. The early results of the launch has been very encouraging.
<unk> completed the integration of the card hosted platform into our credit and debit processing platforms.
We're seeing tremendous demand for this integrated solution from both new prospects as well as existing card valet clients, whom we expect to fully migrate to the integrated card hub solution by the end of 2022.
In addition, we expect to expand the platform to add loyalty installment payment.
And dispute management, thereby establishing card hub as a key differentiator to drive new sales and client retention.
Our financial institution clients. This solution is a game changer it enhances consumer engagement with their digital banking platform creates more fee income through greater card usage and catapult.
Overall digital experience and Italy of some of the world's top banks and neo banks.
And the third business results are a mix we had good growth in our digital payments activity led by Zelle transaction growth of 75% in the quarter and the number of clients who are now reaching just under 750.
Prepaid growth was driven by new client wins with that solution.
Solutions business, we expect growth to continue driven by new use cases.
Bill pay business, which encompasses both the direct biller and bill pay throughout financial institutions continues to grow slower than expected. However, we are extending our bill pay capabilities beyond the financial institution channel going live later this month.
And then enable Paypal bill payment functionality within Paypal is new at this.
Additionally, we expanded our relationship with a large telecom provider to enable commercial card payments without bill matrix solution.
Moving to the financial Technology segment, the quarter was in line with our expectations posting organic revenue growth of 4%, resulting in 4% growth year to date.
We added 14, new core account processing clients in the quarter.
<unk> seven competitive takeaways and two de Novo wins as DNA platform is seeing great success, including with larger financial institutions as evidenced in the valley National Bank and dollar bank wins, what assets over 40 billion.
In dollars and 10 billion respectively.
Ability.
Our modern cloud based API driven digital banking platform is seeing great momentum with 150 incremental sales in the quarter 138 of these sales were to existing clients, which will drive our clients digital transformation and deepen the penetration.
<unk> of our fully integrated digital surround such as card hub sale and span labs.
Page 12, where new logo sales would have been a core competitive takeaways.
We also continue to enrich our open banking and Fintech ecosystem again in line with the goals laid out at last year's Investor Conference.
Launched a new developer portal, which we call the <unk> the Pfizer of developers studio.
Towards the end of the third quarter. The developer studio provides rich inexpensive API integrations to support banks, Phanteks merchant and enterprise clients with developer tools needed to accelerate.
Asian integrations across the entire Pfizer ecosystem.
Additionally, we also announced partnerships with exciting new phanteks future fuel dot Io and straight chairs aimed at creating new white space opportunities in digital for both retail consumer and small business lending respectively.
We believe that we're extremely well positioned to continue to drive revenue in that segment higher by delivering new innovation such as the ability to.
Changed strategically acquiring and integrating attractive surround solutions like on that and stand labs and leveraging the power of the developer community through our developer studio API portal or dedicated go to market integrations like future fuel.
Dot I O N Street chairs.
Now, let me pass the discussion to Bob Bob.
Our detail on our financial results.
Thank you Frank and good morning, everyone.
Before I begin reviewing the detailed business results.
<unk> mentioned, we are aligning with the broader community and simplifying our message by clarifying your internal revenue growth metric is organic constant currency revenue.
It does not change how we calculate this measure just clarifies the terminology you will be the same definitions and calculations we've used in prior quarters.
On slide 11, we've included a new schedule to truly provide his understanding of the walk from GAAP revenue internal or organic revenue for the third quarter.
The summary can be seen in more detail in the appendix of our presentation.
Now I will cover some detail on each of our segments. If you're following along on our slides I'm starting with slide four.
We feel great about our performance for both the quarter and the first nine months of the year.
We are well positioned to achieve strong full year financial results.
Total company organic revenue was up 10% for the quarter with growth across all segments.
By merchant acceptance segment, which grew 18%.
Year to date total company organic revenues grew 11% also led by the merchant acceptance segment, which grew 21%.
Total company adjusted revenue also grew 10% to nearly $4 billion in the quarter.
Year to date total company adjusted revenue growth of 11% to $11 4 billion.
Third quarter adjusted operating income was up a strong 15% to $1 4 billion.
And adjusted operating margin increased by 130 basis points to 34, 2%.
This margin improvement was driven by our strong revenue results.
Disciplined capital should be.
Disciplined cost synergy execution.
Produced $64 million of incremental cost synergies during the quarter.
And we have now with action $116 billion program today.
Year to date, adjusted operating income increased 23% to $3 8 billion.
Adjusted operating margin year to date expanded 330 basis points to 33, 2%.
Our third quarter adjusted earnings per share increased 23% to $1 47 times.
Turning to $1 20.
The prior year.
Through September 30 of adjusted earnings per share grew 29% to $4 one.
I'm pleased to achieve our 36th consecutive year of double digit adjusted earnings per share growth.
Testament to the incredible strength and resilience of this company.
Free cash flow for the first nine months of the year was $2 3 billion.
Resulting in an 85% of free cash flow conversion.
This result was driven by increased invested capital investments related to technology World class facilities, and the integration of newly acquired businesses.
Working capital increased driven by revenue growth.
And a reduction in the net operating loss carryforward benefit.
With these investments and strong revenue growth, we now expect free cash flow conversion to be 95% to 100% for the full year.
Now looking to our segment results starting on slide six.
<unk> revenue growth in the purchased acceptance segment was a very strong 18% in the quarter, 21% year to date.
Our revenue was driven by a combination of growth in volume in transactions.
Our results were once again driven by strong performance across all three platforms Clover for Smbs.
For large businesses.
Connect for Isps.
<unk> continues to build upon the momentum and strength of our product offering.
Posted a very strong 47% GP growth year over year or $196 billion on an annualized basis with growth across all of our distribution channels.
With carat, we won 45, new global Enterprise E Commerce clients on the platform in the quarter.
In addition, carat experience mandate with existing high quality brands such as Valero.
Continuous lead in the high growth online EBT space charities has launched more than 50 clients to online EBT.
In the past 12 months.
Our ISP volume in this quarter.
<unk> grew 71% year over year.
Almost 150% versus the third quarter of 2019.
We are winning both Isps that are lease payments as well as competitive takeaways.
Adjusted operating income to be acceptance segment increased 30% to $552 million in the quarter.
And adjusted operating margin was up 300 basis points to 32, 2% driven by top line strength.
Through September 30, adjusted operating income improved 57% to $1 $5 billion.
Adjusted operating margins grew 710 basis points to 36%.
Turning to slide seven the payments and network segment posted organic revenue growth of 6% in the quarter, resulting in year to date growth of 5%.
As Frank outlined to the composition of the segment.
Our card services digital payments and prepaid businesses outperformed the segment organic revenue growth rate.
Global issuer solutions came in just under the segment average will bill pay was a headwind.
Our console account transfers and PDP solutions continue to rise with consumer demand zelle.
Zelle transactions in the quarter were up 75% and the number of clients live on Zelle was up 65% in the quarter.
Debit transactions grew 11% in the quarter a strong result in light of the tougher year over year comparisons in the third quarter versus the second quarter, driven by the macro impact of the reduced benefits of the stimulus.
Given the performance year to date, we expect to see the payments and network segments full year organic revenue rate to be within the medium term outlook growth rate of 5% to 8%.
And by the continued ramp in new client Onboarding and strong uptake of our advanced digital offering.
However, this outlook is slightly tempered versus our previous expectation of approaching the higher end of 5% to 8% organic revenue growth target range.
Adjusted operating income for the segment was up 7% to $650 million.
And adjusted operating margin was up 50 basis points to 44.0% in the quarter.
Year to date adjusted operating income was up 7% to $1 9 billion.
Operating margin was up 110 basis points to 43, 4%.
The results were driven by positive momentum in our card issuer business and the positive impact of revenue and cost synergies.
Turning to slide eight the financial technology segment organic revenue grew 4% in the quarter.
Year to date organic revenue growth for the segment was 4% within our medium term outlook for this segment of 4% to 6%.
Our digital banking capabilities and digital solution offerings continues to win in the marketplace.
Frank mentioned, we added 14, new core account processing clients in the quarter.
Of which were competitive takeaways.
We completed our integration of Banca card management capabilities into our mobility mobile banking platform.
Currently in market with that offering.
Mobile deposits in Q3 grew 10, 5% over the prior year, while self service ethereum deposits nearly 60% over last year.
Adjusted operating income was up 4% in the quarter to $275 million.
10% year to date to $794 million.
Adjusted operating margin in the segment decreased 40 basis points in the quarter to $36 zero percent. However on a two year basis. Adjusted operating margin has increased 560 basis points versus the third quarter of 2019.
Adjusted operating margins expanded 190 basis points to 35, 3% year to date.
The adjusted corporate operating loss was $121 billion in the quarter in line with last year.
The adjusted effective tax rate in the quarter was 23% improving 260 basis points versus prior year.
We now expect our full year adjusted effective tax rate to be about 20%.
During the quarter, we continued our disciplined capital allocation strategy.
Seek over 3 million shares for $365 million.
We have more than 52 million shares remaining authorized for share repurchase.
As Frank mentioned earlier this month, we entered into an agreement to acquire ventral box digital marketing E. Commerce platform focused on driving growth and engagement for restaurants that we will integrate into clover is dining solutions.
Further strengthen our Omnichannel restaurant platform.
We expect to close this transaction later this quarter.
Total debt outstanding was $21 billion on September 30.
To adjusted EBITDA ratio decreased to 32 to three two times.
Q3 was another demonstration of our time tested capital allocation strategy, which includes maintaining a strong balance sheet, making organic investments did a bit of solutions, you're pursuing high value acquisitions with that.
Let me turn the call back to Frank.
Thanks, Bob.
I'm very proud of the results, we've accomplished with another quarter of double digit adjusted revenue growth and double digit adjusted EPS growth.
In addition to delivering on our financial results, we continue to focus on our associates and our communities in July five favorable Janine disability I N's disability Equality Index 2021, best places to work and.
In September they see the silver Torch award from the National Black MBA Association as partner of the year, recognizing our commitment to putting diversity at the forefront of our values and talent and client engagement strategies.
During the quarter. We also entered into a multiyear relationship under multi year relationships with girl Scouts USA and the Russell Innovation Center for entrepreneurship.
These partnerships focus on increasing access and opportunity for aspiring women and minorities within the entrepreneurial ecosystem.
We also expanded our vac business program to Detroit, and the Washington, D C, Maryland, Virginia area as well as internationally.
Our entry into the U K.
Additionally, during the quarter. We also completed our CDP submissions and for the first time published our EEO one filing on our Internet site.
None of these achievements would have been possible without a world class talent.
More than 40000 associates around the world for their commitment and courage as we stand together to deliver value for clients.
Colleagues and you our shareholders.
With that operator, please open 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 then one on your phone if you would like to withdraw. Your question you May Press Star then two our first question comes from Tien Tsin Huang from JP Morgan. Please go ahead.
Thanks, So much good morning, I wanted to ask an acceptance I'll ask on acceptance looks like Q4.
Formed.
Global visa volume if im looking at this correctly, but the yields turn negative.
In the third quarter I know it was positive last quarter. So just a question here on pricing and mix in general for acceptance and what the outlook on yields.
It might be here going into the fourth quarter.
Yes agenda, Bob Good morning, I would attribute largely that variation to the difference between volume and trends.
Our mix relative to what you might see in the pizza as well as the yield ever so slightly.
Ebbs and flows within the quarter, depending on the mix of SMB versus enterprise overall, we feel quite good about the overall performance, how we're performing against the overall market and against our peers.
Got you so more mixed than didn't progress. Thank you yes.
Yes.
Thank you. Our next question comes from Lisa Ellis from Moffett Nathanson. Please go ahead.
Terrific. Thank you.
I think I'll follow up on quest.
A question and actually specifically ask about that large processing client roll off that you highlighted that looks like it's about a five point drag on overall volumes and merchant acceptance.
That's a larger drag on E. Com can you just elaborate a little bit on that situation and specifically how should we think about how it's affecting revenues if its a low yielding a client and then also is that something now that will take another three quarters before it lapsed or just any additional detail there would be helpful. Thank you.
Yes, Lisa.
Good morning.
Way to think about this as a large client that we process through a joint venture.
We pointed it out in terms of.
Adjusting our volume and transactions for transparency it has very little impact overall on the actual revenue and the revenue numbers you see there our as reported so including that that decline that client is largely off our platform at this point and so you'll see it from a year over year.
Year standpoint, but there is no more decline going forward because they are essentially off our platform at the end of the third quarter.
Yeah.
Terrific. Thank you.
Okay.
Yeah.
Thank you. Our next question comes from Dave Koning from Baird. Please go ahead.
Hey, guys nice job.
I guess first of all just in acceptance I think last quarter, you even mentioned Q4 being up sequentially from Q3, I guess is that still the case and maybe as I look back on some of the more normal years. It seemed like you would grow a few percent sequentially. In Q4, just wondering anything in Q3, and Q4 that would disrupt that kind of normal.
A few percent up sequentially pattern.
So youre talking about growth quarter to quarter sequentially.
Yeah, just sequential revenue growth in acceptance it looks like a few percent up is kind of normal in Q4.
Yes, David I think it's tough to call anything normal these days.
I expect our fourth quarter to be roughly in line with third quarter.
<unk> for this year.
Okay. Okay Cool and then I guess secondly, just payments I know you've kind of called out how it's gonna be within the range you'd said before maybe at the upper end of the range.
Is some of that anything thats falling into 2022 now were there any maybe delays in implementations or anything there that just kind of makes 20 to now a little better than it previously would've been.
Yes, I wouldn't call it any delays per se, but we highlighted a few growth drivers.
That will see into 2022.
A couple of the new wins Paypal.
<unk> live we signed a new large U S telecom that will go live soon.
And of course, the announcement of credit choice will help us.
As we launched that program.
As Frank pointed out we are now in pilot, we're seeing very strong demand.
For that that program for something that we had not formally announced yet.
So we're just now announcing that so we have some good but early read on that and of course, we'll have.
Card hub offering that we acquired through on dot or for a full year next year and that is now fully integrated into our mobility platform and we continue to build out that capability. We also we also have those.
Three of the top 25 issuers that are beginning onboarding, so that will be within the numbers next year and you heard us talk about.
Us converting.
Onto our platform also for our client PNC, so and youre going to continue to get.
Zelle ramp in there also as that continues to grow as we onboard more so.
It was all will factor into next year's next year's numbers.
Sounds great. Thanks, guys nice job.
Thank you.
Thank you next we have.
James Fawcett from Morgan Stanley. Please go ahead.
Thanks, very much I wanted to ask a little bit more of a strategic question I. Appreciate all the color on near term trends and benefits that youre getting from new customer wins, but.
It seems like you picked up a little bit the pace of acquisitions, though at least be announced once recently can you talk about how you're feeling about potential and importance of doing acquisitions as part of your.
It's part of your overall strategy and if that's evolving at all and I guess tied to that Bob highlighted the balanced capital allocation, but I'm wondering if it makes sense to accelerate debt pay down a little bit improve optionality in case pick the deals come along thanks a lot.
Well, maybe maybe.
I will talk about.
What we've been doing on M&A and how we're looking at M&A again, I think the first thing is.
Whether it's.
M&A or.
Building out businesses, we're investing organically and Inorganically and I think the thing that hopefully you see zelle agility and speed and innovation.
We talked about on dot.
And it's fully integrated beyond its initial capability and now in our mobile product and winning in the market.
You'll see US go and look at Bento box and we're extending our total addressable market with the capability that we will start what restaurants, but actually could be a storefront and much larger but all of these are nurturing.
Strong start ups that then will allow us to thrive in our environment and we put the capital behind them integrate them and grow and you'll hear how we break span lab so long.
With it so I think you should expect us to continue that and realize that.
We believe we have a deep skill set in integrating properties transforming al al property itself in some cases, where even disrupting ourselves in our process as we move.
From card valet to cohort.
Good integration. So you should expect us to continue to do that and be very very thoughtful about acquisitions, but we will invest in organically and we will.
First organically and we will invest organically in the acquisitions to allow them to thrive within our ecosystem and not to be standalone entities.
Then as far as paying down debt.
You see a significant reduction or improvement in our leverage now at three two times back when we completed the merger we were just over four times, but we continue to generate good free cash flow.
You may recall back at our Investor Day last December we talked about the capital to deploy over the next five years or more than $30 billion. As we enter 2022, not only will we have very strong cash flow, but we also have capacity on the balance sheet as EBITDA grows.
The company will quote naturally delever and so we will have the capability to borrow just to maintain that historic leverage ratio. So we feel like were very good.
Positioned to be able to complete acquisitions that we feel we complete it's not prohibited or or constrained by capital.
That's great color and context, thanks, Frank Thanks, Bob.
Sure.
Thank you next we have Jason Kupferberg from Bank of America. Please go ahead.
Thanks, guys. Good morning, just wanted to start with a follow up on the large processing client that is coming out of the numbers here I guess it looks like it's an E. Comm clients just based on how much it impacted the E comm volume numbers, specifically and was this just <unk>.
Competitive situation that was becoming too price intense from from your guys' perspective, just wanted to get a little bit more color because it's it's fairly.
Fairly sizable as your peers.
Yes.
First.
Sure.
That.
That volume coming off our system is in our revenue numbers. So I'll hold that thought right I mean, so when you look at a large processing client off of J D.
No that's exactly what it sounds like which is first of all they this was long telegraph.
By the client but.
When we always talked about our business, we knew DRP, Jr. Ness, and never never sorry that gets real economic impact really just a volume impact to our business.
And they went in house it wasn't a competitive takeaway and it.
He was part of their strategy, we're happy to support them without processing capability through our JV with other periods of time that we get it.
Okay. Thank you for that and just on the free cash flow conversion I just wanted to hone in on what I guess, where the most significant changes in your expectations versus last quarter, because I mean at the end of the day I know on a quarterly basis, obviously working capital can move around but the full year revenue was coming.
And right in line with your plan.
Presumably the diminished benefited the NOL would have been known previously so was this really just a function of kind of higher capex than you anticipated at the end of the day versus what you were thinking last quarter.
Yes.
Jason the way to think about it as our 11% revenue outlook.
And at the high end of our original outlook with 7% to 12%. So we are growing quite a bit faster than we originally expected overall.
We're also seeing meaningful opportunities to invest for growth.
To your point Capex is higher.
In terms of spending on creating new capabilities, new products and services as well as integrating the acquisitions that we announced earlier in the year things like on the.
The software development that we are investing there.
We integrate into our.
Existing capabilities or other products and services, but to create new capability with some of those acquisitions.
Let us to make the decision to continue to invest in growth and still have very good free cash flow and good cash conversion overall, yes.
Yes, yes, it does.
Sounds like perhaps okay. Thank you.
Thank you next we have Ramsey El <unk> from Barclays. Please go ahead.
Thanks for taking my question today, Frank I wanted to ask you a.
Kind of a broader question there seems to be some debate or discussion among investors about potential fintech kind of disruptive forces in the marketplace at the same time. It seems like you guys function as somewhat of an infrastructure or enablement layer for Fintech I mean, even from the call today, you talked about chime in Bakken Paypal and I know, there's a slew of others.
Can you talk about this tension between fintech as a competitor and a potential disruptor versus Fintech is just sort of a high growth distribution channel for the business.
Yes.
I take this as a law.
Long term issue really.
Back in time, right I mean.
We're a platform.
We are a platform as we like to say forever.
Fin techs to SMB to large enterprises and if yes. It is.
You think about what we did with Clover that was open up a community development community. So we can be a platform for them and then our platform.
Users. So my my view and our view is we're.
We're happy to do thanks to disrupt ourselves.
You see us doing with the spend labs, Dion dots and even Clover was a disruptor of Atlas.
Well.
And we will continue to use our platform to enable and ultimately we.
We want to serve all the communities. So if you think about things we've talked about here.
Chime.
Previously night.
You know that.
An enabler.
One of our clients claim they think about us, bringing paypal and send a bill payment ecosystem, we are going to use our platform to enable and then we're going to compete heavily with al full capabilities. So our traditional clients who will get.
All of the capabilities and continued innovation and we will also.
<unk> enable those.
<unk> had the capabilities that we believe our clients. So it is when you think about all of them. She hear us talk about being a token provider from Microsoft that's about.
Bringing their authorization rates higher so I don't really find any conflict here.
Have waterfront property, we open up the waterfront property and our job is to enable enable commerce and we get paid for enabling commerce.
That makes a lot of sense I appreciate your answers there. Thank you.
Thank you next we have Darrin Peller from Wolfe Research. Please go ahead.
Hey, Thanks, guys.
I Wonder if in October because I know theres been a lot of discussion on what that asset could mean for you. So.
Can you help us understand any more metrics you think makes sense on the success of that asset obviously, it continues to grow well, but any other metrics in terms of how big the revenue is from that now what kind of growth.
Growth you anticipate maybe maybe any kind of profitability.
And then.
So is there an opportunity given some disruption we're hearing about in the market around Chinese competitor, having some challenges on their terminals in the market now I think they have million $3 million or so of terminals that might be a challenge now could there be a replacement opportunity for closer than that.
Yes Darren.
Overall, obviously, we are quite pleased with.
The progress and the continued growth prospects of Clover.
The.
Up 46% just under $200 billion for third quarter on an annualized basis, we continue to invest in new capabilities and expand our reach there.
As you know.
A large proportion.
About 90% of that volume is new to fiserv.
And so that is certainly a growth driver for the company overall.
And continue to expect that going forward.
Sure.
We're adding capabilities Bento box is a great example is building out some of the verticals.
Across that capability, we have significant strong distribution channels.
And with the dissolution of the BAMS joint venture.
Have a good and very quickly growing direct channel.
You didn't see us have a few years back and so we continue to see good opportunity there.
Terms of the terminal dynamic we have obviously, we have our own clover devices.
We also use other terminals for the other parts of our company.
A variety of different providers of those terminals and.
No disruption to us at this point, yes.
Just add.
Uh huh.
However, as the platform of choice you heard that.
The international expansion of that.
And I would think that.
As people are making choices going forward would disruption for others that will just further accelerate outgrowth.
Yes, I think that could be an opportunity for you to take a lot of share in the U S at least square.
Going on their quick follow up is just on the cash flow and the capital deployment.
Just given what normalized earnings could be how strongly or would you consider a more material accelerated share buyback by any trends just given you know what you probably will be at about that two eight turns of leverage.
Let's call it the end of the year. Thanks, guys.
The way, we think about capital deployment has been and remains quite consistent and quite balanced.
Continue to focus on growing the business organically.
Doing value accretive inorganic growth.
Growth I E acquisitions, and then obviously always looking to return cash to shareholders.
Where appropriate I don't think you ought to anticipate us doing a large buyback as you know we are essentially in the market every quarter and have been for years short of the short period of time between announcing and closing our merger back in 2019, and we will continue to be a disciplined capital allocator.
Thanks, guys.
Thank you. Our next question comes from Timothy Chiodo from Credit Suisse. Please go ahead.
Thank you for taking the question I wanted to dig in a little bit more with two mix related questions on Clover, and you sort of sort of alluded to in the last question, but hopefully we can get some of the mix percentages. So first would be around the portions of revenue. So a large portion would be payments related but also you highlighted at the Investor day, some increasing software attach.
<unk> and value added services and then also clearly there's the hardware component. So even if you could just give us sort of rough breakdown of those components and then the second part is around mix and distribution. So you alluded to some of the various channels whether it be direct to bank partners retail ISO wholesale so even just broad strokes on the <unk>.
Mix of distribution would be really helpful.
Yes, Tim So couple of things to think about there.
One.
In terms of channel.
Our see broad growth across all of our channels, whether it's through partners.
Through the ISC.
Those two.
Obviously, our joint ventures, as well as as I mentioned in a previous question building out our direct channel.
We have and have had and continue to be focused on having a very wide breadth of distribution capabilities and continue to focus on winning in all of those channels.
<unk> remains and has been and will continue to be a broad focus of ours and then in terms of breakdown of revenue and we haven't given.
Detail around the mix of hardware versus software versus processing, obviously, the vast majority of our revenue in the merchant acceptance businesses that merchant acquiring revenue.
Inside of Clover, obviously with that hardware that we sell but the.
The magic to cover as you sell the hardware and then you have a processing client a merchant acquiring clients for years and years with high attach and higher payment rates.
We continue to focus on that.
Okay, great. Thank you so much for the help.
Thank you. Our next question comes from David <unk> from Evercore ISI. Please go ahead.
Thank you good morning within merchant acceptance what impact are you seeing on your payment volume when a competitive buy now pay later solution is added at one of your ecommerce clients and in particular.
I appreciate your help with two things number one are you retaining the merchant acquiring our merchant processing would it be NPL company has added or are they bring in their own merchant acquirer and number two.
Do you have any insights into funding mix would be NPL gets added at one of your clients in terms of.
Debit ACTH versus credit thank you.
Yes, I think a couple of things number one we have a number of referral partners.
And over the last several quarters, we've announced these you talked about these whether it's sip for Brad or citizens Bay, we continue to be focused on.
Enabling multiple options for our merchants.
And obviously, where the merchant acquirer for those merchants and so providing that capability maintains that relationship with those merchants in terms of.
Credit versus the CAH et cetera, I think broad industry view.
Is.
Today.
A large portion of that.
Paying for buying out paid later activity is actually paid or are finally executed through card payments.
So you're not seeing any specific.
Mix in terms of ACTH, when you look across kind of be NPL adoption at your customers.
No I think that the key there is well buy now pay later.
High volume in terms of news, it's still a relatively small portion of the overall.
PPV or merchant space and not moving the needle and in fact in some instances.
Instead of one transaction Youre actually seeing tour transactions.
Understood. Thank you very much.
Thank you. Our next question comes from Dan Donlan from Mizuho.
Please go ahead.
Hi, guys. Good morning, Thank you for taking my question.
Can you give us some color on what's.
What's implied in the fourth quarter organic growth.
The two other segments for our payments and Fintech that'd be great. Thank you.
Dan you were quite muffled can you repeat that question.
Can you give us some color on what's implied by the guidance the organic growth guidance for the other two segments can kick in.
Taking the two networks.
Yes, so I think the.
I tried to give some of that color.
In our prepared remarks.
Fintech segment.
To date, we're now at 4%.
And we expect for the full year to be in that medium term outlook range of 4% to 6%.
And then in our payments segment.
Again relative to kind of our medium term guidance.
Medium term outlook of 5% to 8% we expect to be in that range that is adjusted from previously where we expect it to be at the high end of towards the high end of the range right now just in the range.
And year to date, we're at 5%.
Got it understood. Thank you so much.
Thank you and that was our last question for today's call.
I'd like to thank everybody for joining us. This morning, we appreciate your support.
Further questions. Please contact our Investor relations team have a great day and thank you for everything.
Thank you all for participating in today's conference you may disconnect your line and enjoy the rest of your day.
[music].
[music].
Welcome to the Fiserv 2021 third quarter earnings Conference call, all participants will be in a listen only mode until the question 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 shoot Mukherjee Senior Vice President of Investor Relations at Fiserv.
Thank you and good morning with me.
On the call today are frankly, I think now our president and Chief Executive Officer, and Bob Hau, Our Chief Financial Officer.
Our earnings release and supplemental materials for the quarter are available on the Investor Relations section of <unk> com.
Please refer to these materials put an explanation of the non-GAAP financial measures discussed in this call along with the reconciliation of those measures to the nearest and take advanced gasoline engine.
Unless otherwise stated.
<unk>, yeah, it will be a comparison.
Our remarks today will include forward looking statements.
Among other merger expected operating and financial results as strategic.
Forward looking statements may differ materially.
Actual results and are subject to a number of risks and uncertainties.
You should refer to our earnings release for a discussion of each risk factor.
Before I turn the call over to Sac Pease note. This going forward, we will be using the term organic constant currency revenue to replace two channels right.
There is no change in how we calculate this measure.
Just to change in terminology.
And now over to Jack.
Thank you Sue.
Thank you all for listening in as we share our results for the quarter and highlights the progress against our growth agenda.
As you know we serve as the operating system for Commerce and money movement across our client base of banks and.
Tax and businesses ranging from SMB to mid market to large enterprises.
To help our clients grow by extending our platform to capture new services and new money flows.
We're also seeing real benefits from the ongoing economic recovery, especially here in the U S.
We remain optimistic and continue to invest in growth.
Turning to our performance, we had a strong third quarter.
Total company adjusted revenue up 10%.
Adjusted operating margin expanded 130 basis points to 34, 2% adjusted EPS grew 23% to $1 47.
We obtained our highest quarter of action revenue synergies of $95 million to date, we have achieved $420 million of actions revenue synergies.
70% of the increase of $600 million.
Five year period following the merger.
As we invested to accelerate growth free cash flow came in at $572 million for the quarter and $2 3 billion year to date.
Free cash flow was driven by a combination of the following.
First increased capital expenditure and the areas of technology innovation hubs and the integration of newly acquired capabilities.
The working capital increase driven by revenue growth and finally.
Reduced benefit of net operating loss carryforwards.
On the back of our results and the strength of our investments we are tightening our outlook for organic revenue growth and raising the lower end of our outlook for adjusted EPS. We now expect organic constant currency growth of 11% for the full year and adjust.
Earnings per share between $5 55, and $5.60. This raises the lower end about higher adjusted earnings per share outlook by five cents.
Growth of 26% to 27% over last year.
Turning to the business segments, let me start with merchant acceptance.
Continue to grow beyond the buy button by investing in World class Omni channel capabilities solution around vertical and horizontal business needs and capturing new flows we achieved all of this throughout three growth platforms.
For small business Clover connect for Isd and carried for enterprises.
Driving into outperformance merchant acceptance slip a quarter.
<unk> organic revenue growth.
10% year over year, with North America, and international largely in line with the segment average for the quarter.
Our global merchant locations have been growing at a healthy clip up 10% in the quarter on a year over year basis, driven by positive net new merchants across all regions.
The quarter was driven by growth in global volume and transactions up 15% and 12% respectively.
North America volume and transactions grew 14% and 9%.
<unk> led by strength in travel restaurants, and Petro excluding the impact of the loss of a large processing client through one about GBS North America volume and transaction growth in the quarter would've been 19% and 14%.
Respectively.
Let's go deeper by platform starting with Clover.
<unk> grew 47% year over year, or 39% CAGR since 2000 $19 million to $196 million on an annualized basis.
In the SMB space, we remain focused in building vertical specific solutions offering an integrated suite of products that help merchants generate revenue and run their business.
As part of our vertical strategy.
Into an agreement to acquire Bento box.
Little marketing E Commerce platform focused on driving growth in engagement for restaurants. This transaction will expand out clover dining solutions and industry, leading ecommerce and business management capabilities, which already enabled nearly 200000 restaurants of all.
All sizes to deliver unique and differentiated dining experience from quick and casual dining.
We expect the acquisition to close in the fourth quarter subject to regulatory approval and customary closing conditions.
Additionally, we continue to focus on building value added services are the Clover platform, including club our capital corporate dining Clover order ahead, and clover inventory as well as unique Clover app marketplace.
On the enterprise side carat.
Our enterprise Omni channel platform continued its strong momentum in the third quarter with new wins product innovation and a gradual recovery in cross border Commerce.
Global ecommerce volume grew unabated in the quarter, driven by cross border and international growth of 25% on a year over year basis as volumes recover from the pandemic gloves, what secular tailwind expected to sustain our momentum.
Omnichannel transactions, such as order ahead, and buy online pickup in store, 35% in the quarter.
We had notable e-commerce wins in the quarter, including Johnson, and Johnson and Caesars Entertainment.
Also expanded our existing global acquiring relationship with Microsoft to be their provider network tokens.
In the quarter, we added Paypal and venmo and digital wallet payout options.
Our global just surface platform cementing carat as the leader in digital payouts with over 10 billion processed year to date, an increase of 230% on a year over year basis.
Additionally, we are building a new partnership with backed leading crypto and consumer wallet solution provider.
We will utilize <unk> industry, leading funds in funds out solution.
Together by serve them back we'll develop new crypto used cases for both the merchant and Fi clients.
Moving to cover Kinect the strength of our ISC focused offering shows through the third quarter with Isd volume up 71% year over year.
<unk> allows us to bring together two strong five serve assets the world class hardware and software platform, our Clover, along with the best in class partner management and operational tool of co pilot, which gives <unk> a unique.
View into all of the merchants activities ranging from merchant application processing to support.
Our commitment to being the best partner from entities is resonating, we signed 47, new Isps in the third quarter, bringing our total wins to 142 year to date.
We continue signing up Isps that are new to payments and winning against the competition.
This quarter more than half of our wins were competitive takeaways.
Before I address our international progress I'd like to highlight another focus area in our merchant business point of sale lending.
We are leveraging our position as the operating platform.
It's small medium and large to offer a range of buy now pay later options.
We are expanding our referral relationships, while simplifying the merchant experience through integrations without platforms like Clover.
We currently have referral agreements with.
Citizens pay and Brad.
We're also working well at by clients to bring their be NPL offerings to market.
For example, we are partnering with synchrony to offer buy now pay later solutions on our card processing platform Apis.
<unk> also recently announced acceptance of private label cards Clover.
On our Investor day, we talked to you about our merchant acceptance growth strategy for international.
We remain focused on growing our global market presence with World Class Bank partners and through our direct channels, all while leveraging the strength of common platforms and connections.
The global expansion of Clover platform into APAC, Latin America and India.
<unk> currently in flight.
Track the rollout of Clover in India by the third quarter of 2022 tremendous opportunity given the size and growth potential of the market.
Cover is already in market in Argentina is expected to launch in Brazil next year, thereby covering the two largest markets in Latin America <unk>.
In EMEA, our Clover is end market across the U K, Germany, and Netherlands and Ireland.
Further boost expected with the rollout of the Deutsche Bank, JV that we announced last quarter.
Among the key APAC deal is completed and the color is an omnichannel merchant acquirer processing mandate from bank of China.
Our fast growing Macau market.
Moving to EMEA Pfizer partnered with post financed one of the largest financial institutions in Switzerland to provide credit card acquiring services for their swift merchant clients.
Starting with the initial 4000 merchants that accept the propose finance cards today with plans to expand to the entire merchant base of 60000 over that.
Pfizer is also supporting restaurant brands.
Owner of iconic brands, including Burger King and pop by as the company expands its footprint across Europe when Omnichannel approach.
<unk> will provide acquiring services for Burger King in the U K and the Nordics and popeye's in the UK.
Because on the merchant segment as you may recall in April.
We want a 20 year deal to become the exclusive provider of merchant acquiring services for kasha.
Economic that federal one of the largest Brazilian banks, we're pleased to report that the implementation of this mandate started at the beginning of August and it's going extremely well with 65000 merchants onboard it as of last week.
Moving to the payments and network segment organic revenue grew 6% in the quarter, resulting in year to date growth of 5%.
Our payments segment consists of three businesses.
Global credit processing and output solutions, which we call issuer solutions, which is 40% of the segment.
Debit processing and debit networks, which we call referred to as card services also one third of the segment and the third business is comprised of digital solutions they'll pay a prepaid business.
Our issuer solutions business, which grew just below the overall payment segment average is seeing the benefit of continued credit recovery with general purpose credit gross active accounts up in the high single digits note that our credit issuer solutions revenue.
It's driven by number of accounts not credit volume.
However, as credit volumes recover the number of counts will follow.
Looking ahead, we expect growth in the business to be driven by the continued ramp of last year's notable wins, including three of.
The top 25, just your wins, which we announced last year.
Also recently completed Pnc's conversion of Bbva's card portfolios to our platform.
A retail private label portfolio also continues to recover from its lows, although at a slower pace than we anticipated at the beginning of the year.
Within card services, which grew organic revenue a couple of points faster than the overall payment segment average we saw a strong growth in debit transaction driving our issuance and network businesses. Looking ahead, we expect to sustain growth for this business.
Broadening our total addressable market.
For instance, in the quarter, our Star debit network signed an agreement with a leading U S consumer fintech time to become its preferred unaffiliated network for debit.
We believe that aligning with one of the largest spend tech issue is a testimony to the scale and technical capabilities of the store network and physicians that network well for future growth.
This was also one of our political action synergy revenues in the quarter.
During our Investor day, we discussed the opportunity to offer a fully managed by size or credit card issuing option to <unk> and shared that we were actively exploring this market.
We are pleased to announce that we're currently piloting our agent credit program offering branded credit choice and will launch in Q1 2022.
Choice is a fully managed credit card issuing as a service solution that allows that to me that ESI has to offer their customers and <unk> branded credit card experience that is fully integrated into their debit solution, but without the operational burden.
Running their own credit card portfolio.
Credit choice leveraging our scale distribution.
World Class card issuing surround solutions, such as Honda and span labs to expand into a sizable new addressable market for <unk> or what are the economics per card are considerably richer than in processing.
We have already seen strong early interest from clients with hundreds of prospects in the pipeline.
On our Q2 call we spoke to you about a rich mobile first consumer and business offering powered by recent acquisitions and spend labs.
The results of the launch has been very encouraging.
We completed the integration of the card host platform into our credit and debit processing platforms.
Into our mobility mobile banking platform we.
We're seeing tremendous demand for this integrated solution from both new prospects as well as the existing card valet clients, whom we expect to fully migrate to the integrated card hub solution by the end of 2022.
In addition, we expect to expand the platform to add loyalty installment payment.
And dispute management, thereby establishing card hub is a key differentiator to drive new sales and client retention.
Brown financial institution client. This solution is a game changer it enhances consumer engagement with their digital banking platform creates more fee income through greater card usage and catapult.
Overall digital experience and Italy of some of the world's top banks and neo banks.
And the third business results were mixed.
Had good growth in our digital payments activity led by Zelle transaction growth of 75% in the quarter and the number of clients who are now reaching just under 750.
Prepaid growth was driven by new client wins within our solutions business, we expect growth to continue driven by new use cases.
Bill pay business, which encompasses both the direct biller and bill pay throughout financial institutions continues to grow slower than expected. However, we are extending our bill pay capabilities beyond the financial institution channel going live later this month.
And then enable a paypal bill payment functionality within Paypal is new at this.
Additionally, we expanded our relationship with a large telecom provider.
April commercial card payments without bill matrix solution.
Moving to the financials technology segment the quarter was in line with our expectations posting organic revenue growth of 4%, resulting in 4% growth year to date.
We added 14, new core account processing clients in the quarter.
<unk> seven competitive takeaways and two de Novo wins as DNA platform is seeing great success, including with larger financial institutions as evidenced in the valley National Bank and dollar bank wins, what assets over 40 billion.
In dollars and 10 billion respectively.
Ability.
Our modern cloud based API driven digital banking platform is seeing great momentum with 150 incremental sales in the quarter.
138 of these sales were to existing clients, which will drive our clients digital transformation and deepen the penetration of our fully integrated digital surround such as card hub sale and span labs.
<unk> 12 were new logo sales would have been core competitive takeaways.
We also continue to enrich our open banking and Fintech ecosystem again in line with the goals laid out at last year's Investor Conference We.
We launched our new developer portal, which we call the <unk> the Pfizer developers studio.
Towards the end of the third quarter. The developer studio provides rich inexpensive API integrations to support banks stay intact merchant and enterprise clients with developer tools needed to accelerate.
The Asian integrations across the entire bias or ecosystem.
Additionally, we also announced partnerships with exciting new fan teck's future fuel dot Io and straight chairs aimed at creating new white space opportunities in digital for both retail consumer and small business lending respectively.
We believe that we're extremely well positioned to continue to drive revenue in that segment higher by delivering new innovation such as the ability to.
Strategically acquiring and integrating attractive surround solutions like on that and span labs and leveraging the power of the developer community through our developer studio ACI portal or dedicated go to market integrations like future fuel.
Dot I O N Street chairs.
Now, let me pass the discussion to Bob for more.
More detail on our financial results.
Thank you Frank and good morning, everyone.
Before I begin reviewing the detailed business results.
<unk> mentioned, we are aligning with the broader community and simplifying our message by clarifying your internal revenue growth metric is organic constant currency revenue.
It does not change how we calculate this measure just clarifies the terminology you will be the same definitions and calculations we've used in prior quarters.
On slide 11, we've included a new schedule really provide an understanding of the walk from GAAP revenue to internal or organic revenue for the third quarter.
The summary can be seen in more detail in the appendix of our presentation.
Now I will cover some detail on each of our segments. If you're following along on our slides I am starting with slide four.
We feel great about our performance for both the quarter and the first nine months of the year.
We are well positioned to achieve strong full year financial results.
Total company organic revenue was up 10% for the quarter with growth across all segments.
If I heard your acceptance segment, which grew 18%.
Year to date total company organic revenues grew 11% also led by the merchant acceptance segment, which grew 21%.
Total company adjusted revenue also grew 10% to nearly $4 billion in the quarter.
Year to date total company adjusted revenue growth of 11% to $11 4 billion.
Third quarter adjusted operating income was up a strong 15% to $1 4 billion.
And adjusted operating margin decreased by 130 basis points to 34, 2%.
This margin improvement was driven by our strong revenue results continued disciplined capital.
Disciplined cost synergy execution, which produced $64 million of incremental cost synergies during the quarter.
We have now action $116 billion program today.
Year to date, adjusted operating income increased 23% to $3 $8 billion.
Adjusted operating margin year to date expanded 330 basis points to 33, 2%.
Our third quarter adjusted earnings per share increased 23% to $1 47.
Compared to $1 20 in the <unk>.
Prior year.
Through September 30.
Adjusted earnings per share grew 29% to $4 one.
Putting us on pace to achieve our 36th consecutive year of double digit adjusted earnings per share growth.
Estimate to the incredible strength and resilience of this company.
Free cash flow for the first nine months of the year was $2 3 billion.
Welcome to the 85% and free cash flow conversion.
This result was driven by increased invested capital investments related to technology World class facilities, and the integration of newly acquired businesses.
The working capital increase driven by revenue growth.
A reduction in the net operating loss carryforward benefit.
With these investments and strong revenue growth, we now expect free cash flow conversion to be 95% to 100% for the full year.
Now looking to our segment results starting on slide six organic revenue growth in the merchant acceptance segment was a very strong 18% in the quarter, 21% year to date.
Our revenue was driven by a combination of growth in volume and transactions.
Our results were once again driven by strong performance across all three platforms Clover for Smbs cared for large businesses.
Connect for Isps.
<unk> continues to build upon the momentum and strength of our product offering as it posted a very strong 47% GP growth year over year.
$196 billion on an annualized basis with growth across all of our distribution channels.
With carat, we won 45, new global Enterprise E Commerce clients on the platform in the quarter.
In addition, carat expanded mandate with existing high quality brands such as Valero.
Continuing with lead in the high growth online EBT space turns has launched more than 50 clients to online EBT.
In the past 12 months.
Our ISP volume in this quarter corporate connect grew 71% year over year.
Almost 150% versus the third quarter of 2019.
We are winning both Isps that are new payments as well as competitive takeaways.
Adjusted operating income to be acceptance segment increased 30% to $552 million in the quarter.
Adjusted operating margin was up 300 basis points to 32, 2% driven by top line strength.
Through September 30, adjusted operating income improved 57% to $1 $5 billion.
The operating margin grew 710 basis points.
36%.
Turning to slide seven the payments and network segment posted organic revenue growth of 6% this quarter.
Tilting in year to date growth of 5%.
As Frank outlined to the composition of this segment.
Our card services digital payments and prepaid businesses outperformed the segment organic revenue growth rate.
Issuer solutions came in just under the segment average while bill pay was a headwind.
Our console account transfers and PDP solutions continue to rise with consumer demand zelle.
Zelle transactions during the quarter were up 75% and the number of clients live on Zelle was up 65% in the quarter.
Debit transactions grew 11% in the quarter a strong result in light of the tougher year over year comparisons in the third quarter versus the second quarter, driven by the macro impact of the reduced benefits of the stimulus.
Given the performance year to date, we expect to see the payments and network segments full year organic revenue rate to be within the medium term outlook growth rate of 5% to 8% driven by the continued ramp in new client Onboarding and strong uptake of our advanced digital offering.
However, this outlook is slightly tempered versus our previous expectation of approaching the higher end of 5% to 8% organic revenue growth target range.
Adjusted operating income for the segment was up 7% to $650 million.
Adjusted operating margin was up 50 basis points to 44.0% in the quarter.
Year to date adjusted operating income was up 7% to $1 9 billion.
And adjusted operating margin was up 110 basis points to 43, 4%.
The results were driven by positive momentum in our card issuer business and the positive impact of revenue and cost synergies.
Turning to slide eight the financial technology segment organic revenue grew 4% in the quarter.
Year to date organic revenue growth for the segment was 4% within our medium term outlook for this segment of 4% to 6%.
Our digital banking capabilities and digital solution offerings continues to win in the marketplace.
Frank mentioned, we added 14, new core account processing clients in the quarter.
Of which were competitive takeaways.
We completed our integration of bonds on our card management capabilities into our mobility mobile banking platform.
Currently in market with that offering.
Mobile deposits in Q3 grew 10, 5% over the prior year, while self service Etfs deposits, good nearly 60% over last year.
Adjusted operating income was up 4% in the quarter to $275 million.
10% year to date to $794 million.
Adjusted operating margin in the segment decreased 40 basis points in the quarter to $36 zero percent. However on a two year basis. Adjusted operating margin has increased 560 basis points versus the third quarter of 2019.
Adjusted operating margins expanded 190 basis points to 35, 3% year to date.
The adjusted corporate operating loss was $121 billion in the quarter in line with last year.
Adjusted effective tax rate in the quarter was 23% improving 260 basis points versus prior year and we now expect our full year adjusted effective tax rate to be about 20%.
During the quarter, we continued our disciplined capital allocation strategy by repurchasing over 3 million shares for $365 million.
More than 52 million shares remaining authorized for share repurchase.
As Frank mentioned earlier this month, we entered into an agreement to acquire a bento box of digital marketing and E. Commerce platform focused on driving growth and engagement for restaurants that we will integrate into clover is dining solutions to further strengthen our omnichannel restaurant platform.
To close this transaction later this quarter.
Total debt outstanding was $21 billion on September 30, and the.
Debt to adjusted EBITDA ratio decreased to 32 to three two times.
Q3 was another demonstration of our time tested capital allocation strategy, which includes maintaining a strong balance sheet, making organic investments is a bit of solutions, you're pursuing high value acquisitions.
With that let me turn the call back to Frank.
Bob.
I'm very proud of the results, we've accomplished with another quarter of double digit adjusted revenue growth and double digit adjusted EPS growth.
In addition to delivering on our financial results, we continue to focus on our associates and our communities in July five circles in the disability disability Equality Index 2021, Best places to work and then.
September received the Silver Torch award from the National Black MBA Association as partner of the year, recognizing our commitment to putting diversity at the forefront of our values and talent and client engagement strategies.
During the quarter, we also entered into a multiyear relationship under multi year relationships with girl Scouts USA and.
The Russell Innovation Center for Entrepreneurship. These partnerships focused on increasing access and opportunity for aspiring women and minorities within the entrepreneurial ecosystem.
We also expanded our <unk> business program to Detroit, and the Washington, D C, Maryland, Virginia area as well as internationally.
Entry into the UK.
Additionally, during the quarter. We also completed our CDP submissions and for the first time published our EEO one filing on our Internet site.
None of these achievements would have been possible without a world class talent.
I think more than 40000 associates around the world for their commitment and courage as we stand together to deliver value for clients, our colleagues and you our shareholders.
With that operator, please open 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 then one on your phone if you would like to withdraw. Your question you May Press Star then queue. Our first question comes from Tien Tsin Huang from JP Morgan. Please go ahead.
Thanks, So much good morning, I wanted to ask are unacceptable. So I'll ask on acceptance looks like you outperformed.
Global visa volume if im looking at this correctly, but the yields turn negative.
In the third quarter I know it was positive last quarter. So just a question here on pricing.
The mix in general for acceptance and what the outlook on yield.
It might be here going into the fourth quarter.
Yes agenda, Bob Good morning, I would attribute largely that variation to the difference between volume and trends of our mix relative to what you might see in pizza as well as the yield ever so slightly.
That ebbs and flows within the quarter, depending on the mix of SMB versus enterprise overall, we feel quite good about the overall performance, how we're performing against the overall market and against our peers.
Got you so more mixed than didn't Brexit. Thank you yes.
Yes.
Thank you. Our next question comes from Lisa Ellis from Moffett Nathanson. Please go ahead.
All right terrific. Thank you.
I think I'll follow up on quest.
A question and actually specifically ask about that large processing client roll off that you highlighted that looks like it's about a five point drag on overall volumes and merchant acceptance.
That's a larger drag on E. Com can you just elaborate a little bit on that situation and specifically how should we think about how it's affecting revenues if its a low yielding a client and then also is that something now that will take another three quarters before it lapsed or just any additional detail there would be helpful. Thank you.
Yes, Lisa.
Good morning.
Way to think about this as a large client that we process through a joint venture.
We pointed it out in terms of.
Adjusting our volume and transactions for transparency it has very little impact overall on the actual revenue and the revenue numbers you see there our as reported so including that that decline that client is largely off our platform at this point and so you'll see it from a year over year.
Year standpoint, but there is no more decline going forward because they are essentially off our platform at the end of the third quarter.
Yeah.
Terrific. Thank you.
Okay.
Sure.
Thank you. Our next question comes from Dave Koning from Baird. Please go ahead.
Hey, guys nice job.
I guess first of all just in acceptance I think last quarter, you even mentioned Q4 being up sequentially from Q3, I guess is that still the case and maybe if I look back on some of the more normal years. It seemed like you would grow a few percent sequentially. In Q4, just wondering anything in Q3, and Q4 that would disrupt that kind of normal.
A few percent up sequentially pattern.
So youre talking about growth quarter to quarter sequentially.
Yeah, just sequential revenue growth in acceptance it looks like a few percent up is kind of normal in Q4.
Yes, David I think it's tough to call anything normal these days.
Expect our fourth quarter to be roughly in line with third quarter.
<unk> for this year.
Okay. Okay Cool and then I guess secondly, just payments I know you've kind of called out how it's going to be within the range you'd said before maybe at the upper end of the range.
Some of that anything thats falling into 2022, now where there may be delays in implementations or anything there that just kind of makes 20 to now a little better than it previously would've been.
Yes, I wouldn't call it any delays per se, but we highlighted a few growth drivers.
That will see into 2022, a couple of the new wins Paypal going live we signed a new large U S. Telecom that will go live soon.
And of course, the announcement of credit choice will help us.
As we launched that program okay.
As Frank pointed out we are now in pilot, we're seeing very strong demand for.
For that that program for something that we had not formally announced yet.
So we're just now announcing that so we have some good but early read on that and of course, we'll have.
Card hub offering that we acquired through on dot or for a full year next year and that is now fully integrated into our mobility platform and we continue to build out that capability. We also we also have those.
Three of the top 25 issuers that are beginning onboarding, so that will be within the numbers next year and you heard us talk about.
Us converting BBVA.
Our platform also for our client PNC, so and youre going to continue to get.
Zelle ramp in there also as that continues to grow and we onboard more so.
It was all will factor into next year's next year's numbers.
Sounds great. Thanks, guys nice job.
Thank you.
James Faucette from Morgan Stanley. Please go ahead.
Thanks, very much I wanted to ask a little bit more of a strategic question I. Appreciate all the color on near term trends and benefits that youre getting some new customer wins, but.
It seems like you picked up a little bit the pace of acquisitions, though at least be announced once recently can you talk about how youre feeling about potential and importance of doing acquisitions as part of your.
That's part of your overall strategy, that's evolving at all and I guess tied to that Bob highlighted the balanced capital allocation, but I'm wondering if it makes sense to accelerate debt pay down a little bit improve optionality in case pick the deals come along thanks a lot.
Well, maybe maybe.
I'll talk about.
What we've been doing on M&A and how we are looking at M&A again.
I think the first thing is.
Whether it's.
M&A or.
Building out businesses, we're investing organically and Inorganically and I think the thing that hopefully you see is how agility and speed and innovation.
We talked about on dot.
And it's fully integrated beyond its initial capability and now in our mobile product and winning in the market.
You'll see US go and look at Vanco box, and we're extending our total addressable market with a capability that will start what restaurants, but actually could be a storefront and much larger but all of these are nurturing.
Good strong start ups that then will allow us to thrive in our environment and we put the capital behind them.
Great and grow and you hear how it breaks span lab so long.
So I think you should expect us to continue that and realize that I think we believe we have a deep skill set in integrating properties transforming al al property itself in some cases, where even disrupting ourselves in the process.
As we move.
From card valet to garner good integration.
So you should expect us to continue to do that and be very very thoughtful about acquisitions, but we will invest in organically and well.
Fast organically and we will invest organically in the acquisitions to allow them to thrive within our ecosystem and not to be stand alone entities.
And then James as far as paying down debt you can see.
<unk> reduction or improvement in our leverage now at three two times back when we completed the merger we were just over four times, but we continue to generate good free cash flow.
As you May recall back at our Investor Day last December we talked about the capital to deploy over the next five years or more than $30 billion. As we enter 2022, not only will we have very strong cash flow, but we also have capacity on the balance sheet as EBITDA grows.
The company will quote naturally delever and so we will have the capability to borrow just to maintain that historic leverage ratio. So we feel like were very good.
Positioned to be able to complete acquisitions that we feel we complete.
Prohibited or or constrained by capital.
That's great color and context, thanks, Frank Thanks, Bob.
Sure.
Thank you next we have Jason Kupferberg from Bank of America. Please go ahead.
Thanks, guys. Good morning, just wanted to start with a follow up on the large processing client that is coming out of the numbers here I guess it looks like it's an E. Comm clients just based on how much it impacted the E comm volume numbers, specifically and what is this just a.
Competitive situation that was becoming too price intense from from your guys' perspective, just wanted to get a little bit more color because it's it's fairly.
Fairly sizeable it appears.
Yes, I mean, let's go.
First.
Sure.
That.
That volume coming off our system is in a revenue number so I'll hold that thought right I mean, so when you look at a large processing client.
J B.
No that's exactly what it sounds like which is first of all they this was long telegraph.
By the client, but you know what.
When we always talked about our business, we knew the RPT on this and never never sorry that gets real economic impact really just a volume impact to our business.
And they went in house it wasn't a competitive takeaway.
And it was part of their strategy, we're happy to support them without processing capability.
Our JV into the period of time that we get it.
Okay. Thank you for that and just on the free cash flow conversion I just wanted to hone in on what I guess, where the most significant changes in your expectations versus last quarter, because I mean at the end of the day I know on a quarterly basis, obviously working capital can move around but full year revenue is coming in.
Right in line with your plan.
Presumably the diminished benefited the NOL would have been known previously so was this really just a function of kind of higher capex than you anticipated at the end of the day versus what you were thinking last quarter.
Yes, Jason.
Jason the way to think about it as our 11% revenue outlook.
Certainly at the high end of our original outlook with 7% to 12%. So we are growing quite a bit faster than we originally expected overall.
We are also seeing meaningful opportunities to invest for growth.
To your point Capex is higher.
In terms of spending on creating new capabilities, new products and services as well as integrating the acquisitions that we announced earlier in the year things like on the.
The software development that we are investing there.
Integrated into our capable with our existing capabilities or other products and services, but to create new capability with some of those acquisitions.
Let us to make the decision to continue to invest in growth and still have very good free cash flow and good cash conversion overall.
Yes, yes, it doesn't sound like perhaps perfect. Thank you.
Thank you next we have Ramsey El <unk> from Barclays. Please go ahead.
Hi, Thanks for taking my question today, Frank I wanted to ask you.
A broader question there seems to be some debate or discussion among investors about potential fintech kind of disruptive forces in the marketplace at the same time. It seems like you guys function as somewhat of an infrastructure or enablement layer for Fintech I mean, even from the call today, you talked about China and back and Paypal and I know, there's a slew of others. So can you talk about this time.
<unk> between Fintech as a competitor and a potential disruptor versus Fintech is just sort of a high growth distribution channel for the business.
Yes, I mean I take this as a long term issue really.
Back in time.
I mean.
We're a platform where.
Our platform is what I can say forever. Thanks from fin techs to SMB to large enterprises.
Yes.
You think about what we did with Clover that was opened up a community development community. So we can be a platform for them and then last one for end users. So my my view in our view.
Is.
We're happy to do thanks to disrupt ourselves.
You see us doing what to spend labs beyond dots and even clover was a disruptor.
Well.
And we will continue to use our platform to enable and ultimately you know.
We want to serve all the communities. So if you think about things we've talked about here.
Chime.
Previously night.
You know that.
An enabler.
All of the capabilities and continued innovation and we will also.
<unk> enable those.
<unk> had the capabilities that we believe our clients. So it is when you think about all of this you hear us talk about it.
Token provider from Microsoft that's about it.
Bringing their authorization.
It's higher so.
No.
Don't really find any conflict here.
We have waterfront property, we open up the waterfront property and our job is to enable enable commerce and we get paid for enabling commerce.
That makes a lot of sense I appreciate your answers there. Thank you.
Thank you next we have Darrin Peller from Wolfe Research. Please go ahead.
Hey, Thanks, guys.
I wonder if clover, because I know there's been a lot of discussion on what that asset could mean for you. So.
Can you help us understand any more metrics you think makes sense on the success of that asset obviously, it continues to grow well, but any other metrics in terms of how big the revenue is from that now what kind of growth.
Growth you anticipate maybe maybe any kind of profitability.
And then.
So is there an opportunity given some disruption where year end about in the market around Chinese competitor, having some challenges on their terminals in the market now I think they have million $3 million or so of terminals that might be a challenge now could there be a replacement opportunity for closer than that.
Yes Darren.
Overall, obviously, we are quite pleased with.
The progress and the continued growth prospects of Clover.
PV.
Up 46% just under $200 billion for third quarter on an annualized basis, we continue to invest in new capabilities and expand our reach there.
As you know.
A large proportion.
About 90% of that volume is new to fiserv.
And so that is certainly a growth driver for the company overall.
And continue to expect that going forward.
Where we're adding capabilities Bento box is a great example is building out some of the verticals.
Across that capability, we have significant strong distribution channels.
And with the dissolution of the BAMS joint venture.
Have a good and very quickly growing direct channel that you didn't see us have a few years back and so we continue to see good opportunity there.
In terms of the terminal dynamic we have obviously, we have our own clover devices.
We also use other terminals for the other parts of our company.
We have a variety of different providers of those terminals and.
No disruption to us at this point, yes.
It's sad.
Uh huh.
However, as the platform of choice.
<unk>.
At the international expansion of that.
And I would think that.
As people are making choices going forward would disruption for others that will just further accelerate outgrowth.
Yes, we think that could be an opportunity for you to take a lot of share in the U S will be a split with what's going on there quick follow up is just on the cash flow and the capital deployment.
Just given what normalized earnings could be how strongly or would you consider a more material accelerated share buyback by any chance just given now.
You probably will be at about that two eight <unk> leverage target.
At the end of the year thanks, guys.
Yes, Darrin I think the.
Way, we think about capital deployment has been and remains quite consistent and quite balanced we continue to focus on growing the business organically.
Doing value accretive inorganic.
Where appropriate I don't think you ought to anticipate us doing a large buyback as you know we are essentially in the market every quarter and have been for years short of the short period of time between announcing and closing our merger back in 2019, and we will continue to be a disciplined capital allocator.
Okay. Thanks, guys.
Thank you. Our next question comes from Timothy Chiodo from Credit Suisse. Please go ahead.
Thank you for taking the question I wanted to dig in a little bit more of a two mix related questions on Clover and these sort of sort of alluded to in the last question, but hopefully we can get some of the mix percentages. So first would be around the portions of revenue. So a large portion would be payments related but also you highlighted at the Investor day, some increasing software attach.
Strength in value added services and then also clearly there's the hardware component. So even if you could just give us sort of rough breakdown of those components and then the second part is around mix and distribution. So you alluded to some of the various channels whether it be direct bank partners retail ISO wholesale so even just broad strokes on that.
Mix of distribution would be really helpful.
Yes, Tim So a couple of things to think about there.
One in.
In terms of channel.
Seeing broad growth.
Cross all of our channels, whether it's through partners.
Through the ISC.
<unk> two.
We have and have had and continue to be focused on having a very wide breadth of distribution capabilities and continue to focus on winning in all of those channels.
<unk> remains and has been and will continue to be a broad focus of ours and then in terms of breakdown of revenue and we haven't given.
Detail around the mix of hardware versus software versus processing, obviously, the vast majority of our revenue in the merchant acceptance businesses that merchant acquiring revenue.
Inside of Clover, obviously, we've got hardware that we sell but the.
The magic to cover as you sell the hardware and then you have a processing client a merchant acquiring clients for years and years with I attached and high attainment rates and.
We continue to focus on that.
Okay, great. Thank you so much for the help.
Thank you. Our next question comes from David <unk> from Evercore ISI. Please go ahead.
Thank you good morning within merchant acceptance what impact are you seeing on your payment volume when a competitive buy now pay later solution is added at one of your ecommerce clients and in particular.
I appreciate your help with two things number one are you retaining the merchant acquiring our merchant processing would it be NPL company has added or are they bring in their own merchant acquirer and number two.
Do you have any insights into funding mix would be NPL gets added at one of your clients in terms of.
Debit ACTH versus credit thank you.
Yes, I think a couple of things number one we have a number of referral partners.
And over the last several quarters, we've announced these you talked about these whether it's sip for Fred or citizens Bay, we continue to be focused on.
Enabling multiple options for our merchants.
And obviously, where the merchant acquirer for those merchants and so providing that capability maintains that relationship with those merchants in terms of.
Credit versus the CAH et cetera, I think broad industry view.
Is.
Today.
A large portion of that.
Paying for a buy now pay later activity is actually paid or are finally executed through card payments.
So youre not seeing any specific.
Mix in terms of ACTH, when you look across kind of the NPL adoption at your customers.
No I think that the key there as well why not pay it later.
High volume in terms of news.
Still a relatively small portion of the overall <unk>.
<unk> merchant space and not moving the needle and in fact in some instances.
Instead of one transaction, you're actually seeing four transactions.
Understood. Thank you very much.
Thank you. Our next question comes from Dan Donlan from Mizuho.
Please go ahead.
Hi, guys. Good morning, Thank you for taking my question.
Can you give us some color on what's.
What's implied in the fourth quarter organic growth.
For the two other segments for our payments and Fintech there would be great. Thank you.
Dan you were quite muffled can you repeat that question.
Can you give us some color on what's implied by the guidance the organic guidance for the other two segments.
Yeah.
Taking the two networks.
Yes, so I think the.
I tried to give some of that color.
In our prepared remarks.
Fintech segment.
To date, we're now at 4%.
And we expect for the full year to be in that medium term outlook range of 4% to 6%.
And then in our payments segment.
Again relative to kind of our medium term guidance.
Medium term outlook of 5% to 8% we expect to be in that range that is adjusted from previously where we expect it to be at the high end of the towards the high end of the range right now its interest in the range.
And year to date, we're at 5%.
Got it understood. Thank you so much.
Thank you and that was our last question for today's call.
I'd like to thank everybody for joining us. This morning, we appreciate your support.
Further questions. Please contact our Investor relations team have a great day and thank you for everything.
Thank you all for participating in today's conference you may disconnect your line and enjoy the rest of your day.