Q2 2023 Fiserv Inc Earnings Call

July 26, 2023

Please standby the conference will begin in about one minute again. Please standby the conference will begin in about one minute. Thank you.

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Yes.

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Welcome to the Pfizer 2023 second quarter earnings Conference call, all participants will be in a listen only mode until the question and answer session begins following the presentation. As a reminder, today's call is being recorded at this time I would like to turn the call over to Julie <unk> Senior Vice President of Investor Relations at Fiserv.

Thank you and good morning with me on the call today are frankly been channel, our chairman 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 Fiserv Dot com.

Please refer to these materials for an explanation of the non-GAAP financial measures discussed in this call along with a reconciliation of those measures to the nearest applicable GAAP measures.

And then otherwise stated performance references our year over year comparison.

Our remarks today will include forward looking statements about among other matters.

<unk> operating and financial results and strategic initiatives.

Forward looking statements may differ materially from our actual results and are subject to a number of risks and uncertainties.

You should refer to our earnings release for a discussion of these risk factors.

And now I'll turn the call over to Frank.

Thank you Julie.

And thank you all for joining us today to discuss another very good quarter.

Our results continue to demonstrate strong performance in revenue and operating income.

With second quarter organic revenue growth of 10% led by performance in merchant acceptance.

Particularly international regions, and all payments and network segment.

Adjusted earnings per share of $1 81.

Was up 16% and adjusted operating margin of 36, 5% was up 300 basis points.

All three measures are tracking.

<unk> of our previous guidance for the full year.

As we look to the remainder of 2023.

We know that economist's expectations have improved for GDP and consumer spending relative to the start of the year.

But those economists also forecast a modest macro slowdown from the first half in part due to higher anticipated unemployment.

And the reinstatement of student loan repayment.

Ammonia financial institution customers spending and spending intentions remain healthy.

Even as net interest margins narrow and lending activity.

<unk>.

Card and non card payments services.

Digital banking.

<unk> modernization and data analytics are high demand services and financial institutions are looking to us to deliver with the outperformance in the second quarter. We are once again, raising our outlook for the full year.

Now expect 2023 organic revenue growth in the range of 9% to 11%.

From 8% to 9% previously.

Adjusted operating margin is now forecast to improve at least a 150 basis points. This year.

Up from our prior expectation of greater than 125 basis points.

With year to date, adjusted EPS growth of 14% and the group revenue and operating margin performance. We are raising our full year adjusted EPS guidance by <unk> 10 cents to a new range of $7 40.

$207.

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Any growth of 14% to 16% over 2022.

These second quarter results, Mark our ninth consecutive quarter of double digit organic revenue growth.

We have also repurchased nearly 6% of our shares outstanding over the last 12 months.

Im incredibly proud of the strong performance and the hard work foresight and collaboration that it took to get here.

Now I'm focused on sustaining this momentum there.

There are multiple parts of our business that I consider future growth accelerants I will touch on five of these today.

Then we will add an elaborate on them at our Investor Day later this year.

Bob will provide more details on this later in the call.

The first success story with a continuing growth outlook is clover and <unk>.

Market, leading cloud based SaaS operating system for small and medium sized businesses.

Revenue is growing more than 20% on $267 billion in annualized payment volume.

This is a testament not only to the appeal of the product offering.

And the power of our vast distribution network.

Over has only begun to scratch the surface on the opportunity and vertical specific solutions.

<unk> value added services and software and international markets in the restaurant vertical we expect to offer the full suite of value added services and point of sale solutions for restaurants, and <unk> of all sizes next year.

Sure.

And we've begun to build out vertical specialized software solutions for retail and professional services, including partnerships to manage inventory.

Improved SKU level analytics and manage appointment scheduling.

We're also continuing to enhance our ISP partner program.

Having all Isps access and Clover hardware and processing alongside our value added services.

This will support outgrowth, among additional verticals, including business is in our back book.

An example of this is al integration, which saw an ultimate.

A vertical software platform provider focused on the Salon and spa industry that will provide a broader combined offering to its large merchant base.

<unk> now accounts for approximately 25% of our merchant revenue and remains on track to reach 35% by 2025.

Line without targets for $10 billion in total merchant revenue and three and a half billion in clover revenue by 2020, but import.

Implying expected growth acceleration.

Following the footsteps of Clover is current.

Unified commerce offering for Omnichannel merchants.

Like Clover.

Marriages and operating system that delivers both payments and experiences, but instead of small businesses.

Sure. It is for the world's leading brands in large enterprises.

Merit has been posting revenue growth in the mid teens on the strength of Pfizer scale flexibility and customization capability.

Russ key integrated services and broad payment options.

We recently released our two biggest differentiators for Karen.

Commerce hub, which.

Which is the orchestration layer that enables easy client access to our products and services.

And our data and insights to command center that was clients manage their data in real time to better engage and customers and improve operating efficiency.

Overtime as with Clover, we'll add more first and third party value added services and payment flows and increase accessibility around the world.

A third area of growth as digital payments and the intersection with digital banking.

Card hub is al card account product for debit card issuers that offers all of the newest features for cardholders to manage their accounts.

It helps those small and midsized bank issuer clients offer their customers.

Same cutting edge functionality as the largest independent card issuer.

We're about halfway through my grading financial institution clients onto card up where they can integrate without digital mobile banking product mobility.

And with competing digital banking providers.

This migration is sure.

A doubling of customer adoption of card in the first year, which means greater card usage reduce call center activity and better security.

Drawing new clients through digital banking solutions.

And the bundle, our debit processing debit network and risk services.

The full integration of card hub and mobility is investment unique advisor.

Because it spans two operating segments payments and Fintech, where others don't participate.

Our card solution was strengthened by two acquisitions on dot and spend labs in 2021 and it's just one example of the many cross selling opportunities.

Civic to Pfizer, given our integration work and breadth of capability.

A fourth growth area is Latin America.

Although you haven't spoken in depth about our international operations Latin America has been a standout grower in recent quarters.

We believe it can remain so for the long term.

He built a leading franchise across multiple countries and leading financial institutions that spans our product set for merchant acceptance to card issuing to Fintech. The region is about 6% of total company adjusted revenue and merchandise.

<unk>, it's 10% of adjusted revenue is largely driven by Argentina, and Brazil, followed by Mexico, Colombia at several others.

Argentina as garners attention lately for 100% plus inflation.

And while this has certainly contributed to some of our merchant segments friends are bigger and more sustainable part of the growth comes from anticipation revenue also known as merchant prepayments. This is where we help merchants navigate the long settlement variance.

In Argentina, Brazil, and Uruguay by funding their payment receivables early at a discounted rate.

It does get better liquidity, and we receive a spread that carries low risk.

Other parts of our Tam business showed strong momentum as well, we will be expanding our relationship with our partner Kasha economica federal enabling card payment for their more than 13000 bill payment agencies.

Throughout Brazil.

Is there a solution well agencies.

And bill payment options from only cash and Kashi debit cards today to all credit debit and prepaid cards.

The opportunity is meaningful when considering that in 'twenty 'twenty. Two this agent network enabled bill payments equal to about 11%.

All credit and debit payments in Brazil.

We are also enabling hedge transactions in Brazil, and the Peter B space.

Rising all software express platform and expanding our presence and picks the odd piece of it.

We have also made pigs payments capabilities available in all large requiring network in Argentina, supporting Brazilians dizziness neighboring country.

We're excited for the opportunities presented by picks it is already exceeded total card sales volume in Brazil in a short period of time.

Fifth the opportunities and Zach.

You know <unk> is the acquisition we made in April of last year to offer our next generation core banking system, that's cloud native.

It gives us the opportunity to compete and win with financial institutions of all sizes and across geographies expanding our total addressable market.

L. Three prong strategy is to win digital first bank's pro.

<unk> next generation core banking to our existing clients and it has a larger banks as clients often starting as they launch new products in the cloud.

Another opportunity and Vince that that's coming together now actually started many years ago.

We were initial investments and Zac when it began raising money in 2017, because we saw value in marrying our merchant processing platform with a back office banking platform today.

Today, that's called embedded finance and we're beginning to tap into the opportunity as merchants look to offer banking services to their customers.

Their goal is typically to provide more purchasing power and payment flexibility to their customers, while creating deeper relationships.

And it might as well add to the many payments and banking solutions that merchants want to offer and we already provide here are some examples we deliver stored value and gift card solutions to many of the world's leading brands.

We're the largest private label credit card provider.

And we are the processor behind most HSA and FSA accounts.

Is that just the single ledger and issuing platform for products like debit cards and D. D A's and from here, we're investing and the connectivity between platforms to create a more seamless experience for our clients and their end customers.

Yes.

Now, let me turn the discussion over to Bob for more detail on our financial results.

Thank you Frank and good morning, everyone.

If you're following along on our slides will cover details on total company and segment performance, starting with our financial metrics and trends on slide four.

As Frank said, our second quarter was a very good one and marked our ninth quarter in a row of double digit organic revenue growth.

Total company organic revenue growth was 10% in the quarter with strong growth across merchant acceptance and payments and network.

Year to date total company organic revenue grew 11% led by the merchant acceptance segment, which grew 16%.

Our three international regions also continues to perform well growing 31% organically in the second quarter.

We saw strong growth in issuer solutions revenue across all three regions and robust gains in Latin America for our merchant segment.

As Frank explained well, Argentina inflation grabs the headlines the bigger driver of our growth here is anticipation revenue, reflecting a newer business for us and merchant prepayments.

In the near future inflation in Argentina may ease, but it's likely to stay persistently high relative to the rest of the world.

Our broad franchise, new lines of business and strong growth in the rest of the region should balance out any single country's macroeconomic issues.

Second quarter total company adjusted revenue grew 6% to $4 $5 billion.

And adjusted operating income grew 16% to $1 6 billion.

Resulting in an adjusted operating margin of 36, 5% an increase of 300 basis points versus the prior year.

For the first half of the year adjusted revenue grew 8% to $8 $8 billion.

And adjusted operating income increased 16% to $3 $1 billion, resulting in adjusted operating margin of 35, 1% an increase of 240 basis points versus last year.

And tracking ahead of our 2023 guidance.

Adjusted earnings per share for the quarter increased 16% to $1.81 compared to $1.56 in the prior year.

Year to date through June 30th adjusted earnings per share increased 14% to $3.38 at the high end of our 12% to 14% annual guidance range.

Free cash flow came in at $608 million for the quarter and $1 $5 billion for the first six months of the year up 16.

14% year to date.

Our free cash flow remains on track to reach $3 $8 billion. This year.

And we retain a line of sight to accelerating cash flow generation in the second half as is typical for our business.

Now looking to our segment results starting on slide five.

Organic revenue growth in the merchant acceptance segment was a strong 14% in the quarter and 16% year to date.

Adjusted revenue growth in the quarter was 9% and 10% for the first half.

Merchant volume and transactions grew 1% compared to prior year.

This slower volume performance reflects two temporary factors.

First is the decline in retail fuel prices of 27% on average in the quarter, which creates a tough comparison for Petro merchant volume growth.

The second is related to some strategic realignment among large processing client that's impacting their volumes and represents a large portion of our processing only volume.

Excluding these two isolated factors volume growth would have been 4%.

It's important to note that volume changes for both petrol and processing only clients have very little impact on our revenue since petro clients typically pay per transaction.

Processing carries very little fees.

Little less big contributors to volume.

And thus the spread between our volume growth and revenue growth is particularly why now.

This should moderate over time.

Other factors contributing to the wider spread a rising penetration of software and services and pricing benefits from both higher inflation and added value.

We expect these to be positive contributors to revenue on an ongoing basis.

Over our operating system for small and medium sized businesses continues to build on the strength of its growing product offering to attract and retain more merchants and expand our revenue opportunity with them.

<unk> posted a strong 23% revenue growth for the quarter and 22% year to date.

Quarterly cohort G. P. B was $67 billion and $267 billion on an annualized basis up 15%.

Value added services penetration was 16%.

One point above year ago levels and on track to achieve our 25% target by 2025.

We signed 40 Isp's this quarter, bringing our total signed to 77 year to date.

Our momentum is starting to build with apex as well with the signing of waste our theory during the second quarter.

Silver sports editor relationship with a large service provider for the people of Brown stadium other venues.

Garrett our omni commerce operating system for enterprise clients grew revenue, 6% in the second quarter.

Excluding the loss of a Latin America processing client to began taking its business in house.

<unk> grew 14%.

All our relationship with the client remains good we're focused on growing our higher value direct business.

The underlying turret business remains strong.

We've expanded our merchant processing relationship with inspire brands. The second largest restaurant company United States to include several more of their restaurant concepts, while continuing our relationship with their Dunkin' and Baskin Robbins and Sonic brands.

The agreement will add several thousand additional restaurant locations to our processing portfolio.

Adjusted operating income and acceptance segment increased 21% to $718 billion in the quarter and adjusted operating margin was up 350 basis points to 34, 7%.

Year to date, adjusted operating income improved 20% to $1 $3 billion and adjusted operating margin grew 280 basis points to 32, 7%.

Turning to slide six the payments and network segment posted organic revenue growth of 9% in the quarter. Once again above the high end of the 5% to 8% medium term guidance range.

Notable growth drivers in this segment included active accounts on file and North American credit processing business.

Solutions business, our debit networks star in itself and sell led by continued growth in both the number of clients and transaction growth.

As we've said, we expect tough comparisons through the rest of the year as we anniversary a large new client on boarding completed in mid 2022.

Still we anticipate the full year organic revenue growth rate to be towards the high end over a medium term outlook of 5% to 8% also notable for this segment to new payments initiatives took effect this month offering and incremental revenue opportunities for fiserv overtime.

First July one with the effective date of the final rule clarifying parts of regulation I off to make explicit but at least to debit network routing options are required for card not present transactions.

For our star and Excel debit networks, which have been supporting CMP for years. This led to more than 80 of our card issuing clients, enabling card not present.

Paddy active cards for e-commerce transactions.

This is a growth opportunity that we did not previously have we also won several large e-commerce merchants as clients, including in the second quarter lift ADT and T. Mobile last week, the fed launched its real time payment system, but now so we are now live with six banks in the pilot phase and more than 70 <unk>.

To go lives so far this year.

We are encouraged by the opportunity to add more financial institutions since more than 1000 of them are already connected to our now network for zelle, providing a single point of integration that can be leveraged by F. EIS to easily add new wells, that's a major differentiator for fiserv.

But the key to fed now adoption is compelling use cases, which we think will grow over time, most likely in commercial payments and bill pay spaces.

Adjusted operating income for the segment was up 17% to $782 million and adjusted operating margin was up 360 basis points to 47, 4% in the quarter driven by our strong revenue growth and productivity.

Year to date adjusted operating income was up 16% to $1 5 billion and adjusted operating margin was up 240 basis points.

45, 6%.

Moving to slide seven organic revenue in the financial Technology segment declined 1% in the second quarter, resulting in 1% growth for the first half.

High periodic revenue in the second quarter of 2022 drove a difficult comparison this quarter, creating a three point headwind.

We continue to expect organic growth within the guidance range of 4% to 6%. This year. It's in your revenue is booked and implementation work on prior wins is completed.

Adjusted operating income was up 1% in the quarter to $285 million and up 2% to $565 million year today.

Adjusted operating margin in this segment increased 130 basis points to 36, 3% in the quarter.

For the first half the segment's adjusted operating margin grew 60 basis points to 35, 8%.

We added 10, new core account processing clients in the quarter, including four wins for DNA, our market recognize leading modern core banking platform for banks and credit unions.

Fintech showcased its extensibility as in a neighborhood of embedded finance with a win at pay theory.

This payment facilitator serves the education health care sectors and plans to enable a suite of banking as a service and money movement capabilities for its vertical SaaS partners.

We are integrating fintech with a merchant <unk> platform to enable <unk> to extend its vertical SaaS capability to banking and payments.

Our goal is to provide a single integration for vertical SaaS providers, who want to leverage assets across our banking payments and merchant businesses.

The adjusted corporate operating loss was $142 million in the quarter and $264 million year to date.

Slight increase over the first half last year is largely impacted by expenses tied to our client conference, which we hold in person for the first time since the pandemic.

The adjusted effective tax rate in the quarter was 26% and was 19, 8% for the first half.

We continue to expect the adjusted effective tax rate to be approximately 20% for the full year.

Total outstanding debt was $23 $2 billion on June 30th.

And the debt to adjusted EBITDA ratio was two nine times.

During the second quarter, we issued 800 million euros of eight year senior notes to replace notes that matured in early July and reduced our commercial paper program balances.

Right that sits at 13% of total.

During the quarter, we continued our disciplined capital allocation strategy repurchasing $8 6 million shares for $1 billion and 21 8 million shares for $2 5 billion.

Over the last six months.

We had $70 1 million shares remaining authorized for repurchase at the end of the quarter.

As we continued to optimize our vast product portfolio for value and strategic fit yesterday, we completed the sale of two financial reconciliation products to trintech for roughly $230 million.

We are fully committed to our long standing disciplined approach to capital allocation, which includes investing in our businesses organically maintaining a strong balance sheet.

Returning cash to shareholders through share repurchase.

And pursuing high value and innovative acquisitions.

Wrapping up on slide eight.

First half organic revenue growth was well ahead of our prior guidance for the full year.

So we are again, raising the range from 8% to 9% to 9% to 11%, which considers economists range of second half outcomes.

Based on our strong second quarter results and higher anticipated organic revenue growth, we are raising our full year adjusted EPS guidance range once again from the previous $7 30.

To $7 40.

To a new range of $7 47.

To $7 50.

Representing growth of 14% to 16% over 2022.

This includes a higher adjusted operating margin now expected to improve at least 150 basis points. This year.

From our prior guidance of greater than 125 basis points.

Lastly, we're excited to announce our upcoming Investor Day in New York City Wednesday November 15th So please save the date.

We will spend time going deeper on our growth strategies.

And you'll see how they factor into our outlook when we update our medium term guidance it.

It will be a great opportunity to get to know our management team and see some of our products in action.

With that let me turn the call back to Frank.

Thanks, Bob.

Like tech knowledge of corporate social responsibility programming because he continues to support better outcomes for our clients shareholders and associates.

Find many examples now annual CSR report published in May.

Highlights this quarter include growth.

Clay resource groups and internal mobility.

Additional grants for a small business under out back to business program.

<unk> awards and recognition as a top employer for veterans and National Guard members.

We're also in the process of submitting data to the carbon disclosure project.

GDP for the third straight year.

Finally I'd.

I'd like to leave you with some important perspective Hormel annual client conference Poirot.

Which we hosted in June .

For the first time since the pandemic, we were able to meet with thousands of clients and prospects in person.

Together they represent over 50% of our revenue from financial institution clients, We hosted education sessions on real time payments embedded finance and cloud modernization.

And an experience center that showcase key products like card hub digital banking van Zac.

And the new Clover kitchen display system.

As gratifying as this was the more meaningful takeaways for me can be summed up in three themes I heard from clients again and again.

One.

They love our products and their R&D spend.

Our core banking systems, especially premier for community banks and DNA almost modern cloud enabled core are coveted by bank and credit Union Cio's.

Our smaller clients remain largely untouched by the March banking turmoil and a larger clients have one eye on the regulatory environment and the other on how we can help them accelerate their growth.

Two they are rooting for all innovations small and mid sized financial institutions see flash or as their champion for the latest technology installations.

They're relying on us for their digital and mobile banking health care features and card services and data and analytics.

Great.

They have noted our improved service.

We've already made strong progress in client service with our relationship management model over the past year.

Most recently as an example of our operational excellence initiatives this year.

We launched our commitment tracker.

Clients can view, the deliverables, we promise and track their progress.

It's the first of its kind in the industry for transparency and accountability and financial institutions now have one more reason to choose bias there.

So to conclude.

As we approach the anniversary of our merger exactly four years ago. This week.

We're gratified that our vision and execution have proven out with results that exceeded expectations.

I'm here.

Combination of Allen investment.

Innovation and talented workforce me in the next four years.

And to be even better.

And now 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 one on your phone if you would like to withdraw your question at any time, you May press star two.

Our first question will go to the line of David <unk> from Evercore ISI. Please go ahead.

Thank you good morning, good to see the acceleration in Clover revenue growth.

Noting the long term plan to continue to accelerate global revenue growth, if we zoom in a little.

Closer onto the next let's say six to 12 months would you expect this trend to continue.

Yeah. Thanks, Dave.

You've heard us talk over over time.

You have tons of opportunity.

But what's in the I S V and I'll, let al day to day operating business itself, where you expect it to have acceleration.

That's bringing more software and suite of products that vertical solutions. We believe you know we have a long long opportunity set in front of US remember, we haven't gone to the back book at all.

That's an opportunity.

Not anywhere in our guide that back book I would say you should expect us to also to continue to add services and that's really driving that penetration. So you know in our vision and enough visibility, we see continued acceleration in global growth.

Thanks for that.

We also have international.

Thanks for that just as a quick follow up.

The 80 assures that you enabled for card not present onstar and excel.

Is there any way you can quantify potential volume from those issuers.

Over the next year or so.

Well you know I've been Super guarded on this item as I like to say we're in early innings.

You know what you're trying to get volume without enablement. So step one is enablement step two is also as you heard us talking about merchants.

I wanted to talk to a few today of large large players there I think I think as we come closer and we talked at Investor day, you'll get better visibility to this it is it is so it's not even early innings. It's it's you know the first step that really well.

We'd have demand we have issuer.

Issuer compliance with us on it and we have opportunity in front of us and fundamentally I like to say you know.

None of this is in in today's set of numbers or the guys that were talking to them.

Understood. Thanks, so much.

Thank you.

Next we'll go to the line of Darrin Peller from Wolfe Research. Please go ahead.

Guys. Thanks, Frank I know you touched on the for them, but I'd love to just hear your thoughts on demand from the banks right now in the context of the environment, we're going to this quarter as well as volume trends and just merchant.

More importantly, consumer trends into July what you're seeing across the ecosystem domestically maybe internationally also.

Well, let me talk about forum because you.

You know it was a L. L really first post merger physical Forum, we had done virtual ones, but you know demand Jan add a virtual conference is not very high.

The ability for our leadership team to touch thousands of clients.

And we made a point of that lots of listening sessions lots of meetings.

And that's why I go through those three bullets that you know all has their desire to engage in spend.

Is very hot their desire to have us be part of their embedded strategy to help them grow their bank is very high and we watch the response to the commitment tracker. The fact that we want to lead the industry and you know yeah.

And that meant you could hear if somebody who is at the conferences like Banc of California yesterday talk on their merger call about the strategic partnership they have with us their CIO was there I heard from their CEO yesterday on their CIO. So were part of our clients' growth strategy.

We love driving it it's not a core only play it's everything when we bring in and around it and you look at the acquisitions, we've done the receptivity to Corey to hub throw on di and I think it's kind of core competency in this company no longer for tuck in.

But for acquisitions that we could do at a size and then turned it into a completely different capability. So demand high Super I think Zack.

The amount of time pins that got attention at forum was off the charts and it is the industry leader in current instances in our space. It plays.

Relative to the consumer.

There is a lot weighing on them now.

The student debt issue, they have rising interest rates and you've seen a moderation in volumes you've heard it and I think you'll hear it across the industry. Our business mid July is similar to what we saw in a corner, but you know our business mix has allowed us.

To deliver so many other services, leading with Clover following with the other value added services that allows us to be able to be in a position, where we are and we think we're fortunate and blessed.

Hey, Darrin.

For them.

As a guy who went to three or four of them pre merger. So the last time, we had in person.

Tone of the conversation in the depths of the conversations was quite different this time.

Yeah.

Patient partnership conversations.

<unk> in customer service that is being experienced by our clients and echo that Frank talked about the commitment tracker, our willingness to be very transparent on what we're doing and why we're doing it.

And the openness of our solution.

Billing.

Much wider breadth of capability not only stuff that we bring and that's increased over time with our payments and Fintech segment, both serving financial institutions, but having those open API developer studio, we announced a couple of quarters ago.

Yeah, I'll just add one other I am maybe it's too.

One is our clients' willingness to want to engage and talk to us about their innovation needs. It can only I've said for a long time innovation happens in the clients' office not in our Sunnyvale office and two needless to say when you are in that environment.

Your pipeline builds opportunity in the current and the future is very very strong in the amount of follow up meetings that are off the charts.

That's great that's great guys. When we just find my quick follow up is just back to the spread between volume and revenue at merchant. If we just took out the things out of your control with gas prices in process and the like.

Inflation for example, and we're just focused on pricing and software as a penetration.

Maybe even just focusing on the customers that are just processing core but have low revenue, where how do we think about sustainability of those factors driving better revenue for and for how long.

Look obviously, we believe the opportunity to continue to add value added services and keep it in that penetration.

And our merchant Investor call, She's a little more than a year ago now we talked about clover parent vast penetration reaching 25%.

By 2025.

We're off to a good start we continue to focus on that we can continue to do.

To develop new capabilities, there and so we see that as an ongoing growth engine and in terms of pricing, it's about value add pricing, it's delivering the value to the client and then getting paid for that so Phil you had pricing is sustainable there.

An element of a benefit of inflation in a different environment today, but we're quite frankly, we're much more focused on creating that value for our clients and that being paid for it yes, I mean just a.

A very simple way of thinking here, we like to add merchants and we like to add on with multiple products and continue to sell products into our back book also.

Mhm.

Makes sense thanks, guys.

Next we will go to the line of Tien Tsin Huang from Jpmorgan. Please go ahead.

Hey, Thanks Nice results here, Frank I know you called out Latam as a stand out you guys have had good results. There I'm just love your thoughts on some of the recent M&A in the region with visa buying Pismo ever took also bought a fintech platforms there.

Anything going on there.

That might change things competitively.

Well I'd go back to.

Our Brazil business, which really is the largest business in Latin America, and the rest are reaching keys off of.

In many ways was created from scratch organically.

We built that business organically and then done some strategic things that you hear us talking about software express that was a very very small acquisition that we believed.

Good trends in our business throughout Latin America.

We added tremendous banking franchises I mean, you look at what we talked about on Kashi here right. We talked about the first leg of that which was a very large deal that put us in fundamentally every city in.

Brazil with.

<unk>, the leading bank in terms of size and scale and then we came back because it's such a good job that we did right. They came back and we went to work on with fundamentally our you know call.

Call it their lottery.

Agencies Bill pay has taken it and came up with.

Strategy that will take us to 11% of the payments made so we have great organic capability in Latin America, we brought clover into origin Tina.

And you know we spent a lot of time and the Argentinian platform change that allowed it to be a dual acquire as opposed to a single acquirer and so those are all strategic things that happen. There. So I guess, what I'm really saying at the core is what we came in.

Brazil, we were actually.

The only U S player because everybody had retreated and we added deep belief what good leadership on the ground what effect remember, we don't run an international business. We run three regional businesses and then we dropped down to a model where country heads drive the P&L there, but we.

We're going to go global business solutions.

Thank you all model strong I think.

<expletive> in these countries has always been going on Darren.

And I think we like Al and then we believe that these are strategic L. B.

You know opportunities for more Tien tsin. So thank you.

No I appreciate I appreciate that answer and I know you guys have really absorbed location. So it's a great case study my my my quick follow up then for Bob just thinking about the raised revenue and the margins.

But no reason to free cash flow is this a timing issue given the higher working capital.

Software investments in some of these growth areas and can we expect free cash conversion to improve beyond fiscal 'twenty three.

Yeah, Tien Tsin, you you hit it right on the head obviously, we've raised the revenue guidance and so that will bring additional working capital.

And of course, as we continue to see opportunities to grow the topline with now nine quarters of consecutive double digit growth there's investment opportunity out there. So we continue to feel quite good at delivering to approximately $3 $8 billion and see the benefit of that as working capital comes in it gets quite.

Well done thank you guys.

Next we'll go to the line of Lisa Ellis from Nathan Vinson. Please go ahead.

Hi, Good morning, Thanks, guys I wanted to ask about Tara you highlighted you know Curt was up 6% as reported 14% excluding the one client roll off there.

Can you give us a little additional color one on just how we should be thinking about the scale of caret within the merchant business either on sort of a revenue or opinion basis I know, it's take a subset of the enterprise segment, which is what you've disclosed.

And then also just elaborate a little bit on competitively how you see this platform is differentiated in and whether or not carried is what this is this mostly like new client sales or is a lot of this is Mike migrating existing enterprise clients onto an omni platform I'm, just a little bit of thought.

The operation that would be great. Thank you.

Hey, Thanks, Lisa Thank you very much.

I think first of all think of the caret.

They go to market product for both L. A current book coming over but.

That has not been where we've.

Focus to grow with that for.

Sitting under it is an orchestration layer, which is created as commerce.

And those first migrations will begin probably in the fourth quarter through the rest of the time and those will be new client migrations right. This is a customized solution for the clients that gives them total flexibility.

Okay.

We think it's a double digit clear double digit growth engine for us.

We think it will scale over time.

You should think about it you know as we talked about over time, you know what type of E. Comm business. We have total obviously the enterprise piece is smaller than our total piece that we've talked about to you all and I think you should think about it as a business that will continue you know.

To be powerful you know call it call it.

Several hundred millions of dollars growing double digits.

And so you know.

Hopefully that frames the size of the opportunity we have a large pipeline. We're in execution mode and we think you know much like we believe Quaker has become the industry leader, we believe terrible bad data industry leader.

Great. Thank you and then my follow up also just staying within merchant for a second if I think back to the deep dive you did on merchant a year and a half ago. I think you were expecting the processing piece of March into the startup flattish through 2025 in light of what you called out today.

The sort of roll off that's when it's up for at least a portion of one of your big processing clients does that sort of change that outlook and maybe taking a step back sort of strategically how are you thinking about the role of your processing business within merchant going forward as you're seeing such strong growth from Clover. Thank you, Yeah, I think I think nothing's.

Changed it out point of view and maybe we could step back a hair.

Did that day that stripe left us I am maybe I remember it more and now see that strikes me as a processing client than a G V.

I think people really thought wow, but it ended up who know bye.

Think back we continue to add processing clients.

In many cases.

You know, sometimes we help processing clients grow and they leave other services with us So I trade processing like it's a billion dollar business and fundamentally flat and Theres been ads and you know you have large scaled the lease spread has very little profit.

Revenue impact because of you know how are you all why I always trying to talk us office volume versus revenue issue, because we have a lot of processing volume, but you know it's not a.

The largest part of that business. So I would think about exactly how he presented we will have volume leave on the border and we add volume back at other points in time does that makes sense. Yes. Thank you. Thanks a lot.

Thank you.

Next well go to the line of Jason Kupferberg from Bank of America. Please go ahead.

Thanks, guys I just wanted to stay on merchant to start can you put a finer point on where you expect merchant revenue growth to land for the full year and just as we start tuning back half of the year models. You know how much will this spread between revenue growth and volume growth potentially shrink in Q4 is as you asked.

Some of the discrete pricing actions you had taken.

Yes, Jason from an overall standpoint outlook for the balance for.

For the full year, we had previously guided 10% to 13%.

For 2023 on an organic basis.

Given the strength that we've seen in the first half and a.

Improved outlook for the second half of the year, so people still talking about recession, but more people are talking about a recession in 2024.

<unk> soft landing is starting to come into lexicon periodically and I'm not sure we're quite there yet, but we'll see what the fed does today, but things are certainly modestly improved in terms of the expectation for the second half of the year. So we now think the full year it will be in the call it the 14% to 17%.

<unk> organic growth rate for our merchant business continue to see good performance across the gamut with Clover continues to perform quite well.

In terms of continuing that.

Value added service capability and the penetration of fast into the cover portfolio.

And some of the things you've heard us talk about both in prepared remarks and earlier in the Q&A round carrots, and international growth, providing a nice lift there.

And just on that spread narrowing potentially in Q4, just any modeling help you want to give us on that so we don't get caught offsides there.

In terms of.

Volume versus revenue spread yes, exactly just because some of the discrete pricing actions you took last year I believe in Q4.

Yeah, I mean, obviously, there's lots of puts and takes and we continue to to try to drive folks into focusing on on revenue Theres more and more revenue that is not trying to record volume and we've now been showing that quarter and accordingly. So.

I think I'll stick to the 2014% to 17% full year outlook and feel pretty good about that.

And just as a follow up on Fintech, just the visibility on the second half acceleration I guess implied in the reiteration of.

The full year guide and maybe some color on how you see Q3 versus Q4, because I know the comps are pretty lumpy during the back half of the year. Thank you.

Yes, definitely it and so we do have good visibility into this space and to your point.

There is there is lumpy quarters, you may recall and this will play in this third quarter and the fourth quarter.

On a comparison this year.

What was felt by many as a difficult third quarter last year and during the third quarter earnings call. We reiterated our full year outlook at 4% to 6% then.

Fully expected the fourth quarter to rebound given the timing of periodic revenue and some one time quote unquote tightened nonrecurring revenue that we see what we referred to as in year activity, particularly when clients are implementing and we obviously have good visibility into the backlog of our implementation cycle.

So we feel good about being able to deliver that 4% to 6%, we recovered and delivered last year quite well that will drive.

Comparisons first half was actually a more difficult comparison than second half last year and then within the second half.

Third quarter will be an easier compare than fourth quarter and so you'll see some continued lumpiness there, although we feel good about the overall visibility on our ability to deliver that range.

Thanks, Bob.

Next we'll go to the line of Dave Koning from Baird. Please go ahead, Yeah, Hey, guys. Congrats on four years great job.

And.

Yeah, I guess what are the key highlights to me in the quarter. The margins in merchant you would one of the best probably ever incremental margins both year over year and sequentially about 75% of the revenue growth hit the hit the profit line and I'm just wondering.

Wondering if is.

Is that sustainable and what exactly drove that.

What drove such or is it mix or you know what was that.

Yeah, we definitely had a good fall through on that incremental.

We saw similar levels fourth quarter of last year.

And definitely had.

Continuing good fall through over the last several years as we continue to expand margin pretty meaningfully and it's it's the benefit of of overall volume.

And that's scaled business, a very scaled business and then to the benefit of productivity and we continue to drive productivity back in 19 and 20, we use the term synergy.

Which really is.

I sit in them to productivity in many cases, particularly inside the merchant business that didn't have a lot of direct cost synergy as we merged we drove real productivity. We continue to do that so we feel good about margin expansion overall delivering it.

150 basis points margin expansion were better this year up from the $1 25, and we think there's continued opportunity here going forward.

Great. Thanks, and just quick follow up Clover revenue of about 8% above volume growth. So that's part of the spread is that both product and pricing and is that sustainable too.

Yeah, absolutely again, we have.

A long path of continued.

Penetration of value added services that very much ads to that quote spread between revenue and volume.

At 16% this quarter had to do.

25% in 2025, and as we continue to.

To provide value to our our business customers and allow them to focus on running their business versus.

Handling the payments and all of the ancillary services that are available on our Clover software operating system.

Value translates into pricing opportunity.

And margin for us.

Got you thanks, guys great job.

Thank you.

Next we will go to the line of Bryan Keane from Deutsche Bank. Please go ahead.

Hi, guys, let me echo congratulations on the strong results.

Frank one of the secrets has been the growth you guys have gotten through acquisitions and value added services and especially looking at the at the merchant segment.

What's the pipeline look like for M&A now are there are there deals out there you want to make to continue to add and push up revenue growth above volume growth through acquisitions and value added services.

Well I mean, you know we've been looking at our history, whether its bento box, whether it's fans Zach whether it's a fund.

Right software Express right. That's why I made my comment there are no longer.

Kansas, they're more horizontal elaborate.

We have lots of minority investments that we hang out when we get to know I think that's why our success rate. So high if you went to the people that are not you know, they're so delighted on how they integrated into our mobile banking platform that will one of them.

Ever been where they were headed they work hard control if you only get bento box their ability to come across it.

So you know we stay close to a lot of startups, we make minority investments in start ups. When we get to know them and then we get a really good shot at 10, a M until way more value, we have a fabulous track record of keeping founders.

I'm darn proud of that they'd become.

Part of the fabric of the company. So yeah, I think you should expect us to do more of those.

But as time goes on here.

Okay, Great I know, we're running a little long so I'll pass the line. Thanks.

Thanks, Brian Thanks, Ryan.

Thank you and our last question comes from Ashwin <unk> from Citi. Please go ahead.

Let me add my congratulations.

On the good quarter.

If I can.

Thank you mentioned.

Couple of times, so over the last few quarters.

Hey, Claude isn't necessarily being applied to the back book.

Talk about the opportunities.

There seems to me the yields that you're getting from <unk> as the capability set and cadence.

Is.

Better and better so.

Could talk through that plan that can be taken.

Yeah I mean.

First of all I think what you asked but you broke up a little bit I want to make sure I understood are you asking about.

What we're gonna do it clover into the back book.

Yes, that's what I'm asking thank guys that flies, what's the size of that price well.

Starting today, when we did our March Investor day on the merchant business. There was no clover back book consideration into that.

There was consideration for going into the back, but and selling more value added services.

But you should expect us at some point to strategically Lee NAND, but that's a opportunity in front of US I think you know we see the ability to actually go into current Clover client base and bring more software services.

And we think you know obviously that continues driving the spread between.

Volume and revenue growth thing Clover.

I've been on the club journey 10 years.

Back to you know maybe it's really.

It's 11 plus years, but really counted right.

Sorry about that.

And that started with a few engineers a few patents.

I still believe we're in a super early innings.

And the amount of real estate, we have that we can utilize with clover and the amount of real estate, we have inside our client base that can allow us to bring clover, but you know go back to it's fundamentally not in our guide.

That we gave in and.

Last year.

And you should expect us to give you a super duper didn't deep dive on this at Investor day.

Great and then a quick question with regards to the sale of the financially insulation business that might have missed it but.

What's the.

Our revenue and profit impact of that.

I did see the proceeds $230 million.

Yeah.

Let me make a point on that you know.

You will always look at us looking at our strategic position.

We believe we're an industry leader, we have to be a top three player.

We want to be prudent about capital allocation and where we do play out internal capital and for us.

Clients you know we were not the industry leader Oh, we did a good job for them. It is not a future growth engine of the company and so that's fundamentally how that decision gets made right and we will get we will continue to see us do that sort of stood out with Korea.

So I want you to have that framework.

And ashwin in terms of size.

A very small business order of magnitude you know its less than two tenths of 1% of last year's revenue.

Got it okay.

Well. Thank you everyone. Thank you for your attention today. Please.

Please feel free to reach out to our IR team with any questions look forward to talking to you and if you're trying to have a great day.

Thank you.

All for participating in today's.

Second quarter earnings conference call that concludes the call for today. Please disconnect at this time and have a great rest of your day.

[music].

Welcome to the Pfizer in 2023 second 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 would like to turn the call over to Julie Sherry, All senior Vice President of Investor Relations at Fiserv.

Thank you and good morning with me on the call today are frankly, the channel, our chairman 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 Pfizer Dot com.

Please refer to these materials for an explanation of the non-GAAP financial measures discussed in this call along with a reconciliation of those measures to the nearest applicable GAAP measures.

Unless otherwise stated performance references our year over year comparison.

Our remarks today will include forward looking statements about among other matters expected operating and financial results and strategic initiatives.

Forward looking statements may differ materially from our actual results and are subject to a number of risks and uncertainties.

You should refer to our earnings release for a discussion of these risk factors.

And now I'll turn the call over to Frank.

Thank you Julie.

And thank you all for joining us today to discuss another very good quarter from Pfizer.

Our results continue to demonstrate strong performance in revenue and operating income.

With second quarter organic revenue growth of 10% led by performance in merchant acceptance.

Particularly in our international regions, and all payments and network effect.

Adjusted earnings per share of $1 81.

It was up 16% and adjusted operating margin of 36.5% was up 300 basis points.

All three measures are tracking.

<unk> of our previous guidance for the full year.

As we look to the remainder of 2023.

We know that economist's expectations have improved for GDP and consumer spending relative to the start of the year.

But those are economists also forecast a modest macro slowed down from the first half in part due to higher anticipated unemployment.

And the reinstatement of student loan repayment.

Ammonia financial institution customers spending and spending intentions remain healthy.

Even as net interest margins narrow and lending activity.

<unk>.

Card and non card payments services.

Digital banking.

And now expect 2023 organic revenue growth in the range of 9% to 11%.

From 8% to 9% previously.

Adjusted operating margin is now forecast to improve at least 150 basis points. This year.

Up from our prior expectation of greater than 125 basis points.

With year to date, adjusted EPS growth of 14% and the group revenue and operating margin performance. We are raising our full year adjusted EPS guidance by 10 cents to a new range of $7 40.

Two $7.50.

Any growth of 14% to 16% over 2022.

These second quarter results, Mark our ninth consecutive quarter of double digit organic revenue growth.

We have also repurchased nearly 6% of our shares outstanding over the last 12 months.

I'm incredibly proud of the strong performance and the hard work foresight and collaboration that it took to get here.

Now I'm supposed to guess on sustaining this momentum there.

There are multiple parts of our business that I consider future growth accelerants I will touch on five of these today.

And then we'll add and elaborate on them at our Investor Day later this year.

Bob will provide more details on this later in the call.

First success story.

The continuing growth outlook is clover.

Our market, leading cloud based SaaS operating system for small and medium sized businesses.

Revenue is growing more than 20% on $267 billion in annualized payment volume.

This is a testament not only to the appeal of the product offering, but then the power of our vast distribution network.

Over has only begun to scratch the surface on the opportunity and vertical specific solutions.

<unk>.

And we've begun to build out vertical specialized software solutions for retail and professional services, including partnerships to manage inventory.

Improved SKU level analytics and manage appointment scheduling.

We're also continuing to enhance our Isd Arthur program.

Al I S vs access to Clover hardware and processing alongside our value added services.

This will support outgrowth, among additional verticals, including business is in our back book.

An example of this is that integration, which saw an ultimate.

A vertical software platform provider focused on the Salon and spa industry that will provide a broader combined offering to its large merchant base.

<unk> now accounts for approximately 25% of that merchant revenue and remains on track to reach 35% by 2025 and line without targets for $10 billion and total merchant revenue and surrender.

Half billion in Clover revenue by 2020, but implying expected growth acceleration.

Following in the footsteps of Clover is carrot, our unified commerce offering for Omnichannel merchants.

Like Clover.

Carriage as an operating system that delivers both payments and experiences, but instead of small businesses Terry is for the world's leading brands in large enterprises.

Merit has been posting revenue growth in the mid teens on the strength of Pfizer scale flexibility and customization capability.

Russ key integrated services and broad payment options.

We recently released our two biggest differentiators for Karen.

Commerce hub, which.

Which is the orchestration layer that enables easy client access to our products and services.

And our data and insights to command center that was clients manage their data in real time to better engage and customers and improve operating efficiency.

Overtime as with Glover will add more first and third party value added services and payment flows and increase accessibility around the world.

The third area of growth as digital payments and the intersection with digital banking.

Card hub is al card account product for debit card issuers that offers all of the newest features for cardholders to manage their accounts.

It helps those small and midsized bank issuer clients offer their customers.

Same cutting edge functionality as the largest independent card issuer.

We're about halfway through migrating financial institution clients onto card up where they can integrate without digital mobile banking product mobility.

And with competing digital banking providers.

This migration has shown a doubling of customer adoption of card in the first year, which means greater card usage reduce call center activity and better security.

Drawing new clients through digital banking solutions.

And the bundle, our debit processing debit network and risk services.

The full integration of card hub and mobility is investment unique advisor.

Because it spans two operating segments payments and Fintech, where others don't participate.

Our car solution was strengthened by two acquisitions on dot and spend labs in 2021 and it's just one example of the many cross selling opportunities specific to Pfizer given out integration work and breadth of.

<unk>.

Our fourth growth area is Latin America.

Although you haven't spoken in depth about our international operations Latin America has been a standout grower in recent quarters.

We believe it can remain so for the long term.

He built a leading franchise across multiple countries and leading financial institutions that spans our product set from merchant acceptance to card issuing to Fintech. The region is about 6% of total company adjusted revenue and merchandise.

<unk> is 10% of adjusted revenue is largely driven by Argentina, and Brazil, followed by Mexico, Colombia at several others.

Argentina has garnered attention lately for 100% plus inflation.

And while this has certainly contributed to some of our merchant segment strength are bigger and more sustainable part of the growth comes from anticipation revenue also known as merchant prepayments. This is why are we help merchants navigate the long settlement variance.

In Argentina, Brazil, and Uruguay by funding their payment receivables early at a discounted rate.

This is just better liquidity and we receive a spread that carries low risk.

Other parts of our Tam business showed strong momentum as well, we will be expanding our relationship with our partner kasha economic a federal enabling card payment for their more than 13000 bill payment agencies.

Throughout Brazil.

Is there a solution well agencies.

And bill payment options from only cash and cautious debit cards today to all credit debit and prepaid cards.

The opportunity is meaningful when considering that in 'twenty 'twenty. Two this agent network enables bill payments equal to about 11% of all credit and debit payments in Brazil.

We are also enabling hedge transactions in Brazil, and the Peter B space.

Rising software express platform and expanding our presence and picks beyond piece of it.

We have also made pigs payments capability available large you're acquiring network in Argentina, supporting Brazilians dizziness neighboring country.

We're excited for the opportunities presented by picks it has already exceeded total card sales volume in Brazil in a short period of time.

The fifth applicator he is zac.

<unk> is the acquisition we made in April of last year to offer our next generation core banking system, that's cloud native.

It gives us the opportunity to compete and win with financial institutions of all sizes and across geographies expanding our total addressable market.

L. Three pronged strategy is to win digital first bank's pro.

By next generation core banking to our existing clients and it has a larger banks as clients often starting as they launch new products in the cloud.

Another opportunity and Vince Act, that's coming together now actually started many years ago.

We were initial investments fans act when it began raising money in 2017, because we saw value in marrying our merchant processing platform with a back office banking platform today.

Today, that's called the embedded finance and we're beginning to tap into the opportunity as merchants look to offer banking services to their customers.

Their goal is typically to provide more purchasing power and payment flexibility to their customers, while creating deeper relationships.

We're the largest private label credit card provider.

And we are the processor behind most HSA and FSA accounts.

That's that gives the single ledger and issuing platform for products like debit cards and D. D A's and from here, we're investing and the connectivity between platforms to create a more seamless experience for our clients and their end customers.

Yes.

Now, let me turn the discussion over to Bob for more detail on our financial results.

Thank you Frank and good morning, everyone.

You are following along on our slides will cover details on total company and segment performance, starting with our financial metrics and trends on slide four.