Q3 2023 Fiserv Inc Earnings Call

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Please standby the conference will begin shortly again, please standby the conference will begin shortly thank you.

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Welcome to the Fiserv 2023 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 Julie <unk> Senior Vice President of Investor Relations adviser.

Thank you and good morning with me on the call today are frankly been Yano, our chairman President and Chief Executive Officer and Bob.

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.

Unless otherwise stated performance preferences are year over year comparison.

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

Adjusted operating and financial results and strategic initiatives.

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

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

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

Thank you Julie and.

And thank you all for joining us today to discuss <unk> continued to deliver very strong results.

So the third quarter, we posted 12% organic revenue growth with margin expansion of 290 basis points to 38, 1% on an adjusted basis.

These results reflect acceleration yeah.

Merchant acceptance and Fintech segment organic revenue growth to 20% and 6% respectively.

While all three segments contributed to a higher margin.

Earnings per share of $1.96 was up 20%.

Cash flow was strong as well with $1.3 billion of free cash flow in the quarter and $2.7 billion year to date.

Once again strong quarterly results point of full year performance of our prior guidance.

In the closing months of 2023 mortgage rejections in consumer spending and card account growth in the U S point to consistency versus third quarter levels, which would mean some softening year over year MACRA.

Macro uncertainty remains high.

We are confident in our ability to continue to add new clients.

Grow with and retain existing ones and expand our share of wallet with all of that.

Because of this we expect to close the year with growth similar to the year to date results.

We also look and more durable characteristics of our business to support our optimism.

Half of our volume in our merchant business is in non discretionary spending categories.

Similarly, 85% of all financial institutions revenue is recurring.

Our solutions in both air is serve as essential functions for our clients.

Customer base and distribution network are industry, leading.

Our incremental margins are high.

Expense base benefits from technology, driven efficiencies and discretionary investment that we can adjust to match market conditions.

It is these characteristics that have helped us deliver 37 consecutive years of double digit adjusted earnings per share growth and 2023 year to date results point to this being our 38 year.

Our strong execution across these factors leads us to raise our guidance for the remainder of the year.

We now expect 2023 organic revenue growth to reach 11% at the top end of our prior range of 9% to 11%.

Operator: Welcome to the Fiserv 2023 Third Quarter Earnings Conference call. All participants will be in a listen-only mode into the question and answer session begins following the presentation. As a reminder, today's call is being recorded.

And our adjusted operating margin to improve more than 175 basis points. This year up from our prior expectation of at least a 150 basis points of expansion.

Julie Sheriell: At this time, I will turn the call over to Julie Sheriell, Senior Vice President of Investor Relations at Fiserv. Thank you and good morning. With me on the call today, our Frank Bisignano, our Chairman, President and Chief Executive Officer, and Bob Hau, our Chief Financial Officer.

With this we are raising our full year adjusted earnings per share guidance to a new range of $7.47 to $7.52 up five cents at the midpoint and representing growth.

Julie Sheriell: Our earnings release and supplemental materials for the quarter are available on the Investor Relations section of Fiserv.com. Please refer to these materials for an explanation of a non-gape financial measures discussed in this call, along with the reconciliation of those measures to the nearest applicable gap measures. Unless otherwise stated performance preferences are year-over-year comparisons. 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 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.

Of 15% to 16% over 2022.

We are also raising our free cash flow guidance from $3.8 billion to approximately $4 billion. This year.

The third quarter marked our 10th consecutive quarter of double digit organic revenue growth and we are focused on sustaining this momentum last quarter I talked about five powerful opportunities that can help us do this so I'll share some proof points weird.

Frank Bisignano: And now I'll turn the call over to Frank. Thank you, Julie. And thank you all for joining us today. This is just how Fiserv continues to deliver very strong results. So the third quarter we posted 12% organic revenue growth with margin expansion of 290 basis points to 38.1% on an adjusted basis. These results reflect acceleration in our merchant acceptance and fintech segment organic revenue growth to 20% and 6% respectively. While all three segments contributed to higher margin, the just earnings for share of $1.96 was up 20%.

<unk> in the third quarter.

Let's start with club our market, leading cloud based SaaS operating system for small and medium sized businesses.

Revenue growth accelerated in the third quarter to 26% from 23% in Q2 of $272 billion in annualized payment volume up 15%.

We released the new Clover dashboard, where improved user experience that expedites navigation.

Our top apps, including reporting and analytics.

Frank Bisignano: Cashflow was strong as well with $1.3 billion of free cashflow in the quarter and $2.7 billion a year-to-date. Once again, strong border results point to full-year performance ahead about prior guidance. In the closing months of 2023, market projections and consumer spending and card account growth in the US point to consistency versus third quarter levels, which would mean some softening year over year. Mackerel uncertainty remains high, but we are confident in our ability to continue to add new clients, grow with and retain existing ones and expand our share of wallet with all of them.

We added other features that speed the buying process at <unk> Dot com.

And improved the application process for new merchant prospects. We expect this functionality to open opportunities for club with a long tail of merchants growing our addressable market.

Value added solutions penetration continues to grow reaching 17% in the quarter.

We see plenty of white space still ahead, including with vertical specific solutions horizontal value added services and software and international markets.

We retain line of sight to acceleration of revenue growth that results in $3 $5 billion plus in Clover revenue by 20 to 25, the target laid out and on March 2022 investor presentation.

Frank Bisignano: Because of this, we expect to close the year with growth similar to the year-to-date results. We also look to more durable characteristics about business to support our optimists. Nearly half of our volume in our merchant business is in non-discretary spending categories. Roberts. A approximately 85% of our financial institutions revenue is recurring. Our solutions in both areas serve as essential functions for our clients. Our customer base and distribution network are industry leading.

Moving to carry our unified commerce offering for Omnichannel merchants, we added several new enterprise clients and relationship extensions, including a large petro seller and a major grocery chain.

Adding to our non discretionary spending categories. We continue to drive value added solutions when enterprise clients and wins in the quarter came from products addressing feedbacks and platforms.

Frank Bisignano: Our incremental margins are high and our expense-based benefits from technology-driven efficiencies and discretionary investment that we can adjust to match market conditions. It is these characteristics that have helped us deliver 37 consecutive years of double-digit adjusted earnings for share growth. In 2023, year-to-day results point to this being out 38-year. Our strong execution across these factors leads us to raise our guidance for the remainder of the year. We now expect 2023 organic revenue growth to reach 11%.

Foreign currency translation.

Rod and hotel restaurants with Bento box.

Set out that Paypal has selected <unk> as its core U S partner for payment services across both Paypal and Braintree assets.

A new direct strategic multi year partnership covering several products and services and millions of virtual locations that builds on our longstanding base of business between our two companies.

International expansion continues to occur and we had several wins in the quarter across outrageous.

Uh huh.

Frank Bisignano: The top end of our prior age of 9 to 11%. And our adjusted operating margin to improve more than 175 basis points this year, up from our prior expectation of at least 150 basis points of expansion. With this, we are raising our full-year adjusted earnings for share guidance to a new range of $7.47 to $7.52 of $5.50 at the end of the mid-point and representing growth of 15 to 16% over 2022.

We won a competitive bid El Compas group, the world's largest contract food service company builds under attended food retail services across 14 countries in Europe .

We are providing acquiring local payment methods and real time inventory data across our single Karen Omnichannel platform for Europe . Our differentiation lies in our functionality around data normalization real time access visual.

Elevation and reporting depth and breadth.

In Asia Pacific, we extended our global merchant acquiring relationship with Avis budget, one of the world's largest car rental providers into Australia, and New Zealand.

Frank Bisignano: We are also raising out free cash flow guidance from $3.8 billion to approximately $4 billion this year. The third quarter marked out 10th consecutive quarter of double-digit organic revenue growth. And we are focused on sustaining this momentum.

And lastly, an emerging opportunity for us in the enterprise space is open data.

We lost two important wins in this area in the third quarter that demonstrate strong demand for access to our vast alternative data assets.

Frank Bisignano: Last quarter, I talked about five powerful opportunities that can help us do this, so I'll share some proof points we achieved in the third quarter.

One of the major credit bureaus will use our account level data to add micro indicators to a consumer's credit profile.

<unk> really relevant but the underbanked.

Frank Bisignano: Let's start with Clover, a market leading cloud-based SaaS operating system for small and medium-sized businesses. Revenue growth accelerated in the third quarter to 26% from 23% in Q2 on $272 billion in annualized payment volume, up 15%. We released the new Clover dashboard. We improved user experience that expedites navigation to out-top apps, including reporting and analytics. We added other features that speed the buying process at Clover.com and improved the application process for new merchant process.

L. A we're partnering with Dun and bradstreet to add information from our merchant volume database to supplement its small business credit reports. This illusion can optimize credit decisioning for lenders and access to capital for <unk>.

Small businesses.

Finally in the area of payments and open banking, we signed the deal with wine for API access to bank data.

They come here to move further away from screen scraping and generating revenue for us and our connected banking credit Union clients. We can further penetrate this data market.

Average entity by contributing in areas, such as I D verification account verification loan origination and security and fraud services.

Frank Bisignano: Thanks. We expect this functionality to open opportunities for Cobra with the long tail of merchants growing our addressable market. Value-added solutions penetration continues to grow, reaching 17% in the quarter. We see plenty of waste-based still ahead, including with vertical specific solutions, horizontal value-added services, and software and international markets. We retain line of sight to an acceleration revenue growth that results in $3.5 billion plus in Cobra revenue by 2025, the target laid out at a March 2022 investor presentation.

Latin America represents another standout growth opportunity. The region is about 6% of total company adjusted revenue and merchant acceptance, it's 10% of adjusted revenue.

It's largely driven by Argentina, and Brazil, followed by Mexico, Colombia, Uruguay and the Caribbean.

Argentina inflation anticipation revenue have grabbed much of the attention here, but our business in the region is well diversified with multiple growth drivers across products and countries, even as we look to presumably less inflation and <unk>.

Frank Bisignano: Moving to Karen, our unified commerce offering for Omni-Channel merchants, we added several new enterprise clients and relationship extensions, including a large petro seller and a major grocery chain, adding to our non-discretionary spending categories. We continued to drive value-added solutions, went into price clients, and wins in the quarter came from products addressing feedbacks and platforms, foreign currency translation, fraud and hotel restaurants with mental box.

Slower anticipation growth in Argentina next year, we see plenty of opportunities for strong growth in the region.

These include instant payments in Brazil, and Argentina revenue growth on our software express routes.

Spending the payments functionality, but it's the leading retail software business that we acquired in 2018.

We expanded on this opportunity earlier this month, when we acquired Sky that the largest distributor of software express in Brazil with it we added hundreds of ISP partners 27000 merchants and the ability to cross sell.

Frank Bisignano: We're pleased to announce that Paypal has selected Pfizer as its core U.S, partner for payment services across both Paypal and Brain Tree assets. This is a new direct strategic multi-year partnership covering several products and services and millions of virtual locations that build on a long-standing basis business between our two companies. International expansion continues with Karen, and we had several wins in the quarter across our regions.

Multiple value added solutions.

Ramping up new business with cash or bank, including acceptance at 13000, bill payment facilities across Brazil.

I am Clover more broadly in Brazil next year, and expanding our issuer processing footprint with first vision, and Brazil, Mexico and Argentina.

Frank Bisignano: In America, we won a competitive bid to help Compass Group, the world's largest contract food service company, built undetected food retail services across 14 countries in Europe. We are providing acquiring local payment methods and real-time inventory data across our single Karen Omni-Channel platform for Europe. Our differentiated human rights and our functionality around data normalization, real-time access, visualization and reporting depth and breadth. In Asia Pacific, we extended a global merchant acquiring relationship with Avis Budget, one of the world's largest car rental providers into Australia and New Zealand.

Elevated inflation and high interest anticipation revenue in Latin America have contributed to the high teens growth, we're posting this year in our merchant business.

Well ahead of our medium term guidance of 9% to 12%.

The macro forces contributing to greater than anticipated growth well likely ease overtime and this assumption is fully incorporated into our plan to achieve 10 billion of merchant revenue by 2025.

And finally.

In the area of digital payments, we were very happy to introduce yesterday, our partnership with meal out.

Frank Bisignano: And lastly, an emerging opportunity for us in the enterprise space is open data. We log two important wins in this area in the third quarter that demonstrate strong demand access to our vast alternative data assets. One of the major credit bureaus will use our count-level data to add micro indicators to a consumer's credit profile, particularly relevant for the underbank. Frank, Secondly, we're partnering with Dunn and Bradstreet to add information from our merchant volume database to supplement its small business credit reports.

Leading D to B payments platform.

This marks a significant step forward for Pfizer is very large and growing market.

Together with me Leo we will enable financial institutions to better meet the payment needs of small businesses. It will level, the playing field with emerging software like competitors, we will combine <unk> well known easy to use accounts payable Andrew.

Receivable workflows with fine serves market, leading pillar and merchant network plus payment capabilities.

By summer 'twenty 'twenty four we will go to market, we cash flow central by Pfizer and integrated accounts payable and receivable solution for small businesses through Pfizer financial institution clients. This exclusive distribution.

Frank Bisignano: The solution can optimize credit decision for lenders and access to capital for small businesses. Finally, in the area of payments and open banking, we signed a deal with plans for ABI access to bank data, allowing the company to move further away from screen scraping and generating revenue for us at our connected bank in credit units. We can further penetrate this data market opportunity by contributing in areas such as ID verification, account verification, loan origination, and security insurance. We can further provide services.

Abuse and agreement includes more than 3500 F is currently using check free from Pfizer for Bill payment and will allow the solution to scale rapidly.

Furthermore, in the near future, we will reach merchants directly with this product group Clover L. I S V channel.

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

Frank Bisignano: Land America represents another standout growth opportunity. The region is about 6% of total company adjusted revenue and in merchant acceptance, it's 10% of adjusted revenue. It's largely driven by Argentina, Brazil, followed by Mexico, Colombia, Uruguay, and the Caribbean. Argentinian inflation and dissipation revenue have grabbed much of the attention here, but our business in the region is well diversified with multiple growth drivers across products and countries. Even as we look to presumably less inflation and slower anticipation growth in Argentina next year, we see plenty of opportunities for strong growth in the region.

Thank you Frank and good morning, everyone.

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

But as Frank said, our third quarter was very strong.

We are confident in our new 2023 outlook and ability to continue to deliver attractive levels of growth and profitability.

Total company organic revenue growth was 12% in the quarter with strong growth across merchant acceptance and a solid recovery and growth in the Fintech segment.

Year to date total company organic revenue grew 11% led by the merchant acceptance segment, which grew 17%.

Total company adjusted revenue of $4 $6 billion grew 8% for the quarter, despite a meaningful foreign currency headwind.

Frank Bisignano: These include instant payments in Brazil and Argentina, revenue growth on our software express routes for expanding the payment functionality for this leading retail software business that we acquired in 2018. We expanded on this opportunity earlier this month when we acquired SkyTap, the largest distributor of software express in Brazil. With it, we added hundreds of ISB partners, 27,000 merchants, and the ability to cross out multiple value added solutions. Branding up new businesses with contra bank, including acceptance at 13,000 build payment facilities across Brazil.

Adjusted operating income grew 17% in the quarter to one $8 billion, resulting in adjusted operating margin of 38, 1% an increase of 290 basis points.

Year to date adjusted revenue grew 8% to $13 $4 billion.

And adjusted operating income increased 16% to $4 $8 billion, resulting in adjusted operating margin of 36, 1% an increase of 250 basis points.

Adjusted earnings per share for the quarter increased 20% to $1.96 compared to $1 63 in the prior year.

Year to date adjusted earnings per share increased 16% to $5.34 at the high end of a 14% to 16% annual prior guidance range.

Frank Bisignano: Rolling out clover more broadly in Brazil next year and expanding our issue of processing footprint with first vision in Brazil, Mexico, and Argentina. Elevated inflation and high interest anticipation revenue in Latin America have contributed to the high-teens growth we are posting this year in our merchant business. Well ahead of a medium-term guidance of 9 to 12 percent. The macro forces contributing to this greater than anticipated growth will likely ease over time. And this assumption is fully incorporated in outline to achieve 10 billion of merchant revenue by 2025.

Our adjusted earnings per share growth is particularly noteworthy given the impact of foreign currency translation.

Mostly due to the sharp devaluation of the Argentine peso relative to the dollar.

Our earnings per share includes a headwind of 24 cents for the quarter versus prior year.

Free cash flow reached $1.3 billion for the quarter up 48% versus the prior year and $2 $7 billion for the first nine months of the year up 29%.

We are raising our free cash flow guidance and now expect to reach $4 billion. This year.

Reflecting the typical strength in our cash flow generation in the second half of the year.

Frank Bisignano: And finally, in the area of digital payments, we were very happy to introduce a partnership with Milio, a leading D2B payment platform.

Now looking to our segment results starting on slide five organic revenue growth in the merchant acceptance segment was a strong 20% in the quarter and 17% year to date.

Frank Bisignano: This marks the significant step forward for Fiserv into this very large and growing market. Together with Milio, we will enable financial institutions to better meet the payment needs of small businesses and level the playing field with emerging software-led competitors. We will combine Milio's well-known, easy-to-use accounts payable and receivable workflows with Fiserv's market leading pillar and merchant network plus payment capabilities. By summer 2024, we will go to market with cash flow central by Fiserv and the integrated accounts payable and receivable solutions for small businesses through Fiserv financial institution costs.

We now anticipate organic revenue growth to be in the high teens for the full year.

Adjusted revenue growth was 12% in the quarter and 11% year to date.

Organic revenue growth in this segment is running well ahead of our medium term guidance for 9% to 12% growth.

Driven by growth in Clover RSV channel.

Our international businesses as well as somewhat transitory factors that we expect will ease in future years.

Elevated Argentina inflation, which is running well above 100%. This year contributed about two points organic growth for the segment on a year to date basis.

Additionally, heightened interest rates in Argentina have contributed to a stronger growth in anticipation revenue.

But even as rates normalize we expect demand for these prepayments to be healthy given the extended settlement periods here as well as in Brazil and Uruguay.

Frank Bisignano: This exclusive distribution agreement includes more than 3500 FIs currently using check-free from Fiserv for build payment and will allow the solutions to scale rapidly. Furthermore, in the near future, we will reach merchants directly with this product through Clover and our ISV Channel.

Turning to volume performance in the quarter merchant volume grew 2% overall and 6% excluding wholesale processing.

Similarly transactions grew 1% overall and 9% excluding processing.

We called out a large portion of our volume comes from traditional wholesale processing power.

However over the last several years, we've been evolving from providing processing services alone to offering full acquiring services and more recently software and other value added solutions.

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

Bob Hau: Thank you, Frank, and good morning, everyone. If you're following along in our slides, I will cover details on total company and segment performance starting with our financial metrics and trends on slide four. As Frank said, our third quarter was very strong. We are confident in our new 2023 outlook and ability to continue to deliver attractive levels of growth and profitability. Total company organic revenue growth was 12% in the quarter, with strong growth across merchant acceptance and a solid recovery and growth in the Fintech segment.

This transition changes our business model for the better.

Our SMB and enterprise acquiring businesses carry much higher revenue per dollar volume compared to the wholesale processing business.

So as acquiring grows and wholesale processing becomes a smaller portion of our volume we are seeing a widening positive spread with revenue growth outpacing volume growth in large part due to value added services.

Going forward processing volume will ebb and flow.

As a reminder, we projected $10 billion of revenue and this merchant acceptance segment in 2025 with processing revenue roughly flat from 2021 to 2025.

Bob Hau: Here today, total company organic revenue grew 11%, led by the merchant acceptance segment, which grew 17%. Total company adjusted revenue of $4.6 billion grew 8% for the quarter, despite a meaningful foreign currency headwind. Adjusted operating income grew 17% in the quarter to $1.8 billion, resulting in adjusted operating margin of 38.1%, an increase of 290 basis points. Here today, adjusted revenue grew 8% to $13.4 billion, and adjusted operating income increased 16% to $4.8 billion, resulting in adjusted operating margin of 36.1%, an increase of 250 basis, and Justice Place.

We expect overall revenue growth will continue to outpace volume growth as we increase penetration of software and services, which means more revenue per unit of volume.

However, it continues to build on the strength of its growing product offering distribution partnerships expanded direct sales and value added solutions.

It posted a strong 26% revenue growth for the quarter and 23% year to date.

Quarterly Clover G. P b was $68 billion or $272 billion on an annualized basis up 15%.

Value added services penetration with 17% over two points above year ago levels and on track to achieve our 25% target by 2025.

Bob Hau: Adjusted earnings per share for the quarter have increased 20% to $1.96 compared to $1.63 in the prior year. Year today, adjusted earnings per share increased 16% to $5.34 at the high end of the 14% to 16% annual prior guidance range. Our adjusted earnings per share growth is particularly noteworthy given the impact of foreign currency translation. Mostly due to the sharp evaluation of the Argentine peso relative to the dollar, our earnings per share includes a headwind of 24 cents for the quarter versus prior year.

Parrot, our omni commerce operating system for enterprise clients grew 14%, excluding the loss of a large merchant aggregator as discussed last quarter.

On an unadjusted basis revenue grew 2%.

We have two large wins that included our commerce hub product.

The new single orchestration layer that enables easy access to all of our products and services first with current mobility, the taxi hailing service and second with auto books, and accounting and bookkeeping system provider to small business.

Adjusted operating income in the acceptance segment increased 24% to $757 million in the quarter.

Bob Hau: Three cash flow reached $1.3 billion for the quarter up 48% versus the prior year and $2.7 billion for the first nine months of the year up 29%. We are raising our free cash flow guidance and now expect to reach $4 billion this year, reflecting the typical strength in our cash flow generation in the second half of the year. Now looking to our seventh result starting on slide five, organic revenue growth in the merchant acceptance segment was a strong 20% to the quarter and 17% year today.

Adjusted operating margin was up 350 basis points to 35, 9%.

Year to date, adjusted operating income improved 22% to $2 billion.

And adjusted operating margin grew 300 basis points to 33, 8%.

Turning to slide six the payments and network segment.

Organic revenue growth in the segment was 6% in the quarter and 9% year to date.

Adjusted revenue growth in the quarter was 5% and 8% year to date.

Bob Hau: We now anticipate organic revenue growth to be in the high team for the full year. Adjusted revenue growth was 12% to the quarter and 11% year today. Organic revenue growth in this segment is running well ahead of our medium term guidance to 9% to 12% growth. Driven by growth in clover, our ISV channel and our international businesses as well as several transitory factors that we expect will ease in future years. The elevated Argentine inflation which is running well above 100% this year contributed about two points of organic growth for the segment on a year-to-date basis.

Growth drivers in this segment include North American credit active accounts on file growth.

Growth slowed a bit to 3%.

Zelle transactions grew 44%, which continues to benefit from new uptake of zelle for business.

Our debit networks star and excel at several new merchant customers, including some household names that e-commerce in part to take advantage of rack Guy I benefits.

These and prior new client ads represent a strong pipeline of prospects for the merchant acceptance business.

We also wanted to deal to support Pinnacle, a 42 billion dollar bank by assets.

Bob Hau: Additionally, high interest rates in Argentina have contributed to a stronger growth in anticipation revenue. But even as rates normalize, we expect demand for these prepayments to be healthy, given the extended settlement periods here as well as in Brazil and Uruguay. Turning to volume performance in the quarter, merchant volume grew 2% overall and 6% excluding wholesale processing. Similarly, transactions grew 1% overall and 9% excluding processing. Recall that a large portion of our volume comes from traditional wholesale processing.

By debit processing and network with demonstrating our ability to successfully support and sell to larger banks.

Outside the U S. We closed a five year deal with a tier one U K bank to support the launch of a new buy now pay later solution to be delivered using a combination of our first vision processing technology, and our new suite of digital solutions.

We also won a contract with BARDA on bank Indias eighth largest bank.

Further cementing our position as a market leader in credit processing in India.

Bob Hau: However, over the last several years, we've been evolving from providing processing services alone to offering full acquiring services and more recently software and other value added solutions. This transition changes our business model for the better. Our SMB and enterprise acquiring businesses carry much higher revenue per dollar volume compared to the wholesale processing business. So, as acquiring grows and wholesale processing becomes a smaller portion of our volume, we are seeing a widening positive spread with revenue growth outpacing volume growth and large part due to value added services.

Bringing the number of Indian banks on our first vision processing platform to tenants.

As we've said we expected tougher comparisons through the second half of the year given the anniversary of the Onboarding of several large clients through mid 2022.

We continue to anticipate the full year organic revenue growth rate to be toward the high end of our medium term outlook of 5% to 8%.

Adjusted operating income for the segment was up 12% to $832 million and adjusted operating margin was up 270 basis points to 48, 6% in the quarter.

Bob Hau: Go forward, processing volume will ebb and flow. As a reminder, we projected $10 billion of revenue in this merchant acceptance segment in 2025, with processing revenue roughly flat from 2021 to 2025. We expect overall revenue growth will continue to outpace buying growth as we increase penetration of software and services, which means more revenue per unit of volume. Moreover, it continues to build on the strength of its growing product offering, distribution partnerships, expanded direct sales, and value added solutions.

Driven by favorable mix and greater productivity.

Year to date adjusted operating income was up 14% to $2 3 billion and adjusted operating margin was up 260 basis points to 46, 7%.

Moving to slide seven the financial Technology segment.

Organic revenue growth in the segment was 6% in the quarter and 3% year to date.

Adjusted revenue growth in the quarter was 4% and 1% year to date impacted by the divestiture of our financial reconciliation product announced at the beginning of the quarter.

Bob Hau: It posted a strong 26% revenue growth for the quarter and 23% year today. Quarterly, clovered GPV with $68 billion or $272 billion on an annualized basis, up 15%. Value added services penetration with 17%, over two points above year-go levels, and on track to achieve our 25% target by 2025. Carat, our AmiCommerce operating system for enterprise clients, grew 14%, excluding the loss of a large merchant aggregator as discussed last quarter. On an unadjusted basis, Carat revenue grew 2%.

For the year, we expect organic growth to reach the low end of our guidance range of 4% to 6%.

Adjusted operating income was up 11% in the quarter to $291 million and up 5% to $856 million year to date.

Adjusted operating margin in the segment increased 260 basis points to 36, 7% for the quarter.

For the first nine months the segment's adjusted operating margin grew 130 basis points to 36, 1%.

We added eight new core account processing clients in the quarter.

<unk> Street wins with financial institutions, whose assets exceeded $1 billion.

Bob Hau: We have two large wins that included our commerce hub products. The new single orchestration layer that enables easy access to all our products and services. First, with curve mobility, the taxi haling service, and second, with auto books, and accounting and bookkeeping system provider to small business. Adjusted operating income in the acceptance segment increased 24% to $757 million in the quarter, and adjusted operating margin was up 350 basis points, the 35.9%. Year today, adjusted operating income improved 22% to $2 billion, and adjusted operating margin grew 300 basis points to 33.8%.

Two wins came from growing credit unions, including novel Federal that's all the benefits of upgrading to DNA, our industry, leading cloud enabled core for both credit unions and banks.

The adjusted corporate operating loss was $120 billion in the quarter and $384 million year to date.

The adjusted effective tax rate in the quarter was 19, 2% and was 19, 6% for the first nine months.

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

Total debt outstanding was $23 $3 billion on September 30th.

And the debt to adjusted EBITDA ratio dropped to two eight times.

Bob Hau: Turning to slide 6, the payments in network segment, or organic revenue growth in the segment was 6% in the quarter and 9% year today. Adjusted revenue growth in the quarter was 5%, and 8% year today. Growth drivers in the segment include North American credit, active account file, the growth here slowed a bit to 3%, and Zell transactions grew 44%, which continued to benefit from new uptake of Zell for business. Our debit now works to start and excel at several new merchant customers, including some household names that e-commerce, in part to take advantage of rag-eye benefits.

During the third quarter, we issued $2 billion of five year and 10 year senior notes to replace the notes that matured in October and reduced our commercial paper program balances.

Variable rate debt sits at 7% of total.

During the quarter, we continued executing our capital allocation strategy.

Repurchasing $9 6 million shares for $1 $2 billion, and 31 4 million shares for $3 $7 billion over the last nine months.

We had 65 million shares remaining authorized for repurchase at the end of the quarter.

We are fully committed to our long standing disciplined approach to capital allocation, which includes investing in our business organically, maintaining a strong balance sheet, returning cash to shareholders through share repurchase and pursuing high value and innovative acquisitions.

Bob Hau: These and prior new clients represent a strong pipeline of prospects for the merchant acceptance business. We also want a deal to support pinnacle, a $42 billion bank by assets, in a combined debit processing and network with, demonstrating our ability to success we support and sell to larger banks, links. Outside the US, we've closed a five-year deal with the Tier 1 UK bank to support the launch of a new by-now paid later solution, to be delivered using a combination of our first vision processing technology and our new suite of digital solutions.

And wrapping up on slide eight.

Year to date organic revenue growth is at the top end of our prior guidance for the full year and.

And we expect the level of business activity in the fourth quarter to be similar to the third well.

While consumer spending is forecast to be slower in the second half of the year relative to the first the consumer has remained resilient as unemployment levels remain low.

Bob Hau: We also want to contract with Bothan Bank, India's eight largest bank, further cementing our position as a market leader in credit processing in India, bringing the number of Indian banks on our first vision processing platform to 10. As we've said, we've expected tougher comparisons through the second half of the year, given the anniversary of the onboarding of several large clients through mid-2022. We continue to anticipate the full-year organic revenue growth rate to be toward the high end of our medium-term outlook of 5 to 8 percent.

Banking credit Union spending continues at a healthy pace as higher interest rates have been a tailwind for profitability.

The combined scenario gives us confidence to raise our full year organic revenue growth to 11% the top end of our previous guidance range of 9% to 11%.

Based on this higher anticipated organic revenue growth and strong third quarter results. We are raising our full year adjusted EPS guidance range once again from the previous $7 47.

To $7 50 sets to a new range of $7 47.

Bob Hau: Adjusted operating income for the segment was up 12 percent to $832 million and adjusted operating margin was up 270 basis points to 48.6 percent in the quarter, driven by favorable mix and greater productivity. Your today adjusted operating income was up 14 percent to 2.3 billion dollars and adjusted operating margin was up 260 basis points to 46.7 percent.

To $7 52 sets representing growth of 15% to 16% over 2022.

This includes a higher adjusted operating margin now expected to improve more than 175 basis points. This year.

From our prior guidance of at least 150 basis points.

We look forward to seeing you at our Investor day on November 15th.

Faces limited so for those of you who cannot attend in person. Please take advantage of the webcast from our Investor Relations website.

Bob Hau: Moving to slide seven, the financial technology segment. Organic revenue growth in the segment was 6 percent in the quarter and 3 percent year-to-date. Adjusted revenue growth in the quarter was 4 percent in 1 percent year-to-date, impacted by the divestiture of our financial reconciliation product announced at the beginning of the quarter.

With that let me turn the call back to Frank.

Thanks, Bob.

I'll provide a brief update on our CSR activities and most recent ranking nations before we wrap up and move to Q&A.

During the quarter, we continued to expand our focus on minority depository institutions or M. D. EIS in September we hosted our inaugural MDI Advisory Council meeting, where we discussed future safe products and strategies and had a.

Bob Hau: For the year, we expect organic growth to reach the low end of our guidance range of 4 to 6 percent. Adjusted operating income was up 11 percent in the quarter to $291 million and up 5 percent to $856 million year-to-date. Adjusted operating margin in the segment increased 260 basis points to 36.7 percent for the quarter. For the first nine months, the segment suggested operating margin grew 130 basis points to 36.1 percent.

Better integrate by assured solutions at Council members banks to help them grow and better serve their clients.

We were active on the bag business front as well so far this year <unk> back to business program has funded almost 200 grants totaling nearly $2 million for small diverse merchant businesses.

Bob Hau: We added eight new core processes and clients in the quarter, including three wins with financial institutions whose assets exceeded a billion dollars. Two wins came from growing credit unions, including Noble Federal, that saw the benefits of upgrading to DNA, our industry leading cloud-enabled core for both credit unions and banks. The adjusted corporate operating loss was $120 million in the quarter in $384 million year-to-date. The adjusted effective tax rate in the quarter was 19.2 percent and was 19.6 percent for the first nine months.

Also in the third quarter, our leadership position in Fintech was affirmed when IDC ranked Spicer number one.

It's top 100 ranking of global financial technology providers.

CNBC also named US a top Fintech company and time magazine included Pfizer on its list of world's best companies in 'twenty two 'twenty three.

Bob Hau: We continue to expect the adjusted effective tax rate to be approximately 20 percent for the full year. Total debt outstanding was $23.3 billion on September 30th and the debt to adjusted EBITDA ratio drops 2.8 times. During the third quarter, we issued $2 billion of five year and ten year senior notes to replace the notes that matured in October and reduce our commercial paper program balance. Roses, Variable Rate debt sits at 7% of total.

I'd like to conclude my formal remarks, with what to expect from our upcoming Investor Conference on November 15th.

This will be our first full business review in three years, our work to integrate first data and fiserv is not only done but it is driving real value in the marketplace across merchants and financial institutions in a way that.

Bob Hau: During the quarter we continued executing our capital allocation strategy, repurchasing $9.6 million shares for $1.2 billion and $31.4 million shares for $3.7 billion over the last nine months. We had $60.5 million shares remaining authorized for repurchase at the end of the quarter.

Only this combined company can.

All assets are now unmatched when you consider that we have a large and diverse client base from financial institutions of all sizes to small businesses to large enterprises around the world spanning all.

Bob Hau: We are fully commended to our long-standing disciplined approach to capital allocation, which includes investing in our business organically, maintaining a strong balance sheet, returning cash to shareholders through share repurchase, and pursuing high value and innovative acquisitions.

Sectors and containing many leaders in their respective industries.

Our global footprint in over 100 countries organized by region and known for deep local expertise.

Bob Hau: And wrapping up on slide 8, your today organic revenue growth is at the top end of our prior guidance for the full year. And we expect the level of business activity in the fourth quarter to be similar to the third. While consumer spending is forecast to be slower in the second half of the year relative to the first, the consumers remain resilient as unemployment levels remain low. Banking credit union IT spending continues at a healthy pace as higher interest rates have been a tailwind for profitability.

Modern stack computing environment, what private and public cloud capability.

Scale based leadership and merchant acquiring driven in part by our superior distribution model.

The largest SMB SAS hemant platform by volume with Globe.

The leading credit card issuing platform offering cutting edge cardholder experiences.

Bob Hau: The combined scenario gives us confidence to raise our full year organic revenue growth to 11 percent, the top end of our previous guidance range of 9 to 11 percent. Based on this higher anticipated organic revenue growth and strong third quarter results, we are raising our full year adjusted EPS guidance range once again from the previous $7.40 to $7.50 to a new range of $7.47 to $7.52, representing growth of 15 to 16 percent over 2022. This includes a higher adjusted operating margin now expected to improve more than 175 basis points this year, up from a prior guidance of at least 150 basis points.

The number three debit network.

Now network that Optimizes connections between our bank and credit Union clients and payment rails of all types from cards to a C H to real time.

The best Bank and credit Union account processing platforms.

And the broadest set of value add and surround solutions and finally.

Ross platform opportunities that expand our addressable market and then find serve is uniquely positioned to deliver.

This includes our new SMB accounts payable and receivable market opportunity and our embedded finance offering where our newest fin tech platform Fintech is enabling banking services offered by merchants, starting with one of the world's largest retailer.

Bob Hau: We look forward to seeing you at our investor day on November 15. Faces limited, so for those of you who cannot attend in person, please take advantage of the webcasts from our investor relations website.

Yes.

We will expand on these opportunities in more in a few weeks' time.

And we will share in compelling three year forward plan that will help you understand how we intend to defend and extend our lead in Fintech.

Frank Bisignano: With that, let me turn the call back to Frank. Thanks, Bob. I'll provide a brief update on CSR activities and most recent recognitions before we wrap up and move to Q&A.

Thank you to our teams who come to work every day to build and deliver on this plan and thank you all for your time.

Frank Bisignano: During the quarter, we continue to expand our focus on minority depository institutions or MDIs. In September, we hosted out inaugural MDI Advisory Council meeting where we discussed future state products and strategies and how to better integrate by-serve solutions at council members banks to help them grow and better serve their clients. We were active on the back to business front as well. So far this year, Pfizer's back to business program has funded almost 200 grants totaling nearly $2 million for small diverse merchant business, and Mrs. Also, in the third quarter, a leadership position in Fintech was affirmed when IDC ranked Pfizer number one on its top 100 ranking of global financial technology providers. CNBC also named us a top Fintech company and time magazine included Pfizer on its list of world's best companies in 2023.

Time and attention today and now operator, please open the line for questions.

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 Press Star two.

Your first question comes from Timothy Chiodo from UBS. Please go ahead.

Thanks, a lot, particularly the question I wanted to touch on enterprise E Commerce competition very topical in the market right now and you mentioned many new carrier wins, maybe you could talk a little bit about star in a cell and how bundling. Those networks is helping you to win share, but not just starting to sell some of the other services that are more frequently.

Appealing to the enterprise E Com merchants as you win these rfps.

Right.

Yeah.

Thank you Tim.

Yeah.

It started at the top right we are.

No.

<unk> for the build out of our Omnichannel capability and we brought in commerce hub is fundamentally a centerpiece of that and that really gets to the point that you bring which is what I would call more value added services such as E Comm volume.

Frank Bisignano: I'd like to conclude my formal remarks would want to expect from our upcoming investor conference on November 15th. This will be our first full business review in three years. Our work can integrate first data in Pfizer is not only done, but it's driving real value in the marketplace across merchants and financial institutions in a way that only this combined company can. How assets are now unmatched when you consider that we have a large and diverse client base from financial institutions of all sizes to small businesses to large enterprises around the world spanning all sectors and containing many leaders in their respective industries.

You know our debit routing capability is very very strong and it allows us to solve so with a debit network to be able to give our clients the op.

Katy to work on lowering the cost of acceptance platform that we've thought about across the business for a very long time brand and other value added services like our prepaid products and gift also gives us what we believe is a strategic advantage. So you know in many of our businesses, you'll hear us talking about it.

So it is well have a.

Fundamental processing capability and acquiring capability, but then bringing across the other value added services.

And that's a benefit as a company it gives us a strategic advantage so I'd think about it.

Luiz aspect shortly and I think you know when you look at our Paypal anointed it gives us a really good.

And to be able to do more with them. Besides.

Frank Bisignano: A global footprint in over 100 countries organized by region and known for deep local expertise. A modern stack computing environment would bribe it in public cloud capability. Scale-based leadership in merchant acquiring driven in part by a superior distribution model. The largest SMB SaaS payment platform by volume with global. The leading credit card issuing platform offering cutting-edge card holder experiences. The number three debit network. Our now network that optimizes connections between our bank and credit union clients and payment rails of all types from cards to ACH to real time.

<unk> Com and also for other clients.

E channel experience that we bring to them across the enterprise.

Excellent. Thank you Frank.

Thank you.

Next we'll go to the line of David <unk> from Piper.

Core ISI. Please go ahead.

Thank you good to see the acceleration in Clover revenue growth in the <unk>.

Increased penetration of value added services could you just drill down into what you see as the biggest drivers of growth and value added services going forward you know taking you to the model you've laid out for 2025.

Well I mean, you know for us, it's a software stacks against verticals.

And then there was a horizontal capability.

Obviously.

<unk> management everything from time keep vein systems.

Frank Bisignano: The best bank and credit union account processing platforms and the broadest set of value added to our own solutions. And finally, gross platform opportunities that expand our addressable market and that by service uniquely positions deliver. This includes our new SMB accounts payable and receivable market opportunity and our embedded finance offering where our newest Fintech platform Fintech is enabling banking services offered by merchants starting with one of the world's largest retailers. We'll spend on these opportunities and more in a few weeks time. And we'll share a compelling three-year forward plan that will help you understand how we intend to defend and extend our lead in Vindex.

The way in fact.

They're managing their workforce is a capability that gets you saw as Hans Ole.

If you look at other and other pieces of the inventory for some specific businesses and I think you know if you look at our penetration rate.

It continues to grow because the bundles continue to get stickier.

You heard us and today announced nearly or yesterday announced I should say and that will be another it goes beyond Virgin and we can talk about that later, if you like but you.

You know it will be another offering to our merchant base.

In total and that would be an example of bringing in capabilities that we didn't have for them before that we will so I think you know we started if you remember we started clover what their concept of.

Frank Bisignano: Thank you to our teams who come to work every day to build and deliver on this plan and thank you all for your time and attention today.

And App store, we converted that into understanding what are the natural characteristics of specific verticals and then what is the horizontal capability.

Operator: And now operator, please open the line for questions. Thank you.

Bring across it I always felt good about the growth that we see the trajectory of both.

Operator: 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, press star two.

Signing up new merchants and also the ability to bring more product to our merchants.

Timothy Chiodo: Our first question comes from Timothy Chiodo from UBS. Please go ahead. Thanks a lot for taking the question. I want to touch on enterprise e-commerce competition, very topical in the market right now. And you mentioned many new carrot wins.

Thanks for that and just as a quick follow up Bob good to see the free cash flow up 48% year over year in the third quarter Capex was down 17%.

Moving toward lower capital intensity going forward or is this just a function of an easy comparison.

Frank Bisignano: Maybe you could talk a little bit about star and a cell and how bundling those networks is helping you to win share, but not just star and a cell, some of the other services that are more frequently appealing to the enterprise e-commerce as you win these RFPs. I would appreciate that. Thank you, Jim. Good to hear from you. I started at the top, right? We, we, you know, committed to the build out of our omnichannel capability and we brought in commerce hub as fundamentally a centerpiece for that.

Yeah.

Definitely a pivot point to really timing of the of the capital spending and comparisons I would expect the full year 2023 to be in line with last year spending overall and I think we've said in the past as we look forward, we think the capital levels that we've got right now.

All are about correct going forward, we will see a growth in revenue and therefore as a percent of revenue, perhaps some easing, but order magnitude that $1 billion five for the full years of right in line with what we'd expect.

Frank Bisignano: And that really gets to the point that you're bringing, which is what I would call more value added services than just decal volume. You know, our debit rounding capability is very, very strong and it allows us to also with a debit network to be able to give out clients, you know, the opportunity to work on what we're in the cost of acceptance, a platform that we've thought about across the business for a very long time.

Thank you very much.

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

Thank you good results here on the acceptance side in Latam, specifically I'm curious with the.

With the anticipated revenue likely to ease their he gave some disclosure I'm just curious what do you see replacing that growth and let them how does the.

Frank Bisignano: Brand and other value added services, like a prepaid product and gift also gives us what we believe is strategic advantage. So, you know, in many of our businesses, you'll hear us talk about across this. It's, we'll have a fundamental processing capability and an acquiring capability, but then bringing across the other value added services. And that's the benefits company gives us the strategic advantage. So, I think about those aspects really, and I think you know, when you look at a paypal in the light, it gives us a really good, good hand to be able to do more with them besides only come. And also for other clients, you know, it's the omnichannel experience that we bring to them across the enterprise.

The deal pipeline look there.

Yes, Tien Tsin I think we pointed out in our prepared remarks, we're definitely seeing some quote transitory benefits in Latin America, particularly in Argentina around.

Frank Bisignano: Excellent. Thank you, Frank. Thank you.

Higher than normal.

Inflation and higher than normal interest rates that is definitely giving us a lift from it should be a lift from an anticipation standpoint.

We basically.

Or are anticipating cash into the merchant we're in the middle of the payment flow and so we're able to provide that as a service to our merchants. So that they can settle their transactions earlier than the typical 30 day cycle in that region interest rates, we get a spread on the interest.

And of course, we're able to borrow what a cheaper rate than our merchants might be able to borrow. So that's a good business for us very low risk because we're in the middle of that flow. If you anticipate interest rates to ease into the future, which I would expect they will youll see some easing of the revenue, but not in the spread so it's it remains a.

Dave Togut: Next, we'll go to the line of Dave Toget from Evercore ISI. Please go ahead. Thank you. Good to see the acceleration and clover revenue growth and the increased penetration of value added services. Could you just drill down into what you see as the biggest drivers of growth and value added services going forward, you know, taking you to the model you've laid out for 2025? I mean, you know, for us, it's software stacks against verticals.

Dave Togut: And then there's a horizontal capability, you know, obviously, employee management, everything from time-keeping systems, to the way in fact, you know, they're managing their workforce, there's a capability that gets you as far as horizontally, if you look at other pieces, it'll be inventory for some specific businesses. And I think, you know, if you look at penetration rate, it continues to grow, because the bundles continue to get stickier. You know, you heard us then today, Announce Mealio, or yesterday, Announce Mealio, I should say, and that will be another, it goes beyond merchant, and we could talk about that later if y'all like, but, you know, it will be another offering to our merchant base in total, and that will be an example of bringing in capabilities that we didn't have for them before that we will.

Very good business for us.

And of course that the debate will be at what rate does either inflation and or interest rates is an important element, though is a very correlated number to both inflation and interest rates is FX.

Well from an organic standpoint, we don't have that X that organic results our constant currency, it's certainly in our adjusted revenue and our EPS.

So we will see some easing of that transitory inflation and interest impact will also see some easing of that FX impact that overall results on an adjusted revenue basis, and an adjusted EPS basis will remain strong in Latin America, and so after a tremendous franchise for us.

Notably in Argentina, and Brazil, we continue to grow and expand in Europe way in Mexico and the Caribbean.

It's a tremendous capability for us in providing a good growth in the recent history and expected to continue into the future.

So glad to hear Bob just real quick if you don't mind me asking another one just on Fintech you mentioned.

The bank and overall <unk> spending has been healthy all the I T side.

How about new deal activity large deals.

Et cetera, do you see that continue here as we crossed into the new calendar year I'm, just curious where the appetite is for new spend.

Dave Togut: So, I think, you know, we started, as you remember, we started Clover with the concept of an app store, we converted that into understanding what are the natural characteristics of specific verticals, and then what is the horizontal capability that we will bring across it. Now, we still get about the growth, and we see the trajectory of both signing up new merchants, and also the ability to bring more product to our current merchants.

The banking community Bank.

Yeah.

I think the dialogue is robust.

Thank god and packaged gas.

It all added a kit that dialogue from where we were before you know.

In my prepared remarks, I talked about you know our platform serving bank and credit Union I have a deep belief and I think it's a market.

Bob Hau: Thanks for that. And just as a quick follow-up, Bob, good to see the pre-cash flow up 48% year over year in the third quarter. CapEx was down 17%. Are we moving toward lower capital intensity going forward? Or is this just a function of an easy comparison? Yeah, I would definitely, David, point to really timing of the capital spending and comparisons. I would expect the full year 2023 to be in line with last year's spending overall.

Your beliefs that.

You know DNA and Fintech are industry leaders and capabilities, we had always talked about going further up market. Obviously I think if you look at total banks that run on a system, where the market leader, but we're also driving north I think.

Those two assets really help us I know, there's lots of robust dialogue that we need to turn in a robust dialogue into closed deals and then you know we got to cover for that but I.

Bob Hau: And I think we've said in the past as we look forward. We think the capital levels that we've got right now are about correct going forward. We'll see a growth in revenue. And therefore, as a percent of revenue perhaps some easing, by quarter magnitude, that billion five for the full year is right in line with what we would expect.

I feel I feel good about the long term.

Bob Hau: Thank you very much.

We'll talk about that clearly on the.

Can I also think you know when we look at F. EIS in total which is the way ultimately when you look at it you know when you look at how we performed in Fintech and payments. If you want to think about it that way.

Vasundhara Govil: Next, we'll go to the line of tension long from JP Morgan. Please go ahead. Thank you, Grave Zoltz here on the acceptance side in Latin specifically. I'm curious with the anticipation revenue likely to ease there and gave some disclosure. I'm just curious, what would you see replacing that growth in Latin? How does the deal pipeline look there?

We've been very very strong in its ability to bring out surroundings, yeah, that's probably a year to date I remember, saying that number.

So to be able to bring out surrounds and our banking platforms and that's really what attracts new book so to speak so.

We're not deep dialogues on big deals.

Frank Bisignano: Yeah, Tim, and I think we've pointed out in our prepared remarks. We're definitely seeing some quote transitory benefits in Latin America, particularly in Argentina around higher than normal inflation and higher than normal interest rates. That is definitely giving us a lift from an anticipation standpoint. I think we basically are anticipating cash into the merchant where in the middle of the payment flow. And so we're able to provide that as a service to our merchants so that they can settle their transactions earlier than the typical 30 day cycle in that region interest rates.

You know I I have not seen a slowdown in banks' appetite at all or the things we have.

Terrific. Thank you.

Next we'll go to the line of Jason Kupferberg from Bank of America. Please go ahead.

Good morning, guys. Thanks, so on the acceptance segment. It doesn't sound like your Q4 guide is really contemplating any material change in the trajectory of overall consumer spending I was hoping you could maybe give us a little insight into what you've seen in October both with regards to volume and transaction data ex wholesale versus September let's say.

Hey, and then any shifts in discretionary versus non discretionary spend categories in in the past month.

Frank Bisignano: If we get a spread on the interest, and of course we're able to borrow a cheaper rate than our merchants might be able to borrow. So that's a good business for us. Very well rest because we're in the middle of that flow. If you anticipate interest rates to ease into the future, which I would expect they will, you'll see some easing of the revenue, but not in the spread. And so it remains a very good business for us.

Yes, Jason.

Overall, so far what we've seen in October is very similar to what we saw through the third quarter.

Consumer continues to be quite resilient.

Or quite frankly, I'm tired of using the word uncertain.

We've lived in a pretty uncertain environment for the last three plus years and probably a lot earlier than that there are certainly some verticals within our overall merchant book that are softer than others.

Frank Bisignano: And of course the debate will be what rate does either inflation and or interest rates ease. An important element, though, is a very correlated number to both inflation and interest rates as effect. Marks. And well, from an organic standpoint, we don't have artifacts because our organic results are constant currency. It's certainly in our adjusted revenue and our EDS. And so we'll see some easing of that transitory inflation and interest impact will also see some easing of the effects impact net net overall results run on an adjusted revenue basis and adjusted gas basis will remain strong that Latin America.

Roughly half of our merchant volume is our mix of revenue is discretionary.

Non discretionary software nice balanced there, we're certainly seeing some softness in retail.

Restaurants continue to be quite steady.

So overall.

We're very early in the quarter and as you know holiday spending the December month is a big part of the quarter, but so far right in line with Q3.

Okay, good to hear and just on the Fintech segment. It looks like you need to see maybe a little bit of organic growth acceleration in Q4 against a bit of a tougher comp to get to the low end of that 4% to 6% guide can you just parse out some of the drivers there and your visibility on that thanks guys.

Frank Bisignano: It's a tremendous franchise for us, Natalie and Argentina, but in Brazil, we continue to grow and expand in Europe way in Mexico in the Caribbean. It's a tremendous capability for us and providing a good growth in the recent history and expected to continue in the future.

Yes, I think in order to reach the low end of that guidance that we talked about.

Frank Bisignano: Yeah, I'm glad to hear about this real quick.

Frank Bisignano: If you don't mind me asking another one just on Fintech, you mentioned Meany Bank and overall bank spending has been healthy on the IT side. How about new deal activity, large deals, et cetera? Do you see that continually here as we cross into the new calendar year? I'm just curious where the appetite is for new spend. In the banking community. Yeah, I think the dialogue is robust. I think that has definitely added to that dialogue from what we were before.

The low end of the 4% to 6% we've got a repeat the 6% organic growth that we saw in the fourth quarter to your point, yes, it's against a tougher comparison in Q4 versus Q3 of last year.

Obviously, we've got some implementations these are long cycle implementations.

Those go live you've got some ramp on that revenue.

That does take time, so some of it went live in Q3, and we will see acceleration into Q4, we'll see new clients going live in Q4, obviously there is ongoing.

Wings or variability in the periodic revenue.

Frank Bisignano: We're, you know, in my prepared remarks, I talk about, you know, our platform serving bank and credit union. I have a deep belief. I think the market has a deep belief that, you know, DNA and Fintech are industry leaders and capabilities. We always talked about going further up market. Obviously, I think if you look at total banks that run on a system, we're the market leader, but we're also driving north. I think those two essentially help us and there's lots of robust dialogue.

To to deliver that 4% on a full year basis.

As Frank pointed out.

Our financial institution clients look to us for a broad suite of software and services and.

The combined Fintech and payments business, which is really where we go to market with our financial institution clients.

It was up 7% organically on a year to date basis.

Pretty steady.

The stronger Q1, good Q2, good Q3, we expect to close out the year.

Frank Bisignano: Now we need to turn robust dialogue into closed deals and then, you know, we've got to convert it. But I feel, I feel good about the long term. We'll talk about it clearly on November 15th. I also think, you know, when we look at FIs and Tunal, which is the way ultimately we look at it, you know, when you look at how we've performed in Fintech and Tenements, if you want to think about it that way, you know, we've been very, very strong.

That rate that level and overall financial institution clients continue to look to us to provide services and.

We anticipate that continuing in the fourth quarter and into next year.

Thanks, Bob.

Next we'll go to the line of Dan <unk> from Mizuho Securities. Please go ahead.

Hey, great quarter Congrats.

Particularly interested in the mail your partnership Frank can you maybe give us some more color. If you think like two three years out how could this change the way people think of fiserv in terms of kind of the b to b capability, though.

Frank Bisignano: We've been able to bring out surrounds, you know, that's probably a year to date, seven percent number. We've been able to bring out surrounds and banking platforms. And that's really what attracts the new book, so to speak. So we're not deep dialogues on big deals. You know, I have not seen a slow down in banks appetite at all or the things we have. Terrific.

The projects that you're hopefully planning to do with them. Thank you.

Yeah I'm not.

I'm thinking if I necessarily want them to think about us change or think about this is who we are the ability to distribute great capability to outstanding client base and I want to make the point that.

Jason Kupferberg: Thank you. Next we'll go to the line of Jason Kupferberg from Bank of America. Please go ahead.

This product.

Product.

Frank Bisignano: Good morning, guys. Thanks. So on the acceptance segment, it doesn't sound like your Q4 guide is really contemplating any material change in the trajectory of overall consumer spending. I was hoping you could maybe give us a little insight into what you've seen in October, both with regards to volume and transaction data, Excel sale versus September, let's say, and then any shifts in discretionary versus non discretionary spend categories in, you know, the past month.

Works really really well, where you know bill pay check for a product and allows us to go to our smbs exclusively in the <unk> channel.

Wednesday, and allow all banks to actually ultimately.

Have a new offering that will increase their fee revenue due and in fact increase our revenue. So I think it's it's solidifying our position in F N b.

Frank Bisignano: Thanks. Yeah, Jason, overall so far what we've seen in October is very similar to what we saw through the third quarter. You know, consumer continues to be quite resilient. Quite frankly, I'm tired of using the word uncertain. We've lived in a pretty uncertain environment for the last three plus years and probably a lot earlier than that. There are certainly some vertical articles within our overall merchant book that are softer than others.

Yes. It will also be distributed to L. I N V clients and al Clover clients, but there are many clients that do not.

Receive payments via card.

And this is taking something that a whole swath of down that we did not have a usually expect us even more kits in the summer of 'twenty four on it and once again, we're helping our bank partners bring more product and grow their revenue much like we do.

Frank Bisignano: Roughly half of our merchant volume is, our merchant revenue is discretionary but in non discretionary so we're nice balanced there. We're certainly seeing some softness in retail. The restaurants continue to be quite steady. So overall, obviously very early in the quarter. And as you know, holiday spending. The December month is a big part of the quarter, but so far right in line with the Wilson Q3.

In the merchant business, and where do you know any stickiness of our SMB portfolio.

Great. Thank you and congrats again on an amazing quarter.

Thanks, Dan good to hear from you.

Next we'll go to the line of Dave Koning from Baird. Please go ahead.

Bob Hau: Okay, good to hear and just on the Fintech segment, it looks like you need to see maybe a little bit of organic growth acceleration in Q4 against a bit of a tougher comp to get to the low end of that 4 to 6% guide. Can you just parse out some of the drivers there and your visibility on that? Thanks, guys. Yeah, I think in order to reach the low end of that guidance that we talked about the low end of the 4 to 6%.

Yeah, Hey, guys, great great job and you know maybe on just the merchant acquiring industry.

Theres been the fears of Commoditization, but you know if anything you've showed the strongest growth in years.

Yields have been going up not down.

What about churn like have you seen noticeable improvement in churn or retention really are the last few quarters as well.

Ah, yes, but I I think I think it's good to step back for a second here.

Bob Hau: And we better repeat the 6% organic growth that we saw in the fourth quarter to your point. Yes, it's against a tougher comparison in Q4 versus Q3 of last year. Yeah, obviously we've got some implementations. These are long cycle implementations. And as those go alive, you get some ramp on that revenue and that does take time. So some of it went live in Q3 and we'll see acceleration into Q4. We'll see new clients going live in Q4.

Because you know we've been in a multi year transformation.

That has allowed us to produce.

Thank you.

And that would include Clover that will include building businesses in Brazil that would include bringing clover to Argentina right. So there's a lot of dimensions to how we are we are you know the ability to drive our pool in our base.

Bob Hau: Obviously there's ongoing swings or variability in the periodic revenue in order to deliver that 4% on a full year basis. And I guess Frank pointed out, you know, our financial institutions clients looked to us for a broad suite of software and services. And the combined FinTech and payments business, which is really where we go to market with our financial institution clients is up 7% organically on a year-to-day basis. Pretty steady stronger Q1, a good Q2, good Q3.

A wholesale processing business, which you know we talked about being a $1 billion of revenue and flat, but you know that business is like 40% of that volume in that core direct business that we continue to grow you should continue to bring.

More product in and just make those relationships stickier and what we see is when we have three to four products and our clients.

The churn is best in class and that's why we're so focused on <unk> and more client, yes in single dimensional clients that arent Clover, you see higher churn.

Bob Hau: We expect to close out the year at that rate, that level. And overall financial institution clients continue to look to us to provide services and anticipate that continuing in fourth quarter in the next year. Thanks Bob.

Great. Thanks, and one quick follow up what was the Q2 number four what Q3 the volume ex processing of 6% what was that number in Q2.

Dan Dola: Next we'll go to the line of Dan Dola from Mizzouho Securities. Please go ahead. Hey, great quarter. Congrats. I was particularly interested in the Melio partnership. Frank, can you maybe give us some more color?

David I actually don't have that right at my fingertips, it's not a number we disclose previously let me get that but I think one of the elements are one of the reasons, we we disclosed that and brought that to everybody this year or this quarter.

Frank Bisignano: If you think like two, three years out, how could this change the way people think of high serve in terms of kind of its B2B capabilities, they'll all the projects that you're hopefully planning to do with them. Thank you. Yeah, I'm thinking if I necessarily want them to think about us changed or think about this is who we are. The ability to distribute great capability to our outstanding client base. And I want to make the point that this product works really, really well.

<unk> is to talk about exactly what Frank just pointed out is this.

Long term transition from years ago being a processing only.

Business to now a full service capability merchant acquirer.

In our March 2022, Investor Conference on our merchant business, we talked extensively.

Building out that Clover software value added services capability, becoming an operating system. We have an operating system for SMB clients. We have an operating system for enterprise clients and so as a processing eases a bit from a volume standpoint, the impact to the revenue.

Frank Bisignano: With, you know, I'll build a check-free product and allow us to go to our SMBs exclusively in the FI channel with it and allow our banks to actually ultimately have a new offering that will increase their fee revenue and that increase, you know, our revenue. So I think it's solidifying our position in SMB. Yes, it will also be distributed to our INV clients and our clover clients. But there are many clients that do not receive payments via court. And this is taking something to the whole swap of them that we did not have.

Is.

A fraction of the processing volume Delta.

Any cases that processing volume becomes merchant acquiring volume at a much better.

Value point for the company because not only are we doing a merchant acquiring but we're selling the value added services and that Delta that you saw.

In Q3 from an overall volume to essentially an enterprise plus SMB volume.

At 6% is more representative of the overall volume opportunity for the company and that's why you're seeing a very strong.

Okay.

Organic growth rate in the merchant segment this quarter last quarter last year the previous year.

Frank Bisignano: You should expect us to market in the summer of 24 on it. And, you know, once again, we're helping our bank partners bring more product and grow their revenue much like we do in the merchant business. And we're, you know, adding to the stickiness of our SMB portfolio. Great. Thank you. And congrats again on the May the quarter.

Yep Yep all good thanks, guys.

Next we'll go to the line of Ramsey El <unk> from Barclays. Please go ahead alright.

Alright, thanks, so much for taking my question this morning.

I wanted to ask about the margin outperformance you guys are seeing and taking a step back thinking about it in terms of how much is driven by a better business mix, meaning more clover software's L. A et cetera versus sort of a more active expense management or expense control and I'm just asking in the context of thinking about how it.

Dave Koning: Next we'll go to line of Dave Konink from Baird. Please go ahead. Yeah. Hey guys. Great job. And, you know, maybe on just the merchant acquiring industry, you know, there's been the fears of commoditization. But, you know, if anything, you've shown the strongest growth in years. Your yields have been going up, not down. But what about churn? Like have you seen noticeable improvement in churn or retention, really? Are the last few quarters as well?

Sustainable the margin drivers you're seeing this year, maybe kind of over time, if that makes sense.

Yeah, I would say.

We're always working on how to make things better right. That's just every.

Every day, we get how to make it better how do we make it better for our clients how do I how do we.

Eliminate work, that's not necessarily highway deliver better quality, how do we how do we do all of that.

Frank Bisignano: Yes, but I think I think it's good to step back for a second here. You know, because, you know, we've been in a multi-year transformation. That has allowed us to produce what we're producing today. That would include clover. That would include building a business in Brazil. That would include bringing clover to Argentina. Right? So there's a lot of dimensions to how we are where we are. You know, the ability to drive our food in our base to get the wholesale processing business.

And that's an element of it the other element of it is as you know high quality revenue growth.

And our incremental drop through is very very strong. So I would say they are investment we've been completely plowed into meaning we're continuing to build.

Build out business and invest in our business and deploy resource to it we have we always are working on productivity and quality.

Frank Bisignano: Which, you know, we talked about being a billion dollars of revenue and flat. But, you know, that business is like 40% of our volume. In that core direct business that we continue to grow, you should continue us to bring more product in and just make those relationships stickier. And what we see is when we have three to four products in a client. The churn is best in class, and that's why we're so focused on ARPU and more clients.

We talk about a year of operational excellence, but incremental drop through rate is very very strong on the business we have.

So I would take it as a mix element.

We're never going to be just one or the other.

As I said in my remarks, you know, we do have a lot of discretionary investment.

But we feel great about that.

And that's why as Emilio product will be out in the summer of 'twenty four as an example, so high quality revenue.

Frank Bisignano: Yes, in single-dimensional clients that aren't cloveries the higher church. Great, thanks, and one quick follow-up, what was the Q2 number for Q3, the volume X processing of 6%? What was that number in Q2? It's not a number we've disclosed previously. Let me get that, but I think one of the elements or one of the reasons we disclosed that and brought that to everybody this year, or to me, this quarter, is to talk about exactly what Frank just pointed out is this long-term transition from years ago, being a processing only business to now a full understanding.

Incremental drop through continually driving better client stats and productivity.

All of it we ought to just fine.

Okay, so sort of all of the above a quick quick follow up for me on the acceptance volumes, how should we think about that wholesale part of the business evolving over time do you see kind of a point of stabilization coming or is this a business that we should sort of think of it as kind of winding down very gradually over a long period of time.

Well first of all.

We talked about it as flat.

Right, we talked about you should expect it to be.

Fundamentally flat right now.

Now that May mean last volume you know.

Even even better yield in there right, there's a big mix of what's in processing, we havent ISO businesses and we have a bank processing.

Frank Bisignano: Service capability, merchant acquireer. In our March 2022 investor conference on our merchant business, we talked extensively about building out that clover software, value-edit services capability, becoming an operating system. We have an operating system for us and the clients, we have an operating system for enterprise clients. So as the processing eases a bit from a volume standpoint, the impact to the revenue is the fraction of the processing volume delta. In many cases, that processing volume becomes merchant acquiring volume at a much better value point for the company because not only are we doing the merchant acquiring, but we're selling the value added services.

And by the way Tomorrow, we could bid on another piece of processing.

As I've always said.

Maybe maybe this is just my own heritage that won't Greenway, everybody and Brian corresponding clearing business and running at full sail broker dealer I'm never gonna.

The corresponding acquiring business to be a high growth, but it definitely is $1 billion for us that.

It covers a lot of fixed.

You know, but our emphasis is on growing out direct.

So I'll turn it over to Bob but once you have that picture.

Frank Bisignano: And that delta you saw in Q3 from an overall volume to essentially an enterprise plus SMB volume at 6% is more representative of the overall volume opportunity for the company. And that's why you're seeing a very strong organic growth rate in the merchant segments. This quarter, last quarter, last year, this year. Yep, yep, all good. Thanks guys.

We don't see zero.

We said it would be flat.

No.

And 25, Yeah Ramsey.

Ramsey that flat that Frank is referring to is when we guided to.

$10 billion of merchant revenue by 2025.

What two almost two years ago now we were doing about 900 million of call. It 900 million of $1 billion worth of processing revenue.

$10 billion outlook assumed that that would remain flat over that time period, it'll there'll be shifts to volume, you'll get a little bit of pricing will be.

Bob Hau: Next we'll go to the line of Ramsey, LSL from Barclays. Please go ahead. Thanks so much for taking my question this morning. I wanted to ask about the margin out performance you guys are seeing and taking a step back thinking about it in terms of how much is driven by a better business mix, meaning more clover software, ZL, etc. Versus sort of a more active expense management or expense control. And I'm just asking in the context of thinking about how sustainable the margin drivers you're seeing this year may be kind of over time, if that makes sense.

So we believe there's some I think I used the term ebbs and flows and the processing volume, but overall I anticipate it to be above that $1 billion, which means it was order magnitude.

13, 14% of our revenue by 2025, it will end up being 10% of our revenue as we grow the full merchant acquiring capability.

And continue to grow that at a much faster pace than our processing, but that's a billion dollar.

Bob Hau: I would say we're always working on how to make things better. That's just every day we get up, how to make it better. How do we make it better for our clients? How do we eliminate work that's not necessarily, how do we deliver better quality? How do we do all that? Matt, and that's an element of it. The other element of it is, you know, high quality revenue growth. And an incremental drop-through is very, very strong.

Revenue business for us that we're happy to have and.

And we'll continue to manage that effectively.

Great Super helpful. Thank you very much.

And then before we go to the next question just go back to David Your question around the.

Enterprise and SMB volume or volume ex processing.

It is an acceleration of that 6% that we're seeing in Q3 is a bit of an acceleration from Q2 levels. So.

To see good growth and that's what's driving the top line for us.

Bob Hau: So I would say, investment, we've been completely plowed into. Meaning, we're continuing to build our business and invest in our business and deploy resources to it. We always are working on productivity and quality. You know, we talk about a year of operational excellence, but our incremental drop-through rate is very, very strong on the business we have. So I would take it as a mixed element. We're never going to be just one or the other.

The next question, Yeah, absolutely and for our final question will go to Vasu Calvo from K P. W. Please go ahead.

Hi, Thank you for taking my questions and congrats on a great quarter.

I guess my first one for Frank Frank CFPB, just released these open banking regulation proposal, assuming that goes into effect sometime next year is that a big revenue opportunity to fortify service banks have to comply or do you think that was sort of already happening organically and so not that meaningful.

I think it was really organically going on you know I mean, when you look at what we just did with plan, we're always going to have year end to bringing more capability to our bank partners, where in our client business. We run a huge client franchise, we're out talking to them every day.

Bob Hau: You know, as I said in my remark, you know, we do have a lot of discretionary investment, but we feel great about that. You know, and that's why the Emilio product will be out in the summer of 24 as an example. So high quality revenue, incremental drop-through, continually driving, better client stats and productivity. So it's got to be all of it. We don't do just one. Okay, so sort of all of the above.

You know whether it was what we did it for them what 3000 clients. Although we do at E. P. A R. What we do by adding 29, you know women Ceos here for an all day conference, we want to listen to our clients and so open banking thing going on and where it.

Bob Hau: Quick follow up from me on the acceptance volumes. How should we think about that wholesale part of the business evolving over time? Do you see kind of a point of stabilization coming or is this a business that we should sort of think of as kind of winding down very gradually over a long period of time? Well, first of all, you know, we talked about it as flat, right? We talked about you should expect it to be fundamentally flat by cat.

Continuing to align in a way that that drives our client franchise.

Great. Thank you for the color and then quick one for you Bob just I know last year towards the end of the year you guys had some pricing benefit that.

That helped drive it you can go just how should we think about the fourth quarter in terms of spreads versus volume growth.

And the acceptance.

Yeah, I think you'll continue to see.

Bob Hau: Now, that may mean less volume, you know, even even better yield in there, right? There's a big mix of within processing. We have it ISO business and we have a bank processing business. And by the way, tomorrow, we could bid on another piece of processing. I view it as I've always said, and maybe maybe this is just my heritage and it won't rain, where everybody is running a corresponding clearing business and running a full sale broker dealer.

Good revenue growth.

As we continue to have deeper penetration of value added services not only in the small business, but also in the enterprise space.

Continued to put up very good growth and as we said, we expect a full year to be in the high teens on a year to date basis, we're at 715% organic.

So we see another strong quarter ahead of us.

Thank you very much.

Thank you for your participation everybody, we really appreciate your time and attention.

Please feel free to reach out to our team with any questions and have a great day.

Bob Hau: I'm never going to get the corresponding clearing business to be a high growth, but it definitely is a billion dollars for us that covers a lot of things. You know, but our emphasis is on growing our direct business. So I'll turn it over to Bob, and I want you to have that picture. You know, we don't see it as a zero. We've had to be flat in 25. Yeah, the grant you that flat that Frank is referring to is when we guided to $10 billion of merchant revenue by 2025.

Thank you all for participating in the Fiserv 2023 third quarter earnings Conference call that concludes today's call. Please disconnect at this time and have a great rest of your day.

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Bob Hau: And what two almost two years ago now, we were doing about 900 million, or 900 million, a billion dollars worth of processing revenue. Our $10 billion outlook assumed that that would remain flat over that time period. You know, there'll be shifts to volume. You'll get a little bit of pricing. There'll be ads. There'll be beliefs. There's some, I think I use the term, ups and flows and the processing volume. But overall, anticipated to be about that billion dollars, which means, you know, it was ornamented to 13, 14% of our revenue by 2025.

Bob Hau: It'll end up being 10% of our revenue as we grow the full merchant acquiring capability and continue to grow that at a much faster pace than our processing. But that's a nice billion dollar revenue business for us that we're happy to have, and we'll continue to manage that effect. Absolutely. Great, super helpful. Thank you very much.

Bob Hau: And then before we go to the next question, just go back to David your question around the enterprise and SMB volume or volume X processing. It is an acceleration that's 6% that we're seeing in Q3 is a bit of an acceleration from Q2 level. So continue to see good growth and what's driving the top line for us. Yeah, absolutely.

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Vasundhara Govil: And for our final question, we'll go to Vasu Govil from KBW, please go ahead. Hi, thank you for taking my questions and congrats on the wake order. I guess my first one for Frank, Frank CFPB just released these open banking regulation reports, assuming that goes into effect some time next year. Is that a big rather new opportunity for five service banks have to comply? Or do you think that was sort of already happening organically and so not that meaningful?

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Vasundhara Govil: I think it was really organically going on, you know, I mean, but you'll look at what we just did with plan. We're always going to be in to bringing more capability to our bank partners. We're in a client business. We run a huge client franchise. We're out talking to them every day, you know, whether it was what we did at forum with 3000 clients or what we do at the ABA or what we do by having, you know, 29, you know, women CEOs here for an all day conference. We want to listen to our clients. And so open banking been going on and we're continuing to align in a way that drives our client for our contracts.

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Bob Hau: Thank you for the color and then quick one for you Bob, just I know last year towards the end of the year you guys had some pricing benefits that helped drop and you go just how should we think about the fourth quarter in terms of spread versus volume grows. And the acceptance. I mean, I think yeah, I think you'll continue to see good revenue growth as we continue to have deeper penetration of value added services, not only in the small business, but also in the enterprise space will continue to put up very good growth. And as we said, we expect a full year to be in the high teens on a year today basis where 17% organic. So we see another strong quarter ahead of us.

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Operator: Thank you very much. Thank you for your participation everybody. We really appreciate your time and attention. Please feel free to reach out to our team with any questions and have a great day.

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Operator: Thank you all for participating in the Pfizer of 2023 third quarter earnings conference call. That concludes today's call. Please disconnect at this time and have a great rest of your day.

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