Fiserv, Inc.

Welcome to the FISERV 2021 First Quarter Earnings Conference Call. All participants will be in a listen-only mode until the question and answer session begins following the presentation. As a reminder, today's call is being recorded. At this time, I will turn the call over to Shubh Mukherjee, Senior Vice President of Investor Relations at FISERV.

Thank you, and good morning. With me on the call today are Frank Misignano, our President and Chief Executive Officer, and Bob Howe, our Chief Financial Officer. Our earnings release and supplemental materials for the quarter are available on the investor relations section of Fiserv.com. Our remarks today will include forward-looking statements about, among other matters, the impact of the COVID-19 pandemic on our business, expected operating and financial results, strategic initiatives, and expected benefits and synergies from the first data acquisition. Forward-looking statements may differ materially from actual results and are subject to a number of risks and uncertainties. You should refer to our earnings release for a discussion of these risk factors. Please refer to our earnings release and supplemental material for today's call for an explanation of the non-GAAP financial measures discussed in this course. along with the reconciliation of those measures to the nearest applicable gap measures. Unless otherwise stated, performance references are year-over-year comparisons, and all references to internal revenue growth are on a constant currency basis. And now, I'll turn the call over to Frank.

Thank you, Shu. Great to have you on the team. 2021 is off to a strong start. with Q1 at or better than our expectations across a broad range of metrics. The strength of our results reflects our continued investment in technology, innovation, our client portfolio, and our people through the COVID-19 pandemic. Let me provide a brief overview of our strong financial results in the quarter. You may have noticed that Q1 earnings presentation has been updated. If you're following along, I will provide some overview comments captured on the first three pages, and then Bob will provide more detail on the subsequent slides. Total company internal revenue growth was 4% to the quarter, including low double-digit growth in March. That performance was led by our merchant acceptance segment, which was up 8%, an exceptional result in light of the global pandemic and continued COVID restrictions, particularly in Brazil, India, and a variety of countries in EMEA for much of the quarter. Adjusted operating margin grew 360 basis points, resulting in an 18% increase in adjusted earnings per share. Free cash flow grew 8% to $821 million, a 103% conversion to adjusted net income. Our sales momentum remains quite strong, as first quarter sales were up 42%, which strong results in our payments and international businesses. And this momentum continues into the second quarter. Yesterday, we announced a 20-year agreement with Caixa Economica Federal to become the exclusive provider of merchant acquiring services. Caixa is one of Brazil's largest banks with more than 26,000 sales outlets and a broad presence throughout all of Brazil, making this one of the largest wins for our company in Latin America and and one of the largest globally. Also this morning, we announced a new solution with PayPal to enable our merchant network across the Clover and Carrot platforms to accept payments via PayPal and Venmo through QR codes presented at the point of sale. We believe this is an important offering for our merchants. as consumer preferences continue to shift towards touch-free transactions. The combination of robust sales and excellent pipeline is evidence that our formula of bringing the strength and breadth of BuyServe's offerings together with our integrated sales model is extremely well received in the client's office, and we believe bodes well for the future. Now I'd like to update you on how our leading digital-enabled merchant business is performing. Through Clover, our leading SMB platform, Carrot, our enterprise omni-channel commerce solution, and Clover Connect, our rich ISV solution set, we continue to drive innovation, expand partnerships, and deliver leading solutions to our merchant clients. The momentum within the digital-enabled segments of the merchant business continues to be excellent. Clover's gross payment volume grew 36% year-over-year to $141 billion annualized. To provide some more context around the strength of the Clover platform, GPV has grown 75% from $81 billion in Q1 to 2019 in Q1 to $141 billion in Q1 this year, despite the economic headwind from the pandemic. Tarit, our enterprise omnichannel solution, continued to perform very well. E-commerce transactions grew 24% compared to the prior year. Omni channel transactions such as order ahead and pick up in store were up over 122% year over year. We won a record 51 new enterprise level e-commerce clients in the first quarter, including Cost Plus World Market, a US specialty retailer for which Vyserv has been chosen to provide e-commerce gateway point-of-sale hardware devices, and value-added services like security tokenization. We had a very strong result for sales internationally. The notable wins in EMEA include Selecta, Europe's leading self-service retailer, offering coffee and convenience food solutions, for which Vyserve has been chosen to provide acquiring services and unattended POS hardware. And with HAM, we ended our relationship with one of the largest e-commerce marketplaces in the region. In APAC, we won the merchant acquiring business for Australia's second largest bill payment provider. We also expanded our relationship with key brands, such as State Farm, where we are piloting a new digital payout experience for insurance claims. Recognizing our innovation to bring digital payments to all consumers, Fiserv was named one of the world's most innovative companies by Fast Company for our role in enabling the acceptance of U.S. Department of Agriculture's SNAP online EBT payments during the pandemic. We continue to see great momentum in the ISV space with Clover Connect. In the first quarter, we signed 42 new ISV partners. Our continued strength in expanding partner relationships is driving strong results in active merchants, which were up 38% in Q1, and ISV channel revenue growth, which was up 34%. For example, During the quarter, Pfizer further cemented its lead in the mortgage servicing software vertical by signing a strategic partnership agreement with Mortgage Cadence, an Accenture company, which provides loan origination software for the mortgage industry. This is yet another example of a successful integrated sale continuing to fuel future growth in our ISV channel. Additionally, we are continuing to build and enhance our existing ISV relationships by leveraging our technology and market knowledge. In the quarter, we finalized an agreement with ETailPet to move their large set of existing merchants to us and build upon the agreement we had in place for new merchants. Moving to our account processing business, We continue to expand our number of privileged relationships across financial institutions of all sizes and types. We signed 10 new core account processing clients in the quarter, including five on the D&A platform. I'd like to highlight a few of our recent wins. As we mentioned on our last earnings call, we signed Republic First Bank, a commercial bank with more than $5 billion in assets, and rated America's best bank by Forbes for a full service of buy-serve products, including core processing, card services, and output solutions in February. Additionally, we signed two de novo banks in a quarter. including Genesis Bank, a newly chartered bank focused as a minority depository institution. This win continues to show our commitment to supporting minority communities. A majority of these illustrative wins were competitive takeaways with a common characteristic. The clients selected a leading core platform plus multiple surround digital solutions to support their goals of sustained growth and superior customer service. These wins also reflect the strength of our offering for a wide range of clients, from de novo banks to large financial institutions. In our payment and network segment, we continue to leverage the power of our combined solutions to drive revenue synergies. In Q1, we signed a significant new agreement to provide statement and letter services to a major U.S. healthcare services provider, strengthening our position in this industry vertical. Further building on our digital momentum, in Q1, we signed agreements to provide digital solutions to First Horizon Bank as well as PenFed Credit Units. In both cases, leveraging our newly acquired OnDot capabilities. Through OnDot, we can enable our FI clients to offer their cardholders personalized, real-time digital experiences, driving cardholder engagement and spend. We expect continued adoption of these digital solutions across our client base. With that, Let me update you on our integration efforts. Through Q1, we've already actioned nearly $1.1 billion of cost savings and are well on our way to fully action our $1.2 billion cost synergy objective by the end of this year. With the majority of the integration work behind us, we are focused on driving further growth and sustainable value in the years ahead. On the revenue side, we're pleased with the level of synergy sales, which accelerated in the first quarter. As of the end of Q1, we've already actioned $265 million in annual revenue synergies, and our synergy sales pipeline is growing robustly, and we expect to meet or exceed our $600 million target over the five years post-merger. Our bank merchant program continues to be a synergy opportunity and offers financial institutions of all sizes the ability to offer their important merchant clients a modern suite of merchant acquiring capabilities, including the innovative Clover platform, along with digital capabilities like loyalty programs and e-commerce solutions. In the first quarter, we added 34 new bank merchant clients, six with assets over $1 billion. Additionally, half of these wins were competitive takeaways. The pipeline remains robust for the rest of 2021. One final point on our digital initiatives before turning it over to Bob. As you've heard us discuss in the past, One of the most important strategic initiatives is to redefine the client experience by utilizing the latest technology to drive innovation and offer digital capabilities across our payments ecosystem. An example of our commitment to this area is the acquisition of OnDot Systems, a leading digital experience platform provider for financial institutions of all sizes, which closed in the first quarter. We also acquired Radius 8, a cloud-based platform that adds hyper-localized commerce capabilities to Carrot, thereby enhancing OWL beyond the buy button strategy. Last but not least, we announced a definitive agreement to acquire Pineapple Payments, a leading ISO focused on integrated payments. Now, let me pass the discussion to Bob for more detail on our financial results.