Fiserv, Inc.

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

Thank you, and good morning. With me on the call today are Frank Bedignano, 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 materials for today's call for an explanation of the non-GAAP financial measures discussed in this call, along with the reconciliation of those measures to the nearest applicable gap measure. 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. Second quarter was a very strong quarter for us across the company. Total company adjusted revenue grew 20%. Adjusted operating margin grew 510 basis points, resulting in adjusted operating income growth of 41 percent. Adjusted EPS grew 47 percent to $1.37. Free cash flow in the quarter was in line with last year, just under $900 million, including the impact of a diminished NOL. Second quarter sales were up 31% with growth across the business. Our strong second quarter was driven by a combination of continued economic recovery and strong execution of our business strategy. On the macroeconomic side, we saw continued recovery in the U.S. with uneven recovery in other parts of the world. The shift to digital commerce drove consumer demand for seamless experiences across challenge. Amidst these trends, we executed on our strategies to continue to win business and grow share. We serve as the operating system for commerce across our client base, ranging from micro merchants to the world's largest corporations, financial institutions, banks and credit unions, fintechs, and governments. This enables us to focus not only on growth at our core, but also on new services, business models, and adjacencies. Given the strong results to date and our solid pipeline, we are raising our outlook range for internal revenue growth and now expect 10 to 12 percent growth for 2021 from 9 to 12 percent previously. Additionally, we are raising our adjusted EPS full-year outlook and now expect a range of $5.50 to $5.60, up from $5.35 to $5.50 previously. The increased adjusted EPS guidance outlook represents a 24% to 27% growth versus last year. Drawing down to the business segments, the quarter was led by a merchant's acceptance segment, which posted internal revenue growth of 41% year over year. Normalizing for the year-ago comps, The segment posted a 13% growth in the quarter on a two-year basis above our pre-pandemic run rate. Both North America and international largely grew in line with the segment average. North America purchase volume was up 33% in the quarter, led by strength in retail, petro, and restaurants. One of the trends that the pandemic has accelerated is the shift to omni-commerce. Consumers are increasingly looking to engage with merchants in whatever way is most convenient. BuyServe's ability to support clients with leading solutions in both brick and mortar and e-commerce environments is a differentiator. We saw the manifestation of this trend during the second quarter. As offline commerce recovered with volumes growing 46% versus 2020 and 11% versus 2019, online commerce volume also grew unabated at 21% year over year, highlighting the criticality of equipping merchants with omni-channel commerce capabilities. Our lead in Omnicommerce is the reason we were honored with the Omnichannel Provider of the Year Award from the Straw Hecker Group, a leading payments industry analyst firm. As you know, Clover, Carrot, and Clover Connect are Fiserv's three leading platforms for small and medium-sized merchants, enterprises, and ISVs, respectively. Starting with Clover... GPV in the quarter grew 96% year-over-year, reflecting a 38% CAGR since 2019 to $184 billion on an annualized basis. In the SMB space, we continue to build out vertical-specific solutions in retail, restaurants, and services. Our vertical sector strategy aims at expanding beyond the buy button, offering an integrated suite of products that help merchants generate revenue and run their business. Value-added services on the Clover platform include Clover Capital, Clover Dining, Clover Order Ahead, and Clover Inventory, as well as our unique app marketplace. which provides access to services such as payroll management, loyalty, and marketing that enable us to increase our share of the merchant's wallet and become the platform of choice. On the enterprise side, Carrot, our enterprise omni-channel ecosystem, continued its strong momentum in the second quarter with new wins and continued innovation in key verticals. In restaurants, Carrot powers digital commerce for 10 of the top 15 QSRs. Carrot has helped Burger King expand its mobile payments experience into Latin America. And restaurant brands international expansion in the UK and other parts of America. In grocery, where Carrot now serves nine of the top ten grocers. We have helped new clients such as Wake Fern, Aldi, and the companies of Ajo De La Haze USA expand their digital grocery ordering capabilities with new payment types. Evidence of Carrot's commitment to the grocery industry and transformed digital experience is exemplified by Carrot's leading online EBT program that has processed $2.5 billion in GPV year-to-date. In retail, where Carrot serves seven of the top ten retailers, we're expanding our merchant services by working with clients such as Adidas on innovative solutions, including our new consumer recommendation engine. This engine connects digital experiences to local stores enabled by the integration of Radius 8, an acquisition we completed in the first quarter of this year. Tarot has also established new at-scale leadership with crypto wallets, where we power card funds in and funds out solutions. Through this capability, we helped consumers move more than $4 billion in payments volume in and out of wallets for the past 12 months. In the second quarter alone, we moved $2 billion in volume, demonstrating the sharp ramp in digital currency movement. Moving to Clover Connect, LISV-focused offering, momentum continued in the second quarter, with ISV volume up 122% year-over-year. We signed 53 new ISV partners in the quarter, bringing the new ISV partnerships to 95 year-to-date. We're signing up for ISVs that are new to payments and those that are converting from competitors. Year-to-date, almost half of our wins are competitive takeaways. Our ISV partners derive great value in getting access to our partner management tool, Copilot, and integrating with Clover. On our investor day, we talked to you about our merchant acceptance growth strategy for international. We remain focused on growing our global market presence with world-class bank partners and through our direct channels. all while leveraging the strength of common platforms and connections. In the quarter, we announced the JV with Deutsche Bank in Germany that offers us access to over 800,000 merchants, many of whom will power with our Clover platform. In Asia Pacific region, we won a multi-country acquiring processing mandate from Citibank, for its new integrated digital commerce offering, Spring by City. Early in July, we began onboarding and processing payment transactions as part of the Merchant Acquiring Services Agreement signed with Brazil's Caixa Bank in April of this year. The onboarding began 70 days after contract signing, once again demonstrating our speed to market. In addition to the successes I mentioned above, in our merchant acceptance segment yesterday, we announced a strategic relationship with Goldman Sachs to integrate cross-border payment functionality into our B2B accounts receivable and accounts payable solution, SnapPay. As you know, B2B payments is a vast and growing market, ripe with opportunity. We believe that in partnership with Goldman Sachs, we can deliver best-in-class B2B payment capabilities, enhancing visibility, operational efficiencies, and cost savings for our large and mid-market business clients. Moving to the payment and network segment, we posted internal revenue growth of 7% over the second quarter of last year. Positives in the quarter included the continued growth of sales, continued strength in debit transaction volume, initial recovery in credit account volumes, and international growth, with some weakness in bill pay, although results improved sequentially. The differentiated and industry-leading businesses within our payments and network portfolio and our agile execution include are the key reasons why we continue to win with clients. We are proceeding well with onboarding 120 million of credit issuing wins we told you about on our investor day. We completed boarding Atlanticus in Q2 and have completed several stages of migrating both Alliance data and Genesis Financial to the Optus environment. In less than 12 months, After announcing these three banner wins, we are poised to recognize revenue on all three clients in the third quarter of this year. We continue to grow our relationship with innovative growth stage fintechs, digital banks, and consumer lenders. In June, we signed an agreement with Prosper, a fintech pioneer who and a premier AI-driven consumer lending marketplace for credit card processing services. This space is a growth focus for us. Our revenue with FinTech issuers grew over 300% during the first half of this year versus the same period in 2019. On Investor Day, you will recall that driving best-in-class integrated digital consumer journeys is a key differentiator and imperative for our clients. Experiences are the new currency of loyalty. Customers gravitate towards institutions that can give them a unified, seamless experience across both channels and products. To that end, yesterday we announced enhanced Fiserv digital capabilities for integrated digital banking and card management. This enriched mobile first suite will enable financial institutions to offer their consumer and business customers a best-in-class digital banking experience that's designed for the way customers expect to engage. To introduce these enhanced capabilities, we rapidly integrated two recent acquisitions, OnDot and SpendLabs. The result is a single unified platform for consumer and small and mid-sized business cardholders that enables expense and business card management. This offering allows us to deliver a single point of access for all banking products. Our enhanced buy-serve digital capabilities will span all three business segments. In payments, through a leading digital cardholder experience. In financial technology, by driving the penetration of our core account processing and digital surrounds. In merchant acceptance, by increasing the uptake of value-added services from integrating spend labs with our Clover platform. We expect to see incremental usage, engagement, and services revenue on the Fiserv platform as a result. Before I close out the payment segment, I would like to mention the strong growth we're seeing in our debit networks, Star and Excel, as we are winning new issuers through our ability to support all transaction types, including best-in-class fraud management and chargeback products. Moving to the financial technology segment, the quarter was in line with our expectations, posting internal revenue growth of 5%, including an 80 basis points headwind from periodic revenue. I want to highlight some key achievements in the quarter that reflect a strong market position. We added 10 new core account processing clients in the quarter, including eight on the DNA platform, and four in the over $1 billion asset size market. As the smaller end of the banking industry consolidates, we're moving up the asset chains, winning share in the $1 to $50 billion market. One such win is Sunstream Business Services, a service entity which spans 12 financial institutions and provides business and technology services to farm credit associations, totaling more than $115 billion in assets. Sunstream will be converting to DNA in a number of surround solutions. Continuing our strong momentum in the de novo bank market, we signed LCA Financial Services, a newly created, a newly chartered bank focused on small business. While we continue to win with our digital surround solutions, Ability is the new paradigm in digital banking, a single retail and business online and mobile platform. We had our first client go live on the Ability platform in the second quarter with more than 100 clients signed up. We are also fully embracing openness as a strategy. The BuyServe Developer Studio is aimed at attracting the developer community to build innovative products using the range of APIs we expose across cards, payments, banking, small, medium, and large businesses. Additionally, we are building a pre-integrated FinTech app marketplace where our financial institutions clients can acquire, test, and deploy third-party apps seamlessly, easily, and quickly. This openness strategy creates a net new revenue opportunity within our existing client base while widening the value-added services opportunity. With that, let me update you on our integration efforts. Through the second quarter, We've already actioned over $1.1 billion of cost savings and are well on our way to completing 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 second quarter. As of the end of the second quarter, we've already actioned $325 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. Revenue synergies in the quarter were driven by payments, debit network, and card sales across our three major client segments, FIs, corporates, and government. Additionally, as the partner of choice, we continue to see momentum in our bank merchant program. Now, let me pass the discussion to Bob for more detail on our financial results.