Fiserv, Inc.

Stand by, the conference will begin shortly. Again, please stand by, the conference will begin shortly. Thank you. Welcome to the FISERV 2023 Third 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 Julie Cheriel, Senior Vice President of Investor Relations at FISERV.

Thank you, and good morning. With me on the call today are Frank Busignano, our Chairman, President, and Chief Executive Officer, and Bob Howell, our Chief Financial Officer. 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 the non-GAAP financial measures discussed in this call, along with the reconciliation of those measures to the nearest applicable GAAP measures. Unless otherwise stated, performance references 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. And now, I'll turn the call over to Frank.

Thank you, Julie. And thank you all for joining us today to discuss how Fiserv continues to deliver very strong results. For 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 an acceleration in our merchant acceptance and fintech segment organic revenue growth to 20% and 6%, respectively. While all three segments contributed to higher margins, adjusted 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 quarter results point to full-year performance ahead of our prior guidance. In the closing months of 2023, market projections 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. Macro 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. Because of this, we expect to close the year with growth similar to the year-to-date results. We also look at more durable characteristics of our business to support our optimism. Nearly half of our volume in our merchant business is in non-discretionary spending categories. Approximately 85% of our financial institution's revenue is recurring. Our solutions in both areas serve as essential functions for our clients. Our customer base and distribution network are industry-leading. how incremental margins are high, and how 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 and 2023 year-to-date results point to this being our 38th 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%, the top end of our prior range 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 $0.05 at the midpoint and representing growth 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 we achieved in the third quarter. Let's start with Clover, our market-leading cloud-based SaaS operating system that 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 a new Clover dashboard with improved user experience that expedites navigation to our top apps including reporting and analytics. We added other features that speed the buying process at Clover.com and improve the application process for new merchant prospects. We expect this functionality to open opportunities for Clover with a long tail of merchants growing our addressable markets. 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 in international markets. We retain line-of-sight to an acceleration in revenue growth that results in $3.5 billion-plus in Clover revenue by 2025, the target laid out at a March 2022 investor presentation. Moving to Carrot, 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 with enterprise clients. And wins in the quarter came from products addressing feedbacks and platforms. Foreign currency translation, fraud, and hotel restaurants with mental box. We're pleased to announce that PayPal has selected Pfizer as its core U.S. partner for payment services across both PayPal and Braintree assets. This is a new direct strategic multi-year partnership covering several products and services and millions of merchant locations that builds on a longstanding base of business between our two companies. International expansion continues with Carrot, and we had several wins in the quarter, across our regions. In EMEA, we won a competitive bid to help Compass Group, the world's largest contract food service company, build unattended food retail services across 14 countries in Europe. We are providing acquiring, local payment methods, and real-time inventory data across our single-current omni-channel platform for Europe. Our differentiation lies in our functionality around data normalization, real-time access, visualization, 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. And lastly, An emerging opportunity for us in the enterprise space is open data. We logged two important wins in this area in the third quarter that demonstrate strong demand for access to our vast alternative data assets. One of the major credit bureaus will use our account-level data to add micro indicators to a consumer's credit profile, particularly relevant for the underbank Secondly, we're partnering with Dun & Bradstreet to add information from our merchant volume database to supplement its small business credit reports. The solution can optimize credit decisioning for lenders and access to capital for small businesses. Finally, in the area of payments and open banking, We signed a deal with Plaid for API access to bank data, allowing the company to move further away from screen scraping and generating revenue for us and our connected bank and credit union clients. We can further penetrate this data market opportunity by contributing in areas such as ID verification, account verification, loan origination, and security and fraud services. Latin 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 and Brazil, followed by Mexico, Colombia, Uruguay, and the Caribbean. Argentina inflation and 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 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 from expanding the payments 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 isv partners 27,000 merchants, and the ability to cross-sell multiple value-added solutions. Ramping up new business with Kasha Bank, including acceptance at 13,000 bill payment facilities across Brazil. Rolling out Clover more broadly in Brazil next year and expanding our issuer 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 our medium-term guidance of 9% to 12%. the macro forces contributing to this greater-than-anticipated growth will likely ease over time. And this assumption is fully incorporated in 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 a partnership with Melio, a leading B2B payments platform. This marks a significant step forward for Fiserv into this very large and growing market. Together with Melio, 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 Muleo's well-known, easy-to-use, accounts payable and receivable workflows with Fiserv's market-leading biller and merchant network plus payment capabilities. By summer 2024, we will go to market with Cashflow Central by Fiserv, an integrated accounts payable and receivable solution for small businesses through Fiserv Financial Institution clients. This exclusive distribution agreement includes more than 3,500 FIs currently using check-free from Fiserv for bill payment and will allow the solution to scale rapidly. Furthermore, In the near future, we will reach merchants directly with this product through Clover and our ISV channel. Now let me turn the discussion over to Bob for more detail on our financial results.