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spk08: Please stand by. The conference will begin shortly. Again, please stand by. The conference will begin shortly. Thank you. Welcome to the FISERV first quarter 2024 earnings conference call. All participants will be in a listen-only mode until the question and answer session begins following the presentation. As a reminder, today's call is being recorded. At this time, I would like to turn the call over to Julie Cheriel, Senior Vice President of Investor Relations at FISERV.
spk09: Thank you, and good morning. With me on the call today are Frank Bisignano, our Chairman, 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. Please refer to these materials for an explanation of the non-GAAP financial measures discussed on 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 uncertainty. You should refer to our earnings release for a discussion of these risk factors. As a reminder, starting in the first quarter of this year, Fiserv now reports two segments, merchant solutions and financial solutions, to align with how we serve our clients. Please see our current report on the Form 8-K, filed on March 26, 2024, for an explanation of the new segments and a recast of 2022 and 2023 into the new segments. And with that, I'll turn the call over to Frank.
spk10: Thank you, Julie. And thank you all for joining us today to discuss our first quarter results and a strong start to the year. Fiserv delivered a strong first quarter, with adjusted earnings for share of $1.88, up 19 percent, which reflects our continued revenue growth and operating margin expansion. Adjusted revenue growth was 7 percent, and adjusted operating margin of 35.8 percent increased 180 basis points. We had organic revenue growth of 20 percent in the first quarter. This is consistent with our expectation of higher growth in the first half of 2024 toward our full-year outlook of 15% to 17% organic growth. This healthy top-line growth, coupled with Q1's stronger margin performance, leads us to raise our adjusted earnings per share outlook to a range of $8.60 to $8.75, from the prior range of $8.55 to $8.70, which is 14 to 16 percent growth. We now expect adjusted operating margin to expand at least 125 basis points this year, compared to our prior outlook for at least 100 basis points of margin improvement. As you know, beginning this quarter, we realigned our business to best reflect how clients engage with our solutions today. This client-centric model is now reported in two segments, with roughly half of our business in the merchant solution segment and the other half in the financial solution segment. Through this change, we retain our fundamental approach of providing business operating systems to run our clients' key processes while delivering a variety of value-added solutions for enhanced capability. Our business model combines the recurring revenue and high incremental margin of a scaled processing business with higher growth and higher margin but still consistent cloud-based software and services offerings. Both our segments performed well and within our expectations. Merchant Solutions' organic revenue grew 36% in Q1 and 13% on an adjusted basis. Financial Solutions' revenue grew 5% organically and 2% on an adjusted basis. This performance reflects a solid macro environment along with our ability to drive outperformance by adding new clients, retaining and growing with existing clients, and providing them more value-added solutions. At a macro level, consumer spending remains resilient. The Pfizer Small Business Index based upon the spending activity at 2 million small merchants in the U.S., shows spending rose 3.4% in the first quarter, up from 2.5% in Q4. The early read on April is that growth is tracking slightly ahead of the Q1 average. The index also showed that roughly 60% of Q1 spend was on non-discretionary categories. And the remaining spend went mostly to dining out, amusement, hotels, and short-term rentals. These metrics point to a resilient consumer in the U.S. Turning to the broader environment for banking, well, there are some signs of pressure on net interest income given high interest rates and potentially tighter lending. We have not seen this having an impact on our clients' IT spending for the essential services we provide. With that macro backdrop, there are a number of highlights for Fiserv's business in Q1 and the remainder of the year. In merchant solutions, first quarter activity reinforced our progress toward achieving the targets we set in our November investor day, including to reach $12 billion in revenue in 2026 as we continue to expand adjusted operating margins. Let's discuss five of the drivers that support this outlook. First, Clover continues to lead the small business merchant SaaS market in growth and scale. and remains on track to reach the expected $4.5 billion in revenue in 2026. Clover posted a second consecutive quarter of 30% revenue growth, supported by new merchant ads and a 20% penetration of value-added solutions. Second, we are launching multiple new Clover products this year, In the first quarter, we rolled out a larger kitchen display system and an ordering kiosk for the restaurant vertical. Around mid-year, we'll be rolling out a new Clover device called the Compact. In the second half of the year, we expect to begin offering additional software solutions for the professional services vertical. Third, Our progress in international markets continues to differentiate Fiserv. Demand for Clover is strong in Germany, and leads are building from Albert joint venture with Deutsche Bank. In the Netherlands, where we acquired the remaining portion of the joint venture from our bank partner last year, we are seeing pent-up demand for Clover. In Argentina, we are having success adding merchants to Clover as we prepare to launch it in Brazil and Mexico in the second half of the year. In Asia-Pac, we continue to build on our high-end hospitality market leadership, signing the Grand Hyatt EQ1 to reach over 25 five-star properties in Singapore and Malaysia. We continue to ramp up distribution as we prepare for the Clover launch in the APAC region. We already have over 50 ISO and PayPak partners, and we onboarded more partners in Q1, including K-Pay, which added 20,000 merchants onto our platform. We continue to expect a full featured Clover launch in Australia, Singapore, and Hong Kong in 2025. Fourth, our value-added solutions penetration continues to rise. In Q1, Clover VAS penetration reached 20% on growth in Clover SaaS, Clover Capital, and Rapid Deposit. In the enterprise business, we are seeing a newer VAS opportunity emerge with our SnapPay product. a B2B payments offering for mid-market merchants that integrates seamlessly with popular ERP solutions. After over 20% revenue growth in 2023, SnapPay is poised for continued strength this year. Coventa Energy signed up for SnapPay in Q1, and we had an additional government win with the state of Texas to digitize revenue collection activity. We also entered into our first major reseller agreement for SnapPay, opening the opportunity to reach even more mid-market clients. Fifth and finally, we continue to add new merchant relationships across the SMV and enterprise markets. Building on the success we saw in 2023, Clover Sport added over 20 new venues, putting thousands of new Clover devices in the market. Venues include stadiums that are home to teams in the MLB, NFL, and NCAA, as well as amphitheaters, golf courses, and large-scale festivals. You know, enterprise business we address a wide breadth of industries and a growing presence in new markets such as social gaming, which is a $10 billion opportunity by volume and growing around 20%. We signed three more clients in this space in Q1 and now serve 13 social gaming merchants, including three of the top five. We are seeing good uptake of Commerce Hub, our single orchestration layer that allows enterprise clients to operate a unified omnichannel platform. In Q1, our Commerce Hub client count surpassed 200. These five are just some of the ways we plan to achieve the targets we've set for 2026. Turning to the financial solutions segment, demand for modernization and innovation is on full display. We posted four FinZac wins for new and traditional use cases in Q1. Although we do not expect the revenue contribution to be significant in 2024, this progress reinforces FinZac's capability and flexibility as a cloud-based core banking platform and embedded finance platform. Let's take a deeper look at all four. First, Finzec will be the core platform for a new US-based digital bank from Banco into Brazil, a current Fiserv client. Second, Finzec want to deal with the FinTech program manager that helps businesses access the payments ecosystem. This client decided to upgrade to Finzec and consolidate volumes on the platform. Third, Finzec signed a current Fiserv SMB solutions aggregator client as they build embedded finance for their merchant clients. This opportunity ties deeper into Fiserv as we'll be working with our financial institution clients to find sponsors of these lending services. Fourth and finally, Finzac won a deal to become the core account processor for a major U.S. government agency as part of the client's much larger modernization plan, which will pull in other parts of our business. It's clear that Finzac is demonstrating its capability across the broader financial services landscape. And we're encouraged by its growing pipeline today and the bigger opportunity it can bring to Fiserv over time. Turning to credit issuing, we partnered with Robinhood as it launches its gold card program following the acquisition of X1, which is built on Fiserv credit processing. We also extend our relationship with Kuwait Finance House, on the back of its acquisition of Ali United Bank and will be migrating that card portfolio onto our platform. These are two more examples of how financial institution M&A is presenting more opportunity than risk as our technology leadership grows clearer. Lastly, in digital payment solutions demand among our core account clients and other financial institutions remain strong. One of the fastest growing examples of this is Zelle, the largest P2P payment platform where we remain the leading third party systems integrator and recorded 45% transaction growth in Q1. A second example that's still emerging is FedNow, and RTP, where we've signed more than 500 financial institutions to provide access to these real-time rails. And perhaps our biggest medium to long-term opportunity is cash flow central, our small business accounts payable, accounts receivable solution that we are currently marketing to banks as resellers. The product will be available this summer, and we've already sold it to four large banks, including U.S. Bank, announced in February, and this month, Bolton Bank and Citizens Bank. You should also expect to see Cash Flow Central distributed through Clover later this year. The product is off to a great start, and we are encouraged by what we are seeing. And now, let me turn the call over to Bob to walk you through the financials in more detail.
spk13: Thank you, Frank, and good morning, everyone. If you're following along on our slides, I'll cover additional detail on total company and segment performance, starting with our financial metrics and trends on slide four. First quarter performance demonstrated our ability to deliver top-line growth and continue to drive margin expansion. First quarter total company adjusted revenue grew 7% to $4.5 billion, and adjusted operating income grew 13% to $1.6 billion, resulting in adjusted operating margin of 35.8%, an increase of 180 basis points versus the prior year. As a reminder, our adjusted revenue was recast as part of our real-line segment reporting. And if you haven't already, I encourage you to review our 8K filing from March 26 for historical comparisons. The recast numbers include a small change to our adjusted revenue in the prior years to account for all pass-through postage. In our prior reporting, we adjusted the postage pass-through revenue only from our output business, which represents the significant majority of our postage activity. we are now adjusting out the non-output pass-through postage revenue as well. The change slightly lowered our adjusted revenue for the recast prior periods and better aligns with our internal reporting. On an organic basis, revenue grew 20% in the quarter, with particular ongoing strength in merchant solutions organic revenue, which was up 36%, and steady growth of 5% in financial solutions organic revenue. First quarter adjusted earnings per share increased 19 percent to $1.88 compared to $1.58 in the prior year. Our adjusted earnings per share in Q1 grew well above the 14 to 16 percent growth level anticipated for the full year. Pre-cash flow for the quarter was $454 million. While this number is lower than normally seen in the quarter, it is in line with our expectations given the timing of payments for the green tax credit program. This timing is consistent with what we described during last quarter's earnings call, and we expect this cash flow headwind to become a tailwind in the second half of this year when we apply the credit to lower our second half cash tax payments. We continue to expect to generate $4.5 billion in free cash flow for the year. Turning to performance by segment. Starting on slide five, organic revenue growth in the merchant solution segment was 36% in the quarter. This includes a 15-point benefit from excess revenue driven by above average interest and inflation in Argentina. Without this transitory benefit, organic growth would have been 21 percent. On slide six, we've added a summary of the impact of Access Argentine inflation and interest on total FISERF and merchant segment revenue, and the offsetting headwind from currency devaluation, which impacts adjusted revenue. Adjusted revenue growth for merchant solutions was 13 percent in the quarter. It includes a 23 percentage point currency headwind largely from the Argentine peso and the impact of the devaluation in late December last year. Unlike in 2023, the currency headwind in Q1 24 was much higher than the inflation and interest tailwind. If interest and inflation fall back to normal levels, which we expect to happen in the medium term, we anticipate the headwind from foreign currency exchange would ease as well. Moving to the business lines, small business organic revenue growth and adjusted revenue growth was 45% and 16% respectively. Small business volume growth was 8%. As I mentioned over the last few quarters, revenue from the excess inflation interest in Argentina is boosting organic growth while the currency devaluation is a headwind to adjusted revenue. Over revenue grew 30% in the first quarter, an annualized payment volume growth of 19%. The spread between revenue and volume growth reflects a higher penetration of value-added solutions, continued channel mix shift, and some pricing. Vast penetration reached 20% in Q1, up from 19% in Q4, and on pace to meet our 27% target by 2026. The increase was driven by revenue from Clover Capital, Rapid Deposit, and our basic Clover SaaS plans. Clover Capital is our short-term working capital advance program. Rapid Deposit allows merchants to access money from daily car sales instantly for a fee, and while there are several standard Clover SaaS plans, the basic package includes virtual terminal e-commerce products, developer tools, invoicing, and transaction reports. These are just some examples of the value-added solutions available with Clover. Enterprise organic and adjusted revenue growth was 29% and 6% respectively, driven by transactions growth of 12% and higher VAS penetration. As in small business, Organic growth includes some transitory benefit from excess inflation and interest in Argentina, but was also impacted by the inclusion of three lower growth products as part of the shift in our business segmentation to start this year. Finally, processing organic and adjusted revenue grew by 9% and 10% respectively. As mentioned in the past, processing represents the back-end processing we do for our partners where they own the merchant relationship. The increase this quarter was driven by a termination fee from an existing client who canceled a planned expansion into new geographies. This will not impact ongoing revenue in established geographies where our relationship with this client remains strong. Excluding periodic revenue, processing revenue declined 2% in the quarter. This business line has no revenue from Argentina. Overall, we continue to anticipate processing adjusted revenue to be roughly flat over the medium term. Adjusted operating income in the merchant solution segment increased 30% to $769 million in the quarter, with adjusted operating margin of 440 basis points to 34.1%. In accordance with GAAP, interest expense from anticipation revenue is recorded below the operating income line. If the interest costs from anticipation were included in operating income, merchant adjusted operating margins would have still expanded a very strong 390 basis points for the quarter. Turning to slide seven, on the financial solution segment, organic revenue grew 5 percent in the quarter, which is in line with our full year outlook of 5 to 7 percent. Looking at the business lines, digital payments, organic and adjusted revenue each grew by 5%. Dell transactions and number of clients continue to grow at a healthy clip at 45% and 20% respectively. And we continue to see strong demand from clients for FedNow and RTP integration. Issuing organic and adjusted revenue grew 8% and 3%, respectively, driven by several factors, including the launch of money network cards to unemployment and disability benefit recipients under the California Employment Development Department program. Banking organic and adjusted revenue declined 1% and 3%, respectively. Excluding periodic license and termination fee revenue, banking organic revenue grew 2%, First quarter adjusted operating income for the financial solution segment was up 6 percent to $1 billion, and adjusted operating margin was up 160 basis points to 44.1 percent, driven by operating leverage from scaled revenue growth and cost efficiency. As we highlighted at our investor conference in November, the cross FISERV activity between our two segments is particularly powerful because following the success of the Fiserv First Data Merger, we are the only single provider of merchant, bank IT, and payments functionality. Let me share three examples where we've had important cross-Fiserv wins in Q1. In our debit networks, Star and Excel, we have five merchant wins in the quarter, including ConocoPhillips, a traditional merchant, along with a social media company and a Payfax. both of which will be able to benefit from more choice under Reg II. Traditional and online merchants are using our debit networks to efficiently route card transactions at the point of sale. These wins drive revenue in our digital payments business line and often go hand-in-hand with merchant acquiring wins and other value-added solution sales that only Fiserv offers. A second example can be found in open banking where we provide our data solutions to facilitators such as Plaid and MasterCard Open Banking as a single API into the open banking data of our financial institution clients. In Q1, we signed a data access agreement with Visa Open Banking Solutions acquired through TINC as they entered the U.S. The data is typically used by clients of these organizations to verify bank accounts for payments and transfers, underwrite loans and facilitate financial wellness and planning. And by merchants to facilitate pay by bank transactions as just a few examples. Third, over the past year, we have announced a number of wins in the government sector. And we're excited about our continued momentum in this large vertical across our merchant and financial segments. Revenue from government clients recently surpassed $500 million. Now, let me wrap up with some remaining details on the financials. The corporate adjusted operating loss was $148 million in the quarter, largely in line with our expectations. The adjusted effective tax rate in the quarter was 18.2%. The Q1 tax rate is traditionally below the full-year rate, and we continue to expect the 2024 adjusted effective tax rate to be approximately 20% for the full year. Total debt outstanding was $24.4 billion on March 31st. Our debt to adjusted EBITDA ratio slightly increased to 2.8 times within our targeted leverage range. And we have approximately 7% of our debt in variable rate instruments. During the quarter, we repurchased 10.2 million shares for $1.5 billion, bringing our total cash return to shareholders for the last 12 months to $4.7 billion. We had 42 million shares remaining authorized for repurchase at the end of the quarter. Our long-standing capital allocation strategy will continue in 2024, defined by a strong balance sheet, share repurchases, and complementary and innovative acquisitions. As Frank said earlier, we continue to expect organic revenue growth of 15 to 17% for the full year. One quarter into the year, we are maintaining our 2024 organic revenue growth rate outlook. While the interest in inflation tailwind from Argentina eased faster than we expected, further moves in the balance of the year remain unclear, while our overall business remains strong. For the full year, we now expect adjusted operating margin expansion to be more than 125 basis points, up from our previous outlook of at least 100 basis points. This translates to adjusted earnings per share of $8.60 to $8.75, a 5-cent increase in our outlook at the midpoint, which is 14 to 16 percent growth over 2023. This performance for 2024 would represent our 39th consecutive year of double-digit adjusted EPS growth. With that, let me turn the call back to Frank for some closing remarks.
spk10: Thanks, Bob. Last week, we published our fourth corporate social responsibility report. In it, we highlight the ways we execute on our four strategic pillars, empower people, advance communities and society, champion responsible business practices, and invest in sustainable systems. In summary, we believe that doing good is good for business. We are committed to diverse representation at all levels of the organization, including leadership positions. We continue to engage with communities where we live and work, including small businesses and minority depository institutions. We recognize the importance of strong governance as part of our overall strategy, and we continue to invest in sustainability. For the first time, our CSR report includes a greenhouse gas reduction goal. Later this year, we will be celebrating two important milestones for FISERV. our 40th year in business, and our fifth year since merging with First Data. On these occasions, you naturally reflect on what it means to come of a certain age. For Pfizer, 40 years old means proven, resilient, and experienced to deliver on our commitments, and we've done just that. It also means scaled, savvy, and well-capitalized to sustain strong top and bottom line growth. We are doing that as well. But when you consider the significant change created by the merger, we are also a lot like a young five-year-old company. Five means a fresh foundation to support investments. We have used our cash to invest in products, services, and people, and that's driving higher growth. Five also means a longer-term opportunity ahead, fueled by innovation. And therefore, we see continued strong further top- and bottom-line growth at Fiserv. The proven strength of 40, combined with the opportunistic growth of five, puts Fiserv in a distinguished position to both lead and drive innovation. And that's exactly what we're doing. All of this is possible because of our over 40,000 employees. I would like to thank them for what they do for our clients, shareholders, and each other. Thank you for your time today. And now, operator, please open the line for questions.
spk08: Thank you. We would now like to open the phone lines for questions. If you would like to ask a question, you may press star 1 on your phone. If you would like to withdraw your question, press star 2. Our first question comes from David Toggett from Evercore ISI. Please go ahead.
spk01: Thank you. Good morning. Great to see Clover revenue growth sustained at 30% with accelerating payment volume growth and higher VAS attach rates. When you look at the picture for Clover for the year as a whole, Can revenue growth sustain in this high 20s to low 30s range, you know, when you look at the Brazil market entry, Argentina expansion, and vast growth opportunities?
spk10: Yeah, hey, thanks, David. You know, we've been focused on all of those for quite some time, and we keep unveiling new product, new initiatives, new markets. while continuing to draw on the embedded business we have generating new merchants. Our basic philosophy is increase the number of merchants we have, be able to deliver more products to merchants, and then go into the areas that we haven't been before. So we know very, very good about what we laid out a couple of years ago and what we talked about in November. You can see the traction here, which is kind of above what the CAGR needed to be. But you should expect us to be all cylinders on Clover, as we have a bunch of other parts of our company also, I would have to say. Thank you.
spk08: Thank you. Our next question comes from from JP Morgan. Please go ahead.
spk06: Thanks so much. Good morning. Just the increase here in the operating margin, how much of that 25 bps is from favorable mix versus other surprises, maybe the term fee and processing? I know Argentina, of course, is always as a factor there. Just curious on the increase. And then any callouts for the second quarter or the second half with respect to the margin? Thanks.
spk13: Yeah, it's Bob. Good morning. I think overall the 25 basis points that you're describing are full year outlook moving from previously at least 100 basis points margin expansion to now more than 125 is really driven by continued volume leverage, strong growth in the overall company, as well as continued progress on productivity. The termination fee in the processing is relatively small in the grand scheme. Obviously, it It matters a bit in the processing line for this quarter, but in terms of the overall company's margin improvement, it really is continued volume leverage and a focus on productivity.
spk10: Yeah, and I'd just add, you know, when we think about running this company, our investment in technology is really around new product development. improved service, and the ability to deliver the next dollar of revenue at a better incremental cost by investing in productivity. So that will be for the rest of our lives. And AI and those type of items just allow us to do more of it. We're at the tip of that, but, you know, we can see our way very clearly this year.
spk11: Come on. Thank you.
spk08: Next, we'll go to the line of Dave Koenig from Bayard. Please go ahead.
spk05: Yeah. Hey, guys. Great job again. And maybe just on the financial segment, digital slowed a bit this quarter. I think it was 5 percent. It was 7 to 8 percent the last few quarters. Wondering just about that and if REG-II, if you've kind of fully benefited from that or if that still has incremental room to benefit and accelerate growth in that part.
spk13: David, good morning. On the Reg II, I'd say that there's still probably more opportunity ahead than what we've seen. It remains to truly be seen what that means. We're seeing good uptick in our network business, whether that's really driven by Reg II or just continued progress in our debit business. I think it's just more continued progress. In terms of a, quote, slowdown, I wouldn't read anything into it other than quarterly fluctuations and a tough comp against Q1 prior here.
spk05: Gotcha. Thanks. And if I can just do one more quick. SMB grew so fast, 45%. Clover grew 30%. So non-Clover is actually growing faster, which I assume is just Argentina. But maybe how is non-Argentina, non-Clover doing? And is there room for that to keep growing well, too?
spk13: Let's see, non-Argentina, non-Clover. I'll have to pull up my Venn diagrams here. Obviously, tongue-in-cheek there. Bottom line is we're seeing good growth, obviously, across the entire SMB business. That small business certainly has good growth from Clover, and you saw the 30% growth in Clover. We continue to see real opportunity there. On the non-Clover side, There's certainly impact from Argentina. There's a small piece of clover Argentina there, but the 30% growth is really heavily driven by the United States growth there. On the overall segment, you heard us talk in the prepared remarks about the Argentine impact from organic growth. We continue to see that easing later into the year. It was a bit lower than what we expected in the first quarter, i.e., inflation and interest eased a little bit faster than we anticipated. In the last earnings call, we indicated we expect about a 14% impact from Argentina for the full year in the merchant business. Q1 came in a little bit above that. We expect that to ease into the later part of the year. That certainly impacts the non-Clover business, but overall non-Clover is growing quite well, and we continue to see opportunity. It's not just about adding Clover and small businesses. It's supporting them wherever they want to take merchant acquiring solutions. The other thing I would add, and it's an impact to the first quarter that we expect to ease into the balance of the year, is in Q1, we saw the benefit of a better than expected lift on the use of foreign-based currency credit cards in Argentina. This is, some people may have heard the term, dollar turista. The Argentine government has a program sponsored by the central bank to encourage foreign currency-denominated credit cards, and we saw that pick up in the first quarter. That is a program that the Argentine government has at their discretion to help the economy. Obviously, they're seeing the economy improve, so I would certainly not anticipate a 45% small business organic growth into the future, and we're seeing some of that kind of transitory impact this quarter.
spk05: Got you. Great job. Thanks, guys.
spk13: Thank you.
spk08: Next, we'll go to the line of Timothy Chiodo from UBS. Please go ahead.
spk14: Great. Thank you for taking the question. Looking at the gap between the 19% volume growth and the 30% revenue growth for Clover, you hit it pretty well, I think, on the VAS adding about 900 basis points. It just implies that there's a small component there from direct mix hardware and pricing, as you mentioned. So I just wanted to see if you could provide some context on the path to the $4.5 billion, how we should think about those other contributors, direct hardware and pricing contributing. And maybe a different way to ask it is, should we expect the volume growth to stay in this sort of high teens range, or should we expect slightly higher Clover volume growth?
spk13: So a number of elements to that question. First, in order to achieve the $4.5 billion goal that we set out to hit by 2026, we need kind of a very high 20%, call it 28%, total clover revenue growth. As part of that goal, we've indicated we expect VAST to achieve 27% penetration from the current quarter came on at 20%. So certainly a big part of it is additional bass. And we've talked about this in the past, the secret recipe to growing clover to $4.5 billion is actually not so secret. It's get new merchants, sell more stuff to those merchants, and grow with those merchants. And that's exactly what we see. To your point in the current quarter, There was a big part of the overall revenue left, certainly the delta between revenue and volume was driven by VAS. We kind of gave the sequence in order of importance, and I think that will continue as we progress over the next couple of years as we march towards that $4.5 billion. VAS will be a big part of it. This is always price, depending on what's going on with inflation, what's going on in the market, but that's, you know, probably the third of the three important factors.
spk14: Great. Thank you.
spk13: Thank you.
spk08: Next, we'll go to the line of Jason Kupferberg from Bank of America Merrill Lynch. Please go ahead.
spk00: Good morning, guys. I had a two-part question on merchant. The first is just, do you have the total segment volume and transaction growth for the quarter? Not sure if you're going to continue to provide that going forward. And then the second part is just on the April comments. Frank, I think you indicated actually a little bit of an uptick in April relative to Q1, which could be viewed as a bit of an upside surprise considering Easter timing and how that fell this year. So just curious which parts of Merchant might have performed better so far in April versus Q1. Thank you.
spk10: Bob, take the first part. I'll take the second.
spk13: Yeah, so the first part of my question is, in our prepared remarks, we gave small business volume growth at 8% and enterprise transactions growth at 12%. Given the way we're reporting now for that merchant solution segment and the three business lines, we felt that the volume for small business is the driver of revenue. And for transactions, it's enterprise. Transaction activity in small business is not a revenue driver, and volume for enterprise is not a revenue driver. So we thought providing the key metrics that really are driving the business was important.
spk10: And just to lay out on clarity, a small tracking, a small growth, I wanted. And I put it in the non-discretionary bucket. If you're thinking about where it occurred, obviously that's, you know, an early indicator. It's not necessarily, you know, how the whole quarter is going to play, but we always feel committed to be able to talk to you about what we see given the vast amount of volume we have going throughout being both in the U.S. and around the world, and I consider it a small increase.
spk08: Thank you.
spk07: Next, we'll go to Dan.
spk08: Yeah, we'll go to Dan Dole from Mizuho. Please go ahead.
spk11: Hey, guys. Great results. I just have a quick question on PayEasy. Can you maybe give us some context on the conversion to Clover, you know, about roughly timing and contribution, and are there any other conversions that we should be expecting? Thanks again.
spk10: Yeah, great question. The way we think about PayEasy, it was a processing system that were retired and then built out both Commerce Hub and brought some of that volume, which already existed through Clover to the future new merchants. That was completed, migrated, multi-year project that we built out in a way that allowed us to build out Commerce Hub, that allowed us to deliver VAS into Commerce Hub, and also have PAYZ operating within our SMB base. So we feel great about closing the books on that from a conversion standpoint. And we're seeing on the enterprise side, you heard us talk about 200 Commerce Hub users, you know, and a strategic platform for us going forward.
spk11: Great. Thank you, and great results again.
spk08: Next, we'll go to the line of Ramsey LSL from Barclays. Please go ahead.
spk12: Hi, thanks for taking my question this morning. I wanted to ask about M&A and what you're seeing out there. It feels like there's a little more opportunity, maybe urgency on the side of sellers in the sort of fintech industry. What are you seeing and what's your appetite right now for doing a deal?
spk10: Well, you know, I don't know about urgency on sellers' parts as much as, you know, valuation and understanding what real valuations are. Now, you know, we have a really great model, which we talked about, you know, our ability to generate cash flow, investing in our business, and the ability to deploy capital. I think we've done a very, very good job in the assets we've acquired, integrated and And so I'd say our appetite to acquire properties is always high. I mean, we're always trafficking. I think on the other hand, you know, we want to be very, very, very clear that it fits within our strategy, which I think is holding tight, you know, fits within our structure and the ability to distribute the product. to a vast client base, both on the merchant side and on the FI side. So I like to believe that we're always engaged and working and thinking through it, and we're highly selective to make sure we're using our shareholders' dollars as appropriately as possible. And I think we've got a pretty darn good track record in that so far.
spk13: Ramsey, I think I'll carry your analogy one step further in terms of the question on appetite. Appetite's good. It's a strong appetite, but we're not hungry. So, you know, you go to the shopping mall or to the grocery store, when you're hungry, you buy a lot of stuff. You get home and you realize you didn't need all that stuff. We're certainly seeing a lot of activity, but we're not hungry. And while we have tremendous capacity on our balance sheet and could do deals, We're making sure that what we see is of good value and brings value to our shareholders before we go ahead and strike on it.
spk12: Fantastic. Thanks. Thanks, Randy.
spk08: Next, we'll go to the line of Christopher Kennedy from William Blair. Please go ahead.
spk03: Good morning. Thanks for taking the question. So we have good targets for the value-added solutions for Clover. Is there a way to think about the opportunity for some of the other operating systems, such as CARAT, DNA FinZac, or Optus?
spk10: Well, I think we have not articulated goals around them, but they're clearly embedded in our guide and the things we think about our growth rates. Right. I think what we think about even a more broader standpoint is what those are. Right. And you can go across the board from our fraud integration products like advanced defense to how we even we bring in cash flow central. You heard us talk about that. And that really hangs both in the SMB space. Through our own distribution and then, you know, obviously attached to a banking product. I think, you know, over time we probably should come back with better clarity around some of it. Having said that, we've been selling value-added services to our clients. We've sold a gift product into our enterprise for a long time. We've sold different forms of data and information to them. So I think really the way we look at it at the large macro level and enterprise is really that you can go back to the circle that we used to have about we're going to sell a core, but really all the revenue comes when growth comes from debit, credit, digital, And, you know, in their own right, those are value-added services hanging off a core. The same is true in our enterprise business and merchant. So I think, in reality, when you look at how we report, we are reporting, you know, our economics and some of those actually value-added services as business lines also. So, you know, I'll go think about it a little more, but I think, you know, It's encompassed in the economics and how we show our business lines.
spk08: Next we'll go to the line of Jamie Friedman from Susquehanna. Please go ahead.
spk04: Hi. Good morning. And I wanted to mention I appreciate the incremental disclosures. The segmentation is really helpful. I wanted to ask about government. Frank, if I mess this up because the transcript's not out yet, but I thought you said it's a $500 million category. Again, I apologize if I heard that wrong. But what I wanted to ask is, is it correct that that rolls into the financial solutions segment? And if possible, if you could unpack where in there, is it issuing specifically? And generally, how are you going to market with government? Thank you.
spk10: So why don't I start with how we go to government, how we go to marketing government. You know, we've been focused on government as a very large vertical, call it. And that is everywhere from state and local to federal. And so we have a team, and their sole job is government. Right. And, uh, the, the traffic in the transaction, you've even been hurt. Uh, and you know, our thought was always, it transcends the org. That's why we have a dedicated client Salesforce to it. Because, you know, at times we have opportunities to bid on merchant acquiring at times. You heard us talk about. delivering Finvac. You know, the government, you know, is, you know, we called out the half billion because it demonstrated where we started, which was very, very small, to the growth, but it transcends both segments. And, you know, on any given day, almost any one of our products can play in the government space, right? You know, so I don't know if that answers your question, but I think about it as dedicated coverage model, right, transcending the businesses. And it can be anywhere from Alcor, FinVac, which we just delivered, to Money Network, to merchant acquiring. And we really love this segment, vertical, however you want to think about it. You know, and we have a great, great team that knows how to cover government, and, you know, we've been very fortunate in LN.
spk04: Great. Thanks for the call.
spk08: Thank you. And our final question will come from James Fawcett from Morgan Stanley. Please go ahead.
spk02: Great. Thank you very much. I'm wondering if you can help us understand not only where you're seeing success with Clover in the market competitively, but how you're thinking about continuing to improve its positioning in the market. I mean, it seems like value-added service is a key part of that, but are there other things or aspects we should be thinking about? And I'd love to get your sense of what your win rates, if you have any idea of that, versus other competitors in the market. Thank you very much.
spk10: Well, I'll try to be as clear as possible on this. Clover covers the whole SMB market and expands a little further because you've heard about the thousands of Clovers we delivered in the quarter to venues, right? You know, it's a 30% grower today. We, you know, have talked very hard and have work to do to finish the swing. on restaurant, but feel very, very clear about our ability there. You know, you'll see us go deeper in professional services and in retail. Remember, it's a horizontal platform that we brought vertical expertise to. And then, you know, we have great demand outside the U.S., as you heard us talk about. along with the ability to continue to distribute throughout channels like more NLISV channels. So I think it spans the landscape of SMB. Obviously, our growth, which is through new business acquisition, has demonstrated at the 30% mark. And, you know, it's an open platform that we continue to add, you know, more software to. And so when you put that all together and, you know, where we started with, I like to remind us inside the house and outside the house that we were seven engineers and three patents. And now, you know, we have more than a thousand software engineers across the world operating on it. So we're going to continue to invest that money, and you should expect us to grow across the world. That's great. Thank you. Well, good. And I'd like to thank everyone for their attention today. Please reach out to our IR team with any further questions, and have a great day. Thank you.
spk08: Thank you all for participating in the FISER first quarter 2024 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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