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spk05: Welcome to the Fiserv 2020 Third Quarter Earnings Conference Call. All participants will be in a listen-only mode until the question and answer session that begins following the presentation. As a reminder, today's call is being recorded. At this time, I will turn the call over to Peter Pullian, Senior Vice President of Investor Relations at Fiserv. You may begin.
spk02: Thank you, Ivy, and good afternoon, everyone. With me on the call today are Jeff Yabuki, our Executive Chairman, Frank Bisognano, our President and Chief Executive Officer, and Bob Howe, our Chief Financial Officer. Our earnings release and supplemental materials for the quarter are available in the Investor Relations section of Fiserv.com. Our remarks today will include forward-looking statements about, amongst 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 a reconciliation of those measures to the nearest applicable GAAP measures. Unless stated otherwise, performance references made throughout this call are year-over-year comparisons, and all references to internal revenue growth are on a constant currency basis. Also note that the 2019 non-GAAP financial measures in our earnings release and supplemental materials have been prepared by making certain adjustments to the sum of historical first data and FISERV GAAP financial information for periods prior to the acquisition date. Lastly, a reminder that we're holding an investor day on December 8th. Given the current environment and to ensure the health and safety of attendees, we've made the difficult decision to host the event virtually. We look forward to sharing our strategic vision with you at this important event and will share the details of our broadcast on the investor relations section of our website. And now I'll turn the call over to Jeff.
spk12: Thanks, Peter, and good afternoon, everyone. As you can see, we delivered excellent results this quarter and once again are setting the standard for performance in these difficult and uncertain times. Our strong performance is a testament to the collective power of the more than 40,000 Fiserv associates around the world who are committed to serving clients with passion and excellence. Your company has stepped up beautifully and is well down the path to achieving the promise of the transformational combination of Fiserv and First Data, which closed only 15 months ago. We have the strongest solutions, significant synergies, market momentum, and a $500 million incremental commitment to innovation, which have come together to propel market-leading results in these unprecedented times. The strength of our business has been front and center in the midst of global economic turmoil. The model has proven far more resilient than many anticipated as we fully expect to achieve our 35th consecutive year of double digit adjusted earnings per share growth and our position for far stronger performance for years to come. I've been privileged to lead this company for nearly 15 years and I'm proud of what the team has done to create a platform for future success. I can tell you unequivocally that where we sit today is the best we have ever been positioned to deliver sustained growth and value for our clients, associates, and you, our shareholders. Frank and the entire leadership team are the right people at the right time to convert the opportunity ahead into our collective reality. We look forward to sharing much more with you on December 8th. With that, let me turn the call over to Frank.
spk11: Thanks, Jeff, and good afternoon, everyone. Today when I say thanks to Jeff is for the friendship and partnership. It is also for the 15 years of great leadership and strategic vision for Fiserv. It also represents a thank you from all the constituents, our associates, our clients, and our shareholders. Today is Jeff's last earnings call, but his landmark leadership of this great company will last forever. Once again, thank you, Jeff. When Jeff and I met back in late 2018, one of the benefits we saw in the merger would be the potential power and resiliency of the combined business and the advantages we could expect in the event of a challenging economic environment. Neither one of us contemplated a global pandemic and the resulting economic implications we have faced in 2020. And yet, for the first nine months of the year, amid one of the worst economic downturns in the past century, we've grown our adjusted EPS by double digits, sustained internal revenue, expanded our adjusted operating margin, and generated very significant free cash flow. For the quarter, internal revenue growth was 3%, led by a merchant acceptance segment of a very strong 6%. Adjusted operating margin for the quarter was up 310 basis points and more than 400 basis points sequentially. Adjusted earnings per share in the quarter increased 19%, and is now up 11% through September 30th. Free cash flow was again excellent, coming in at $939 million in the quarter and totals $2.6 billion year to date. Over the trailing 12 months, we've generated $3.6 billion of free cash flow. To put that in perspective, this is equal to the pro forma combined free cash flow, which included the full run rate value of synergies delivered nearly four years earlier than expected. Our ability to both increase and accelerate synergies along with the overall strength of the business has combined to deliver these outstanding results. After a terrific second quarter, Sales were strong again in the third quarter, up 27%, with great results in our credit processing, merchant acquiring, and output solution businesses. Sales year-to-date were up 23%, and the pipeline remained strong going into Q4. How sales teams have transitioned to the current reality of selling in a virtual environment and the enhanced value proposition of the merger is resonating incredibly well where it matters the most, in the client's office. As you saw, we kicked off Q4 by signing a long-term agreement with Alliance Data. the fourth largest card issuer in the US by accounts, to outsource processing for their co-branded and private label card programs. This important partnership further validates the differentiated value that we are delivering to the changing credit issuing landscape across our broad suite of innovative technology solutions, digital leadership, and commitment to client partnership. It is an absolute privilege to serve Alliance Data, and we look forward to working together for many years to come. As you heard last quarter, we signed Genesis Financial and Atlanticus Holdings in July, both top 25 issuers. That combined with Alliance data is a clear sign of the very strong momentum in our credit issuer business in the U.S. Globally, a leading vision platform also continues to win around the world, citing Federal Bank in India, Bank of Queensland in Australia, and Upsea Valley in Mexico. Integration continues to go very well. Although we will provide a full update at Investor Day, let me briefly update you on our synergy results, which are well ahead of original expectations. Through September 30th, we've already actioned $875 million of our $1.2 billion cost synergy target. Importantly, we expect to enter 2021 with a run rate of more than $800 million of annual P&L savings. Comparatively, you will recall that we had originally targeted a total of $900 million over a five-year period. We've also actioned more than $185 million in annualized revenue synergies through September and fully expect to achieve over our $600 million goal. Our network solutions have driven a meaningful percentage of our early success as we lay the groundwork for additional revenue growth over the next several years. The combination of Excel and Star networks makes us the clear number three debit network. and when connected to our other market-leading solutions, should unlock new areas of growth and innovation for many years. Another of our top synergy opportunities is to deliver our world-class credit processing services to our core account processing clients. In the quarter, we were pleased that Golden One Credit Union, the seventh largest credit union in the U.S., went live with the Cards Payment Bundle, including credit and debit processing, debit network, and ATM managed services, which provides its members a consistent and integrated cardholder experience. Our Bank Merchant Synergy Program also continues to make strong progress. In October, we signed out 200 financial institutions since the merger. In the third quarter, we added 35 new bank merchant clients, bringing the total to more than 130 new clients this year. What about 60% of those as competitive takeaways? We have increased the pipeline to more than 500 financial institutions for one of the most important opportunities for the combined company. We are privileged to have both a direct and partner distribution model for our merchant solutions, which allows us to cover the sales landscape across all business types and sizes. Next month, Verizon will begin marketing our merchant solutions to its large portfolio of SMB customers. utilizing an exclusive Cloverflex terminal integrated with Verizon Wireless technology. We also expanded our strategic partnership with Paychex, a leading provider of human capital management solutions, including payroll services to more than 680,000 businesses in the U.S. to deliver merchant capabilities to their base of clients. This partnership is a perfect complement to Clover, as both services are widely used by SMBs. We continue to see stellar results through our Clover platform, with gross payment volume in the quarter of 30% to $33 billion. Momentum continues to be excellent in the digital-enabled segments of our merchant business, which includes e-commerce and ISV solutions. We added 42 new global e-com clients in the quarter and 128 year-to-date, a 41% increase over the prior year. Additionally, we signed more than 130 new ISVs so far this year and have seen a nearly 40% increase and new active merchants through our ISV channel. Global e-commerce transactions were up about 25% both in the quarter and year-to-date. Our e-commerce solutions have continued to grow with a significant focus on our direct business. We will provide you with important insights into the size, scale, and reach of our digital acquiring business at our investor day, which we believe will provide important context on both our direct and overall position in the current market structure. We renewed a number of key client relationships in the quarter with household names who value the breadth and depth of our solutions across both physical and digital presence, including Costco, Dunkin', and McDonald's. We continue to expand the number of privileged relationships we have in our account processing business across financial institutions of all sizes, and are seeing strong success with financial institutions with assets greater than $1 billion, de novo banks and fintechs. We signed 12 new core account processing clients in the quarter, bringing the total to 41 for the year, including 20 on DNA. We have signed six de novo banks this year, including signing First Women's Bank to a premier platform in the quarter. We're particularly proud of this new relationship, as First Women's Bank is a commercial bank with a primary strategic focus on lending to women-owned businesses. Lastly, even in these challenging times, we continue to invest for growth, including deploying some of the $500 million innovation commitment we made as part of our combination. We have already delivered solutions in areas such as advanced card fraud, digital disbursements, and several unique innovations to support a touchless shopping experience across our digital merchant solutions. We look forward to sharing more on this important topic at our investor day. With that, let me pass the discussion to Bob for more detail on the financial results.
spk09: Thank you, Frank, and good afternoon, everyone. We turned in a very strong performance in the quarter, even as COVID-19 continued to pressure the global economy, demonstrating the strength and resilience of our business. Total company internal revenue growth was a strong 3% in the quarter, with merchant acceptance leading the way at 6%. Year to date, internal revenue was flat with the prior year, pressured by multiple impacts of the COVID-19 on our business, partially offset by better than anticipated growth from revenue synergies, which were $49 million in the quarter and $114 million year to date. We now expect about $150 million growth from revenue synergies for the full year, up from the nearly $100 million previously expected. During our last call, we shared the trends we were seeing at that time, including strong sequential improvement in transactions each month through the second quarter and into July from the April low. Since August, we've seen transaction growth rates generally stabilize at or around July levels. The current run rate of growth is aligned with our full year expectations for this challenging macroeconomic environment. Although we aren't providing formal internal revenue guidance, we continue to estimate internal revenue to be plus or minus flat for the full year, barring any incremental large-scale economic slowdown. Third quarter adjusted operating income was up a very strong 9% to $1.2 billion. Year-to-date, adjusted operating income decreased by 2% to $3.1 billion, impacted by divestitures and negative impact from COVID, partially offset by strong synergy performance. Adjusted operating margin increased 310 basis points to 32.9% in the quarter on the strength of $184 million of incremental cost synergies and excellent performance across each of our segments. Consistent with our comments last quarter, Q3 adjusted operating margin improved 410 basis points sequentially. Adjusted operating margin increased 80 basis points to 29.9% through September 30th, driven by the strength of our business and excellent synergy execution, which we dramatically accelerated to help mitigate the impact of the pandemic. Our cost actions are largely focused on synergy acceleration, and not on actions that deliver short-term benefits which would bounce back in subsequent years. We expect that our margin improvements are sustainable and should continue into the future. Third quarter adjusted earnings per share was up 19% to $1.20 compared to $1.01 in the prior year as adjusted for the investment services transaction that closed in Q1. Adjusted earnings per share through September 30th has increased 11% to $3.12. Given where we are today, we fully expect to achieve double-digit adjusted EPS growth for the 35th consecutive year. As you heard, free cash flow in the quarter was excellent, up 12% to $939 million and up 13% to $2.6 billion year-to-date. Pre-cash flow conversion for the quarter was 115% and is a strong 122% year-to-date. Looking into the segments, internal revenue growth in the merchant acceptance segment was a strong 6% for the quarter. Our results were bolstered by strong performance from our flexible Clover platform, our global suite of e-commerce and omnichannel solutions, and our leading suite of ISV solutions. Clover gross payment volume grew 30% to $33 billion in the quarter and more than $130 billion annualized. And active merchant outlets increased nearly 10% sequentially. While the growth rate is not fully recovered to pre-COVID levels, it is impressive given the economic environment and considering that Clover tends to serve small and medium-sized merchants, which are later in the recovery cycle. We continue to expand, extend the breadth of services to Culver merchants with innovative solutions that enhance convenience like scan to order, which was launched recently to allow consumers to scan a QR code to order and pay directly from their table. Our integrated payments or ISV business is performing very well with adjusted revenue growth of nearly 50% in the quarter and is approaching pre COVID growth rates. Our differentiated solutions for both ISVs and their merchants are driving excellent results, and we expect this business to be a strong grower for many years. Adjusted operating income in the acceptance segment increased 8% to $425 million in the quarter. Adjusted operating margin was up 180 basis points in the quarter to 29.2%. Year-to-date adjusted operating income was $931 million An adjusted operating margin was down 370 basis points to 23.5% due to the revenue impact of COVID. On our second quarter earnings call, I shared our expectations that this segment margin would improve significantly in the second half of 2020 by more than 800 basis points sequentially, with the majority of that benefit expected to come in Q3. The adjusted operating margin in the quarter was up over 1,000 basis points, primarily driven by improved revenue, including the timing reversal of the network assessment fees compared to the first half of the year, which will not be as pronounced in the fourth quarter. Adjusted operating margin improvement was also driven by continued progress in cost synergies and BAMS cost benefits. The FinTech segment saw internal revenue in line with prior year's quarters. as growth in high-quality recurring revenue was offset by much lower periodic revenue, and specifically termination fees, which created about 300 basis points of headwind to internal revenue growth in the quarter. Importantly, processing revenue was up 5% in the quarter, which demonstrates the scale and leverage in the business. Year-to-date internal revenue is also in line with prior year. We continue to see strong demand for our broad array of digital solutions, Total mobile subscribers across our leading digital platforms, Mobility and Architect, grew 15% in the quarter to more than 11 million users. Despite the pandemic, we implemented more clients on Architect than in any previous quarter, which should help bolster growth into 2021. Adjusted operating income was up a very strong 19% in the quarter to $265 million and is up 11% year-to-date to $721 million. Adjusted operating margin increased 600 basis points in the quarter to 36.4% on a combination of growth and processing revenue, operational effectiveness benefits, and cost synergies. Year-to-date adjusted operating margin was up 390 basis points to 33.4%. We continue to deliver client value across this highly scaled business with increasing efficiency and effectiveness partially offset by the decline in periodic revenue. We are also pleased with the synergy benefits, which are positively impacting segment performance in areas such as technology infrastructure and procurement. The payments and network segment internal revenue growth was 1% in the quarter and up 4 percentage points sequentially. Growth in our card services and output solutions businesses, including the benefit of revenue synergies, was partially offset by COVID-driven weakness in our prepaid, credit processing, and biller businesses globally. Internal revenue through September 30th is in line with prior year. The revenue improvements we saw throughout the second quarter continued into third quarter. We were especially pleased to see a normalization in our debit business in the quarter as transaction growth was back to mid-single digits in the quarter and up significantly over the second quarter. We continue to see excellent transaction growth in solutions such as account-to-account transfers and P2P, which again were nearly doubled compared to the prior year's quarter and up 21% sequentially. The number of clients live on Zelle grew more than fourfold compared to a year ago, and we expect to see meaningful growth across our electronic money movement solutions as consumers move money in a more real-time world. Adjusted operating income for the segment was strong, up 8% to $608 million in the quarter, and is up 6% to $1.7 billion through September 30th. Adjusted operating margin was up 310 basis points to 43.5% in the quarter, and was up 280 basis points to 42.3% year-to-date. The positive impact of revenue synergies, operational efficiency, and cost synergy performance is driving our strong bottom line performance. The adjusted corporate operating loss was $117 million in the third quarter, with the year-over-year and sequential increase in the quarter driven primarily by timing of variable compensation and incremental COVID expenses. The adjusted effective tax rate in the quarter increased, as expected, to about 23% compared to 22% in prior year period. Our adjusted effective tax rate through September 30th is 20.5%, and we continue to expect our full year adjusted effective tax rate to be generally aligned with the prior year. As we shared last quarter, our capital allocation focus for the second half of the year is debt repayment after repurchasing 14 million shares for $1.4 billion in the first half of the year. We repaid $769 million of debt in the quarter, $1 billion year-to-date, and expect to pay down at least $1.5 billion for the full year. Total debt outstanding was $21.3 billion at September 30th, and debt-to-adjusted EBITDA dropped to 3.7 times. We are well on track to achieve our leverage target in the second half of 2021 on the basis of both strong adjusted EBITDA growth and debt repayment. We remain fully committed to our longstanding capital strategy, which includes maintaining a strong balance sheet, organic investment and innovation, high-value acquisitions, and most important, share repurchase remains our primary benchmark for capital deployment. With that, let me turn the call back to Frank for a financial outlook for the rest of the year.
spk11: Thanks, Bob. As we mentioned, we saw a solid rebound off the trough of April into early August and seen that consistent level of performance through last week. Looking at the business environment, our client conversations continue to be quite encouraging and generally centered on helping them grow their business, reducing their operating costs, and better serving their customers right in the wheelhouse of what we do. As we had discussed on the last quarterly call, our Back to Business program to help minority and specifically black-owned small businesses is in full force as we advance our nationwide objective, distributing at least $10 million in grants to qualifying businesses. We continue to see an increased interest in all things digital, whether it is around e-commerce, more card use at point of sale, touchless payments including digital wallets, or accelerating P2P payments. We are well positioned to provide the capability our merchants, financial institutions, and business clients need. As you have heard, we are pleased with our results to date. Given the current economic backdrop and our strong financial performance, we are raising our 2020 financial outlook for adjusted earnings per share. We now expect full-year adjusted EPS growth of at least 11%, up from the prior guidance of at least 10%. over last year's adjusted level of $3.95, or at least $4.37 per share for the full year. As we stated previously, our outlook does not contemplate the second wave of shelter orders or other circumstances which create significant incremental economic duress in the last two months of the year. with our strong financial performance for both the quarter and year-to-date as we navigate these unprecedented times. Our business has shown incredible strength and resilience, leading to what we fully expect will be our 35th consecutive year of double-digit adjusted earnings per share growth, along with the foundation for even stronger results in 2021. Last, let me thank our more than 40,000 talented associates around the world for their commitment and courage as we stand together to deliver value for clients, our colleagues, and UL shareholders. With that, operator, let's open the line for questions.
spk05: Thank you. We would now like to open the phone lines for questions. If you would like to ask a question, please press star 1 on your phone. If you would like to withdraw your question, please press star two. Our first question comes from Dave Coning from Bayard. Your line is open.
spk03: Yeah. Hey, guys. Remarkable quarter. Great job. Thanks, Dave. Thank you. Yeah, yeah. And nice start, Frank. You know, first of all, maybe... You know, as we kind of look at Q4, it seems like you hit easier comps, less periodic revenue headwinds, I would imagine, across payments and fintech. And then merchant, it seems like the months have gotten better in the card industry kind of in September, October. Is there any reason kind of judging where we are today where we wouldn't see acceleration in Q4 really across the segments?
spk09: Yeah, Dave, a couple of things you point out there. One, as we indicated in our prepared remarks up front, we saw a very nice improvement off the bottom of the low back in April through July, and then saw some leveling off into August, September, and even through October at this point. And our expectation right now is for that to continue. A lot going on in the world, a fair amount of potential variability in that. From a periodic revenue standpoint, we actually do anticipate continued headwind into fourth quarter, both from the standpoint of terminations and licensing revenue, the combination of periodic revenue. It will be more pronounced in the fintech segment, but also we're seeing some of that in the payment segment.
spk03: Okay. Great. Thanks. And then just one follow-up. When we think about margins in acceptance, Q3 was really strong. Was there some catch-up, kind of that assessment fees kind of catch-up that would make margins go down sequentially? And then into next year, is the baseline level kind of that 28%, 29% from which to grow? Or should we think about the full 2019 as the baseline from which to grow margins next year?
spk09: So the brand assessment fees, we expected to rebound meaningfully in the second half of the year after we come off a difficult second quarter. We saw that absolutely come through in third quarter, and we expected that to bounce more meaningfully in the third quarter. a bit more to come to us in the fourth quarter. So sequentially, you'll see less of a ramp that we did that we got the benefit of in third quarter. In terms of kind of ongoing margin, I'm not quite ready to give you a guidance for 2021, but I will tell you that in the merchant segment and quite frankly across the company, we feel very good about the cost actions we've taken being permanent improvement. And as we get revenue growth across a very scaled business, we think these margin improvements can hold into the future.
spk03: Great. Thanks, guys. Nice job.
spk05: Thanks, David. Thank you. Next, we'll take the question from Tianjing Wang from J.P. Morgan. Your line is open.
spk01: Thanks so much. Really solid results. Really like the new sales growth discussion there. I'm curious, would you agree that card processing sales activity overall is up? And if so, could you share maybe why? I don't know if you're seeing more off-cycle deals or just clients looking to modernize their systems. And maybe just to add on to that, just the pricing for some of the newer deals like Alliance Data. Any call-outs on that? Thank you.
spk11: Yeah, I mean, you know, we've had these three big wins, and in a general year having one of them would probably be a big deal. I think, you know, we spent a lot of time building out our product set, and it's, you know, I mean – ADS was as big a deal as you're going to find. You take by account size the fourth largest processor issuer. My view on all of this is we have a great technical stack. We have tremendous surrounds. We've demonstrated a world-class base system and then a bunch of digital around it. And it's very appealing to larger issuers right now. And I think ADS was a very competitive process. But, you know, those are very, very long-term, valuable relationships that we cherish. And, you know, I think about them as having long-term organic growth capabilities and the ability to, given what we have inside our house, have great, great ability to fit within the platforms we run. So competitive processes, we've been fortunate in the wins, you know, really three top 25 issuers, one the fourth largest issuer. And, you know, I think it has a lot to do with the investments we made in the business and our maniacal focus on the client.
spk01: All right. No, that's great. I know it's Three deals is a lot. That's why I wanted to ask the question. So just my quick follow-up just on acceptance. You're back to tracking the Visa, MasterCard volume here, just like you said it would. So, I don't know, Frank and team, how would you rank sort of the drivers that have sort of gotten you to this point? Is it net merchant additions? Is it better – You know, sales activity, net of attrition, you know, is it Clover? I know ISV is a big contributor, but I don't know if there's a way to just rank what's sort of gotten you back to this point where you're seeing sort of good performance benchmarking-wise. Thank you.
spk11: Yeah, I think one way to think about it is, you know, we grew 10% in 2019. You know, we actually had an industry-leading position. We came into January in Feb, and we were low double digits. And then, you know, COVID hit and we hit to the trough. But when you look at the breadth of our clients, from the SMBs to the largest global enterprises, that diversity, both of client size and the vertical nature of our clients, we're not over-indexed to any one piece. And then we have a tremendous geographical, geographic diversity. So you put those, and then you put Clover growing at 30%, and we all recognize all SMBs aren't in business, and as Bob had said, you know, probably more late cycle. So we feel very good, and the Clover platform is getting tremendous investment in it. The e-com business, which is interesting, Our own direct business that we're winning those deals in, and that stack that we built, really is resonating. The global presence of it and the omni-channel presence. Us having both physical and electronic capability like e-comm, giving that omni-channel has really resonated well. In the client's office, and I think how distribution is unparalleled. If you think about even signing up 200 new bank merchants online, since the deal, the great vision Jeff had around this core processing integrating with bank merchant is showing up in the client's office in a tremendous way. And then you got Verizon Paychex Deluxe, so we're a partner of choice. And look, we're not at the growth rate we were pre-COVID, But we're achieving the growth rate we are because of the massive scale distribution and multi-channel capability and being a partner of choice. And so I think it showed up all three quarters of this year just, you know, relative to market conditions. I hope that answers it for you.
spk01: It does. Glad to hear it. Appreciate it, Frank. And, Jeff, all the best again. Thanks.
spk05: Thank you. Our next question comes from Tim Chieto from Credit Suisse. Your line is open.
spk10: Thank you for taking the question. My question is around the e-commerce business and fully appreciate that. You mentioned we'll dig into this a little bit more at the Investor Day, but the business did quite well in the recent Forrester Wave report, placing really just behind Stripe and Audion, which were listed as the leaders, and really alongside WorldPay. You guys were both named strong performers today. They gave you high scores in global acquiring and payouts and disbursement and a little bit weaker in APIs and architecture and updates and release cadence. I was just hoping you could dig into that ranking a little bit more and talk about the strengths and the weaknesses and some of the things maybe to improve some of the areas that weren't as strong, but with an overall really strong showing.
spk11: Yeah, thank you. I mean, look, I guess the best way to think about it is the competitive wins we have. And, you know, we still are building technology. We'll be building it forever. We're iterating always on it, and we're using the power of our data and information and all the other assets we have inside the house. I think the best way for us to cover it all is at Investor Day, where we walk you through the full stack, give you a full look at really where we sit in the market structure, and understand really how strong the e-com product is that we have and why we're winning the business that we're winning. So I think that would do it the most justice. But, you know, we feel good. We go head to head every day and, you know, we win more than we lose by a lot.
spk10: All right. Great. Thank you. And a quick follow-up, and I apologize if I missed it, but the 300 basis point headwind to margins in the acceptance segment last quarter from the timing of the assessment fees, when that was a, I assume, reverse to a tailwind in Q3, did you put a number on what that boost was to margins in Q3? And I'm assuming, to your point, we should see a little bit less of that boost in Q4.
spk09: Yeah, we didn't actually size it in the opening remarks. I would say we probably picked up about two-thirds of that in the third quarter.
spk10: Okay, really helpful. Okay, so roughly 200 basis points or so. All right, thank you so much. I appreciate you taking the questions.
spk05: Thank you. Thank you. Next, we have David Toggett from Evercore ISI. Your line is open.
spk13: Thank you. In the fourth quarter and in 2021, would you expect the gap between the mid-single-digit debit transaction growth and the 1% revenue growth in payment and network segment to start to close? I...
spk11: I wouldn't necessarily think about it that way, but if I think about, you know, remember, that has multiple businesses in it, right? So you also have businesses right this moment that are affected by foot traffic. You've got the prepaid, it's like gift. You have that telecheck business. and you have elements of RPL that are affected, that are negatively affected by COVID. If you look at sequentially, you know, that business improved 400 basis points. So I think, you know, we believe that our business is very strong. We love the network. We talked about, you know, all the characteristics of having a number three network. So I would think about it that, yeah, we're going to grow more. And, you know, I think we're going to talk, you know, that's why when we get to investor day, we'll take you through 21 and medium-term outlook. We feel very, very strong about the payment segment and all the innovation we have going on in the payment segment and why our clients on both the merchant and the issuer side are so motivated by it.
spk13: Got it. Looking at the 12 core wins in Q3 and that followed 17 core wins in Q2, for what percentage of those wins was payment capability a significant component of the decision for the client?
spk11: Yeah, I think the clients are looking at the holistic nature now, the integrated nature. We've moved to... which was always there, but even driving it further, how we deliver an integrated bundle and how that integrated bundle makes it easier for the client to service their client and, in fact, how we serve our client better. So they really are completely integrated. It would be very odd not to see that right now, given the fact that no one else offers the modern core. We have debit, credit, merchant solutions, and the digital suite. Those digital products are huge in this offering.
spk13: Got it. Quick final question on Zelle. Just going forward, since Fiserv was an early innovator in the P2P space, do you see Zelle becoming more of an ecosystem over time, as we've seen, let's say, with Venmo and Cash App? 100%.
spk11: We have a very long tale of opportunity in Zelle and then how we bring Zelle into the ecosystem and giving the assets within this company, how we utilize them across the payment spectrum. And I think you'll hear some of these things at Investor Day and see how we put this together with our bank partners to deliver them best in class payment capability. Thank you. All the best to you, Jeff. Thank you. Oh, that's Jeff. I answer for him a lot.
spk05: Thank you. Next, we have Matt O'Neill from Goldman Sachs. Your line is open.
spk04: Yeah, hi. Thanks, everybody, for taking my question tonight. I was just curious. When we think about the extremely impressive pace of cost synergy realization to date since the close of the deal, You understand that you've already increased the target once. We're quickly closing in on the original target that was sort of slated for five years after, as you guys pointed out, less than I think even a year and a half into the deal. So how do we think about that going forward? Are there longer-term incremental cost saves to be realized in the business vis-a-vis data center consolidation, incremental technology? et cetera, you know, or, you know, was that quantifiable synergy target, you know, raised to 1.2, you know, somewhat of an upper bound before getting back to, you know, a more normalized level of operating margin expansion, you know, following the complete integration of the businesses. And I understand I might be jumping the gun a bit on investor day, so I apologize in advance.
spk11: That's okay. That's good. You know, investor day would be part of the answer. But, you know, look, we have 1.2, you know, that's 1.2 billion of which we've actioned 875. So, you know, and you heard us talk about the effect of our synergies on the P&L next year. I think what you could go back to is think about both these companies' pre-merger were very good at operational effectiveness. There will be a moment where we will continue to drive operational effectiveness. It's part of the DNA, whether it's using you know, artificial intelligence, whether it's using RPA, you know, we continue to bring AI in through many of our service elements. Both companies had dimensions of it, and we've had the benefit to bring both together. The standard work of closing data centers and consolidating, which we've done more than 20 so far, that will wind down in Synergy, but we will always drive an operational effectiveness program. And you can count on us talking about that as a regular way of life. And we have a deep belief that we are able to improve service, improve quality, while in fact being more efficient. And I think it resonates in our client's office. They feel it, and it's a way that we'll run the company going forward.
spk04: Thanks, Frank. That's very helpful. I'll turn it back to you.
spk05: Thank you. Our next question is from Darren Peller from Wolf Research. Your line is open.
spk06: Hey, thanks, guys. So, you know, the top line result on Merchant was clearly stronger than expected. You know, I guess just on the FinTech side, to be clear, when we back out, it's fair to back out 300 basis points from term fees, right? And so that would have been a 3% growth rate. You guys have all these wins coming on from new business and DNA and some other platforms. If you could just talk through the tech positioning in that segment, since we get asked about that a fair amount. If you really see Pfizer taking share, given all the digital banking initiatives, and with these wins in bookings, can we see that actually show further acceleration from the, I guess, normalized 3% run rate?
spk11: Yeah, I mean, yeah. You got the issue of the periodic revenue, so we don't have to go through that again. But I do think what you see us is winning in the client's office. And I think a good way to think about it is we had a third-party consultant, FedFIS, come out and basically say, if you look at where we sit, we have 40% share in the you know, in the mid to lower end of the market, right, which we are very, very good at and committed to. Now, we've had bigger wins. You know, we just boarded, you know, NYCB, which is a huge client. But I think, you know, we view ourselves over the long haul as being a market share gainer, and I think the company was a market share gainer and is a market share gainer in many segments. I want to go back to how we're winning. We're winning because of the bundle. We're winning because of the integrated solution. We're winning because of the digital assets that come along with it. You heard Bob talking about the amount of architect installs we did and the amount of architect wins we're having, which all drive ultimately future revenue growth for us. So I think you're going to see a lot over the next few years. You'll see a lot on Investor Day of why these businesses are so strong in fintech.
spk06: All right, thanks. And then just quickly on the merchant side, look, that obviously surprised folks, up 6%. And I know you touched on Clover up 30% and Ecom up 25%. Can you just touch on international? How did that do? And maybe, you know, if there's anything on integrated payments you can comment on and Really, Frank, the bigger question is if you're seeing in the top of the funnel filled with new businesses enough to offset the kinds of attrition that some might be seeing in this kind of market. I guess, in other words, if you're taking market share from the banks or anyone else, despite some of the pandemic henwins. Thanks, guys.
spk11: Yeah, I mean, you know, look, international has a lot of countries in it, and every country is different. So, you know, I don't ever think about international. I always think about regions, and that's how we run it, and then down to countries. And, you know, different countries have different lockdown situations. But we're winning in the market outside the U.S., and we have, you know, strong growth in many cases and innovation both in the electronic space and in the physical space. And then if you look at Clover and you look at e-comm, what you see is that they have had tremendous investments in their technology. We've had big changes in go-to-market strategy fundamentally in the client's office. We're running a very direct business now across the enterprise, and we are taking share.
spk10: All right, thanks, guys.
spk05: Thank you. Next, we have Ashwin Srivikar from Citi. Your line is open.
spk07: Thanks. Hey, Jeff, Frank, Bob, congratulations on the quarter. Good to hear from all of you. So has Peter, not to have him left out. Jeff, it's been a pleasure. Hope to stay in touch. My first question is with regards to when we look at fintech, what are your bank clients telling you about their ability to incrementally invest in their business. In other words, as they pivot faster towards digital offerings, what you get from the digital offerings, is that going to be incrementally enough to have you accelerate meaningfully versus the traditional stuff that you might have done, like the other stuff that you might have done. And there's two parts to it as well. There's the sales part of it, which you talked about, but also the ramps. We hear mixed feedback about the pace of signed contracts actually ramping, so if you could comment on that as well.
spk11: You know, I can tell you what I hear once or twice a day from a bank CEO or somebody who runs a retail division of a financial institution. Digital transformation speed is one of the most important things that are going on. And so I think from a market structure standpoint, we feel that our digital assets coming together in the client's office and transforming them and bringing all the other, bringing the debit capability, bringing the credit capabilities. I mean, one of the great synergies that Jeff and I knew we had was the capability of bringing credit to smaller institutions and we're seeing it happen. You know, we're converting them every week. So I think it's a digital transformation on all products. It's bigger than just the core and fintech, but it's how do they integrate together. And to me, I don't think this is about banks deciding how much they're going to spend. It's banks figuring out with us how much they could transform how they operate with their clients, which is way more valuable for them to grow and compete than it is the cost of what they need to pay to us. And that's how they see it. This is no longer a luxury to digital transformation. It's a way of life. And so I think we are in a fabulous position. Our clients feel good about it. We have the resource availability. We've showed a fabulous conversion and implementation machine. And I think, you know, all my interactions with people who run financial institutions, which happen every day, is they're highly motivated to get as much as digital opportunity. And that's what I think about when you think about long-term growth in fintech.
spk09: Just a quick add-on. You know, this is an area that we're absolutely investing in digital matters, payments, risk, capabilities to bring to those financial institutions in our fintech space. And we continue to bring additional products and services and that's helping us win those cores as well as win digital users that you hear us talk about.
spk07: Got it. And you talked about your revenue and the economic assumptions in the near term for 4Q. What about the cost assumptions at what pace are you bringing costs back and the cost that you took out incrementally, just like many other companies, have you taken a shot yet at determining how many of those and what percent of those costs or what dollar value of those costs are sort of now in the permanent bucket versus temporary that will come back?
spk09: Yeah, absolutely. And I made comments about this up front. The margin improvement that we're seeing this year, including the 300 basis point expansion that we had in the third quarter, is actually driven by permanent costs out. It's one of the things that we actually talked about a year ago when we frequently got the question of how will you perform in an economic downturn, never anticipating that it would be driven by a pandemic and show up in 2020. And what we said was, look, if we're headed for an economic downturn in the near term, we will have at the time $900 million, now $1.2 billion worth of cost synergies. And we've been working since the beginning of the year, particularly as the pandemic hit, we saw the economic downturn coming to accelerate those cost synergies. And in fact, back in mid-March is when we announced the increase from $900 million the $1.2 billion. So the cost actions that we're taking are permanent cost actions. They are not in reaction to the COVID dynamic that you are seeing from a number of places. So we're not doing pay cuts or furloughs or things like that that naturally come back into the business. when the economy comes back. That's why we believe the margin improvement is sustainable and we have future opportunity ahead of us as we continue to drive out cost synergies and then move to operational effectiveness into the future.
spk07: Got it. Thank you, guys.
spk05: Thank you. And our final question comes from Dan Dolev from Mizuho. Your line is open.
spk08: Hey, thanks for taking my question. So, you know, really nice results in acceptance and definitely ahead of our expectations. Frank, I know this is something that might be for the analyst day, but can you maybe give us a very broad sense of sort of the run rates, organic run rates by segment heading into next year, you know, for the three segments, even ballpark numbers just to help us model would be great.
spk11: Yeah, I mean, look, we are probably, I don't know. It's good to talk to you, Dan. Thanks for being on the call. Of course. You know, we're probably like, I don't know, how many days out probably from Investor Day?
spk03: Probably about five, six weeks.
spk11: Five, six weeks. And we'll, you know, look, we're going to, in Investor Day, we're going to take you through the inside and out. Every business, the strength of our e-com business, how our segments operate, why our technology prowess is so strong, why we went in the client's office. We're going to talk to you about how long-established capital allocation strategy with share repurchase as primary benchmark for capital deployment. I apologize because you know how well I think of you guys, but this isn't the time to do segment guidance.
spk08: uh if i may but i'll answer another question if you got one yeah i actually had another question really quick one uh we did some work on the you know the b of a attrition can you maybe give us a very quick update on how it's trending i think last quarter about um the majority of the decline was due to covet and then you know about 10 million of that adjustment was due to uh B of A? How is that trending now in terms of that 20 million or so decline year over year in the B of A adjustment in terms of the split?
spk11: Yeah, I think, you know, if you COVID adjust, which is a little hard not to say these days, we find our attrition rate to be fundamentally at a outperform against the industry right now, given the stack of technology that we're providing for clients. So, you know, we feel really, really strong about what we're doing in the client's office and the product set and the stickiness of our clients.
spk08: Got it. Well, great quarter. Thanks, guys. Appreciate it.
spk11: Good to talk to you, Dan. I'll see you soon. Thank you. And look, I would like to take this moment to thank everyone who for joining the call. I do look forward to us having a great virtual investor day with you, and Bob and I look tremendously forward. I would like one more time to, you know, I mean, Jeffy Buki's been a legend running this company, and I think you all have been, you know, fortunate to follow him, and I'm fortunate to follow him in his footsteps. So you guys have a fabulous, fabulous night. Thank you.
spk05: Thank you all for participating in today's conference. You may disconnect your line and enjoy the rest
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