Fiserv, Inc.

Welcome to the FISER 2020 Fourth Quarter Earnings Conference Call. All participants will be in a listen-only mode until the question and answer session begins following the presentation. As a reminder, today's call is being recorded at this time. I would now like to turn the conference over to Peter Pullian, Senior Vice President of Investor Relations at FISER.

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

Thank you, Peter, and good afternoon, everyone. 2020 was unprecedented on many levels. We started the year strong, and after entering the pandemic, we continued investing heavily in technology, innovation, our client franchise, and our people. We've now entered 2021 with tremendous momentum. Your company performed very well given the circumstances across a number of facets of our business. A 22% sales growth for the year demonstrates that we're clearly winning in the client's office. We strengthened our client franchise, raising our client satisfaction scores across all measures. We invested in our people platform, resulting in top quartile engagement scores amongst companies in the Fortune 500. We made outstanding progress on integration. We accelerated and increased synergy execution while ramping our investment in innovative products and solutions. We delivered 12 percent adjusted earnings for share growth for the year, marking our 35th consecutive year of double-digit adjusted EPS growth. And we delivered record-free cash flow. We are exiting the year stronger than we entered, and we're well-positioned to capitalize on our momentum in 2021 and beyond. Let me provide a brief overview of our financial results in the quarter, and Bob will provide more detail later on the call. Total company internal revenue growth was 1%. That performance was led by a merchant acceptance segment, which was up 3%, a strong result in light of the global pandemic. Total company adjusted operating margin for the quarter was up 420 basis points, and adjusted earnings per share increased 16%. Free cash flow was again excellent, coming in at $1.1 billion in the quarter, bringing free cash flow for the full year to more than $3.6 billion. Out sales momentum remains quite strong. Fourth quarter sales were up 19% with terrific results in our credit processing, merchant acquiring, and account processing businesses. Sales for the full year were up an impressive 22%. The combination of robust sales and excellent pipeline into 2021 is evidence that our formula of bringing the strength and breadth of Pfizer's offerings together with our integrated sales model is extremely well received in the client's office and bodes well for the future. Now I'd like to update you on how our leading digital-enabled merchant business is performing. Through Clover, our leading SMB platform, Carrot, our enterprise omni-channel commerce solution, and Clover Connect, our rich ISV solution set, we continue to drive innovation, expand partnerships, and deliver leading solutions to our merchant clients. The momentum within the digital-enabled segments of the merchant business continues to be excellent. Clover's gross payment volume grew 25 percent to $34 billion in the quarter, or $135 billion annualized. We continue to extend the breadth of services to Clover merchants with innovative solutions that enhance convenience, especially in the digital segment. For example, We recently introduced invoicing capabilities that allow Clover merchants, especially those in the services vertical, to bill and collect payments from consumers electronically. Carrot saw continued growth with global e-commerce transactions up about 25% both in the quarter and for the full year. We saw omni-channel transactions such as order ahead and pick up in store grow more than 125% year over year with some of our best known quick service restaurant clients seeing excellent growth. We continue to capture market share winning 46 new enterprise level e-comm clients in the fourth quarter. including digital acquiring for Overstock.com and Wingstop in North America. In Europe, we signed Total, one of the largest energy providers in the world, to provide global digital payment acceptance services across more than 100 countries around the world. We also expanded employer relationships. delivering new products and services to key clients such as Lyft, where we are now powering disbursements to drivers. Clover Connect allows us to win new partnerships and drive growth in our partner solutions business. In the fourth quarter, we signed 44 new ISV partners, bringing us to 176 new ISVs signed for the year. Those new partner relationships are driving strong results in active merchants of 43% in Q4 and strong revenue growth in the ISV channel. For example, during the quarter, Fiserv signed a strategic partnership agreement with RFMS, the largest provider of software services for floor installation professionals. to provide omnichannel payment capabilities to their foreign customers. We also signed one of the largest providers of eye care products and technology to provide payment acceptance services to its more than 7,000 eye care professional customers. To further expand our value-added services for merchants, Fiserv and Citizens Financial Group have partnered to offer merchants a new suite of lending solutions at the point of sale through Citizens Pay, providing merchants with flexible payment options for customers to finance purchases at the point of sale. The program expands the partnership we've had with Citizens since 2015 to provide new financing options. and we expect it to drive adoption in the fast-growing buy now, pay later space. Moving to account processing business, we continue to expand the number of privileged relationships we have in our account processing business across financial institutions of all sizes and types. We signed 19 new core account processing clients in the quarter. including five on the DNA platform, bringing the total to 60 for the year with 25 on DNA. I'd like to highlight a few of our recent wins. Service First, a commercial bank with more than $11 billion in assets, signed on for a full suite of Fiserv products, including core processing, card services, and output solutions. Lakeside Bank, a full-service bank with more than $2 billion in assets, signed on for our core processing along with a robust suite of solutions that includes check-free, debit card services, and Zelle. I'm also pleased that just recently, Republic Bank has partnered with Fiserv for core processing plus a rich suite of digital and payment solutions. Republic is a $5 billion asset, full-service retail and commercial bank that was voted the number one bank in America for service by Forbes in 2020. All of these illustrative wins were competitive takeaways with a common characteristic. they selected a leading core platform plus multiple surround digital solutions to support their goals of sustained growth and superior customer service. I'm also pleased to note that we signed three more de novo banks in the quarter. In our payment and network segment, we continue to see robust sales activity, including several notable card production and personalization wins. We inked a new agreement with Capital One to add Capital One's more than 1,500 ATMs to Fiserv's MoneyPass ATM network, while offering their customers access to thousands of additional surcharge-free ATMs across the country. And I'm pleased to note that we expanded our long-standing partnership with PayPal, signing a deal in the quarter to integrate PayPal as a bill payment option for Fiserv billers, a notable synergy sale. With that, let me update you on our integration efforts. At Investor Day, we discussed how our integration continues to go extraordinarily well and our synergy execution is far ahead of original schedule. Through December 31st, we've already actioned over $1 billion of cost savings and are well on our way to fully action at $1.2 billion cost synergies by the end of this year. We entered 2021 with the majority of the integration work behind us and a focus on driving further growth and sustainable value in the years ahead. On the revenue side, we're pleased with the level of synergy sales, which accelerated in the fourth quarter. As of year end, we've already actioned $215 million in annualized revenue synergies, and our synergy sales pipeline is growing robustly, giving us confidence in meeting or exceeding our $600 million target. Our bank merchant program continues to be one of the larger synergy opportunity and offers financial institutions of all sizes and ability to offer their important merchant clients a modern suite of merchant acquiring capabilities including the innovative Clover platform, along with digital capabilities like loyalty programs and e-com solutions. In the fourth quarter, we added 45 new bank merchant clients, bringing the total to 231 new clients since the merger, with more than half of those wins competitive takeaways. The pipeline into 2021 remains robust with over 500 financial institutions, prompting our continued confidence in achieving this sizable revenue synergy opportunity. One final point on our digital initiatives before turning it over to Bob. As you've heard us discuss in the past, One of the most important strategic initiatives is to redefine the client experience by utilizing the latest technology to drive innovation and offer digital capabilities across our payments ecosystem. We've taken two important steps in the last 60 days in this area. First, we acquired OnDot Systems, the leading digital card services platform for financial institutions of all sizes. We're committed to deploying capital both organically and inorganically to develop the digital and data next-generational solutions that will drive growth long into the future. And second, further demonstrating our commitment to leadership in this area, we appointed a Chief Digital and Data Officer to lead these important strategic growth initiatives across all websites there. Now let me pass the discussion to Bob for more detail on the financial results.

Thank you, Frank, and good afternoon, everyone. We had a strong fourth quarter in light of continued pressure from the pandemic across the globe. Total company internal revenue growth was 1% in the quarter, led by the merchant acceptance segment, which grew 3%. For the full year, internal revenue was flat versus last year. in line with our expectation that we communicated during our last earnings call. Growth from revenue synergies, which were $46 million in the quarter and $160 million for the year, helped mitigate the impact from continued pressure related to the pandemic. During our last earnings call, we shared that we saw transaction growth rates stabilize at or around July levels. In the fourth quarter, our transaction and payment value growth rates remained relatively in line with what we saw in the third quarter. Fourth quarter adjusted operating income was up a strong 10% to $1.3 billion, and adjusted operating margin increased by a very strong 420 basis points to 35.6%, driven by a rigorous cost synergy execution, which produced $177 million of incremental cost synergies in the quarter, as well as strong operating performance. For the full year, adjusted operating income increased by 2%, to $4.4 billion, and adjusted operating margin increased 170 basis points to 31.4%, benefiting from $581 million of incremental cost synergies in the year and excellent operational performance. The fact that we improved our margin by 170 basis points through the worst economic cycle in memory is a strong validation of the robust quality and resilience of our business. And since most of the cost actions in 2020 were focused on permanent synergy achievement, not short-term cost savings, we believe our adjusted operating margin improvements are sustainable and expect continued strong improvements in 2021 and beyond. Fourth quarter adjusted earnings per share increased 16% to $1.30 compared to $1.12 in the prior year as adjusted for divestitures. Adjusted earnings per share for the full year increased 12% to $4.42 ahead of our prior expectations. Free cash flow in the quarter was once again very strong at $1.1 billion. For the full year, free cash flow increased 11% to more than $3.6 billion. Free cash flow conversion was also very strong at 119% for the fourth quarter and 121% for the full year. Turning to each of the segments, internal revenue growth in the merchant acceptance segment was 3% in the quarter, an impressive result given the headwinds faced from an economy that was hampered by the pandemic. Our results were once again driven by strong performances in our portfolio SMB clients supported by our Clover platform, enterprise clients supported by Carrot, and another strong quarter from our ISV business. For the full year, internal revenue is in line with the prior year. As Frank discussed, our Clover GPV continues to grow very nicely, up 25% in the quarter, despite the difficult macroeconomic environment for SMBs. We feel great about the strength of that portfolio in 2020, and even better about its performance in the months and quarters ahead as we get beyond the pandemic. Our integrated payments, or ISV business, continues to perform extremely well with continued strong revenue growth in the quarter. As we discussed at our investor day, we recently rolled out Clover Connect, a Clover integrated solution for ISVs. We believe that this solution will further extend our differentiation for ISVs and their merchant customers and continue to drive excellent growth in the future. Adjusted operating income in the aerospace, excuse me, in the acceptance segment increased 8% to $443 million in the quarter. Adjusted operating margin was up 280 basis points in the quarter to 30.7% and increased 150 basis points sequentially. On our Q2 earnings call, after reporting our COVID impacted low point for our acceptance financial results, we said the segment's adjusted operating margin was expected to improve by more than 800 basis points in the second half of 2020 compared to the first half. We're pleased to achieve that with our second half acceptance margin of nearly 1,000 basis points, bringing our full year margin to 25.4%. The FinTech segment, internal revenue declined 1% in the fourth quarter compared to the prior year, as growth in high-quality recurring revenue was again offset by much lower periodic revenue, most prominently termination fees, which created approximately 350 basis points of headwind to internal revenue growth in the quarter. For the full year, internal revenue was in line with the prior year. The shift towards digital banking took a strong step forward in 2020 with lockdowns leading consumers and businesses alike to consider new ways of banking and we continue to see strong demand for a broad array of digital solutions as a result. For example, total mobile subscribers across our leading digital platforms, Mobility and Architect, grew 15% in a quarter. Architect implementations continue at a strong pace. In fact, during the second half of the year, we completed more architect implementations than in all of 2019, an excellent indicator for future growth. Fiserv offerings, such as Remote Data Capture, have allowed our FI clients to offer safe, convenient, and fast self-service check deposits for their consumer and commercial clients while improving efficiency in their own results. Mobile deposits in Q4 grew 33% over prior year and were up more than 30% for the full year, while self-service ATM deposits grew more than 50% in both the quarter and full year. Adjusted operating income was up a strong 14% in the quarter to $271 million and grew 12% in the full year to $992 million. Adjusted operating margin in the segment increased a robust 590 basis points in the quarter to 36.5% on a combination of growth in processing revenue, operational effectiveness benefits, and cost synergies. For the year, adjusted operating margin was up an impressive 510 basis points to 34.2% as the benefits of growth in processing revenue in our highly-scaled business and the combination of both synergy and productivity gains more than offset the impact from lower periodic revenue. The payments and network segment saw internal revenue decline 1% in the fourth quarter compared to the prior year, as growth in our international issuer, card services, and output solutions businesses, including the benefit of revenue synergies, was more than offset by COVID-driven impacts elsewhere in this segment. Internal revenue for the year was in line with the prior year. Debit transactions continue to show very stable levels of growth in the mid single digit range. We've seen this consistent mid to high single digit transaction growth since June and remain confident that this level is sustainable going forward. We continue to see excellent transaction growth in solutions such as account to account and P2P. Zelle transactions in the quarter more than doubled compared to prior year and were up 18% sequentially. The number of clients live on Zelle has grown significantly this year, nearly tripling our client count compared to a year ago, and we expect continued strong growth in 2021 and beyond. Adjusted operating income for the segment was strong, up 5% to $660 million in the quarter, and it was up 6% to $2.4 billion for the year. Adjusted operating margin was up 300 basis points to 46.4% in the quarter, and it was up 280 basis points to 43.3% for the year. The positive impact of both revenue and cost synergies drove our solid adjusted operating income results both in the quarter and the full year. The adjusted corporate operating loss was $87 million in the fourth quarter and $404 million for the full year, a 5% improvement over last year. This improvement was driven by a combination of cost synergies and productivity as well as lower variable compensation, partially offset by incremental COVID costs. The adjusted effective tax rate in the quarter was 21.7% and 20.9% for the full year, down slightly from the prior year. For 2021, we expect a full year adjusted effective tax rate fairly consistent with the 2020 rate, in the range of 21 to 22%. However, we do expect some variability in the rates by quarter given different comparison points and the timing of discrete tax items. As such, we expect our Q1 2021 effective tax rate will be higher than Q1 last year. As previously communicated, our capital allocation priority for the second half of the year was to focus primarily on debt repayment. We repaid $740 million of debt in the quarter and $1.8 billion in the year. We also repurchased 1.8 million shares of stock for $200 million in the fourth quarter, bringing total capital allocated to share repurchase to $1.6 billion for the full year. We have 65.7 million shares authorized for repurchase as of December 31st. In rounding out our top capital allocation priorities, as Frank mentioned earlier, in December we announced the acquisition of the ONDOT systems and closed that acquisition in January. Total debt outstanding was $20.7 billion at December 31st, and debt to adjusted EBITDA dropped to 3.6 times. We are well on track to achieve our targeted leverage in the second half of 2021 as we anticipate both strong adjusted EBITDA growth and some further debt repayment this year. As you heard us emphasize throughout our investor day in December, we are fully committed to our long-standing capital strategy, which includes maintaining a strong balance sheet, organic investment in innovative solutions, and high-value acquisitions like Condot. Importantly, share repurchase remains our benchmark for capital deployment. With that, let me turn the call back to Frank.

Thanks, Bob. We expect 2021 internal revenue growth to be 8% to 12% for the full year. This is modestly better at the bottom end of the range than our preliminary outlook we shared at our recent investor day. Given our current view of economic conditions, including the second stimulus in late December and the prospect of a third stimulus package later this quarter, the significant growth rate acceleration relative to 2020 is driven by the multi-pronged impacts of our current expectations for an improving global economy. the overall continuing strength in our global merchant business, the cumulative impact of sales and implementation, and continued achievement of in-year revenue synergies. We expect 2021 adjusted earnings per share in the range of $5.30 to $5.50, which is 5 cents above the range we provided at our investor day in December. The improvement is driven by the stronger exit rate from 2020 and the benefit of stimulus programs in the U.S. We expect adjusted operating margin to expand by at least 250 basis points and free cash flow conversion will be greater than 108% for the year. Our internal revenue and adjusted ETS growth rate assumptions are grounded in our internal assumptions of when and how the economy will recover from the pandemic in 2021. The midpoint of our guidance generally assumes improvement of the pandemic and increased vaccinations throughout the first half of the year, leading to economic recovery in the second half. There are several factors that we believe will impact the quarterly cadence of the year over year growth rates, largely driven by lapping out 2020 performance, which included pre-pandemic performance for much of the first quarter, the depth of the impact in Q2, and then the start of improvement in the second half. Quarterly results may vary, including rates that may fall outside of the full year guidance range, both on the low and high end for a particular quarter. We expect Q1 to be our toughest comparison and Q2 the most favorable comparison. then see more normalized comparisons for the second half of the year. Throughout this past year, every buy-serve associate was challenged to work differently, to reimagine how we do our jobs to serve our clients, who in turn were learning how to serve their customers. Faced with these challenges, I'm proud of our results. Across a number of measures, 2020 was a successful year. Our client satisfaction scores improved measurably during a time when our clients needed us the most. We saw our employee engagement scores improve even as we executed against a complex integration and through a pandemic. We meaningfully increased our synergy targets and accelerated the time to achieve those targets, and then progressed the integration of FIRST data to the verge of completion in 2021. And at the end of the day, your company achieved its 35th consecutive year of double-digit adjusted EPS growth. Among the most important initiatives your company undertook was the creation of our Forward Together Plan to be a force for positive change in our communities. Our Forward Together Plan is a four-part commitment to support and empower underrepresented associates, business owners, and not-for-profits. A pillar of our Forward Together Plan, the Back to Business program, was launched last summer. As part of Back to Business, we committed to invest $10 million to support black and minority owned business owners and entrepreneurs. We are well into that monetary commitment and are now meaningfully increasing it to $50 million. As a further indication of our commitment to continued progress in this important initiative, We recently appointed a senior executive as head of corporate social responsibility to lead these efforts for Fiserv as well as oversee sustainability efforts for the organization. Fiserv was once again named a world's most admired company for the eighth consecutive year with excellent scores in people management, social responsibility, and a host of other categories. This is well-deserved recognition of the more than 40,000 hardworking and caring Fiserv associates around the world. I will close by thanking all of them for working relentlessly to serve our clients and you, our shareholders. With that, operator, let's open the line for questions.

Thank you. We would now like to open the phone lines for any 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, you may press star 2. Our first question is from Lisa Ellis from Moffett Nathanson. Your line is open.

Hey, good afternoon. Good stuff, guys. First question for me is on carrots. You called out 46 new enterprise wins in merchant acceptance this quarter. Can you describe how the launch of Carrot is improving your value proposition in the enterprise space and maybe give some color on some of the customer feedback you're getting on that offering?

Well, I think the strategic point around Carrot is that we've integrated, for ease of access, global aids. So although it could be utilized in many currencies in many countries, its multinational capabilities is resonating very, very well in the client's office. And that ease of access, its ability to optimize acceptance is really what's driving a very high win rate there. And the engineering underneath it was bringing to a single platform a single instance and ability to execute globally. And you've heard us talk about through the course of the year, you know, the hundreds of wins that we've had institutionally. And those are inactive big names that are, you know, leaning into the commerce and economy. It's resonated very well in the client's office. A lot of work done by the team to build it out and get it to be the platform that's winning in the market.

Good stuff. My follow-up quick one is for Bob. Could you just give a little color on the segment level outlooks for 2021 and also what type of transaction growth or unit growth you're anticipating or is embedded in your outlook? Thank you.

Sure, Lisa. We don't give specific guidance by our individual segments, but let me try to give you a little bit of color to get you kind of directionally. Obviously, if you look at our merchant acceptance segment, it represents about 40% of the overall company revenue. We had given during investor day an expectation of midterm or medium-term growth of about 9% to 12%. We certainly expect in 2021 to be above even the high end of that as we rebound slash recover from what has certainly been a pretty difficult year and in particular in second quarter of 2020. Frank laid out a little bit of some of the key assumptions that we've got in our overall revenue in EPS growth for that matter. And it certainly plays a key part in the improvement accelerated growth in the merchant segment things like having a large number of folks vaccinated seeing some of the restrictions that are in place particularly in Europe but even across the United States being lifted and seeing a recovery a general economic recovery in the second half of the year if you look at the FinTech segment very much impacted this year by periodic revenue. We've seen that really across the year in particular in the second half of the year, but even a little bit in the first half and overall impact this year. As we look to 2021, we see some of that persisting in Q1 and a bit into the second quarter. But by the time we get to the second half of the year, we see that headwind subsiding such that we would expect the FinTech segment, which has medium-term outlook of about 4% to 6% to be in that range for the full year of 2021. And we're not counting on a recovery or a rebound of periodic revenue slash termination fees. It's really that we lapped the pretty significant decline we've had over the last several quarters, and it doesn't continue. And so we'll see benefit really in the second half of 2021. And then the final segment, the payments segment, again, about the other 40% of the overall company. Medium-term guidance here was 5% to 8%. I would expect this segment to probably be at the upper end of that range in 2021 as we see transaction growth improve. kind of post-COVID, in particular in our bill pay business, some of our prepays. And, of course, as you know, we have a leading position in retail private label. And as those retailers improve, again, particularly in the second half of the year, we'll see some improvement. And, of course, you've certainly heard us talk about some very significant wins in our issue of processing business in this segment. The very large ones that we talked about during the last earnings call, Really won't provide much lift in 2021, but there are quite a few below those top three. It don't take quite as long to implement, and you'll see some of those come on into 2021 and, again, provide some nice growth into that business, into that segment. And the last driver of that business I'd probably point to is Zelle. As I mentioned on my prepared remarks, nearly a tripling number of FIs on Zelle Zelf through Fiserv. And not only do we see that continuing to grow, but also more and more consumers choosing a bank-centric P2P network and seeing more transaction volume. So that gives us some confidence that we'll be kind of in the upper end of the midterm range of 5% to 8%. And the last thing I'd point, Lisa, is we're going to see some probably unique variation in the growth rates by quarter. Again, Frank talked a little bit about this in his prepared remarks. Q1, as you recall, in 2020 was essentially COVID-free for call it roughly 10 of the 13 weeks of the first quarter. And we had had a very strong first quarter until COVID hit really at the latter part of March and obviously very significantly in Q2. So I would expect Q1 to not only be our lowest point in the quarter in terms of growth rate year over year, but actually probably be below the guidance range with a rebound and the opposite take place in second quarter when you have much easier comps will be on the above the upper end of our guidance range such that by the time we exit the first half of the year, we're trading in that, you know, within the overall internal revenue growth and EPS guidance range on the first half basis and be set nicely for the second half.

Fantastic, Keller. Thank you very much.

Thank you. Our next question comes from Dave Koning from Baird. Your line is open. Yeah.

Hey, guys. Great year. Great year. Yeah. Yeah. I guess, first of all, I guess sort of a similar question just on margin expansion by segment. I know you don't give a lot of color on this, but the merchant segment was the one that was actually still down year over year for margins in 2020, where the other two nicely expanded. So should we expect as revenues come back in that segment for that one, probably to be the most benefited by margin expansion than the other two, you know, closer to the guidance range?

Yeah, you're probably not too far off in that thinking. You hit the issue right on the head. Obviously, we had an extremely difficult second quarter, both in terms of revenue and margin in that segment. Really nice recovery sequentially in the second half of the year. And so we head into 2021 in much better position than we did in the first half. So we'll see some nice improvement. Again, you'll get the benefit of the comparison point in second quarter of 2021. Overall, I would say when we close the books, you know, 12 months from now we're on this call, I would expect margin expansion in all three segments and probably a bigger lift out of the merchant acceptance business.

Gotcha. Thanks. And then just to follow up, one thing you don't talk a lot about is the equity income line. It's about 5% of total profits, but I would imagine that got hit pretty hard this year, just the bank JVs and stuff in, in might correlate more with the merchant segment. So it'd probably be up more than just the average business. I don't know if that's a good way to think about it, but I just wonder if there's any context around the equity income line.

No, actually I think that's exactly the way to think about it. And you're right. That's the largest portion of that is the, merchant joint ventures, and as we see the merchant business overall recover, I'd expect to see the joint ventures participate in that and help with that equity line. Awesome. Thanks, guys.

Thank you, David.

Thank you. Our next question comes from Andrew Jeffrey from Truist Securities. Your line is open.

Hi. Good afternoon. Appreciate you taking the question. My question is really around... a couple of, I guess, tech-enabled initiatives generally in merchant. I'm thinking about e-com and the enterprise e-com business and also Omni generally. Great KPIs in terms of volume. Bob, can you speak to yield contribution and also maybe even Clover? I assume these are higher-yielding transactions, and given the growth rates should blend up,

acceptance organic revenue growth all things considered I'm just trying to think about order of magnitude and impact from your tech enabled business generally yeah I certainly the you're on the right track clover with absolutely heavy exposure on SMBs generally has higher yield and in general tech enabled does certainly the thing to consider though is that was a big element of the growth in 2020 and so you don't necessarily see a massive acceleration of that because that was actually one of the things that helped the overall growth rate of the of the merchant segment as small businesses and retail broadly shut down again particularly in the second quarter people move to tech enabled e-commerce type transactions, and you heard us report very strong growth throughout the year in overall Clover volume. We'll obviously see that continue, but as a percent of the overall share of activity within the merchant segment, you won't necessarily see a big change overall. So the margin improvement really is driven by continued productivity, scale business benefit as well as synergy benefits.

Okay. That's helpful. Thanks. And just as a quick follow-up, you know, Frank, you called out the bank channel, which is a part of your distribution network that I know you know very well and spent a lot of time on. Lots of new banks. Do you feel like you can get adequate productivity out of that channel long-term, especially as it relates to SMB, merchant acquiring or acceptances?

Yeah, I think the answer is 100% yes. And I would think about it in multiple ways. One, I would think about the bank channel to itself. The other, I think about distribution partners also. You've seen us announce Verizon, Paychex, Deluxe. So these are contact points where, in fact, they're touching SMBs, and they think they'll enhance their relationship with the SMB through a Clover offering. I mean, you see Verizon packaging us in their offering now. So I like to take a broader perspective on the partnership, and then we could drop down to what we're doing with our bank partners. And because we have these privileged relationships in the core, the ability to bring it feels very, very good and very strong. Will it have the same margin as our fabulous carrot offering? The answer would be no. But if you think about our ability to deliver and grow merchants throughout the country, it's very, very high and very powerful. In some of the cases, you know, it's just penetrating their base. It gives them a new offering into their base. Our ability to do it digitally is much higher than it would have been two or three years ago. So completely accretive. And it's fundamentally our responsibility with our bank partners to do this, to bring them the possibility. And it's actually a revenue generator for them also. So from that perspective, it's good for our partnerships. It deepens it. We're building integrated stacks. that caused them to have a better relationship with their client also. Thanks a lot.

Thank you. Our next question comes from Darren Peller from Wolf Research. Your line is open.

All right. Hey, guys. Thanks. You know, I want to circle back to Clover for a minute because, you know, we've done a lot of work on it recently. Again, it was up 25%, as you guys said. And combined with other KPIs, like the Omni KPI, you know, I think 100%. it would seem that your market share position is up year over year. And so I'm curious if you can give us a sense of the, like the, the growth, if there was growth in the number of mids or the number of the merchant count year over year, when you couple that and the SMB side together with the internet, with the, you know, both domestic international and even the enterprise side sounded strong. So really just more than volume growth and revenue growth. I'd be curious to hear anything you can share about number of merchants and the experience in the SMB side versus enterprise.

Well, why don't I talk to you a little bit about the strategy behind it and why that growth is happening. And it really is about market share gains. It's market share gains in the ISV space. It's market share gains in the e-com space. And then it's market share gains on the SMB. And really, Clover has played a significant role in that. Back to the question about bank partnerships and bank distributions, that's one avenue for us. What we've seen is growth in all of those. If you think about what's happened and the question one might ask is, how has your business performed as it has? It's because of the fabulous client base we have in general. And then secondarily, us having invested heavily before we got here, actually in 17, 18, then through 19, we had a good, strong industry-leading growth rate through 19. And then the combination of the two companies allowed us to be able to grow all facets of this. And I would say, you know, when you look at it, it's growth across all of it, across SMB in every manner, shape, and form, across ISVs as, you know, we didn't have a big position and we continue to grow that out and that'll continue that pipeline strong. And then bringing this integrated carrot offering to our large institutional clients. So it is about market share gains.

Okay. And then just my quick follow-up is on the capital allocation. I know we left your investor day looking forward to maybe $5 billion potential or even $5 to $6 billion of potential capital allocation potential per year. When we think about your appetite right now, Frank or Bob, when we think about coming out of this blackout period pre-earnings, should we expect that you guys see the stock as undervalued like many of your investors do, that you'd be proactive about it now going forward from here. And just to remind us, is that right, the right way to think about it where there's maybe as much as $4 billion to $6 billion or $5 billion to $6 billion of potential? And maybe just between buybacks and deleveraging. Thanks.

Yeah, Darren. I think the $5 billion to $6 billion I assume you're getting, we during Investor Day talked about $30 billion of capital available over the next five years. We certainly expect very good free cash flow into 2021. We had a great 2020 and see that continuing this year. And certainly we continue to focus on capital deployment through the eyes or through the lens of share repurchase. We certainly would tell you that where the share price is today, we're a buyer. And I don't think you find many CFOs that tell you otherwise, but, you know, We're still trading below 52-week high, and given where we see 2021's results and where valuations have moved, we think there's a real opportunity. And so you'll see us continue to be active. We pretty much are in the market every quarter. I think we have been for the five years I've been here, other than when we suspended for a couple quarters post-announcing the merger with First Data, and we'll continue to do that. We do have some debt to pay down. with the balance of this year. But I'm a big believer of, quote, the genius of the end. And like we did in 2020, we'll pay down some debt, we'll buy back some shares, and we'll do some acquisitions. And we'll continue to do that aggressively across the company. Frank, you had anything?

No, I think, you know, as we laid out an investor day, and even if you look at what we've done over the past year and change, you see a very balanced approach. We'll buy back shares. we'll pay down debt, and we'll strategically acquire assets.

Got it. Thanks, guys. Thanks, Darren.

Thank you. Our next question comes from Jeff Cantwell from Guggenheim Securities. Your line is open.

Hi, good afternoon, and thanks for taking my question. I want to ask you about the OnDot acquisition. Can you talk a little bit about the fit there, now that OnDot is part of the team? It sounds like it's a very nice business. How's some good scale to it? It sounds like it's a modern platform, so it seems like it's going to be a nice addition. Can you tell us a little bit more about that? And then how can OnBot be enhanced, if that's the right word for it, by becoming part of Fiserv full-time? In other words, what are the future synergies or the future opportunities you see there on a combined basis now that it's onboard? Any color there would be great. Thanks very much.

Yeah, first of all, We knew OnDot very well for a long time, had a great relationship, and one of the founders actually came over to our company earlier. And then we had always had a deep relationship there with management. So I'd consider this a company we knew very well, and we could strategically think about how to integrate platforms You know, I think we always see it as the leading card enablement platform for virtual access. But when you bring it inside to the company, our excitement and the founders' excitements are that we can do something much larger than they could have done on their own. And if you think about the Clover... acquisition and what it turned into. You know, there's great similarities. Of course, this is a much larger enterprise. We definitely increased our digital DNA inside the company. It'll be a compliment to Sunnyvale, a large Sunnyvale presence with Clover. And then with us setting up a chief digital and data officer, The ability to ultimately take debit, credit, core banking, and give our financial institutions the opportunity to have one click for their client to get to all of that data is really where we're taking it. We've already inked FirstWin as the new company, a large name institution. So we feel great about it. We knew it well, so it was easy to integrate. And, you know, we are deep in integration meetings weekly and driving the top line. And I think you could look forward to us having large growth in digital presence through its acquisition.

Okay. I appreciate the color. I'm excited to see where you take it. Thanks very much. Thanks.

Thank you. Our next question comes from David Toga from Evercore ISI. Your line is open.

Thank you. Looking at the $500 million innovation fund you announced at the time of acquiring First Data, could you address how much of that innovation spending you expect to occur this year, what's built into the adjusted operating margin expansion target of at least 250 basis points, And then are there any callouts on specific new product innovations that we should watch out for in the next 12 months?

Well, you know, thank you for that. And so we had talked about a year ago or so that we had created a number of working groups within the company to begin the generation of where these next ideas for innovation would come. And the output product of that actually was the ending up of creating this chief digital and data officer within the company and that would have a structure to allow us to deploy the $500 million. Of course, we already have begun that. and begin to do it in a way that will accelerate growth as we go forward. Now, if you go back to yesterday, we had talked about the $500 million was in our outlook that we had given you, but there was nothing on the top line for it, and we were already spending it. So I think what you can find today is a set of initiatives, a series of – a project being deployed, a structure built inside the company with a chief digital and data officer to be able to help it move forward in a manner that is across the whole company. And so I would think as we get into the second half of this year and you move into next year, you'll start seeing these digital and data initiatives which ultimately will roll into the P&L on the top. OnDot isn't viewed as part of the 500, but the capability it brings will allow us to move at a faster rate on many of the digital and data innovations. What I say, connecting the white space between the four pillars of our business to allow us to unlock opportunity for our clients. Bob, anything you want to add?

Yeah, Dave, in terms of spending this year, certainly fully encompassed in our overall guidance and gets us still the 20% to 24% EPS growth and at least 250 basis point margin improvement. There will be some incremental spend this year, Of course, recall, you know, this is a fair amount of development, and so a portion of this gets capitalized, thrown on the balance sheet, and comes over time. And so it isn't necessarily a big increase year over year and, again, certainly fully encompassed in our overall guidance.

Thank you very much.

Thank you. And our last question comes from Tin Jing Wong from J.P. Morgan. Your line is open.

Thank you so much. Just one question on new sales. I know up 19, I think, in the fourth quarter, 22 for the year. I'm curious how you feel about the new sales outlook or what kind of targets you set internally for fiscal 21. Do you feel good about compounding at that similar level?

Yeah, I mean, we had talked about during the course of last year and through Investor Day that, you know, We see ourselves, you know, being close to a 20% sales growth company, you know, in terms of institutional sales because that's what we're really talking about there. So, and, you know, January's off to a really good start. So I feel really good about January. So, you know, where I got to start thinking about it. And the pipeline of opportunities is robust. So, I mean, it is... a very well-received, integrated model in the client's office. And then with our client stats going up, I think that bodes very well. Our employee engagement going up inside the company while we protected them in this very tough time. So I think we feel very strong and good about what's going to happen during the course of this year around that.

Excellent. Thank you.

Well, I'd like to thank everybody for joining us this afternoon. We tremendously appreciate your support. If you have any further questions, please don't hesitate to contact us and have a great evening. Thank you for your time.

Thank you all for participating in today's conference. You may disconnect your line and enjoy the rest of your day.