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spk10: Welcome to the FISERV 2021 Third Quarter Earnings Conference Call. All participants will be in a listen-only mode until the question and answer session begins following the presentation. As a reminder, today's call is being recorded. At this time, I will turn the call over to Shubh Mukherjee, Senior Vice President of Investor Relations at FISERV.
spk12: Thank you, and good morning. With me on the call today are Frank Bezignano, 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 FISERP.com. Please refer to these materials for an explanation of the non-GAAP financial measures discussed in this call, along with the reconciliation of those measures to the nearest applicable GAAP measure. Unless otherwise stated, performance references are year-over-year comparisons. Our remarks today will include forward-looking statements about, among other matters, expected operating and financial results and strategic initiatives. Forward-looking statements may differ materially from actual results and are subject to a number of risks and uncertainties. You should refer to our earnings release for a discussion of these risk factors. Before I turn the call over to Frank, please note With going forward, we will be using the term organic constant currency revenue to replace internal revenue. There is no change in how we calculate this measure, just a change in terminology. And now, over to Frank.
spk06: Thank you, Shu.
spk07: And thank you all for listening in as we share our results for the quarter and highlight the progress against our growth agenda. As you know, We serve as the operating system for commerce and money movement across our client base of banks, fintechs, and businesses, ranging from SMVs to mid-market to large enterprises. We help our clients grow by extending our platform to capture new services and new money flows. We are also seeing real benefits from the ongoing economic recovery. especially here in the U.S. We remain optimistic and continue to invest in growth. Turning to our performance, we had a strong third quarter with total company adjusted revenue of 10%. Adjusted operating margin expanded 130 basis points to 34.2%. Adjusted EPS grew 23%. to $1.47. We attained our highest quarter of action revenue synergies of $95 million. To date, we have achieved $420 million of action revenue synergies, 70% of the increased commitment of $600 million for the five-year period following the merger. As we invested to accelerate growth, Free cash flow came in at $572 million for the quarter and $2.3 billion year-to-date. Free cash flow was driven by a combination of the following. First, increased capital expenditure in the areas of technology, innovation hubs, and the integration of newly acquired capabilities. Second, the working capital increase driven by revenue growth. And finally, reduced benefit of unmet operating loss carry forwards. On the back of our results and the strength of our investments, we are tightening our outlook for organic revenue growth and raising the lower end of our outlook for adjusted EPS. We now expect organic constant currency growth of 11% for the full year and adjusted earnings per share between $5.55 and $5.60. This raises the lower end of our prior adjusted earnings per share outlook by 5 cents, a growth of 26% to 27% over last year. Turning to the business segments, let me start with merchant acceptance. We continue to grow beyond the buy button by investing in world-class omni-channel capabilities, solutioning around vertical and horizontal business needs, and capturing new flows. We achieve all of this throughout three growth platforms, Clover for small business, Clover Connect for ISV, and Carrot for enterprises. Driving into our performance, Merchant acceptance led the quarter, posting organic revenue growth of 18% year-over-year, with North America and international largely in line with the segment average for the quarter. Our global merchant locations have been growing at a healthy clip, up 10% in the quarter on a year-over-year basis, driven by positive net new merchants across all regions. The quarter was driven by growth in global volume and transactions of 15% and 12% respectively. North America volume and transactions grew 14% and 9% respectively, led by strength in travel, restaurants, and petro. Excluding the impact of the loss of a large processing client through one of our GEDs, North America volume and transaction growth in the quarter would have been 19% and 14%, respectively. Next, let's go deeper by platform, starting with Clover. GPV grew 47% year-over-year, or a 39% CAGR, since 2019 to $196 billion on an annualized basis. In the SMB space, we remain focused in building vertical-specific solutions, offering an integrated suite of products that help merchants generate revenue and run their business. As part of our vertical strategy, we entered into an agreement to acquire BentoBox, a digital marketing and commerce platform focused on driving growth and engagement for restaurants. This transaction will expand out Clover dining solutions and industry leading commerce and business management capabilities, which already enable nearly 200,000 restaurants of all sizes to deliver unique and differentiating dining experience from quick and casual to fine dining. We expect the acquisition to close in the fourth quarter, subject to regulatory approval and customary closing conditions. Additionally, we continue to focus on building value-added services for the Clover platform, including Clover Capital, Clover Dining, Clover Order Ahead, and Clover Inventory, as well as our unique Clover App Marketplace. On the enterprise side, Carrot, our enterprise omnichannel platform, continued its strong momentum in the third quarter. with new wins, product innovation, and a gradual recovery in cross-border commerce. Global e-commerce volume grew unabated in the quarter, driven by cross-border and international growth of 25% on a year-over-year basis, as volumes recovered from the pandemic lows, with secular tailwinds expected to sustain future momentum. Omni-channel transactions such as order ahead and buy online pickup in-store grew 35% in the quarter. We had notable e-commerce wins in the quarter, including Johnson & Johnson and Caesars Entertainment. We also expanded our existing global acquiring relationship with Microsoft to be their provider for network tokens. In the quarter, we added PayPal and Venmo as digital wallet payout options to our global-to-surface platform, cementing Carrot as a leader in digital payouts, with over $10 billion processed year-to-date, an increase of 230% on a year-over-year basis. Additionally, we are building a new partnership with VAC, a leading crypto and consumer wallet solution provider. Bakkt will utilize BuyServe's industry-leading funds-in, funds-out solution, and together, BuyServe and Bakkt will develop new crypto use cases for both merchant and FII clients. Moving to Clover Connect, the strength of our ISV-focused offering shows through the third quarter. with ISV volume of 71% year-over-year. Clover Connect allows us to bring together two strong five-serve assets, the world-class hardware and software platform of Clover, along with the best-in-class partner management and operational tool of Copilot, which gives ISVs a unique view into all of the merchant's activities ranging from merchant application processing to support. Our commitment to being the best partner for ISVs is resonating. We signed 47 new ISVs in the third quarter, bringing our total wins to 142 year-to-date. We continue signing up ISVs that are new to payments and winning against the competition. This quarter, More than half of our wins were competitive takeaways. Before I address our international progress, I'd like to highlight another focus area in our merchant business, point of sale lending. We are leveraging our position as the operating platform for businesses small, medium, or large to offer a range of buy now, pay later options. We are expanding our referral relationships while simplifying the merchant experience through integrations with our platforms like Clover. We currently have referral agreements with Zip, Citizens Pay, and Braid. We're also working with our FI clients to bring their BNPL offerings to market. For example, we are partnering with St. Bernard to offer buy now, pay later solutions on our card processing platform, Optus. Synchronize also recently announced acceptance of private label cards through Clover. On our investor day, we talked to you about our merchant acceptance growth strategy for international. We remain focused on growing our global market presence with world-class bank partners and through our direct channels, all while leveraging the strength of common platforms and connections. The global expansion of Clover platform into APAC, Latin America, and Amir are all currently in flight. We're on track to roll out Clover in India by the third quarter of 2022, a tremendous opportunity given the size and growth potential of the market. Clover is already in market in Argentina and is expected to launch in Brazil next year. thereby covering the two largest markets in Latin America. In EMEA, Clover is in market across the UK, Germany, the Netherlands, and Ireland, with a further boost expected with the rollout of the Deutsche Bank JV that we announced last quarter. Among the key APEC deals completed in the quarter is an omnichannel merchant-acquired processing mandate from Bank of China, for their fast-growing Macau market. Moving to EMEA, Pfizer partnered with PostFinance, one of the largest financial institutions in Switzerland, to provide credit card acquiring services to their Swiss merchant clients. We're starting with an initial 4,000 merchants that accept the PostFinance card today, with plans to expand to the entire merchant base of 60,000 over time. BuyServe is also supporting restaurant brands, owner of iconic brands including Burger King and Popeye as the company expands its footprint across Europe when omni-channel approach. BuyServe will provide acquiring services for Burger King in the UK and the Nordics and Popeye's in the UK. To close on the merchant segment, as you may recall, in April, We want a 20-year deal to become the exclusive provider of merchant acquiring services for Caixa Economica Federal, one of the largest Brazilian banks. We are pleased to report that the implementation of this mandate started at the beginning of August and is going extremely well, with 65,000 merchants onboarded as of last week. Moving to the payments and network segment, organic revenue grew 6% in the quarter, resulting in year-to-date growth of 5%. Our payment segment consists of three businesses. Global credit processing and output solutions, which we call issuer solutions, which is 40% of the segment. Debit processing and debit networks, which we refer to as card services also one-third of the segment. And the third business is comprised of digital solutions, bill pay, and our prepaid business. Our issuer solutions business, which grew just below the overall payment segment average, is seeing the benefit of a continued credit recovery with general purpose credit gross active accounts up in the high single digits. that our credit issuer solutions revenue is driven by number of counts, not credit volume. However, as credit volumes recover, the number of counts will follow. Looking ahead, we expect growth in the business to be driven by the continued ramp of last year's notable wins, including three of the top 25 issuer wins which we announced last year. We also recently completed P&C's conversion of BBVA's card portfolios to our platform. Our retail private label portfolio also continues to recover from its COVID lows, although at a slower pace than we anticipated at the beginning of the year. Within card services, which grew organic revenue a couple of points faster than the overall payment segment average, We saw a strong growth in debit transactions driving out issuance and network businesses. Looking ahead, we expect to sustain growth for this business by broadening our total addressable market. For instance, in the quarter, our star debit network signed an agreement with leading U.S. consumer fintech Chime to become its preferred unaffiliated network for debits. We believe that aligning with one of the largest fintech issuers is a testimony to the scale and technical capabilities of the Star Network and positions the network well for future growth. This was also one of our notable action synergy revenues in the quarter. During our investor day, we discussed the opportunity to offer a fully managed buy-buy-serve credit card issuing option to community FIs and shared that we were actively exploring this market. We are pleased to announce that we are currently piloting our agent credit program offering, branded Credit Choice, and will launch in Q1 2022. Credit Choice is a fully managed credit card issuing as a service solution that allows our community FIs to offer their customers an FI-branded credit card experience that is fully integrated into their debit solution, but without the operational burden of running their own credit card portfolio. Credit Choice leverages outscaled distribution and world-class card issuing surround solutions, such as OnDot and SpendLabs, to expand into a sizable new addressable market for Fiserv where the economics record are considerably richer than in processing. We have already seen strong early interest from clients with hundreds of prospects in the pipeline. On our Q2 call, we spoke to you about our rich mobile-first consumer and business offerings powered by recent acquisitions, OnDot and SpendLabs. The early results of the launch have been very encouraging. We completed the integration of the CardHub platform into our credit and debit processing platforms and into our mobility mobile banking platform. We are seeing tremendous demand for this integrated solution from both new prospects as well as existing CardValet clients whom we expect to fully migrate to the integrated CardHub solution by the end of 2022. In addition, We expect to expand the platform to add loyalty, installment payment, and dispute management, thereby establishing CardHub as a key differentiator to drive new sales and client retention. For our financial institution clients, this solution is a game changer. It enhances consumer engagement with their digital banking platform creates more fee income through greater card usage, and catapults the FI's overall digital experience into the leagues of some of the world's top banks and neobanks. In the third business, results are mixed. We had good growth in our digital payments activity, led by Zelle transaction growth of 75% in the quarter, and the number of clients live now reaching just under 750. Prepaid growth was driven by new client wins within our gift solutions business. We expect growth to continue driven by new use cases. Our bill pay business, which encompasses both the direct biller and bill pay throughout financial institutions, continues to grow slower than expected. However, we're extending our bill pay capabilities beyond the financial institution channel, going live later this month as an enabler of PayPal's bill payment functionality within PayPal's new app. Additionally, we expanded our relationship with a large telecom provider to enable commercial card payments with our bill matrix solution. Moving to the financial technology segment, The quarter was in line with our expectations, posting organic revenue growth of 4%, resulting in 4% growth year-to-date. We added 14 new core account processing clients in the quarter, including seven competitive takeaways and two de novo wins. Our DNA platform is seeing great success. including with larger financial institutions as evidenced in the Valley National Bank and Dollar Bank wins with assets over $40 billion and $10 billion respectively. Ability, our modern cloud-based API-driven digital banking platform is seeing great momentum with 150 incremental sales in the quarter. 138 of these sales were to existing clients, which will drive our clients' digital transformation and deepen the penetration of our fully integrated digital surrounds, such as Cardhub, Zelle, and Spendlabs. The remaining 12 were new logo sales, with half being core competitive takeaways. We also continue to enrich our open banking and fintech ecosystem. again in line with the goals laid out in last year's investor conference. We launched our new developer portal, which we call the Fiserv Developer Studio, towards the end of the third quarter. The Developer Studio provides rich and expansive API integration to support banks, fintechs, merchants, and enterprise clients with developer tools needed to accelerate innovation integrations across the entire Fiserv ecosystem. Additionally, we also announced partnerships with exciting new fintechs, FutureFuel.io and StreetShares aimed at creating new white space opportunities in digital for both retail consumer and small business lending respectively. We believe that we're extremely well-positioned to continue to drive revenue in a segment higher by delivering new innovation such as ability, strategically acquiring and integrating attractive surround solutions like OnDot and SpendLabs, and leveraging the power of the developer community through our Developer Studio API portal or dedicated go-to-market integrations like FutureFuel.io and StreetShares. Now let me pass the discussion to Bob for more detail on our financial results.
spk04: Thank you, Frank, and good morning, everyone. Before I begin reviewing the detailed business results, as Shu mentioned, we are aligning with the broader community and simplifying our message by clarifying our internal revenue growth metric as organic constant currency revenue. This does not change how we calculate this measure, just clarifies the terminology. It will be the same definition and calculations we've used in prior quarters. On slide 11, we've included a new schedule to clearly provide an understanding of the walk from GAAP revenue to internal or organic revenue for the third quarter. This summary can be seen in more detail in the appendix of our presentation. Now, I will cover some detail on each of our segments. If you're following along on our slides, I'm starting with slide four. We feel great about our performance for both the quarter and the first nine months of the year, and we are well-positioned to achieve strong full-year financial results. Total company organic revenue was up 10% in the quarter, with growth across all segments, led by merchant acceptance segment, which grew 18%. Year-to-date, total company organic revenue grew 11%, also led by the merchant acceptance segment, which grew 21%. Total company adjusted revenue also grew 10% to nearly $4 billion in the quarter. Year to date, total company adjusted revenue has grown 11% to $11.4 billion. Third quarter adjusted operating income was up a strong 15% to $1.4 billion, and adjusted operating margin increased by 130 basis points, to 34.2%. This margin improvement was driven by our strong revenue results and our continued discipline cost synergy execution, which produced $64 million of incremental cost synergies during the quarter. And we have now an action $1.16 billion program today. Year to date, adjusted operating income increased 23% to $3.8 billion. adjusted operating margin year-to-date expanded 330 basis points to 33.2%. Our third quarter adjusted earnings per share increased 23% to $1.47 compared to $1.20 in the prior year. Through September 30th, adjusted earnings per share grew 29% to $4.01, putting us on pace to achieve our 36th consecutive year of double-digit adjusted earnings per share growth, a testament to the incredible strength and resiliency of this company. Free cash flow for the first nine months of the year was $2.3 billion, resulting in an 85% free cash flow conversion. This result was driven by increased capital investments related to technology, world-class facilities, and the integration of newly acquired businesses, a working capital increase driven by revenue growth, and a reduction in the net operating loss carry forward benefit. With these investments and strong revenue growth, we now expect free cash flow conversion to be 95% to 100% for the full year. Now looking to our segment results starting on slide six, organic revenue growth in the merchant acceptance segment was a very strong 18% in the quarter and 21% year to date. Our revenue was driven by a combination of growth in volume and transactions. Our results were once again driven by strong performance across all three platforms, Clover for SMBs, Carrot for large businesses, and Clover Connect for ISVs. Clover continues to build upon the momentum and strength of our product offering, as opposed to the very strong 47% GPV growth year-over-year, or $196 billion on an annualized basis. with growth across all of our distribution channels. With Carrot, we want 45 new global enterprise e-commerce clients on the platform in the quarter. In addition, Carrot expanded its mandate with existing high-quality brands such as Valero. Continuing its lead in the high-growth online EVT space, Carrot has launched more than 50 clients to online EVT in the past 12 months. Our ISV volume in this quarter through Clover Connect grew 71% year over year and up almost 150% versus the third quarter of 2019. We are winning both ISVs that are new payments as well as competitive takeaways. Adjusted operating income in the acceptance segment increased 30% to $552 million in the quarter and adjusted operating margin was up 300 basis points to 32.2%, driven by top line strength. Through September 30th, adjusted operating income improved 57% to $1.5 billion, and adjusted operating margin grew 710 basis points to 30.6%. Turning to slide seven, the payments and network segment posted organic revenue growth of 6% in the quarter, resulting in year-to-date growth of 5%. As Frank outlined in his composition of the segment, our card services, digital payments, and prepaid businesses outperformed the segment organic revenue growth rate. Global issuer solutions came in just under the segment average, while bill pay was a headwind. Account-to-account transfers and P2P solutions continue to rise with consumer demand. Zelle transactions in the quarter were up 75%, and the number of clients live on Zelle was up 65% in the quarter. Debit transactions grew 11% in the quarter, a strong result in light of the tougher year-over-year comparisons in the third quarter versus the second quarter, driven by the macro impact of the reduced benefits of the stimulus. Given the performance year-to-date, we expect to see the payments and network segments full-year organic revenue rate to be within the medium-term outlook growth rate of 5% to 8%, driven by the continued ramp in new client onboarding and strong uptake of our advanced digital offering. However, this outlook is slightly tempered versus our previous expectation of approaching the higher end of 5% to 8% organic revenue growth target range. Adjusted operating income for the segment was up 7% to $650 million, and adjusted operating margin was up 50 basis points to 44.0% in the quarter. Year-to-date, Adjusted operating income was up 7% to $1.9 billion, and adjusted operating margin was up 110 basis points to 43.4%. The results were driven by positive momentum in our card and issuer business and the positive impact of revenue and cost synergies. Turning to slide eight, the financial technology segment organic revenue grew at 4% in the quarter. Year-to-date organic revenue growth for the segment is 4%, with then a medium-term outlook for this segment of 4% to 6%. Our digital banking capabilities and digital solution offerings continue to win in the marketplace. As Frank mentioned, we added 14 new core account processing clients in the quarter, half of which were competitive takeaways. We completed our integration of OnDoc card management capabilities into our mobility mobile banking platform and are currently in market with that offering. Mobile deposits in Q3 grew 10.5% over the prior year, while self-service ATM deposits grew nearly 60% over last year. Adjusted operating income was up 4% in the quarter to $275 million, and up 10% year-to-date to $794 million. Adjusted operating margin in the segment decreased 40 basis points in the quarter to 36.0%. However, on a two-year basis, adjusted operating margin has increased 560 basis points versus the third quarter of 2019. Adjusted operating margin expanded 190 basis points to 35.3% year-to-date. The adjusted corporate operating loss was $121 million in the quarter in line with last year. The adjusted effective tax rate in the quarter was 20.3%, improving 260 basis points versus prior year. And we now expect our full year adjusted effective tax rate to be about 20%. During the quarter, we continued our disciplined capital allocation strategy by repurchasing over 3 million shares for $365 million. We have more than 52 million shares remaining authorized for share repurchase. As Frank mentioned, earlier this month, we entered into an agreement to acquire BentoBox, a digital marketing and e-commerce platform focused on driving growth and engagement for restaurants that we will integrate into Clover's dining solutions to further strengthen our omnichannel restaurant platform. We expect to close this transaction later this quarter. Total debt outstanding was $21 billion on September 30th, and the debt to adjusted EBITDA ratio decreased to 3.2 times. Q3 was another demonstration of our time-tested capital allocation strategy, which includes maintaining a strong balance sheet, making organic investment innovative solutions, and pursuing high-value acquisitions. With that, let me turn the call back to Frank.
spk07: Thanks, Bob. I'm very proud of the results we've accomplished with another quarter of double-digit adjusted revenue growth and double-digit adjusted EPS growth. In addition to delivering on our financial results, we continue to focus on our associates and our communities. In July, FISER was named the Disability INs Disability Equality Index 2021 best places to work. And in September, received the Silver Torch Award from the National Black MBA Association as Partner of the Year, recognizing our commitment to putting diversity at the forefront of our values and talent and client engagement strategies. During the quarter, we also entered into multi-year relationships with Girl Scouts USA and the Russell Innovation Center for Entrepreneurship. These partnerships focus on increasing access and opportunity for aspiring women and minorities within the entrepreneurial ecosystem. We also expanded a back to business program to Detroit and the Washington, D.C., Maryland, Virginia area as well as internationally without entry into the UK. Additionally, during the quarter, we also completed our CDP submission and for the first time published our EEO-1 filing on our internet site. None of these achievements would have been possible without our world-class talent. I thank our more than 40,000 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, please open the line for questions.
spk10: Thank you. We would now like to open the phone lines for questions. If you would like to ask a question, you may press star then 1 on your phone. If you would like to withdraw your question, you may press star then 2. Our first question comes from from JP Morgan. Please go ahead.
spk08: Thanks so much. Good morning. I wanted to ask on acceptance. I'll ask on acceptance. Looks like you outperformed global visa volume, if I'm looking at this correctly. But the yields turned negative in the third quarter. I know it was positive last quarter. So just a question here on pricing and mix in general for acceptance and what the outlook on yields might be here going into the fourth quarter. Thanks.
spk04: Yes, Bob. Good morning. I would attribute largely that variation to the difference between volume and trans of our mix relative to what you might see in Visa, as well as the yield ever so slightly. That ebbs and flows within the quarter depending on the mix of SMB versus enterprises. Overall, we feel quite good about the overall performance, how we're performing against the overall market and against our peers.
spk08: Got you. So more mixed than pricing. Thank you. Yes.
spk10: Thank you. Our next question comes from Lisa Ellis from Moffett Nathanson. Please go ahead. Terrific. Thank you.
spk11: I think I'll follow up on Vincent's question and actually specifically ask about the large processing client roll off that you highlighted. That looks like it's about a five point drag on overall volumes and merchant acceptance and a larger drag on e-comm. Can you just elaborate a little bit on that situation and specifically how should we think about how it's affecting revenues? Like if it's a low yielding client and then also is that something now that we'll take another three quarters before it lapsed or, if any additional detail there would be helpful. Thank you.
spk04: Yeah, Lisa. Good morning. The way to think about it, this is a large client that we processed through a joint venture. We pointed it out in terms of adjusting our volume and transactions for transparency. It has very little impact overall on the actual revenue and the revenue numbers you see there are as reported. So including that That client is largely off our platform at this point, and so you'll see it from a year-over-year standpoint, but there's no more decline going forward because they're essentially off our platform at the end of third quarter.
spk11: Terrific. Thank you. That's the clarification.
spk10: Thank you. Our next question comes from Dave Koenig from Bayard. Please go ahead.
spk13: Oh, yeah. Hey, guys. Nice job. I guess, first of all, just in acceptance, I think last quarter you even mentioned Q4 being up sequentially from Q3. I guess, is that still the case? And maybe as I look back on some of the more normal years, it seemed like you'd grow a few percent sequentially in Q4. Just wondering anything in Q3 or Q4 that would disrupt that kind of normal few percent up, you know, sequentially pattern.
spk04: So you're talking about growth quarter to quarter sequentially?
spk13: Yeah, just sequential revenue growth in acceptance. It looks like a few percent up is kind of normal in Q4.
spk04: Yeah, David, I think it's tough to call anything normal these days. I would expect our fourth quarter to be roughly in line with third quarter sequentially for this year.
spk13: Okay. Okay, cool. And then I guess secondly, just Payments, I know you kind of called out how it's going to be within the range. You'd said for maybe at the upper end of the range. Is some of that anything that's falling into 2022 now? Were there any maybe delays in implementations or anything there that just kind of makes 22 now a little better than it previously would have been?
spk04: Yeah, I wouldn't call it any delays per se, but we highlighted a few growth drivers that that we'll see into 2022. A couple of the new wins, PayPal going live. We signed a new large US telecom that will go live soon. And of course, the announcement of Credit Choice will help us as we launch that program. As Frank pointed out, we're now in pilot. We're seeing very strong demand. for that program for something that we had not formally announced yet. So we're just now announcing that. So we have some good early read on that. And, of course, we'll have CardHub, the offering that we acquired through OnDot for a full year next year, and that is now fully integrated into our mobility platform, and we continue to build out that capability.
spk07: We also have those three of the top 25 issuers, that are beginning onboarding, so that will be within the numbers next year. And you heard us talk about us converting BBVA onto our platform also for our client PNC. And you're going to continue to get the Zelle ramp in there also as that continues to grow and we onboard more. I think those all will factor into next year's numbers.
spk13: Sounds great. Thanks, guys. Nice job.
spk10: Thank you. Thank you. Next we have James Fawcett from Morgan Stanley. Please go ahead.
spk01: Thanks very much. I wanted to ask a little bit more of a strategic question. I appreciate all the color on near-term trends and benefits that you're getting from new customer wins, but Frank, it seems like you have picked up a little bit the pace of acquisitions, at least the announced ones recently. Can you talk about how you're feeling about potential and importance of doing acquisitions as part of your FIS or as part of your overall strategy and if that's evolving at all? And I guess tied to that, Bob highlighted the balanced capital allocation, but I'm wondering if it makes sense to accelerate debt pay down a little bit to improve optionality in case bigger deals come along. Thanks a lot.
spk07: Well, maybe I'll talk about what we've been doing on M&A and how we're looking at M&A. I think the first thing is whether it's M&A or building out businesses, we're investing organically and inorganically. I think the thing that hopefully you see is how agility and speed and innovation You know, we talked about OnDot, and it's fully integrated beyond its initial capability and now in our mobile product and winning in the market. You see us go and look at BentoBox, and we're extending our total addressable market with a capability that will start with restaurants but actually can be a storefront and much larger. But all of these are nurturing, good, strong startups that then will allow to thrive in our environment. And we put the capital behind them to integrate them and grow. And you hear how we bring spend labs along with it. So I think you should expect us to continue that and realize that I think we believe we have a deep skill set in integrating properties transforming our property itself. In some cases, we're even disrupting ourselves in the process as we move from card valet to card hub to an integration. So you should expect us to continue to do that and be very, very thoughtful about acquisitions, but we will invest in organically. And we'll invest organically in the acquisitions to allow them to thrive within our ecosystem and not to be standalone entities.
spk04: And then, James, as far as paying down debt, we've seen significant reduction or improvement in our leverage now 3.2 times back when we completed the merger. We were just over four times. We continue to generate good free cash flow. And as you may recall, back at our investor day last December, we talked about the capital to deploy over the next five years of more than $30 billion. As we enter 2022, not only will we have very strong cash flow, but we also have capacity on the balance sheet. As EBITDA grows, the company will, quote, naturally de-lever, and so we'll have the capability to borrow just to maintain that historic leverage ratio. So we feel like we're in a very good position to be able to complete acquisitions that we feel we want to complete. It's not prohibited or constrained by capital.
spk01: That's great color and context. Thanks, Frank. Thanks, Bob.
spk10: Thank you. Next, we have Jason Kupferberg from Bank of America. Please go ahead.
spk15: Thanks, guys. Good morning. I just wanted to start with a follow-up on that large processing client that is coming out of the numbers here. I guess it looks like it's an e-comm client just based on how much it impacted the e-comm volume numbers specifically. And was this just a competitive situation that was becoming too price intense from your guys' perspective? Just wanted to get a little bit more color because it's fairly sizable, it appears.
spk07: Yeah, I mean, let's go first. You know, that volume coming off our system is in our revenue number. So hold that thought, right? I mean... So when you look at a large processing client off a JV, you know, that's exactly what it sounds like, which is, first of all, this was long telegraphed by the client, but, you know, when we always talked about our business, we knew the RPT on this and never saw it as a real economic impact. really just a volume impact to our business. And they went in-house. It wasn't a competitive takeaway. And it was part of their strategy. We're happy to support them without processing capability throughout JV for the period of time that we do.
spk15: Okay. Thank you for that. And just on the free cash flow conversion, I just wanted to hone in on what I guess were the most significant changes in your expectations versus last quarter? Because I mean, at the end of the day, I know on a quarterly basis, obviously working capital can move around, but the full year revenue is coming in, you know, right in line with your plan. Presumably the diminished benefit of the NOL would have been known previously. So is this really just a function of kind of higher CapEx than you anticipated at the end of the day versus what you were thinking last quarter?
spk04: Yeah, Jason, the way to think about it is our 11% revenue outlook, certainly at the high end of our original outlook was 7% to 12%, so we're growing quite a bit faster than we originally expected overall. We are also seeing meaningful opportunities to invest for growth So to your point, CapEx is higher in terms of spending on creating new capabilities, new products and services, as well as integrating the acquisitions that we announced earlier in the year, things like OnDot, the software development that we're investing there to not only integrate into our existing capabilities, our other products and services, but to create new capability with some of those acquisitions, led us to make the decision to continue to invest in growth and still have very good free cash flow and good cash conversion overall.
spk15: Yep, yep, doesn't sound like any construction growth. Okay, thank you.
spk10: Thank you. Next, we have Ramsey Ellis from Barclays. Please go ahead.
spk09: Thanks for taking my question today. Frank, I wanted to ask you a kind of a broader question. There seems to be some debate or discussion among investors about potential fintech kind of disruptive forces in the marketplace. At the same time, it seems like you guys function as somewhat of an infrastructure or enablement layer for fintechs. I mean, even from the call today, you talked about Chime and Bakkt and PayPal, and I know there's a slew of others. So can you talk about this tension between fintech as a competitor and a potential disruptor versus fintech as just sort of a high-growth distribution channel for the business?
spk07: Yeah, I mean, I take this as a long-term issue, really, back in time. I mean, we're a platform, as we like to say, for everything from fintechs to SMB to large enterprises. And if you think about what we did with Clover, that was open up a community to the development community so we can be a platform for them and then a platform for end users. So my view and Al's view is we're happy to do things to disrupt ourselves, like you see us doing with the Spin Labs, the OnDots, and even Clover was a disruptor of ourselves.
spk06: And we'll continue to use our platform to enable. And ultimately, you know, we want to serve all communities.
spk07: So if you think about things we've talked about here, you know, Chime, previously NYDIG, you know, Bakkt being an enabler and one of our clients, Coinbase. You think about us bringing PayPal into the bill payment ecosystem. We are going to use our platform. to enable, and then we're going to compete heavily with our full capabilities. So our traditional clients who will get all the capabilities and continued innovation, and we will also enable those that have capabilities that we believe our clients would use. When you think about all of this, you hear us talk about being a token provider from Microsoft. you know, bringing their authorization rates higher. So I don't really find any conflict here. We have waterfront property. We open up the waterfront property. And our job is to enable commerce. And, you know, we get paid for enabling commerce.
spk09: That makes a lot of sense. I appreciate your answers there. Thank you.
spk10: Thank you. Next, we have Darren Peller from Wolf Research. Please go ahead.
spk02: Hey, thanks, guys. You know, I want to hone in on Clover because I know there's been a lot of discussion on what that asset could mean for you. So, you know, help us understand any more metrics you think make sense on the success of that asset. Obviously, it continues to grow well. But any other metrics in terms of how big the revenue is from that now? What kind of, you know, growth do you anticipate? Maybe any kind of profitability volume. And then, Also, is there an opportunity, given some disruption we're hearing about in the market around a Chinese competitor having some challenges on their terminals in the market now? I think they have 3 million or so terminals that might be a challenge now. Could there be a replacement opportunity for Clover on that?
spk04: Overall, obviously, we are quite pleased with the progress and the continued growth prospects of Clover. GPV up 46%, just under $200 billion for third quarter on an annualized basis. We continue to invest in new capabilities and expand our reach there. As you know, Large proportion, you know, about 90% of that volume is new to Pfizer. And so that is certainly a growth driver for the company overall and continue to expect that going forward. We're We're adding capabilities. BentoBox, as a great example, is building out some of the verticals across that capability. We have significant, strong distribution channels. And with the dissolution of the BAMS joint venture, we have a good and very quickly growing direct channel that you didn't see us have a few years back. And so we continue to see good opportunity there. And in terms of the terminal dynamic, you know, we have, obviously, we have our own Clover devices. We also use other terminals for the other parts of our company. And we have a variety of different providers of those terminals. And, you know, no disruption to us at this point.
spk07: Yeah, and I would just add, you know, Clover is a platform of choice. You heard about the international expansion of that. And I would think that, you know, as people are making choices going forward with disruption for others, that will just further accelerate our growth. Yeah.
spk02: Yeah, I would think that could be an opportunity for you to take a lot of share in the U.S., at least with what's going on there. Quick follow-up is just on the cash flow and the capital deployment. You know, just given what normalized earnings could be, you know, how strongly or would you consider a more material accelerated share buyback by any chance, just given you now, you probably will be at about that 2.8 turns leverage target, you know, let's call it the end of the year. Thanks, guys.
spk04: Yeah, Darren, I think the way we think about capital deployment has been and remains quite consistent and quite balanced. You know, we continue to focus on growing the business organically, doing value accretive inorganic growth, i.e. acquisitions, and then obviously always looking to return cash to shareholders where appropriate. I don't think you ought to anticipate us doing a large buyback. As you know, we're essentially in the market every quarter and have been for years. short of the short period of time between announcing and closing our merger back in 2019, and we'll continue to be a distance loan capital allocator. Thanks, guys.
spk10: Thank you. Our next question comes from Timothy Chiodo from Credit Suisse. Please go ahead.
spk05: Thank you for taking the question. I wanted to dig in a little bit more with two mix-related questions on Clover, and these were sort of alluded to in the last question, but hopefully we can get some of the mixed percentages. So first would be around the portions of revenue. So a large portion would be payments related, but also you highlighted at the investor day some increasing software attach, strengthen value-added services, and then also clearly there's the hardware component. So even if you could just give sort of rough breakdown of those components. And then the second part is around mix and distribution. So you alluded to some of the various channels, whether it be direct and bank partners, retail ISO, wholesale ISO. even just broad strokes on the mix of distribution would be really helpful.
spk04: Yeah, Tim, so a couple of things to think about there. One, in terms of channel, we are seeing broad growth across all of our channels, whether it's through partners, through ISV, ISOs, through obviously our joint ventures, as well as, as I mentioned in the previous question, building out our direct channel. We have had and continue to be focused on having a very wide breadth of distribution capabilities and continue to focus on winning in all of those channels. And that remains, has been, and will continue to be a broad focus of ours. And then in terms of breakdown of revenue, we haven't given, detail around the mix of hardware versus software versus processing. Obviously, the vast majority of our revenue in the merchant acceptance business is the merchant acquiring revenue. Inside of Clover, obviously, we've got hardware that we sell, but the magic to Clover is you sell the hardware and then you have a processing client, a merchant acquiring client for years and years with high attachment, high attainment rate, and we continue to focus on that.
spk05: Okay, great. Thank you so much for the help.
spk10: Thank you. Our next question comes from David Togut from Evercore ISI. Please go ahead.
spk14: Thank you. Good morning. Within merchant acceptance, what impact are you seeing on your payment volume when a competitive buy now, pay later solution is added at one of your e-commerce clients? And in particular, I'd appreciate your help with two things. Number one, Are you retaining the merchant acquiring or merchant processing when a BNPL company is added, or are they bringing in their own merchant acquirer? And number two, do you have any insights into funding mix when BNPL gets added at one of your clients in terms of, you know, debit, ACH versus credit? Thank you.
spk04: Yeah, I think a couple of things. Number one, we have a number of referral partners. And over the last several quarters, we've announced these or talked about these, whether it's Zip or Bread or Citizens Pay. We continue to be focused on enabling multiple options for our merchants. And obviously, we're the merchant acquirer for those merchants, and so providing that capability maintains that relationship with those merchants. In terms of credit versus ACH, et cetera, you know, I think broad industry view is today a large portion of that pay-in-for, buy-now, pay-later activity is actually paid or finally executed through card payments.
spk14: So you're not seeing any specific, you know, mix in terms of ACH when you look across kind of BNPL adoption at your customers?
spk04: No, I think the key there is, you know, well, Buy Now, Pay Later has a high volume in terms of news. it's still a relatively small portion of the overall TPV or merchant space and not moving the needle. And in fact, in some instances, instead of one transaction, you're actually seeing four transactions.
spk14: Understood. Thank you very much.
spk10: Thank you. Our next question comes from Dan Dola from Mizuho. Please go ahead.
spk03: Hi, guys. Good morning. Thank you for taking that question. Can you give us some color on what's implied in the fourth quarter organic worth guidance for the two other segments for payments and fintech? That would be great. Thank you.
spk04: Dan, you were quite muffled. Can you repeat that question?
spk03: Can you give us some color on what's implied by the guidance, the organic co-op guidance, for the other two segments, FinTech and payments and networks?
spk04: Yeah, so I think I tried to give some of that color in our prepared remarks. In our FinTech segment, year-to-date, we're now at 4%. And we expect for the full year to be in that medium-term outlook range of 4% to 6%. And then in our payment segment, again, relative to kind of our medium-term guidance or medium-term outlook, 5% to 8%, we expect to be in that range. That is adjusted from previously we're expected to be at the high end of the range. Right now it's just in the range. And year-to-date we're at 5%.
spk03: Got it. Understood. Thank you so much.
spk10: Thank you, and that was our last question for today's call.
spk07: I'd like to thank everybody for joining us this morning. We appreciate your support. If you have further questions, please contact our investor relations team. Have a great day, and thank you for everything.
spk10: Thank you all for participating in today's conference. You may disconnect your line and enjoy the rest of your day.
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