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spk04: Welcome to the Fiserv fourth quarter 2022 earnings conference call. All participants will be in a listen-only mode until the question and answer session begins following the presentation. As a reminder, today's call is being recorded. At this time, I will turn the call over to Julie Cheriel, Senior Vice President of Investor Relations at Fiserv.
spk01: Thank you, and good morning. With me today on the call are Frank Bisignano, our Chairman, President, and Chief Executive Officer, and Bob Howe, our Chief Financial Officer. Our earnings release and supplemental materials for the quarter and full year are available on the investor relations section of Fiserv.com. Please refer to these materials for an explanation of the non-GAAP financial measures discussed on this call, along with a reconciliation of those measures to the nearest applicable GAAP measures. Unless otherwise stated, performance references are year-over-year comparisons. Our remarks today will include forward-looking statements about, among other matters, expected operating and financial results, and strategic initiatives. Forward-looking statements may differ materially from actual results and are subject to a number of risks and uncertainties. You should refer to our earnings release for a discussion of these risk factors. And now, over to Frank.
spk05: Thank you, Julie. And thank you all for joining us today to discuss the strong ending to a pivotal year at Fiserv. marked a year of great progress for us with better than expected growth against the challenging backdrop. The integration of First Data and Fiserv wrapped up in the first half, and we are entering 2023 with the focus on growth and operational excellence to drive quality and productivity to the next level. We laid out a plan for our merchant segment that includes extending Clover's leadership and are on pace to achieve our 2025 objectives. We won awards for our new enterprise omni-channel solution, Carrot, and continue to roll out this unified commerce platform with the leading number of value added services. In payments, we completed the three major credit issuer implementations and followed them up with two major new wins in the fourth quarter. And we advanced our core banking cloud roadmap for new and existing clients with the acquisition and integration of Finzec. Through all of that, we navigated the return to office and are seeing a boost in productivity as our employees come back together, many in new state of the art facilities. We head into 2023 as a unified company that's better than the sum of its parts. One with faster growth and deeper investment that still holds a tradition of strong operating leverage, high recurring revenue, and value accretive capital allocation. Our progress over the last two years is undeniable after consecutive years of 11% organic revenue growth, 370 basis points of total adjusted operating margin improvement, and over $5 billion in share repurchases. We delivered on our guidance with a steep ramp in the fourth quarter with 12% organic revenue growth, 360 basis points of adjusted operating margin improvement and adjusted earnings per share of $1.91. This led to 2022 results within the guidance range which we raised twice last year despite unexpected FX headwinds. For the year, organic revenue growth was 11%. Adjusted operating margin expanded 120 basis points to 35.1%. And adjusted EPS was $6.49 of 16%. free cash flow conversion was 84% as we continued to invest for growth. Each of our operating segments recorded strong performance, led by merchant acceptance with organic revenue growth of 16% and 17% in the quarter and year, respectively. Our clover and carrot operating systems are driving segment growth well above pre-pandemic levels. Our newer products, such as Data as a Service, Pay by Bank, Disbursements, and EBT Online, widen the value proposition to clients and bolster our strong positioning in card and non-card payments. Expanded ISV, and direct sales channels, extend outreach to merchants, and help us capture more of the value in each transaction. Payments and network revenue had a superb year of growth, up 10% organically in the fourth quarter and 9% for the year, above our medium-term guidance range. Performance was led by implementations of three top 25 credit issuing customers and continued growth with existing customers. We followed this up with two major new credit wins in the fourth quarter. With Target, one of the largest retailers in the world, and with Desjardins, the largest credit union consortium in Canada and the fourth largest card issuer. We are very excited to bring one of the world's largest retailers onto our platform and we're pleased to expand our geographic reach in Canada with Desjardins. It is another example of a major in-house card issuer partnering with us to achieve industry leading capability. And it's our first connection with a major Canadian issuer, giving us important scale in a key market. We've already begun working with both clients and anticipate revenue starting in 2024. In FinTech, we delivered 8% organic revenue growth in a quarter. rebounding from third quarter as expected. For the full year, we generated 5% organic growth at the midpoint of our medium-term guidance. Core wins were robust over the last several quarters and continue to go live, adding to an already strong recurring revenue base in this segment. Interest in VINZAC is exceeding our expectations And we're excited to extend our leadership in cloud core banking by going live with Digital Bank Cello. We continue to believe we have the most clients in production in the cloud. We are carrying this positive momentum forward into 2023. This year, we expect organic revenue growth of 7% to 9%, adjusted operating margin expansion above 125 basis points, and adjusted earnings per share of $7.25 to $7.40, which assumes a mild recession in the U.S. Our guidance reflects internal confidence in the face of external uncertainty. This confidence is built on the strength of our unparalleled client base, our industry-leading distribution, a broad and growing product portfolio, and our best-in-class management team. We have the revenue base. the profit-driven cash flow and sturdy balance sheet that should sustain us through a tougher economy. It's times like these that make it good to be an industry leader that continues to invest in new and innovative products. Nowhere was this strong positioning more evident than in the many noteworthy contract extension and product additions signed with existing clients in the fourth quarter. These wins are a reflection of four factors. First, our list of clients is vast, high quality, and full of opportunity, and our relationships with them are deep. Second, we have the broadest portfolio of solutions, supporting both growth and operating efficiency for our clients. Third, our client-first relationship model is off to a strong start. And fourth, our vision for the cross-sale opportunity between Fiserv and First Data offerings has become reality. The promise of the merger is being realized. Synergies are apparent. For example, between acquiring and core banking and embedded finance and card issuing services across multiple verticals. In merchant acceptance, for example, we expanded our global relationship with ExxonMobil. This energy giant will move to the Carrot platform to support its retail fuel stations in the U.S. and Canada worldwide. with gateway, acquiring, and fraud security services. We also renewed Carrot's contract with one of the largest beauty retailers in the U.S. and added network tokens to their e-commerce system to help increase authorizations, reduce costs, and limit fraud. And a major restaurant operator will extend our merchant acquiring and prepaid business to more of its brands. In the payments and network segment, in addition to the significant Target and Desjardins wins, we expanded our existing relationship with the state of California. After a successful rollout of the middle class tax refund program in the fourth quarter, we were awarded another prepaid mandate supporting California's unemployment and related insurance programs. This, along with disbursement support for the comptroller's office announced in October, represents longer-term recurring work for the state and marks our leadership in payments for the government vertical. We also signed a large e-commerce payments company for debit network services. This client will enable our Star and Excel networks for its millions of merchants as an alternative to the larger debit networks. And in fintech, as a proof point about deep relationships, ability to cross-sell products and see synergy from a merger, We continue to add solutions for Webster Bank since its merger with Sterling National Bank earlier this year. In addition to the account processing win we announced in the third quarter, we've now added the Optus platform and ATM services to the growing list of solutions we provide. Similarly, BetPage Federal Credit Union has also added several of Elpayment's products to its existing core banking platform. In keeping with the emerging trend of core modernization, Innovation Credit Union of Canada will be the latest client to move from a licensed solution of DNA to a hosted version in the Microsoft Azure Cloud. This is one of a couple dozen DNA customers migrating to the cloud for more flexibility and resilience in their infrastructure. It highlights the modern architecture of DNA, Fiserv's experience in the cloud, and further migration from license to ASP revenue. Outside the US, we made important progress in EMEA. adding APSA Bank in Mauritius as a client of our internet gateway. This will allow APSA clients to tap into the fast-growing e-commerce segment in Africa and grow with key corporate clients that are active in this well-known tourist destination. It also opens the door for us to enter eight other countries in Sub-Saharan Africa where APSA operates today. In Latin America, we extended a large bank acquiring relationship to include several more countries. And in APAC, we signed India's Tata Motors for loan processing and attained a major payment institution license in Singapore. This will allow us to expand beyond merchant acquiring into domestic and cross-border money transfer services, a market that has $180 billion of payment flow. A key to our new and follow-on wins is the significant investment we have made to bring new products to market, increase our value to existing customers, open the door to new customers, and grow our TAMP. Let me recap just a few of our innovations and advancements this year, starting with merchants. In the SMB space, we serve small businesses wherever they want to conduct business. Through cloud-based operating systems like Clover, through our channel partners including ISVs, banks, and ISOs, and on platforms that act as payment facilitators or Payfax. At Clover, we integrated the Bento box acquisition into the Clover platform to add more e-commerce and digital capability to our offerings in a restaurant vertical. Catering services and hotel restaurants are emerging sub-verticals for us now, and we know that when Bento and Clover are sold together, we see an over three times increase in average revenue per user. We also rolled out lower cost hardware and partnered with major providers of retail technology to offer web and point of sale inventory solutions to this large SMB vertical. We've begun migrating merchants from our existing internet gateway to a new Clover gateway. where they can more easily access our full suite of value added services. This positions Clover to compete more for card not present business this year from a position of strength. Value added services penetration, an important driver of Clover growth and ARPU, reached 16% in the quarter from 13% a year earlier. One example is Clover Capital, a product we continue to invest in. It's growing rapidly and favorably impacting customer attrition in the SMB segment. In the ISV channel, we've added 174 ISV partners this year and continue to benefit from the high growth and lower customer acquisition costs of this go-to-market approach. Since our acquisition of NetPay, we continue to build PayVac, Marketplace, and software platform solutions, including real-time boarding, underwriting, and split-pay services. In the quarter, Fiserv continued to expand and deepen our platform integrations with partners that include PayPal, offering our customers more flexibility in their service offerings. We look forward to exploring other integrations with current and future partners while expanding our capabilities across this market. Carrot, our leading enterprise omnichannel solution, continues to expand its capabilities, including payout choice and flexibility. with the introduction of several products this year, including digital checks, prepaid cards, and crypto wallets, followed by our multi-purse wallet, a white-label solution that holds multiple sources of value, including loyalty and prepaid. We continue to onboard large merchants for pay-by-bank, which lowers the cost of acceptance for merchants, and is an easy way for consumers to earn rewards. And we've seen a strong early uptake in our new data as a service offering, partnering with Snowflake. It enables our merchant customers to access their payments data in near real time to better inform business decisions. We also have a growing number of financial institutions lined up to pilot our open data solution offered in partnership with Snowflake. Open data enables near real-time access to data across customers, accounts, and activities, bringing relevant insights to support strategic decisions. In payments and network, our strong growth in issuer solutions can be traced directly to the investments we've made in our operating platform, Optus. This includes a robust set of APIs, AI-based fraud management, cardholder experience technology via the OnDot acquisition, integrated output solutions, plus ongoing cloud enablement of key features. We have multiple payment innovations underway to take advantage of emerging trends, such as real-time payments. The Clearinghouse RTP network, Zelle, and FedNow all work differently than legacy networks, creating demand for an end-to-end solutions provider. We are leveraging the FiservNow network to be just that this year. In fintech, we've been taking an open source approach to serving our clients. We've pre-integrated third-party digital solutions into many of our cores and made these solutions discoverable to clients via our app marketplace. We've also made our platform attractive to the developer community by exposing our microservice APIs through our developer studio. Building on its Webby Award last year, this product won a Debbie Award from Developer Week in January for Best Innovation in Financial Services. With these advancements, we are driving Fiserv to become the destination of choice for embedded finance, integrating card issuing and processing, merchant and core banking capabilities for a variety of non-traditional providers, including retailers, QSRs, payback, and government entities. Another highlight of 2022 was the Finzac acquisition. our new cloud-native banking solution, which we've been integrating with our existing digital surrounds, selling to our existing clients as an innovation platform or sidecar core and winning new logo sales. Our pipeline is particularly active with pioneering digital bank and big issuers entering the banking market via embedded finance. Finzec offers them faster time to market, greater flexibility and scalability, and the largest product portfolio available, making it an ideal way to conceptualize, create, and launch new banking products. With all of this new product development, and the client wins that validate, I hope you'll see why we remain enthusiastic for 2023. So let me pass the discussion to Bob for more detail on our financial results.
spk07: Thank you, Frank, and good morning, everyone. If you're following along on our slides, I'll cover additional detail on total company and segment performance, starting with our financial metrics and trends on slide four. Fourth quarter and full year results reflected our focus on delivering on our commitments with momentum in all three business segments. Total company organic revenue growth was 12% in the quarter with ongoing strength in merchant acceptance, further growth in our payments and network segment, and a rebound in the fintech segment as previewed on our last earnings call. For the full year, total company organic revenue grew 11%, in line with the higher guidance we provided 90 days ago. This performance was led by the merchant acceptance segment, which grew 17%. Fourth quarter total company adjusted revenue grew 8% to $4.4 billion, and adjusted operating income grew 20% to $1.7 billion, resulting in adjusted operating margin of 39.2%, an increase of 360 basis points versus the prior year, and a sequential improvement of 400 basis points. As we anticipated, four factors drove this margin improvement. First, the final ramp down of integration expenses and resulting productivity benefits. Second, operating leverage on increased revenue and improved inflation comparisons. Third, actions taken late in the third quarter and in fourth quarter to tighten spending in light of the uncertain macroeconomic conditions across the globe. And finally, the divestiture of our career business in two small, low-margin, non-strategic units. As expected, the fourth quarter performance brought the full-year adjusted operating margin to 35.1%, an increase of 120 basis points over 2021. Fourth quarter adjusted earnings per share increased 22% to $1.91 compared to $1.57 in the prior year. Full year adjusted earnings per share increased 16% to $6.49. Volume, productivity, and operating performance more than offset the foreign exchange headwind of 25 cents for the full year. This was much higher than the 11 cents assumed in our guidance at the start of the year. Free cash flow came in at $1.4 billion for the quarter and $3.5 billion for the full year. Free cash flow conversion was a strong 115% of adjusted net income for this quarter for the full year free cash flow conversion was 84% roughly in line with our expectations for approximately 85%. With a slight increase in accounts receivable and some slower collections now looking to our segment results, starting on slide six. Organic revenue growth in the merchant acceptance segment was a healthy 16% in the quarter and 17% for the full year, well ahead of our medium-term segment guidance of 9% to 12%. Adjusted revenue growth was 9% in the quarter and 13% for the full year. This is well ahead of the 11.5% annual growth rate needed to achieve our merchant acceptance segment revenue outlook of $10 billion by 2025. as laid out in our March 2022 investor call. As we've said, we grow and create value in three ways. First, attracting more merchants to our operating systems. Our Clover active merchant count grew 9% in 2022. Second, expanding our merchant relationships via adoption of more value-added software and services. Clover vast penetration reached 16% in the quarter, up 13% from last year. And third, by growing with our existing customer base, our average revenue per clover merchant expanded 12% in 2022. In the quarter, merchant volume and transactions grew 6% and 3% respectively. For the year, they grew 10% and 6%, excluding the loss of a processing client in mid-2021. Volume in local currency was up 8% for the quarter and 12% for the year, excluding the client loss. This is in line with our typical spread relative to the card networks. Factors that drove faster revenue growth include value-added services, new payment flows, and value-based pricing. Turning to our merchant operating systems, Clover and Carrot, we continue to post robust growth, and we are on track for $3.5 billion in Clover revenue by 2025, as presented at our merchant investor call this past March. Clover revenue grew 23% in the fourth quarter on payment volume growth of 16%. For the full year, Clover revenue was up 25%. We posted above average growth in Clover Capital, Clover Software, and Marketplace SaaS. Clover Connect for ISVs continues to post very strong revenue growth and added 48 ISV partners in the quarter, totaling 174 for the full year. Carrot, our enterprise omni-channel solution, Also, at a strong quarter with revenue growing at 15% for the year carrot revenue go 18% on important new client wins and enhancements for existing clients. This includes our new client experience portals which improve service and access to data well positioning us to sell more products from data as a service to fraud services to emerging flows. In 2023, we will complete the build out of our single orchestration layer known as commerce hub, which will allow our clients to more seamlessly integrate with the breadth and depth of our products and services and enhance our e-commerce capabilities. Adjusted operating income in the merchant acceptance segment increased 22% to $648 million in the quarter with margin up 350 basis points to 34.8%. Full-year adjusted operating income improved 16% to $2.3 billion, and margin grew 100 basis points to 31.8%. The improvement in both periods was led by operating leverage and productivity. We completed the acquisition of MerchantOne in late December, folding in this long-term Fiserv customer. This should enhance our direct merchant acquisition capabilities extend the reach of our Clover product line, and create cost synergies. We also acquired Yacare late in the quarter, expanding our capabilities in Argentina by enabling us to bring our QR code payment acceptance to our merchants there. We stand to rapidly become a significant QR code provider as we get this technology into customers' hands. Looking into 2023, in January, overall volume growth was stronger than volume growth in December. This is partly attributable to an easier year-over-year comparison, but also indicates the ongoing strength of the consumer and the Fiserv brand. Turning to slide seven on the payments and network segment, organic revenue grew 10% in the quarter. This growth was enabled by a variety of drivers across our business lines. Our North American credit active accounts on file grew 17%. driven by both new business onboarding and a favorable credit environment. The California Middle Class Tax Refund Program was also an important contributor to revenue during the quarter. While the revenue is mostly one-time in nature, we've signed two additional contracts with the state that will bring in recurring revenue in 2023 and beyond. Full-year organic revenue growth of 9% was above the upper end of our medium-term outlook range of 5% to 8%. Fourth quarter adjusted operating income for the segment was up 14 percent to $811 million, and margin was up 230 basis points to 48.5 percent, driven by strong operating leverage. For the full year, adjusted operating income was up 10 percent to $2.8 billion, and margin expanded 120 basis points to 45.3 percent. Moving to slide eight, In the financial technology segment, we posted 8% organic revenue growth for the quarter and 5% for the full year, right in the middle of our 4% to 6% medium-term guidance range. The rebound in non-recurring revenue portions of this business, license, professional services, and termination fees was a meaningful contributor to growth in the fourth quarter, as we expected after those revenues slowed in the third quarter. Meanwhile, customer momentum continues and we had 14 core wins in the quarter, including eight competitive takeaways. Over the last three years, we have 155 core wins and a healthy backlog of implementations that offer solid visibility to revenue for 2023. Adjusted operating income was up 18% in the quarter to $340 million and up 7% to $1.2 billion for the full year. Adjusted operating margin in the segment increased 400 basis points to 41.3 percent in the quarter, helped by higher periodic revenue and productivity. Full year margin increased 70 basis points to 36.5 percent. The corporate adjusted operating loss was $88 million in the quarter, slightly improved from the first half run rate, and $444 million for the full year. The adjusted effective tax rate in the quarter was 19.3% and was 19.6% for the full year, in line with our expectations. We expect 2023's adjusted effective tax rate will be approximately 20% for the full year. Total debt outstanding was $21.4 billion on December 31st. The debt to adjusted EBITDA ratio dropped another tenth of a turn to 2.8 times. within our target leverage of being below three times in the second half of the year. We have approximately 19% of our debt in variable rate instruments. During the quarter, we repurchased $750 million of our stock, bringing our total 2022 share repurchase to $2.5 billion and $5 billion over the last 24 months. We had 17 million shares remaining authorized for repurchase at the end of the quarter. Our long-standing capital allocation strategy will continue into 2023, defined by a strong balance sheet, share repurchases, and complementary and innovative acquisitions. As we look through the mixed indicators on the 2023 economy, we are taking a measured approach to our outlook and assume a mild consumer spending recession, lower inflation, and higher interest rates. As Frank said earlier, we expect organic revenue growth of 7 to 9 percent, in line with our medium-term guidance, with adjusted operating margin expansion of at least 125 basis points. This translates into adjusted earnings per share of $7.25 to $7.40, or 12 to 14 percent growth over 2022, and would represent our 38th consecutive year of double-digit adjusted EPS growth. This strong operating performance in a weaker economic environment reflects our continued investment in growth opportunities at a time when others may be cutting back. We are redirecting our free cash flow guidance toward dollars instead of conversion since this aligns more directly with how we run our business. We estimate approximately $3.8 billion of free cash flow for 2023. In the past two years, We increased our level of investment in growth initiatives, and it led to back-to-back years of accelerated 11% organic revenue growth. We see tremendous opportunity to do the same this year, to invest in our growth platforms and continue to grow faster than our markets. We retain our focus on long-term free cash flow as a driver of long-term value for our shareholders. With that, let me turn the call back to Frank for some closing remarks.
spk05: Thanks, Bob. In the quarter, Fiserv provided back-to-business grants to 13 veteran and military spouse business owners through our partnerships in Atlanta. We also launched back-to-business in New Jersey, committing one million to small, local, minority-owned businesses. For the year, we awarded 241 such grants in total. The CDP published our GHG emissions results for 2021. They improved from the prior year, in part because of the COVID shutdowns. We are encouraged by the future direction of our program since receiving LEED Gold status for our one Broadway space, awaiting LEED Platinum status for our new technology innovation center in Berkeley Heights, and pursuing lead gold for offices in Milwaukee and Dublin, Ireland. Overall, I am excited about what the next five years can bring for Vyserv. We are off to a great start in 2023. Having just been recognized as a world's most admired company by Fortune magazine for the 12th time in 15 years. I'm especially proud about two most admired attributes, innovation and financial soundness, two particularly important qualities in the current environment. We delivered beyond expectations in the past year, and that was not by chance. It was the result of specific actions and thoughtful investment. The groundwork is laid for more strong performance to come. Leading products, bigger TAM, expanding geographies, better service and streamlined modern technology are in our grasp. The years I've spent at highly successful businesses have taught me that our reach must exceed our grasp. There is always room for improvement. So my leadership team and I are focused on driving greater productivity and better processes this year in the quest for operational excellence. I'm confident in our more than 40,000 Fiserv associates around the world. You come prepared to meet our high bar every day And I thank you for all you do. With that, operator, please open the line for questions.
spk04: Thank you. We would now like to open the phone lines for questions. If you would like to ask a question, you may press star 1 on your phone. If you need to withdraw your question, please press star 2. For today's call, please limit it to one question with no follow-up questions. Our first question comes from Tianjing Wang from J.P. Morgan. Please go ahead.
spk09: Hi, thanks. Good morning. Solid results here. One question. I'll ask Frank, if you don't mind. You spent some time talking about how Fiserv is better than the sum of the parts with the cross-selling and the synergies, et cetera. As you're thinking on synergy contribution to growth changed at all in the last year or two, any way to size that in terms of contribution to growth, maybe for fiscal 23 or the midterm outlook in general? Thanks.
spk05: I think if you look at this year's growth rate, obviously at 11%, we can feel the power of the franchise coming together. Obviously, I'd like to step back on that question a little bit too. Remember, we announced a merger, maybe top 10 mergers of the year in 2019, and then we had a pandemic. And that definitely did not accelerate our ability to see clients sell, get in front of them on offerings. We managed through it. We saw the tools available. But I think today, when you look through the company, the opportunity is larger than we thought. Remember, we said we were going to stop really talking about the synergy number, we put a bow on it, we closed out M&I, and then continued to still working. But I think embedded in what you see in our growth rate And, you know, what we believe the promise was is much larger. And I think it will continue. It's just natural cross-sell now. But it's bringing, you know, we love talking about merchant acquiring and core banking on behalf of those banks. We like to think about the opportunities that we've gotten by taking out larger capabilities across the company and delivering more product to the government vertical. You see the things that we're doing that neither company did before, but the two together did. And I'd say, you know, I simply always think that this is a completely different company, you know, fundamentally in its fourth year, a new company where, you know, we took the two growth rates and exceeded either one, and we'll do that, you know, for the rest of our life with the exception of a pandemic. So I think it's bigger than we ever thought. and I think you'll continue to see it, and it's definitely had an effect, and I think it's the effect of the difference in the growth rate that we see in the two combined companies, and then from what we originally announced and how it shows up in today's numbers. So thanks. Thanks for asking that. It really does matter a lot. It's really, you know, we are getting the benefits of what we told you all we do, and it's better than we thought.
spk04: Next, we'll go to the line of Lisa Ellis from SVB Moffitt Nathanson. Please go ahead.
spk03: Hey, good morning. Thanks for taking my question. Frank, another one for you as well. I was hoping to follow up on the growth in the payments and networks and specifically the 17% growth in North America credit account growth. I think this is several quarters in a row now. You guys have highlighted mid-teens growth there, and then you highlighted two additional wins. Can you just elaborate a little bit on that? What is going on in the credit issuer processing space? Like, you guys have a ton of momentum here right now. So kind of what's changed and what's driving that really strong momentum? Thank you.
spk05: Yeah, I think, you know, as you've watched the evolution over time, you know, I start with, you know, we love operating systems. We love our platform systems. And the investments that we made in Optus, you know, through the cycle of really has benefited us in the client's office. And I think it's the full enterprise capability that we bring. I think it's the single platform that we bring. It's the modernization of the platform that we did over the past few years. And I think, you know, we came in and talked to you at 2020 Investor Day about the three large ones that were in the top 25. And then we continued to add, if you remember, I've said to many, I believe, that we did think those three top wins were, you know, a very, very, very one-time unique situation. But we came back and said over the past year that You know, we've won as much as those three, and then we've followed on with these two wins that we're pretty darn proud of. You know, the red card of Target and Desjardins. You know, these are long-term big decisions for these issuers, long-term relationships. And I think the team has done an unbelievable job building out the platform, building out the capabilities all the way from, you know, loyalty to, you know, user interfaces. And so I think the fruit sales labor continue to come through. And, you know, that'll be a ramp like the last one.
spk04: Thank you. Our next question comes from Dave Koenig from Baird. Please go ahead.
spk08: Yeah, hey guys, great job. And I guess my question, within the acceptance segment, the gap between revenue growth and volume growth was pretty massive. It was 10%, which might be the biggest we've ever seen potentially. Is that the mix of SMBs? Like, are you actually seeing SMBs really good? Is it just more products sold to Clover? You talked about that. Is it pricing? Maybe talk a little bit about that. And then is that sustainable, you know, through 2023?
spk07: Yeah, David, it's Bob. Thanks for the question. The answer to your question is yes, it was those items. Obviously, we're continuing to see great growth in the business. We've talked about the key drivers of growth, getting more merchants, selling more to merchants, the value-added sales. You saw our penetration rate go up in Clover. We continue to build out our direct sales channel. The integration of Bento into the Clover solution significantly increases the ARPU. And we saw some benefit of value-based pricing. So kind of across the board doing very well. And that's both in the SMB as well as in the enterprise markets for us. Am I going to suggest we'll continue that 10% every quarter going forward? No, I wouldn't lay that out. But we see tremendous opportunity for continued growth. We call you back to our March investor call that we had on the merchant business. We think this is a $10 billion business in 2025 and 2022. The first year on that journey was right on track.
spk04: Thank you. Our next question comes from Ramsey Alisal from Barclays. Please go ahead.
spk06: Hi. Thanks for taking my question. Can you comment on growth in different geographies? I know Europe had seen some weakness previously. Where are you seeing the more robust growth across the globe versus some weakness?
spk07: Yeah, Ramsey. Definitely seeing some very nice growth across our three international regions. They are, for all practical purposes, almost double, maybe a little bit better than double our U.S. growth rate. We continue to see tremendous contribution. The fastest growing region for us is certainly LATAM with good growth in Brazil and Argentina, particularly in the merchant space, but also seeing some nice traction. and our credit issuing capability across the regions. We talked about expanding our reach with a large bank, growing our reach in the number of countries in Latin America this past quarter, seeing good growth in APAC, Both of those obviously smaller than our footprint in EMEA, but even EMEA we're seeing good growth, particularly in the issuer space. So all three regions contributing to the growth and in total our international business growing almost double the rate of our domestic U.S. business.
spk04: Thank you. Our next question comes from Timothy Chiodo from Credit Suisse. Please go ahead.
spk10: Great. Thank you for taking the question. Since distribution is one of your major advantages and super important to the Clover growth algorithm, you mentioned some of the various channels you have, the bank channel, direct sales, ISVs, ISOs. I was wondering if you could just give us an update on the mix in terms of where most of the new gross ads are coming from. And as a very brief follow-up, if you could give us an update on the U.S. versus international mix for Clover.
spk07: Yeah, Tim, I think... The simplest way to tee that up is we're seeing actually growth across those channels. You know, there's some ebbs and flows as you go quarter to quarter, et cetera. Broadly, we continue to sign more banks and get more merchants through that bank channel. We continue to build out our direct sales force. ISO is obviously, our partner channel is obviously quite significant. ISV, our corporate connect solution for our ISV partners, is still adding ISVs in a meaningful way. We talked about some of those numbers in our prepared remarks. So the benefit for us is the broad distribution channel isn't that one is growing faster than the other and they're offsetting each other. It's that we just have a broad reach and we can grow across the board. And overall, Clover continues to grow. You heard us quote the 25% growth in 2022, nicely on our path to our $3.5 billion plus goal for 2025. And international is certainly part of that. In 2023, we'll continue to get some nice growth there, in particular with Deutsche Bank joint venture now live and beginning to provide some growth for us.
spk04: Thank you. Our next question comes from Darren Peller from Wolf Research. Please go ahead.
spk11: Hey, guys. Nice job this quarter. I just want to look at the – Frank, when you look at the strategy for the merchant growth to continue and you see how strong some of the assets like Clover and Card have been, maybe talk to us about the next couple of years of your view of what could drive that growth to continue at what seems to be above industry levels. And it looks like you mentioned services and value added, but it looks like pricing – probably played a part as well in the merchant revenue growth rate. Is that continuing? Last one is just for Bob on the segment growth rates. What are you guys thinking about for the year ahead in terms of merchant or really all three segments embedded in the guide? Thanks, guys.
spk05: Let me take the first part. First of all, on all the indicators that we talked about in March, relative to our merchant business, you know, we see that as visibly as we saw it back in March, the opportunity. I do think, you know, this is about an operating system. It's about platforms. And with that software capability that we bring, you know, obviously value-added services, you know, changes, our growth rate, You know, as I said on this call, I think that we've made a big point of getting off of yield. And as I hope you can see, we didn't get off of it because we were going a different direction. We just think that ultimately we're going to bring more product in and the mix of our business is different. I think when you take a look at this business, when you're running it the way we do, when you're bringing more stickiness, more client limiting attrition through those value-added services, you also have pricing opportunity. And, you know, we definitely have value-based pricing that is not having any effect on our attrition rate because we're really delivering multiple products into the client. That's why we think a lot about ARBU and LTV around these. So it'll be continuing to invest in value-added services. You know, we love distribution partners. We love them. We love direct sales. You know, and our distribution partners are I think we have the largest sales force of agents out there. I think our retail ISO business, remember when we say ISO in that dimension, I'm really talking about retail ISO way more than wholesale, which we really highlighted more in the processing space. So our vision is to invest in software, continue to drive software sales, continue to grow distribution, continue to grow our own direct distribution, and, you know, obviously, you know, drive to $10 billion, which is clearly in sight, and the other indicators we talked about.
spk07: And, Darren, in terms of the 2023 outlook by segments, You heard the full year. We expect to be kind of in the 7% and 9% range. Our baseline does assume a mild consumer recession, which obviously will impact our merchant segment more than our payments in fintech that tend to be more high recurring revenue. I would say that our merchant business will probably be at the top end, maybe above the top end of our 9 to 12 medium-term guidance. In our FinTech space, we did 5% in 2022. I'd expect that to continue to be in our range of 4% to 6% that we provided for medium-term guidance. And in the payment space, which was 9% in 22, actually above our guidance range, I think we'll be at the top half of our medium-term range of the 5% to 8% as we exit 2023.
spk04: Thank you. Our next question comes from Brian Keene from Deutsche Bank. Please go ahead.
spk02: Hi, guys. Good morning, and congrats on the solid results here. Frank, just want to ask you about the mild recession that you're expecting. Are you seeing any signs of that today, or are you just kind of reading the tea leaves, and maybe you can talk about the timing of the potential recession as you see it?
spk05: Yeah. Well, you know, first of all, I'm not calling for a mild recession. That's in our baseline, right? I just want to be very clear on that. And, you know, I mean, there are plenty of people, including Bob, that would say statistically we already have seen a recession given the contraction in GDP we saw last last year but I would treat it like we built that into our baseline and you know to the extent that doesn't happen we have expectations on the high end at minimum is how I would think about that and I think you know I think We're not right now feeling that element. So it was not a forecasted recession as much as a planning baseline to consider all scenarios.
spk07: And Brian, obviously it's February 7th. January came in well, good. There is certainly some benefit of comparisons. January last year, we were actually coming back out of COVID in a couple spots, and so it's a little bit easier. That will moderate a bit as we go through February and March, but things seem to be generally holding, and if you have If you listen to the talking heads on TV or read Wall Street Journal or FT or whatever, there's more folks now talking about maybe not a recession. We think kind of the baseline is a slowing of the GDP, and that's obviously U.S. 84% of our revenue is U.S.-based. Obviously, Europe, but particularly in the U.K. and Germany, are seeing a tougher economic environment. Who knows what happens with China? And for us, China directly isn't an issue, but the implications, particularly in APAC. So we think it's appropriate prudence to have that baked in. And it's tough to know whether we'll have a mild recession, let alone when. But right now, things are holding.
spk04: Thank you. And for our final question comes from Dave Toggett from Evercore ISI. Please go ahead.
spk12: Thank you. Good morning. With fourth quarter organic revenue growth of 12%, well above your midterm guide and annual guide for next year of seven and nine, how should we think through the cadence of organic revenue growth and margin expansion, you know, thinking through the higher supply chain and wage inflation you had in the first two to three quarters and of last year, you know, combined with any call-outs on periodic revenue comparisons?
spk07: Yeah, Dave, important element. I think that The easiest way to think about this, or maybe the most straightforward way to think about that, is to look at some of the ebbs and flows that we had in 2022. Obviously, fourth quarter margin came in quite strong. Inflation eased as we ended the second half of the year. So it's a different comparison point. Margins will expand further. Better in the first half, first nine months of 23 than they did in 22 because of that timing. Certainly from a periodic revenue standpoint or non-recurring revenue standpoint, Q3 of 23. 3 will be against a much easier compare, which was 1% in Q3 of 2022 that jumped to 8%. So you'll see variations like that. I don't necessarily see anything in 23's results. That's going to drive great variation, so it's more against the comparisons. Of course, other than broad economy and that magical timing of when the recession might actually hit. But given that it is expected to be mild, you know, you're not going to see shocks like we did in 2020, you know, in second quarter when the world just shut down.
spk04: And that was our final question.
spk05: Well, I'd like to thank everybody for your attention today. please feel free to reach out to our investor relations team with any questions, and have a great day, and thank you for your time.
spk04: Thank you all for participating in the FISER fourth quarter 2022 earnings conference call. That concludes the call for today. Please disconnect at this time and have a great rest of your day.
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