Fiserv, Inc.

Welcome to the FISERV third quarter 2024 earnings conference call. All participants will be in a listen-only mode until the question and answer session begins following the presentation. As a reminder, today's call is being recorded. I would now like to turn the call over to Julie Cheriel, Senior Vice President of Investor Relations at FISERV.

Thank you, and good morning. With me on the call today are Frank Bisignano, our Chairman, President, and Chief Executive Officer, and Bob Howe, our Chief Financial Officer. Our earnings release and supplemental materials for the quarter are available on the investor relations section of Fiserv.com. Please refer to these materials for an explanation of the non-GAAP financial measures discussed on this call, along with 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 the earnings release for a discussion of these risk factors. And now I'll turn the call over to Frank.

Thank you, Julie, and thank you all for joining us today. As we share our third quarter results this morning, it is increasingly clear that our position at the intersection of merchant and financial solutions is a strategic advantage. Fiserv delivered another strong quarter with adjusted earnings per share of $2.30, up 17%, driven by strong revenue growth and further operating margin expansion across our businesses. Adjusted revenue growth was 7%, and adjusted operating margin rose 170 basis points to 40.2%. Organic revenue growth was 15%. Our free cash flow was $1.9 billion in the quarter and $3.3 billion year-to-date. And we returned $1.3 billion to shareholders via share repurchase. Businesses and financial institutions are increasingly interconnected, and Fiserv has a key role to play here, given our unmatched set of assets across software, data, technology, and, of course, scale and experience in moving money. Here are two examples in just the past month. First, we announced this morning with DoorDash we began implementing a comprehensive embedded finance application poised to be a best-in-class solution for a gig economy company. The solution enables DoorDash to offer its delivery contractors a full range of financial services. Within a single app, they can get instant access to wages and rewards, as well as deposit accounts, debit cards, and more. Our real-time ledger capability from Finzac manages the transactions and was a key reason why Fiserv was chosen. A Fiserv banking client rounded out the solution as a requisite sponsor. Second, we completed a proof of concept with Walmart, where we enabled a real-time pay-by-bank transaction at the point of sale over our proprietary Nile network. A growing number of merchants are adding pay-by-bank capability to maximize choice for consumers, and the emerging capacity for handling such payments in real time offers advantages for Fiserv, merchants, and consumers. This capability will be more widely available next year via our now network. Additionally, we teamed up with Walmart Business as a referral partner for Clover as a business management platform, helping Walmart fulfill its goal of helping small businesses and nonprofits to better run their businesses. In a separate but related testament to our product strength and position as a partner of choice, today, Inc. Magazine, named Clover, to its 2024 Power Partners List, which recognizes the best B2B providers for SMBs. Let me share some of the many highlights of the quarter. It was another strong quarter of growth in the merchant solutions segment, with organic revenue up 24%. At Clover, revenue grew 28%, and value-added services penetration reached 21%, upper percentage point from Q2. In Latin America, we expanded the friends and family Clover pilots in Brazil and Mexico as planned with a full-scale launch coming in December. In Asia Pacific, we went live with our first Clover pilots in Australia in September. We also enabled the Enterprise Commerce Control Center which allows merchants to monitor and analyze their business and transaction performance across locations, regions, and operating segments in a single view. In financial solutions, we posted another quarter of strong organic revenue growth at 6%. The build-out of Cashflow Central was completed in September and and we have our first clients gearing up to implement the solution in the next few months. And we continue to migrate clients to experience digital, or XD, our new digital banking solution. As we integrate additional solutions into this unique digital ecosystem, including Cashflow Central, real-time payments, Clover, and more, we expect to see a multiplying effect on the average revenue per XD user over time. It was another quarter of marquee wins that demonstrate the power of Pfizer's integrated and value-added offerings. We were chosen to provide merchant acceptance services for a major e-com marketplace and expanded our long-standing partnership with Costco to launch a stored-value digital wallet. The service enables new payment and reward redemption experiences, whether the retailer's customers are shopping online or in the warehouse. We continue to sign other enterprise merchants onto our value-added solutions. Another longtime enterprise client, Exxon, signed on for a data-as-a-service offering. This solution is used to extract insights from integrated vendor, payments, consumer loyalty, and wallet data. And because it runs in a cloud, we can reduce implementation time from months to days. Also, in Q3, Ahol Dehaz, a global retailer whose portfolio includes Stop and Shop in the U.S., selected Fiserv as the provider of pay-by-bank services. Alex Lee, a large privately owned operator of multiple food companies, shows how smart routing technology for debit cost efficiency. We accelerated our signings of financial institutions as merchant acquiring referral partners. These included banks of all sizes, as well as credit unions. Golden One Credit Union and America First Credit Union were two of the larger signings in Q3. In our three regions, we continue to see strong client momentum. We expanded our partnership with Netto, a major grocery chain in Europe. We'll provide several value-added services, including dynamic currency conversion, customer cashback, and encryption solutions. In addition to supplying thousands of new pinpads, to accelerate transaction speed across their 700 stores in Poland. In AsiaPAC, Fiserv was chosen by FoodPanda, a subsidiary of Delivery Hero and one of the world's leading local delivery companies, to provide payment services across multiple markets in Asia. This strategic partnership spans online, mobile, and digital wallets, positioning Fiserv as Food Panda's primary acquirer in Singapore and Hong Kong, processing over $1 billion in annual spend. We watch Clover Sport at Bombanera in Argentina. This is one of the country's largest soccer stadiums and home to one of the top teams in the league. Clover's presence there can add to awareness in the region. To optimize the fan experience for fast and easy concession services, the stadium, through our ISV partner, chose the Clover platform to accept payments in three ways, through QR codes, self-service kiosks, and mobile handheld devices. Moving to the financial solutions segments, four banks signed on for Cashflow Central in the past three months. including our first credit union, for a total of 10 since we announced the initiative a year ago. Abbott Exchange will be using the check-free biller directory to support faster bill payment on its mid-market B2B exchange. In September, we want a competitive bid with Farm Credit MidAmerica, a cooperative that reaches across six states. We'll be converting their loan portfolio to DNA and integrating several other value-added solutions. PNC signed up for our AI-enabled advanced defense product for enhanced fraud detection in their card issuing business. Equitas Small Finance Bank was the latest India issuer to go live on our India processing hub, successfully launching a new retail and corporate card product. with a full-stack offering including loyalty, offers, and real-time fraud management, as well as credit on UPI, India's real-time account-to-account payment system. And we continue to build our capability here as a market leader with seven of the ten largest credit card issuers in India on our platform. In September, we hosted 3,000 Fiserv clients and prospects at our annual client conference forum. This group of attendees represented nearly 50% of our North American institutional revenue across the merchant and financial solution segments and nearly 60% of our new business pipeline through 2025. After three days of demos across 75 booths in our experience center, over 100 well-attended product and technology information sessions. In thousands of client meetings, we strengthened our relationships and partnerships, expanded our pipeline of opportunities, and generated enthusiasm for our offerings, setting the stage for continued strong growth in the future. One of the many highlights at Forum this year was our SMB bundle. The premise behind this suite of products is that small and medium-sized businesses have a complex landscape to navigate for managing their businesses, and they prefer a single, easy-to-use system. With our own products and partnerships, Fiserv is the only financial technology expert with solutions that cut across the entire SMB value chain. Since the products and the clients for our SMB bundle span our merchant and financial solutions segments, we have the unique opportunity to win business through the integration of solutions across both of our ecosystems. From our merchant ecosystem, we provide acceptance and processing, the Clover POS platform, Clover BAS, including vertical and horizontal business process software. capital, loyalty, and gift solutions, and the Small Business Index for localized insights. From our financial ecosystem, we provide Cashflow Central because cash management is a fundamental requirement for business success at SMBs. We also provide Optus for business card issuance, SpendTrack for expense management, Zelle for small business and core banking account management and digital banking. While we sell each of these separately now, next year they will be integrated on our leading platforms. For FIs, the SMB bundle will integrate into the digital banking environment, such as Fiserv's Experience Digital or XD platform. For small businesses, the SMB Bundle will integrate into the Clover dashboard and be sold through all Clover channels. Lastly, I want to come back to something I said last quarter. Merchant-related services from Fiserv are back as an opportunity for financial institutions to compete and win. What's old is new again, based on our innovations across the SMB Bundle. It gives FIs a deeper view into an SMB's full financial position. With this knowledge and breadth of product, they can better grow and retain SMB clients and generate deposit and non-interest fees. We couple this capability with tools to help FIs readily find merchant customer leads and onboard them digitally. Showcasing our integrated SMB capabilities generate a lot of interest and ongoing engagement, and we expect the SMB bundle to start contributing to growth next year. Turning to our guidance for the rest of the year, we are raising organic revenue growth from 15% to 17% to 16% to 17%, and raising our guidance for adjusted earnings per share to $8.73 to $8.80. As I look across all the new initiatives we're rolling out, I am pleased with how the vision and investment we put into motion five years ago has brought Fiserv to a strong position today, one that's clearly hard to replicate. The results show that we're executing on mandates for each of our two ecosystems, merchants and financial institutions. This will continue in many ways as we add to our Clover portfolio, extend services to enterprise merchants, expand issuing to new verticals and geographies, enable more real-time payments, modernize core banking systems, add partners, grow internationally, and continue to use distribution data, and more. With this foundation of leadership and steady growth firmly established, we are moving to the next generation of solutions that answers the needs across both ecosystems. As the only provider serving both merchants and financial institutions with product breadth and technological scale, we serve at the intersection between merchants and FinTech, issuers and FinTechs, acquiring and cash management, digital wallets and card services, spending and banking data, and many other combinations. This is not a vision. It is here today in our initiatives with DoorDash, Apple, Walmart, U.S. Bank, Palantir, and others. Of course, these integrated opportunities are in their early stages. As excited as we are about them today, our measure of success will be strong, sustainable growth for Fiserv over the medium and longer term. And now, I'll turn it over to Bob for more detail on our financial performance.

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. Third quarter, again, demonstrated our capability to maintain strong revenue growth and margin expansion. Third quarter total company adjusted revenue grew 7% to $4.9 billion, and adjusted operating income grew 12% to $2 billion, resulting in adjusted operating margin of 40.2%, an increase of 170 basis points versus the prior year. Year today, adjusted revenue grew 7% to $14.2 billion, and adjusted operating income grew 12% to $5.4 billion, resulting in an adjusted operating margin of 38.2%, an increase of 170 basis points versus the prior year. Organic revenue grew 15% in the quarter, driven by strength in both segments. The transitory contribution from excess inflation in Argentina was three points to our total organic growth in the quarter, down from five points in Q2. As mentioned during last quarter's earnings call, Dollar Teresta extended into Q3 and contributed less than half a point of total company organic growth in the quarter. Third quarter adjusted earnings per share was $2.30 compared to $1.96 in the prior year, of 17% on the high end of our full year guidance provided last quarter of 15 to 17%. Year to date, our adjusted earnings per share increased 18% to $6.29 compared to $5.34 in the prior year. Free cash flow for the quarter was $1.9 billion and year to date free cash flow was $3.3 billion. As mentioned in prior earnings calls, we expected free cash flow be much higher in the second half of this year after a lighter first half due to the timing of cash flows for the green tax credit program the related refund came through in the third quarter 32 performance by segment starting on slide 5 organic revenue growth in the merchant solution segment was 24% in the quarter and 29% here today this includes a six-point benefit from above average inflation in Argentina in the quarter and and a 10-point benefit year-to-date. While inflation remains high, interest rates in Argentina eased in late second quarter and are back to historical averages, and therefore did not contribute to excess growth this quarter. The continuation of Dollar Teresta contributed nearly one percentage point to merchant organic revenue growth in the quarter in three points year-to-date. On slide six, we've again included a summary of the impact of excess Argentine inflation and interest on total FISERV and merchant segment revenue, along with the offsetting headwind from currency devaluation, which impacts adjusted revenue. Adjusted revenue growth for merchant solutions was 9% in the quarter and 10% year-to-date. The quarterly results include a 15 percentage point currency headwind, largely from the Argentine peso, after a sharp devaluation in late December last year. Similar to Q2, the currency headwind to adjusted revenue growth was much higher than the inflation and interest tailwind in the quarter. 2024 has been an outstanding year for new Clover hardware launches. Early this year, we brought to market the Kitchen Display System, or KDS XL, to manage orders and improve efficiency in a 24-inch form factor. that larger restaurants demand. We also launched the kiosk, which allows for self-service ordering, reducing wait times, and increasing average tickets. In Q3, we introduced a new version of the Flex handheld device called the Flex Pocket, which is 25% lighter, 15% thinner, and oriented towards restaurant and wait staff in retail. And most recently, we launched the Clover Compact, an entry-level solution that will help drive TAM expansion and create new vast revenue opportunities. Moving to the business lines. Small business organic and adjusted revenue growth in the quarter was 25% and 9% respectively, on payment volume growth of 4%. This volume growth was similar to Q2 levels. According to a variety of external macro indicators, overall consumer spending growth is slower than last year, but appears stable at a comfortable pace. Fiserv's small business performance was ahead of our small business index results, which showed year-over-year sales volume growth of 2.3 percent compared to 3.7 percent for Q2 and 2.8 percent for Q3 2023. The difference is likely attributable to our international presence and a slightly different mix of business. Fiserv is more heavily weighted to non-discretionary categories such as food and services, which have been growing faster. Clover revenue grew 28% in the third quarter on an annualized payment volume growth of 15%. Fast penetration increased sequentially by one point to 21% in Q3, driven by growth in Clover Capital and the Clover SaaS package. In Q4, we will be rolling out new vertical software plans for retail and services. With this progress, we remain on track to achieve our 2026 Clover targets of $4.5 billion in revenue and vast penetration of 27%. Enterprise organic and adjusted revenue growth in the quarter was 37% and 17%, respectively, driven by transactions growth of 12% and higher vast penetrations. As with small business, organic growth in enterprise includes some transitory benefit in Argentina. Above average growth in enterprise business reflects the ramping of a large payback from a processing customer to a direct client. Commerce Hub continues to see ongoing traction and is now processing almost seven times the daily transactions versus Q1 and two times when compared to Q2. and clients are increasingly connected to enhanced solutions. Much of the Commerce Hub transaction growth comes from existing clients migrating to the Commerce Hub, and the fact that they are now on the platform gives us the opportunity to sell more BAS going forward. Finally, processing organic revenue in the quarter declined by 1%, while adjusted revenue decreased 2%. This business represents the back-end processing we do for our bank, and certain ISO partners, where they owned the merchant relationship. Year-to-date, processing, organic, and adjusted revenue growth were both flat, consistent with our expectation. Adjusted operating income in the merchant solution segment increased 19% to $931 million in the quarter, with adjusted operating margin of 290 basis points to 37.7%. Year-to-date, adjusted operating income increased 22 percent to $2.6 billion, with adjusted operating margin of 330 basis points to 36.2 percent. As noted in prior quarters, interest expense from anticipation revenue is recorded below the operating income line. If the interest costs from anticipation were included in the operating income, merchant adjusted operating margins would have expanded 190 basis points for the quarter and 260 year-to-date. Turning to slide seven on the financial solutions segment, organic revenue grew 6% in the quarter and year-to-date, in line with our full-year outlook of 5% to 7%. Looking at the business lines, digital payments, organic, and adjusted revenue each grew by 5% in the quarter. Growth in Zelle transactions continued to be strong at 35%. We continue to see demand from clients for digital payments products, such as FedNow and RTP integrations. Cashflow Central, our integrated ARAP solution for SMBs, continues to see high interest from financial institutions. In the last three months, we signed two nearly $10 billion institutions, Amarillo National Bank and Tri-Counties Bank. In total, we had four wins in the last three months, bringing the total to 10 since product announcement. In issuing, organic and adjusted revenue grew 7% and 4%, respectively, in the quarter, driven by demand across various verticals, including government and healthcare. During the quarter, we converted the remaining health equity HSA and FSA card accounts to Optus, our issuing processing platform, solidifying our leadership in the healthcare card vertical. Banking organic and adjusted revenue grew 5% in the quarter. Last quarter, we spoke about signing a merchant agreement with Connecticut Online Computer Center, known as COCC, which is a client-owned provider of banking technology. In the third quarter, we expanded our relationship to include Experience Digital, or XD, which is our online and mobile banking solution. XD will now be available to the 150 community banks and credit unions on COCC's solutions. Third quarter adjusted operating income for the financial solution segment was up 5 percent to $1.1 billion, and adjusted operating margin came in strong at 47.4 percent. Year to date, adjusted operating income for the segment was up 6 percent to $3.2 billion, with adjusted operating margin up 60 basis points to 45.8 percent. Now, let me wrap up with some remaining details on the financial The corporate adjusted operating loss was $112 million in the quarter and $394 million year to date, in line with our expectations. The adjusted effective tax rate in the quarter was 18.8% and 19.0% year to date. We expect the full year rate to be slightly below 20%. Total debt outstanding was $25.3 billion on September 30th. Our debt to adjusted EBITDA ratio went down from 2.8 times in the second quarter to 2.7 times in the third quarter, in line with our target leverage range. During the quarter, we repurchased 8 million shares for $1.3 billion, bringing our total cash return to shareholders for the last 12 months to $5.3 billion and over $16 billion since the 2019 merger. We had 24 million shares remaining authorized for repurchase at the end of the quarter. Turning to slide 9, as Frank said earlier, we are raising our full-year adjusted earnings per share outlook to a range of $8.73 to $8.80, up from $8.65 to $8.80. This is an acceleration in forecasted adjusted EPS growth to 16% to 17% from 15% to 17%. This is also a $0.04 raise at the midpoint from prior guidance in $0.14 from our original guidance. We are raising our 2024 organic revenue growth outlook from 15 to 17 percent to 16 to 17 percent. Additionally, we are raising our adjusted margin expansion outlook from more than 135 basis points to at least 150 basis points. Lastly, we are updating our free cash flow guidance from about $4.7 billion to above $4.7 billion. driven by the strong free cash flow in the third quarter and year today. Given the current environment in Argentina, we continue to assume four points of benefit from excess inflation and interest this year for the total company and nine points for merchant solutions. We now see the Dollar Teresa program continuing into the fourth quarter, but easing through the end of the year. Our full-year outlook of 16% to 17% total company organic growth includes a four-point transitory benefit from inflation and interest in Argentina, and just over one point of growth from Dollar Teresta. Excluding these combined transitory factors, 2024 organic revenue growth would be 11% to 12% at the upper end of our medium-term guidance of 9% to 12%. The forecasted impact from foreign currency exchange remains 8.5%, and we anticipate will continue to be a stronger, though declining, headwind to adjusted revenue growth relative to the tailwind from excess inflation and interest. Finally, in the past month, we made progress on three items that many of you have been asking about over the last month. While these do not have an outsized impact on our financials given the scale of our business, they demonstrate our ability to navigate ongoing change in our business in a way that is not disruptive and always open to opportunity. First, as previously reported, We expect Wells Fargo to take ownership of our 40% owned joint venture, Wells Fargo Merchant Services, on April 1, 2025, at which time we will receive cash or assets for our portion of the business. Fiserv will continue to provide processing services to Wells' existing and new merchants, along with other related services. As a result, we see no change to our medium-term outlook of 9% to 12% adjusted revenue growth and 15% to 17% adjusted EPS growth from this transaction. Secondly, we extended our merchant processing joint venture with PNC for the fifth time. The relationship dates back to 1996, supporting PNC small business and enterprise clients with hardware and processing services from Fiserv, and we expect Clover to have a growing presence from here. And third, The state of Georgia approved our application for a merchant acquirer limited purpose bank charter. This approval from the state allows Fiserv to apply for direct acceptance into the card networks and is anticipated to be operational in 2025. This is a special purpose charter that enables optionality for sponsorship for merchant acquiring. It's important to clarify that Fiserv is not becoming a bank. Fiserv will not open branches take deposits, or write loans as traditional banks do. We have no intention of doing that, and in fact, the charter itself does not permit these traditional banking activities. With that, let me turn the call back to Frank for some closing remarks.

Thanks, Bob. I'd like to take a few minutes to discuss our corporate social responsibility initiatives, not because these are investment parameters, but because they represent who we are as a company. Hurricanes Helene and Milton were devastating for millions of people and businesses, including many Fiserv clients. Our response, as always, is to take action. And we quickly sent support to the Red Cross and personally delivered supplies to the affected areas. As part of our partnership, with the U.S. Chamber of Commerce Foundation and our investment to support its disaster preparedness and recovery effort for small businesses. We provided the Chamber with FISERV Small Business Index data on the impact of the hurricanes. These granular insights on commerce levels leading up to, during, and after these natural disasters are being used to educate policymakers and stakeholders, guide targeted response investments, and inform philanthropic support efforts that create and boost small business recovery. Also in the quarter, Pfizer achieved a score of 100 on the Disability Equality Index and was recognized as a top veteran-friendly company by U.S. Veterans Magazine. each for the third year in a row. The National Bankers Association, a trade organization that represents all minority depository institutions, presented Pfizer with its Corporate Excellence Award, making us the first large-scale tech provider to receive this honor. Finally, we continue to advance our sustainability and green building design strategy. Our Milwaukee headquarters recently achieved LEED gold status following our Dublin, Ireland and New Jersey innovation centers, which achieved LEED platinum status previously. These are just some examples of how our hard work and dedication show up in many quarters. But most importantly, It showed up in a strong financial performance you just heard. This put us at the top of the IDC FinTech rankings for a second straight year, and our story today is about how we intend to stay there. I'd like to thank our more than 40,000 employees for their contributions to these significant achievements and for the day-to-day blocking and tackling of that has produced consistently strong results. That's 40 years of building trust, scale, and experience, and five years since the merger of achieving innovation through unmatched investment across our merchant and financial ecosystems. So now operator, please open the lines for questions.

Thank you. We would now like to open the phone lines for questions. As a reminder, for today's call, please limit yourself to one question to ensure ample time to answer as many questions as possible. If you would like to ask a question, you may press Star 1 on your phone. If you need to withdraw your question at any time, you may press Star 2. Our first question comes from Tianjing Wang from J.P. Morgan. Please go ahead.

Thanks. Good morning. Thanks for the update here. I wanted to ask on Enterprise. It did accelerate nicely, more than the transaction growth that you put up there. So I heard, Bob, you mentioned it was transitory part of it, and then there was a payback conversion to a retail relationship, it sounds like. So can you just maybe go through that, and what's a good sustainable level as we think about the fourth quarter?

Yeah, tension. Good morning. So you're right. We did see an increase in transactions. Transaction growth in the quarter was up 12% over prior year. That actually matches what we saw in Q1. It's up from the 8% we saw in Q2. We definitely see some variation, particularly when we bring on new clients. Some of them in this enterprise space can be quite large. And as I said in my prepared remarks, we did have a large pay fact begin to really ramp in the third quarter. We'll see a little bit of that continue in fourth quarter as they get to full capability or full volume, and then it will return to, quote-unquote, more normal levels. Overall, for that business line, we obviously saw very good organic growth well ahead of the overall company average on an adjusted basis, which, again, that has also impact from Argentina in it. we feel great about the year-to-date at 11% on an adjusted basis.

Thank you. Next, we'll go to the line-up. Darren Peller from Wolf Research. Please go ahead.

Guys, thanks, and nice results. Can we just start with, overall, the business is showing really strong signs of cross-sell. And I know, Frank, you alluded to that in your prepared remarks and how you're really taxing together more and more between segments. Maybe just some very specific examples of where you see that shaping up. And then just if you could reiterate your conviction around the financial solution segment accelerating into 25. I think you said going from 6 to 8, from 5 to 7. Just reiterate why and what the driving force is and what you're seeing. Thanks, guys.

So I could go back to something I like to say, the construction of the company. I always believed that this was a very strategic set of assets we put together that were highly complementary five years ago. And one quick place to think about it is in Merchant NFI, just in total, our ability to be the strategic partner of choice to deliver merchant and FI and put Clover on the front end of that. And then further, the power of owning a debit network and the ability of what to bring to our largest institutions and to our client base across merchants. And then you go a step further and, you know, the future of the growth initiatives In terms of us talking about the SMB bundle and the ability to take, you know, all the assets we have and integrate them technically now. Right. You see us on the front line there with Apple pay, and then you can see us with, uh, issuers in another spot and then. Weaving the place together. You know, in the ability of the crossroads of merchants and FIs, I think Walmart's a great example of it. I think DoorDash is a great example of it, right? And so then you think about, okay, you got Finzac. Oh, you're bringing Finzac in as a handless core to be actually a ledger here for the famous dashers. And then you go, okay, you put XD and Clover together and deliver a capability to every financial institution that runs on us. And you take a look at our international expansion and you look at the work on Commerce Hub now showing up in the enterprise segment. So I think the construction of the company with financial institutions all the way through from, from the largest to, uh, you know, a credit union or a local community bank. And then you take on top of that, the assets we bring to it. So, I mean, you're seeing it and then we brought 3000 people to form. And, uh, I think you were there too, if I'm right. And I mean, you saw the power of the franchise. So we think that's why we see such sustainable growth for the long term. And, you know, we always think we can do our job better, too.

Thank you. Next we'll go to the line of Harshita Rawat from Bernstein. Please go ahead.

Hi. Good morning. Frank, can you talk about DARA and Estelle, especially given some of the changes happening in the U.S.? ? Maybe talk about, you know, there have been less capabilities, all three signature capabilities, how start a position to grow. Thank you.

Yeah. So, you know, I think one of the things to think about is we always believed that we wanted the capability to compete for transactions for our client benefit, right, for our client benefit. And, you know, that window opened up a story. Excel is clearly a strategic asset to sit at the crossroads of merchants and financial institutions. We believe that capability is strong on pin. We, we have the signature capability. We do have dual messaging capability and we, we, you know, give our merchants and issuers choices to compete for transactions at every level. So that's the strategy, right? The strategy is to support our client base. We believe it too is one of these steady opportunity. You're not going to see this meteoric rise of transactions, but you'll continue to see volume share gains And we'll continue to have an asset in our repertoire to help both our merchants and our financial institutions.

Thank you. Next, we'll go to the line of Jason Kupferberg from Bank of America Merrill Lynch. Please go ahead.

Good morning, guys. Just a couple of questions on Clover. I know revenue growth was steady here, volume growth ticked down a little bit. Just any thoughts on Q4 expectations for those metrics? I think the Volume comps get a little bit harder, revenue also next quarter. So, just wanted to get a sense of how we should be thinking about near-term trajectory there. I know you've got some new country launches, product launches to support it.

Yeah, Jason, good morning. So, yes, we continue to see good overall revenue and volume growth out of our Clover solution. As you know, we've got a target to be $4.5 billion by 2026. That gets us or we're needed about a 28% compound growth rate to achieve that. It's exactly where we were for the quarter. It's where we are on a year-to-date basis. A key part of that is continuing to add value-added services that ticked up a point to 21% of revenue. Overall volume remains good. It obviously isn't as strong as it was last year. Some of that is very strong last year. So a little bit of a quote, difficult comp. But also the consumer, while still strong, still spending, has certainly eased a bit. We saw that last quarter. We saw that continue again this quarter. But we feel good about where that spending is right now and what we see going into the future.

Thank you. Next we'll go to the line of Dave Koning from Baird. Please go ahead.

Yeah. Hey, guys. Thanks. Good job. I guess my question in the SMB segment, for many quarters you had kind of teens growth, kind of 13% to 17%. This quarter was 9% despite Clover being in the high 20s for many quarters in a row. So maybe kind of what's happening outside of Clover and then how should we expect that to reaccelerate going forward? Or maybe just kind of talk through that.

Yeah, so there's a number of things going on. Obviously, Argentina tailwind has eased quite meaningfully since last year, beginning of this year even, where we saw in first quarter 15% benefit to the merchant segment, easing down in second quarter to 10%, now down to 6%. And that impacts both, actually all three of our segments, but certainly a a good portion of SMB revenue. The other thing that does play out is anticipation has been quite strong, and there is a mixed differential between or a benefit differential between SMB and enterprise. We've seen particular strength out of the large enterprises down in Argentina. We see that kind of shifting a bit into the next couple of quarters. A bit difficult to predict exactly what's going to happen into Argentina in the future. I'll tell you, I think we've gotten it pretty right over the last several quarters, and we see that excess or that tailwind continuing to ease. You may have noticed in our presentation in our charts, inflation continues to be a tailwind, although easing meaningfully, but interest has actually returned back to more normal or historic levels. And so that tailwind is subsiding quite meaningfully. And then of course, if you get to an adjusted revenue basis, FX continues to be a real headwind for us. In the quarter for the segment, for the merchant segment, we saw 15 point impact negative impact to our adjusted revenue from FX. So all of those play out in SMB, both in clover and non-clover.

Thank you. Next, we'll go to the line of Tim Chiodo from UBS. Please go ahead.

Great. Thank you for taking the question. I also want to revisit the financial solutions revenue guidance for next year, which is set to slightly accelerate, so from 5 to 7 this year to 6 to 8 next year. When we think about the reasons there appears to be a good long list of very clear bullets. So there's the target business, there's stage it in there's Verizon. I believe all of those are expected to go live with their incremental revenue streams next year. And then of course there's the cashflow central. So I was hoping you could touch on or maybe elaborate on any of those particular projects and, or maybe just talk a little bit about the confidence that you have in that reacceleration for next year.

Yeah. So, um, I think we were greatly reinforced only a couple weeks ago at our client conference where you heard me talk about the added pipe, the added interest, and the amount of opportunity we see to grow our client base. That was not unexpected. That was exactly what we expected for the outcome. Today, you're here to date with us. We're a 6% grower, as we were in the quarter. I think when you think about the repertoire, Finzac is growing clients right now, and that will continue to add. You saw us talk about what we're doing with DoorDash. That's creating another... you know, fundamental as I use in my simple language bundle, which is embedded finance, right? Then you look at this SMB bundle, which I am being deep in every other week reviews for over a year. So my conviction on the depth of that pipeline will be bringing that online and will be within the numbers. You know, we talk about merchant and FI, and that merchant part shows up in the merchant P&L, but the reality is that also is bringing along other opportunity within the banking segment. And then, you know, we do and will continue to have opportunities even within the banking segment outside the U.S. that we see more of than we did before because of the nature and the construct of this company. And, you know, you touched on the items that we're bringing in. I'd add one other one. We believe our long-term opportunity around AI and data is For our financial institutions, what I've said to, you know, medium-sized to smaller banks, we need to be their data and AI engine. And that's our natural position with them. Now, that's not in a forecast today. We don't have a number in a box. But we have demand, and we have the best data in the industry, and data drives AI. So I would think about it, you know, that the fact that we're posting a six and we have these engines behind us has such conviction of what we could do. And we could do all of it better, as I say, every day, just in the base business, you know. So that's why we've been able to produce at the level we have, even if you look at our five-year margin look. What we've done there, and, you know, I'm not saying we're going to have never-ending mortgage expansion, but I sure work on it regularly.

Thank you. Next, we'll go to the line of Dan Doliv from Mizuho Securities. Please go ahead.

Hey, guys. Great results again. Frank, you know, CloverGo and CloverCompact, they look like great solutions for micro-sellers. Can you maybe give us a little bit of an update on the strategy in terms of initial traction that you see on these new products? Thank you.

Yeah, we also see those products as augmentation products for our client base, right? So I just want you to think about it that way. We talk about our ability to expand TAM you know, in our own client base by Brady Moore, you know, we definitely see the compact playing in the food space. Obviously, you know, we're early, but you should also think about international, right, that we're going to be bringing those products outside the U.S. in many cases, where, yes, we will still have software and VAS on top of them, but they may be catering to a different market. And, you know, we're going to have different forms of channel distribution. So, you know, it gets us, you know, more software coming down a little bit scale in terms of merchants, but also augmenting our current client base to have a product that can work a little more mobile for them at times, too.

Thank you. Next, we'll go to the line of James Fawcett from Morgan Stanley. Please go ahead.

Thank you so much. I wanted to follow up on the SMB bundle, and this ties a little bit into Dan's question, but it seems like there's a lot of capability expansion that's happening within the Clover ecosystem and then looking at new ways to go to market. How should we be thinking about, I know you gave some targets for BackBook and some of those things to get to the $4.5 billion target, but how should we be thinking about the roles that those will play and if there's been any change in your thinking in terms of mix or type of customers and sets within that Clover target? Thank you.

Yeah. I know there's only one question allowed, but that felt like five. Good job, James. Let me try it. Like, first of all, you know, in some ways, they're not really inside this company that there's a ton of new thought. We always have a lot of R&D going on that, you know, historically and The IR team don't always love me for it, but I'm more apt to talk to you about when we're getting to market than what's in the R&D shop. So this idea about us bringing more capability to the SMB space has always been there. I think if you go back to our acquisition of OnDot and us embedding it and mobility, and then it became, you know, let's think about XD and a new product. But then you start saying to yourself, we could deliver this way beyond Clover and XD. We can integrate it all. We can put out Spenlabs acquisition there. Oh, boy, we can end up helping LFIs grow and other channel partners and future partners to be signed up. That's why we are ultimately a partner of choice for people who want to partner in the SMB space because of our capability. So I think you've got to think about it that, yes, there may be more back book swept up in there because there's a reason beyond switching out, you know, your FD150 for a Clover station, now you have a much broader capability. None of this back book, if it happened, was ever more than a natural kind of rate, which we talked about, of merchant churn going from an older device to a newer. But I think you're seeing the size of the opportunity to actually impact clover more than we might have because of the flow capability set. Thank you. I think you're on the right track there.

Thank you. And for our final question, we'll go to the line of Ramsey Ellisall from Barclays. Please go ahead.

Hi. Thanks for taking my question. On clover international expansion, how long does it take to ramp a new country or region from the time you enter the market to when you reach peak run rate? And also, should we expect sort of a steady rhythm of new markets for a while here? Or are you going to kind of, should we expect some pauses where you build out and sort of spool up in the countries you've already launched in?

Yeah, you know, so I'm a funny guy. I think we're going to get to peak run rate never, you know, because we're just going to keep driving more. So, you know, I mean, that's kind of the journey we're on. But if you want to pick a country like Brazil, right, I'll be down there on the kickoff of it in December for the launch in Brazil and Mexico. I remember us launching Argentina, you know, call it four years ago. So first of all, it's the full build to get to market. As we launch it, you know, we expect it in Brazil, perfect example, to, you know, capture more merchants and more revenue opportunities than we do today immediately. Now, you know, our ability to scale it to peak, you know, we have great partners. I think, you know, if you were sitting with our head of Latin America, he would say Kasha is very motivated today. Well, that's a huge distribution. Now we're going to get them trained, and we're doing that right now and ready to distribute. So, you know, it affects growth rate in 25, but, you know, I see Brazil as a multi-year build and a multi-year ramp, not because we weren't able to get to all the zip codes or towns, if you want to think about it, but adoption. And then, so it's a multi-year round. But, you know, much like Casbah Central, Brazil's in next year's number at some level, you know, nowhere near where it'll be three years from now. So I'd like to thank everybody for their attention today. Please reach out to our IR team with any further questions. And have a great day, and thanks for your participation.

Thank you all for participating in the FISERV Third Quarter 2024 Earnings Conference Call. That concludes today's call. Please disconnect this time and have a great rest of your day.