Welcome to the Fiserv Fourth Quarter 2022 Earnings Conference Call. [Operator Instructions] As a reminder, today's call is being recorded. At this time, I will turn the call over to Julie Chariell, Senior Vice President of Investor Relations at Fiserv.

Thank you, and good morning. With me today on the call are Frank Bisignano, our Chairman, President and Chief Executive Officer; and Bob Hau, 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.

Thank you, Julie. And thank you all for joining us today to discuss the strong ending to a pivotal year at Fiserv. 2022 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 a 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 omnichannel solution, Carat, and continue to roll out this unified commerce platform with a leading number of value-added services. In payments, we completed the 3 major credit issuer implementations and followed them up with 2 major new wins in the fourth quarter. And we advanced our core banking cloud road map for new and existing clients with the acquisition and integration of Finxact. 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 2 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…

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 4. Fourth quarter and full year results reflected our focus on delivering on our commitments with momentum in all 3 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, 4 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 divesture of our Korea business and 2 small, low-margin nonstrategic 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% and to $6.49. Volume, productivity and operating performance more than offset the…

Thanks, Bob. In the quarter, Fiserv provided Back2Business grants to 13 veteran and military spouse business owners through our partnerships in Atlanta. We also launched Back2Business in New Jersey, committing $1 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 1 Broadway space, awaiting LEED Platinum status for our new technology innovation center in Berkeley Heights, and pursuing LEED Gold for offices in Milwaukee and Dublin, Ireland. Overall, I am excited about what the next 5 years can bring for Fiserv. We are off to a great start in 2023, having just been recognized as the world's most admired company by Fortune Magazine for the 12th time in 15 years. I'm especially proud about our 2 most admired attributes, innovation and financial soundness, 2 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.

[Operator Instructions] Our first question comes from Tien-Tsin Huang from JPMorgan.

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. Has your thinking on synergy contribution to growth changed at all in the last year or 2? Any way to size that in terms of contribution to growth maybe for fiscal '23 or the midterm outlook in general?

Well, I think if you look at this year's growth rate, obviously, at 11%, we can feel the power of the franchise coming together, right? And obviously, I like to step back on that question a little bit, too. Remember, we announced a merger, made the 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 used all the tools available. But I think today, when you look through the company, the opportunities are larger than we thought. Remember, we said we're going to stop really talking about the synergy number. We put a bow on it, we closed out M&I and then continue to still working. But I think embedded in what you see in our growth rate and what we believe the promise was, it's much larger. And I think it will continue. It's just natural cross-sell now, but it's bringing -- we love talking about merchant acquiring and core banking, of the math at all those banks. We like to think about the opportunities, that we've got it 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 2 together did. And I'd say I simply always think that this is a completely different company fundamentally in its fourth year. A new company where we took the 2 growth rates and exceeded either one, and we'll do that 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 you see effect in the difference in the growth rate. So we see it in the 2 combined companies, and then from what we originally announced, and how it shows up in today's numbers. So thanks for asking that. It really does matter a lot. It's really we are getting the benefits of what we told you all we'd do, and it's better than we thought.

Next, we'll go to the line of Lisa Ellis from SVB MoffettNathanson.

Frank, another one for you as well. I was hoping to follow up on the growth in 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 2 additional wins. Can you just elaborate a little bit on 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?

Yes. I think as you've watched the evolution over time, I start with we love operating systems, we love our platform systems. And the investments that we made in Optus through the cycle 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 a single platform that we bring. It's the modernization of the platform that we did over the past few years. And I think we came and talked to you at 2020 Investor Day about the 3 large wins 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 3 top wins were a very, very, very onetime unique situation. But we came back and said, over the past year, we won as much as 3. And then we followed on with these 2 wins that we're pretty darn proud of, in the rank of Target and Desjardins. 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 loyalty to user interfaces. And so I think the fruits of this labor continue to come through, and that will be a ramp like the last one.

Our next question comes from Dave Koning from Baird.

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 you're 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 through 2023?

Yes, Dave, 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 then 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 can 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.

Our next question comes from Ramsey El-Assal from Barclays.

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?

Yes, Ramsey, definitely seeing some very nice growth across our 3 international regions. They are, for all practical purposes, almost double, maybe a little bit better than double our U.S. growth rate. 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 a 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 in EMEA, we're seeing good growth, particularly in the issuer space. So all 3 regions contributing to the growth. And in total, our international business growing almost double the rate of our domestic U.S. business.

Our next question comes from Timothy Chiodo from Credit Suisse.

Great. 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 adds 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.

Yes, Tim, I think the simplest way to tee that up is we're seeing actually growth across those channels. There are some ebbs and flows as you go quarter-to-quarter, et cetera. But 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 Clover 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 the Deutsche Bank joint venture now live and beginning to provide some growth for us.

Our next question comes from Darrin Peller from Wolfe Research.

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 3 segments, embedded in the guide?

Let me take the first part. First of all, on all the indicators that we talked about in March relative to our merchant business, we see that as visibly as we saw it back in March, the opportunity. I do think this is about an operating system, it's about platforms. And with that software capability that we bring, obviously, value-added services, changes our growth rate. 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 could see we did get off of it because we were going in 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 clients, limiting attrition through those value-added services, you also have pricing opportunity. And 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 clients. That's why we think a lot about ARPU and LTV around these. So it will be continuing to invest in value-added services. We love distribution partners. We love them. We love direct sales. And our distribution partners, I think we have the largest sales force of agents out there. I think our retail ISO business, you 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 to invest in software, continue to drive software sales, continue to grow distribution, continue to grow our own direct distribution. And obviously, drive to $10 billion, which is clearly in sight, and the other indicators we talked about.

And Darrin, in terms of the 2023 outlook by segment. You heard the full year, we expect to be kind of in the 7% to 9% range. Our baseline does assume a mild consumer recession which obviously will impact our Merchant segment more than our payments and 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.

Our next question comes from Bryan Keane from Deutsche Bank.

Congrats on the solid results here. Frank, I 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.

Well, first of all, I'm not calling for a mild recession. That's in our baseline, right? I just thought I'd be very clear on that. And 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 year. But I would treat it like we built that into our baseline. And to the extent that doesn't happen, we have expectations on the high end at minimum is how I would think about that. I mean, I think we're not right now feeling that element. So it was not a forecast of a recession as much as a planning baseline to consider all scenarios.

And Bryan, I'd add, obviously, it's, what, February 7. 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 of 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 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, 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.

And for our final question, comes from Dave Togut from Evercore ISI.

With fourth quarter organic revenue growth of 12%, well above your midterm guidance and annual guide for next year of 7% to 9%, how should we think through the cadence of organic revenue growth and margin expansion? Thinking through the higher supply chain and wage inflation you had in the first 2 to 3 quarters of last year, combined with any callouts on periodic revenue comparisons?

Yes, 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 better in the first half, first 90 -- or excuse me, first 9 months of '23 than they did in '22 because of that timing. Certainly, from a periodic revenue standpoint or a nonrecurring revenue standpoint, Q3 of '23 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 manageable timing of when a recession might actually hit. But given that, it is expected to be mild, you're not going to see shocks like we did in 2020 in second quarter when the world just shut down. Knock on wood.

And that was our final question.

Well, I'd like to thank everybody for your attention today. Feel -- 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.

Thank you all for participating in the Fiserv 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.