Welcome to the Fiserv First 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. At this time, I’d like to turn the call over to Julie Chariell, 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 Hau, 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 the 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. As a reminder starting in the first quarter of this year Fiserv now reports two segments: merchant solution and financial solution to align with how we serve our clients. Please see our current reports on the Form 8-K filed on March 26 2024, for an explanation of the new segments and a recaps of 2022 and 2023 into the new segments. And with that I’ll turn the call over to Frank.

Thank you, Julie. And thank you all for joining us today to discuss our first quarter results and a strong start to the year. Fiserv delivered a strong first quarter with adjusted earnings per share of $1.88, up 19%, which reflects our continued revenue growth and operating margin expansion. Adjusted revenue growth was 7% and adjusted operating margin of 35.8% increased 180 basis points. We had organic revenue growth of 20% in the first quarter. This is consistent with our expectation of higher growth in the first-half of 2024 toward our full-year outlook of 15% to 17% organic growth. This healthy top line growth coupled with Q1 stronger margin performance leads us to raise our adjusted earnings for share outlook to a range of $8.60 to $8.75. From the prior range of $8.55 to $8.70, which is 14% to 16% growth. We now expect adjusted operating margin to expand at least 125 basis points this year, compared to our prior outlook for at least 100 basis points of margin improvement. As you know, beginning this quarter, we realigned our business to best reflect our clients engage with our solutions today. This client-centric model is now reported in two segments, with roughly half of our business in the merchant solution segment and the other half in the financial solution segment. Through this change, we retain our fundamental approach of providing business operating systems to run our clients’ key processes, while delivering a variety of value added solutions for enhanced capability. Our business model combines the recurring revenue and high incremental margin of a scaled processing business with higher growth and higher margins, but still consistent cloud-based software and services offerings. Both our segments performed well and within our expectations. Merchant Solutions organic revenue grew 36% in Q1 and 13% on an…

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. First quarter performance demonstrated our ability to deliver top line growth and continue to drive margin expansion. First quarter total company adjusted revenue grew 7% to $4.5 billion and adjusted operating income grew 13% to $1.6 billion, resulting in adjusted operating margin of 35.8%, an increase of 180 basis points versus the prior year. As a reminder, our adjusted revenue was recast as part of our realign segment reporting. And if you haven't already, I encourage you to review our 8-K filing from March 26 for historical comparisons. The recast numbers include a small change to our adjusted revenue in the prior years to account for all pass-through postage. In our prior reporting, we adjusted the postage pass-through revenue only from our output business, which represents the significant majority of our postage activity. We are now adjusting out the non-output pass-through postage revenue as well. The change slightly lowered our adjusted revenue for the recast prior periods and better aligns with our internal reporting. On an organic basis, revenue grew 20% in the quarter, with particular ongoing strength in Merchant Solutions organic revenue, which was up 36%, and steady growth of 5% in financial solutions organic revenue. First quarter adjusted earnings per share increased 19% to $1.88, compared to $1.58 in the prior year. Our adjusted earnings per share in Q1 grew well above the 14$% to 16% growth level anticipated for the full-year. Free cash flow for the quarter was $454 million. While this number is lower than normally seen in the quarter, it is in line with our expectations given the timing of payments…

Thanks, Bob. Last week we published our fourth corporate social responsibility report. In it, we highlight the ways we execute on our four strategic pillars: empower people, advance communities and society; champion responsible business practices; and invest in sustainable systems. In summary, we believe that doing good is good for business. We are committed to diverse representation at all levels of the organization, including leadership positions. We continue to engage with communities where we live and work, including small businesses and minority depository institutions. We recognize the importance of strong governance as part of our overall strategy, and we continue to invest in sustainability. For the first time, our CSR report includes a greenhouse gas reduction goal. Later this year, we will be celebrating two important milestones for Fiserv. Our 40th year in business and our 5th year since merging with First Data. On these occasions, you naturally reflect on what it means to come of a certain age. For Fiserv 40-years old means proven, resilient, and experienced to deliver on our commitments, and we've done just that. It also means scaled, savvy and well capitalized to sustain strong top and bottom line growth. We are doing that as well. But when you consider the significant change created by the merger, we're also a lot like a young five-year-old company. Five means a fresh foundation to support investment. We have used our cash to invest in products, services, and people and that's driving higher growth. Five also means a longer term opportunity ahead, fueled by innovation, and therefore we see continued strong further top and bottom line growth at Pfizer. The proven strength of 40 combined with the opportunistic growth of five puts Pfizer in a distinguished position to both lead and drive innovation. And that's exactly what we're doing. All of this is possible because of our over 40,000 employees. I would like to thank them for what they do for our clients, shareholders, and each other. Thank you for your time today. And now, operator, please open the line for questions.

Thank you. We would now like to open the phone lines for questions. [Operator Instructions] Our first question comes from David Togut from Evercore ISI. Please go ahead.

Thank you. Good morning. Great to see Clover revenue growth sustained at 30% with accelerating payment volume growth and higher VAS attach rates. When you look at the picture for Clover for the year as a whole, can revenue growth sustain in this high-20s to low-30s range, you know, when you look at the Brazil market entry, Argentina expansion, and VAS growth opportunities?

Yes, hey, thanks David. You know, we've been focused on all of those for quite some time, and we treat unveiling new product, new initiatives, new market, while continuing to, you know, draw on the embedded business we have generating new merchants, right? So, you know, our basic philosophy is increase the number of merchants we have, be able to deliver more products to merchants, and then go into the areas that we haven't been before. So we feel very, very good about what we laid out a couple of years ago and what we talked about in November. You can see the traction here, which is kind of above what the CAGR needed to be, but you should expect us to be all cylinders on Clover, as we have a bunch of other parts about company also, I would have to say. Thank you.

Thank you. Our next question comes from Tien-Tsin Huang from JPMorgan. Please go ahead.

Thanks so much. Good morning. Just the increase here in the operating margin, how much of that 25 bps is from favorable mix versus other surprises, maybe the term fee and processing, and the Argentine, of course, is always a factor there. Just curious on the increase, and then any call-outs for the second quarter or the second-half with respect to the margin? Thanks.

Yes, Tien-Tsin, it’s Bob, good morning. I think overall the 25 basis points that you're describing our full-year outlook, moving from previously at least 100 basis points, margin expansion to now more than 125 is really driven by continued volume leverage, strong growth in the overall company, as well as continued progress on productivity. The termination fee in the processing is relatively small in the grand scheme. Obviously, it matters a bit in the processing line for this quarter, but in terms of the overall company's margin improvement, it really is continued volume leverage and a focus on productivity.

Yes, and I’d just add, you know, when we think about running this company, our investment in technology is really around new product development, improved service, and the ability to deliver the next dollar of revenue at a better incremental cost by investing in productivity. So that will be for the rest of our lives. An AI and those type of items just allow us to do more of it. We're at the tip of that, but you know we can see our way very clearly this year. Q - Tien-Tsin Huang Nice color. Thank you.

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

Yes, hey guys, great job again. And maybe just on the financial segment, digital slowed a bit this quarter. I think it was 5% or 7% to 8% the last few quarters. Wondering just about that and if Reg II, if you've kind of fully benefited from that or if that still has incremental room to benefit and accelerate growth in that part?

Yes, David, good morning. On the Reg II, I'd say that there's still probably more opportunity ahead than what we've seen. It remains to truly be seeing what that means. We're seeing good uptick in our network business, whether that's really driven by Reg II or just continued progress in our debit business, I think it's just more continued progress. In terms of a slowdown, I wouldn't read anything into it other than quarterly fluctuations and a tough comp against Q1 prior year.

Got it. Thanks. And if I can just do one more quick. SMB grew so fast 45%. Clover grew 30%. So non-Clover is actually growing faster, which I assume is just Argentina. But maybe how is non-Argentina, non-Clover doing, and is there room for that to keep growing well too?

Non-Argentina, non-Clover. I'll have to pull up my Venn diagrams here. You know, obviously tongue in cheek there. Bottom line is we're seeing good growth, obviously, across the entire SMB business. That small business certainly has good growth from Clover, and you saw the 30% growth in Clover. We continue to see real opportunity there. On the non-Clover side, there's certainly impact from Argentina. There's a small piece of Clover Argentina there, but the 30% growth is really heavily driven by the United States growth there. On the overall segments, you heard us talk in the prepared remarks about the Argentine impact from organic growth. We continue to see that easing later into the year. It was a bit lower than what we expected in the first quarter, i.e., inflation and interest eased a little bit faster than we anticipated. In previous, in the last earnings call, we indicated we expect about a 14% impact from Argentina for the full-year in the merchant business. Q1 came in a little bit above that. We expect that to ease into later part of the year. That certainly impacts the non-Clover business. But overall, non-Clover is growing quite well. And we continue to see opportunity. It's not just about adding Clover in small businesses. It's supporting them wherever they want to take merchant acquiring solutions. The other thing I would add, and it's an impact to the first quarter that we expect to ease into the balance of the year, is in Q1, we saw the benefit of a better-than-expected lift on the use of foreign-based currency credit cards in Argentina. This is some people may have heard the term dollar turista. The Argentine government has a program sponsored by the Central Bank to encourage foreign currency denominated credit cards. And we saw that pick up in the first quarter. That is a program that the Argentine government has at their discretion to help the economy. Obviously, they're seeing the economy improve. So I would certainly not anticipate a 45% small business organic growth into the future. And we're seeing some of that kind of transitory impact this quarter.

Got it. Great job. Thanks, guys.

Thank you.

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

Great. Thank you for taking the question. Looking at the gap between the 19% volume growth and the 30% revenue growth for Clover, you hit it pretty well I think on the VAS adding about 900 basis points. It just implies that there's a small component there from direct mix hardware and pricing as you mentioned? So I just wanted to see if you could provide some context on the path to the $4.5 billion, how we should think about those other contributors direct hardware and pricing contributing? And maybe a different way to ask it is, should we expect the volume growth to stay in this sort of high-teens range, or should we expect slightly higher turnover of volume growth?

So, a number of elements to that question. First, in order to achieve the $4.5 billion goal that we set out ahead by 2026, we need kind of a very high 20% call it 28% total Clover revenue growth. As part of that goal, we've indicated we expect VAS to achieve 27% penetration from the current quarter Q1 at 20%. So certainly a big part of it is additional VAS. And we've talked about this in the past, the secret recipe to growing Clover to $4.5 billion is actually not so secret. It's get new merchants, sell more stuff to those merchants, and grow with those merchants, and that's exactly what we see. To your point, in the current quarter, there was a big part of the overall revenue left. Certainly, the delta between revenue and volume was driven by VAS. We kind of gave the sequence in order of importance, and I think that will continue as we progress over the next couple of years as we march towards that $4.5 billion, VAS will be a big part of it. This is always priced depending on what's going on with inflation, what's going on in the market, but that's probably the third of the three important factors.

Great. Thank you.

Thank you.

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

Good morning guys. I just had a two-part question on merchant. The first is just do you have the total segment volume and transaction growth for the quarter? Not sure if you're going to continue to provide that going forward? And then the second part is just on the April comments. Frank, I think you indicated actually a little bit of an uptick in April relative to Q1, which could be viewed as a bit of an upside surprise considering Easter timing and how that fell this year? So just curious which parts of merchant might have performed better so far in April versus Q1. Thank you.

Hey Bob take the first part, I'll take the second.

Yes, so the first part of your question is, in our prepared remarks, we gave a small business volume growth at 8% and enterprise transactions growth at 12%. Given the way we're reporting now for that Merchant Solution Segment and the three business lines. We felt that the volume for small business is the driver of revenue, and for transactions, it's enterprise. Transaction activity in small business is not a revenue driver and volume for enterprise is not a revenue driver. So we thought providing the key metrics that really are driving the business was important.

And just to be clear on clarity, a small tracking, a small growth, I want it. And I put it in the non-discretionary buckets. If you're thinking about where it occurred. Obviously, that's, you know, an early indicator. It's not necessarily, you know, how the whole quarter is going to play, but we always feel committed to be able to talk to you about what we see, you know, the vast amount of volume we have going throughout the -- both in the U.S. and around the world, and I consider it a small increase.

Thank you. Next we'll go to Dan. Yes, we'll go to Dan Dolev from Mizuho. Please go ahead.

Hey, guys. Great results. I just have a quick question on Pay Easy. Can you maybe give us some context on the conversion to Clover, you know, about roughly timing and contribution and are there any other conversions that we should be expecting? Thanks again.

Yes, the way -- great question. The way we think about, Pay Easy, it was a processing system that were retired and then built out both commerce hub and brought some of that volume, which already existed through Clover to the future new merchants. That was completed, migrated, multi-year project that we built out in a way that allowed us to build out Commerce Hub, that allowed us to deliver VAS into Commerce Hub and also have Pay Easy operating within our SMB base. So I feel great about closing the books on that from a conversion standpoint. And we're seeing on the enterprise side, you heard us talk about 200 Commerce Hub users and a strategic platform for us going forward.

Great. Thank you and great results again.

Next, we'll go to the line of Ramsey El-Assal from Barclays. Please go ahead.

Hi, thanks for taking my question this morning. I wanted to ask about M&A and what you're seeing out there. It feels like there's a little more opportunity, maybe urgency on the side of sellers in the sort of Fintech industry. What are you seeing and what's your appetite right now for doing a deal?

Well, you know, I don't know about urgency on sellers' parts as much as valuation and understanding what real valuations are. Now, we have a really great model, which we talked about our ability to generate cash flow, investing in our business, and the ability to deploy capital. I think we've done a very, very good job in the assets we've acquired, integrated, and grown. And so I'd say our appetite to acquire properties is always high. I mean, we're always trafficking. I think on the other hand, you know, we want to be very, very, very clear that it fits within our strategy, which I think is holding tight. It's within our structure and the ability to distribute the product to our vast client base both on the merchant side and on the FI side. You know, so, you know, I like to believe that we're always engaged and working and thinking through it. And we're highly selective to make sure we're using our shareholders' dollars as appropriately as possible. And I think we've got a pretty darn good track record in that so far.

Ramsey, I think I'll carry your analogy one step further in terms of the question on appetite. If appetite's good, it's strong appetite, but we're not hungry. So, you know, you go to the shopping mall or to the grocery store, when you're hungry you buy a lot of stuff. You get home and you realize you didn't need all that stuff. We're certainly seeing a lot of activity, but we're not hungry. And while we have tremendous capacity on our balance sheet and could do deals, we're making sure that what we see is of good value and brings value to our shareholders before we go ahead and strike on it.

Fantastic. Thanks.

Thanks, Ramsey.

Next, we'll go to the line of Christopher Kennedy from William Blair. Please go ahead.

Good morning. Thanks for taking the question. So we have good targets for the value-added solutions for Clover. Is there a way to think about the opportunity for some of the other operating systems such as Carat, DNA, Finxact, or Optus?

Well, I think it’s a -- we have not articulated goals around them, but they're clearly embedded in our guide and the things we think about our growth rates, right? I think what we think about, even at a more broader standpoint, is what those are, right? And you could go across the board from our fraud integration products like advanced defense to how even we bring in cash flow central. You heard us talk about that and that really hangs both in the SMB space through our own distribution and then, you know, obviously attached to a banking product. I think, you know, over time we probably should come back with a better clarity around some of it. Having said that, we've been selling value-added services to our clients, we've sold a gift product into our enterprise for a long time. We've sold different forms of data and information to them. So I think really the way we look at it at the large macro level in the enterprise is really that you can go back to the circle that we used to have about, we're going to sell a core, but really all the revenue comes when growth comes from debit, credit, right? Digital, and in their own right, those are value-added services hanging off the core. The same is true in our enterprise business and merchant. So I think in reality, when you look at how we report, we are reporting, you know, our economics and some of those actually value-added services and business lines also. So, you know, I'll go think about it a little more, but I think, you know, it's encompassed in the economics and how we show our business lines.

Thank you.

Next we'll go to -- yes next we’ll go to the Jamie Friedman from Susquehanna. Please go ahead.

Hi. Good morning. And I wanted to mention I appreciate the incremental disclosures. The segmentation is really helpful. I wanted to ask about government. Frank, you -- and if I mess this up because the transcript is not out yet, but I thought you said it's a $500 million category. Again, I apologize if I heard that wrong. But what I wanted to ask is, is it correct that, that rolls into the financial solutions segment? And if possible if you could unpack like where in there, like is it issuing specifically? And generally, how are you going to market with government? Thank you.

Good. So why don't I start with how are we going to government, how are we going to market in government? We've been focused on government as a very large vertical calling and that is everywhere from state and local to federal. And so we have a team and their sole job is government, right? And the traffic in the transactions, you've even been hurt. And you know, our thought was always, it transcends the org. That's why we have dedicated client sales force to it because, you know, at times we have opportunities to bid on merchant acquiring. At times you heard us talk about delivering FinXact. You know, the government is we called out the $0.5 because it demonstrated where we started, which was very, very small to the growth, but it transcends both segments. And on any given day, almost any one of our products can play in the government space, right? You know, so I don't know if that answers your question, but I think about it as dedicated coverage model, right? Transcending the businesses, and it can be anywhere from our core Finxact, which we just delivered to money network to merchant acquiring and we really love this segment, vertical, however you want to think about it. And we have a great, great team that knows how to cover government, and we've been very fortunate in that win.

Great. Thanks for the call.

Thank you. And our final question will come from James Faucette from Morgan Stanley. Please go ahead.

Great. Thank you very much. I'm wondering if we can help us understand not only where you're seeing success with Clover in the market competitively, but how you're thinking about continuing to improve its positioning in the market. I mean, it seems like value-added services is a key part of that, but are there other things or aspects we should be thinking about and love to get your sense of what your win rates, if you have any idea of that, versus other competitors in the market? Thank you very much.

Well, I try to be as clear as possible on this, Clover covers the whole SMB market and expands a little further, because you've heard about the 1,000s of Clovers we delivered in the quarter to venues, right? You know, it's a 30% grower today. We have talked very hard and have worked to do to finish the swing on restaurant, but feel very, very clear about our ability there. You know, you'll see us go deeper in professional services and in retail. Remember, it's a horizontal platform that we brought vertical expertise to. And then, you know, we have great demand outside the U.S., as you heard us talk about, along with the ability to continue to distribute through our channels like more in our ISV channel. So I think it spans the landscape of SMB. Obviously, our growth, which is through new business acquisition, has demonstrated at the 30% mark. And, you know, it's an open platform that we continue to add more software to. And so when you put that all together and where we started with, I like to remind us inside the house and outside the house that we were seven engineers and three patents and now you know we have more than a 1,000 software engineers across the world operating on it [Technical Difficulty] so we're going to complete rolling and so commensal across the world.

That’s great. Thank you.

Good. And I'd like to thank everyone for their attention today. Please reach out to our IR team with any further questions, and have a great day. Thank you.

Thank you all for participating in the Fiserv first quarter 2024 earnings conference call. That concludes today's call. Please disconnect at this time and have a great rest of your day.